The Guardian recently published a potted history of interest rate setting and associated financial shennanigans, seven years after the start of the Credit Crunch. I have reproduced it here in full along with a few comments of my own (in bold) offering an alternative interpretation of central bank policy and what its real purpose is.
From ‘The Guardian’
By Katie Allen Saturday 5 March 2016 07.00 GMT
Seven years ago on Saturday (5 March), the Bank of England slashed interest rates to a record low of 0.5%. At the time, the cut and plans to pump billions of pounds of electronic money into the economy seemed like an emergency measure to cushion the UK from the global financial crisis. But borrowing costs are still at their record low and amid warnings that a new global slump is around the corner, Bank policymakers show no signs of raising rates any time soon.
We look back over seven years of ultra-loose monetary policy:
March 2009: The Bank of England cuts interest rates from 1% to 0.5%, the lowest since the central bank was founded in 1694. Policymakers also push the button on a quantitative easing programme – which will pump tens of billions of pounds of newly created money into Britain’s troubled economy.
‘The lowest (interest rates) since 1694’ – effectively since the beginning of capitalism.
If the base interest rate reflects the value of a national currency, and a national currency reflects a nation and its economic system, this is another way of saying that as of March 2009 the net added value of three centuries of modern capitalism is zero!
‘Pump tens of billions of pounds into…’
As though something is actually being put into the economy instead of the value of existing money being debased by ‘printing’ more money without any increase in production…
‘ into Britain’s troubled economy..’
Guardian being careful not to specify which part of the economy all of this money is going into- so as to imply it is going to all parts of the economy equally (which it did not, and was not intended to ).
It is the sixth time that UK borrowing costs have fallen since October 2008, when rates were still 5%. Announcing the cut to 0.5%, the Bank’s monetary policy committee, led by governor Mervyn King, notes a slowdown in the global economy and “persistent problems in international credit markets”. In the UK , it highlights a drop in economic output at the end of 2008, a rise in unemployment and tight credit conditions for businesses and households.
King says it is unlikely that the bank rate could go any lower and policymakers will shift focus to creating money instead. “We are very close to zero. What we are doing now is switching to injecting money into the economy directly.”
In the case of the Bank of England, QE took the form of banking ‘other institutions’ as though they were licensed banks- effectively giving them the status of licensed banks.
This means taking them directly under the wing of the Bank of England and licensing them to create money just as private banks do, with protection as privileged institutions. Non bank ‘financial institutions’ were given the same status as banks. And their products- private democratised money in the form of derivatives, were given the SAME PROTECTED STATUS as private bank credit issued in the form of loans.
May 2009: The Bank of England surprises the City by announcing it is to increase the size of its quantitative easing (QE) operation by £50bn to £125bn, amid growing concern that the programme announced in March is failing to turn the economy around. It is the first of many increases in QE to come over the years that follow, taking the total to £375bn.
On the same day in May 2009, the European Central Bank (ECB) cuts interest rates to a record low of 1% and says it will follow the Bank of England in launching QE in a bid to pull the Eurozone’s stricken economy out of recession.
Part of a co-ordinated global response to the crisis. By devaluing ALL government issued money simultaneously, Monetarist cabals are launching their all out war on government issued money – which is now intensifying as the War On Cash’.
May 2010: A new coalition government is formed by the Conservatives and the Liberal Democrats after the general election. Bank of England governor Mervyn King gives his strong backing for spending cuts in new chancellor George Osborne’s first budget to come later in the summer.
The breathing space granted by QE was designed to be used for the restructuring of western economies and the end of post WWII welfare states, to get them in line with the new privately issued money system. This process is being led by the Monetarists of the Saxon Axis.
June 2010: George Osborne announces the biggest shakeup in City regulation since 1997 and hands sweeping new powers to the Bank of England designed to prevent a fresh financial crisis.
King emerges as the big winner from the chancellor’s shakeup of supervision that will abolish the Financial Services Authority. The Bank is given new tools to prevent bubbles from developing in the financial system, including the right to force banks to hold more capital during boom periods.
This is the formal recognition of the new structure whereby private financial organisations are brought under the wing of the Bank of England and granted money creation privileges. From now on there is to be NO formal democratic political control of the money issuance process at all. It is entirely privatised.
September 2010: The Bank’s deputy governor Charlie Bean urges Britons to go out and spend to help invigorate the UK’s economic recovery.
Rising inflation stokes rate rise bets
Inflation rises, pushed up by higher petrol prices
‘Britons’ are supposed to max out credit cards to wet the head of the democratised money baby. A bit like your wife telling you that her pregnancy is the product of a sexual liaison with her personal trainer and then demanding that you organise and pay for a baby shower..
February 2011: Following a VAT rise and a pick-up in petrol prices, official figures show inflation hit 4% in January – well above the Bank’s 2% target. Inflation goes up further over following months and peaks at 5.2% in September 2011.
City speculation rises that the Bank of England will be forced to raise interest rates within months to curb price pressures. The CBI business group predicts interest rates will begin to rise in the next few months and will end the year at 1.25%.
Minutes from the latest monetary policy committee meeting show concerns about inflation are growing there too. Two members voted for a quarter-point rise in interest rates while a third urged a half-point rise.
All of which goes to show that the Bank Of England never had, and never will have, any intention whatsoever of ‘fighting’ inflation. The purpose of these maneuvers is to devalue all government issued money and raise the relative exchange value of privately issued money (derivatives) in relation to the pound.
July 2011: The Bank of England’s Eurozone counterpart, the European Central Bank, shrugs off the region’s debt crisis and raises interest rates for the second time in 2011 to curb inflation. The move takes the ECB’s benchmark rate to 1.5%. The ECB is forced to start reversing those rises before the year is out amid fears the eurozone crisis could tip economies in the single currency bloc back into recession.
Unlike the Anglo Saxon oligarchies, the continental Germanic government which controls Europe has two factions; one which fully embraces Saxon financialisation and one which seeks to hold on to the post WWII social corporate state system. Guess which one has more or less lost the battle…
August 2011: Against the background of wild swings on world stock markets, the two hawkish members of the Bank’s monetary policy committee abandon their calls for borrowing costs to rise.
Get away- you don’t say !
November 2011: The world’s major central banks pledge concerted emergency measures to underpin fragile eurozone banks and prevent the global financial system from freezing up.
After a teleconference chaired by King involving six central banks, they announce “coordinated central bank action to address pressures in global money markets”.
The moves are reminiscent of autumn 2008, when central banks came together to slash interest rates and inject liquidity into financial markets in the wake of the collapse of Lehman Brothers.
More QE and a new funding for lending scheme
How did Katie somehow forget to mention at the beginning that all of the central banks had been co-ordinating an attack on government issued money from the very beginning of the crisis?
July 2012: The Bank’s monetary policy committee votes to raise the total amount of quantitative easing to £375bn, citing signs that the global economy is flagging and having knock-on effects on the UK’s recovery. The move coincided with interest rate cuts in the crisis-hit eurozone and in China.
Later the same month, the Bank of England unveils a scheme to boost lending to first-time buyers and small companies in a move that ministers hope will inject fresh funds into the ailing UK economy.
The “funding for lending” scheme is welcomed by the chancellor, George Osborne, who says the launch of the £80bn emergency facility shows Britain is “not powerless to act” in the face of the eurozone crisis.
The scheme offers cut-price loans to banks and building societies, which are expected to make the money available through mortgages to homebuyers and loans to small businesses. But experts warn the new cash may not reach those who need it the most.
August 2012: A Bank of England paper concludes that Britain’s richest 5% gained most from quantitative easing. Threadneedle Street said that wealthy families had been the biggest beneficiaries of its £375bn QE programme but also insists the scheme has helped all sections of the population by sparing the country from a deeper slump.
In order to protect existing ‘Mortgage Backed Securities’ and even more importantly to protect the PRINCIPLE that private entities will issue democratised money and the state will clean up any resulting mess, the housing bubble has to be protected as the basis for Mortgage Backed Securities -financial instruments- derivatives-privately issued money.
November 2012: The Treasury announces that big cash balances amassed by the Bank of England as a result of its electronic money-creation programme will be used to pay down the national debt by £35bn over the next 18 months. Osborne wants Threadneedle Street to hand over the interest payments it has received on the gilts bought since the start of the QE scheme in early 2009.
They steal your car but they leave your furry dice on the pavement as a consolation..
November 2012: George Osborne springs a surprise on the City by announcing Canada’s central bank chief will succeed Mervyn King as governor of the Bank of England.
Mark Carney, the governor of the Bank of Canada, is the first non-Briton to become Bank of England governor. He is largely unknown outside the cloistered circles of central bankers and financial regulators, but has gained a reputation as a tough operator able to confront leading banks at the heart of the financial crisis.
It later emerges that Carney will pocket an annual £250,000 housing allowance, taking his total pay package to £874,000 a year when he takes the reins in the summer of 2013.
July 2013: Mark Carney takes over from Mervyn King as Bank of England governor. On his first day in the new job, Carney arrives in Threadneedle Street by tube.
First of all the idea was to make the Bank of England run by a group of non elected technocrats. Then the idea is to give it over to be run by someone who was not even English! The next appointee will be someone wearing a black hood and you won’t even be allowed to ask his (or her) name…
August 2013: New Bank of England governor Mark Carney unveils a strategy of “forward guidance”, under which policymakers will not consider raising rates until unemployment declines to 7% (from 7.8%). The Bank’s own forecast puts unemployment above 7% in 2016.
The governor says the Bank will only think again about its pro-growth stance if there is a threat of higher inflation or asset bubbles.
The scheme is greeted with skepticism in the City. Long-term interest rates, set by investors in financial markets, rise after forward guidance is first announced, amid a slew of upbeat data about house prices, retail spending and business confidence.
September 2013: Chancellor George Osborne says he is giving the Bank of England greater powers to prevent the government’s help-to-buy scheme causing a property boom.
The ‘fighting inflation’ story was shown to be nonsense, so then the Bank Of England concocted a story about unemployment being the most important indicator. Anything to avoid the truth, that it was the relative value of derivatives in comparison with the state issued currency that was the most important factor.
November 2013: Bank governor Mark Carney reins in the mortgage market in a bid to prevent five years of ultra-low interest rates and George Osborne’s help-to-buy scheme from fuelling a housing bubble. Carney announces he is refocusing the funding for lending scheme that gave lenders financial incentives to provide home loans. The focus will now be on business lending, the governor says.
February 2014: Just six months after forward guidance was launched the unemployment rate has already dropped below 7% – two years earlier than the Bank had been expecting. Carney signals, however, that the Bank will keep interest rates at the record low of 0.5% for at least another year and that policymakers “will not take risks with this recovery”. He also insists “forward guidance is working”.
Inflation was a nonsense excuse for QE now unemployment was shown to be nonsense excuse for QE
May 2014: Mark Carney warns that the housing market poses the biggest risk to Britain’s economic recovery as a shortage of new homes drives up prices.
June 2014: Bank of England gets new powers to control the size of mortgages. Carney warns that interest rates are likely to rise before the end of 2014.
Later that month, members of parliament’s Treasury select committee accuse the Bank of behaving like an “unreliable boyfriend”, giving mixed messages on when the first rise in interest rates is likely.
September 2014: Carney warns workers they face higher interest rates in the spring of 2015 before they receive rises in real wages.
The Bank of England, like the Fed desperately wants to ‘normalise the situation, by getting off zero interest rates.
Deflation threat sparks rate cut talk
March 2015: With inflation falling closer to zero, Bank of England chief economist Andy Haldane suggests policymakers may be forced to slash interest rates to zero in the coming months to tackle the threat of deflation.
Official figures after Haldane’s remarks show that inflation has dropped to zero for the first time on record in Britain. Inflation was pushed down by a deep oil price slump and a fierce price war being fought out by supermarkets. Inflation, measured on the consumer prices index (CPI), turns negative in April.
May 2015: The coalition government is replaced by a Conservative government. The coalition was the first administration in more than half a century to enjoy unchanged borrowing costs for its entire term. In the first announcement from the Bank under the new Conservative government, interest rates are again held at 0.5%.
New rate rise hints from Carney
July 2015: The BoE governor says an interest rate hike in the UK is “moving closer”. He tells the Treasury select committee households should start to manage their finances with a future hike in mind and he notes the UK economy has been performing well, that wages are starting to pick up and that employment has seen a big increase.
Later that month, Carney suggests the first interest rate rise since the global financial crash could come around the turn of the year. In a speech, he adds that after an extended period of what were expected to be emergency rates, borrowing costs were likely to peak at just over 2% – half their average historic norm since the Bank was founded in 1694.
‘borrowing costs were likely to peak at just over 2%’
There is a direct relationship between the total amount of money in circulation, the amount of the economy it services and the base interest rate. The long term average interest rate is PROCLAIMED by the Saxon elite henceforth to be around 2% as a clear statement of intent: From now on, Government Issued Money will only service a fraction of the total British economy.
What fraction is this?
The previous average post war interest rate is approx 5%, so it will be 2% divided by 5% – or 40%. In other words, the elite have proclaimed that in the medium to long term OVER HALF the British economy will be serviced by privately issued money.
But minutes from the Bank’s latest rate-setting meeting show concerns among policymakers that slow progress resolving the Greek debt crisis could delay a rate rise.
Chinese slowdown fears intensify
August 2015: China devalues its yuan currency against the dollar, sending shockwaves through global markets – already jittery over signs of a worsening slowdown in the country’s economy and wild swings on its stock markets.
The currency move dampens talk of interest rate rises in the US and UK given the prospect that cheaper Chinese goods will reduce inflationary pressures in those countries.
But Carney says that while a slowdown in China’s economy could push down further on inflation, it does not change, for now, the central bank’s position on when and how it might increase interest rates.
Carney really wants to push the button and get on with it. Raising interest rates is an important signal that the democratised money project is concluding its initial stage.
September 2015: BoE chief economist Haldane again warns that interest rates may have to be cut further from their record low level as he highlights signs that the global financial crisis is entering a third phase of turmoil.
Haldane is speaking a day after the US central bank decided to delay an interest rate rise for the world’s biggest economy. The US rate-setters blamed a more fragile global outlook in remarks that further rattled jittery financial markets.
November 2015: The Bank of England is ready to step up controls on the housing market if a prolonged period of record low interest rates risks inflating a property bubble, Carney says. As he signals that interest rates are likely to remain on hold well into 2016, Carney suggested the Bank may have to revert to other measures, such as tighter lending rules, to keep a lid on house prices.
KATIE YOU FORGOT TO MENTION THAT THE FED RAISED INTEREST RATES IN DECEMBER!!!
What does this tell you about the quality of economic reporting in the Guardian and the media generally with regard to finance and the economy?
February 2016: Carney says policymakers in the UK could cut interest rates to zero if necessary, but would seek to avoid following Sweden, Denmark and the eurozone by setting negative rates to bolster growth and inflation.
Responding to questions from MPs on the Treasury select committee, Carney says the world economy has entered a period of low growth and low interest rates and is likely to be prone to financial shocks.
March 2016: The UK marks seven years of record low interest rates.
New research marking the anniversary claims rock bottom borrowing costs and quantitative have cost savers an estimated £160bn, but supported strong increases in the prices of property, stocks and bonds. In its analysis, financial firm Hargreaves Lansdown suggests loose monetary policy has “annihilated” returns on cash.
Savers have net transferred value to speculators to the tune of £160bn (and you can bet it is considerably more than that). More importantly, the ‘interest bearing function’ of money is being destroyed. One of the benefits of government issued money is being destroyed, taken away from you. What is the effect of this? It makes the alternatives to government issued money seem a lot more valuable. One of the alternatives of course, is Democratised Money.
Throughout the entire Guardian narrative the central bank response to the Credit Crunch is presented as being fundamentally arbitrary, contingent and chaotic. In other words there is no fundamental perspective or purpose that is driving the logic of central bank actions.
Actions and consequences happen in a confusing and sometimes contradictory swirl of intention and understanding.
So the drama unfolds as a revelation to the authors of the crisis as much as it does to us.
But from the perspective of privatising the supply of money- the democratisation of money- the actions that have been taken by monetarist central banks and the consequences that these actions produce, suddenly seem straightforward and entirely predictable.