A few months back the UK Parliament’s Treasury Select Committee (TSC) invited anyone and everyone to submit in 3,000 words their views about post-crisis monetary policy. I can imagine that TSC members’ junior researchers must have been thrilled by the prospect of reading all the submissions for their political masters on the 16 open-ended essay questions set in the terms of reference.
I read all thirty four of the written submissions and post the tl;dr for each below so you wouldn’t have to. Thirty four. I hope that the authors who see each of their 3,000+ word missives so ruthlessly and flippantly précised (with potential misreading) take this in the good spirit in which it is done.
Why did I do this? Erm… It seemed like a better idea at the start than it did by the end?
Actually, three reasons. First, political support for Bank operational independence has been sagging. The Prime Minister has been drawing attention to distributional inequitiesassociated with QE. The Chancellor had to make a statement to Parliament in support of QE after City rumours of private briefings in which he inferred that backing for further rounds of QE would no longer be forthcoming. Senior Conservative politicians have publicly attacked the Bank (for example, here or here). And the Labour front bench have been airing prospective reforms that would remove operational independence. It was in this political context that the TSC, which holds the Bank to account, launched its inquiry into post-2008 monetary policy. I wanted to get a sense as to what the submissions said.
Second, I read a lot of policymakers, academics and investment bank stuff about QE. Much of it is very good. But this is a genuine free for all from bloggers, academics, finance professionals, think tanks, former policymakers and private unaffiliated individuals who could be bothered to express a view. I found in the submissions some perspectives that were genuinely new and interesting to me. Reading them has sparked a bunch of thoughts.
Third, I submitted myself, and so was interested as to where my views sat within the body of submissions.
I also learned during the course of reading these about the Cobden Centre, which appears to have done a decent job of making its presence felt rather firmly. The Centre which appears to campaign for an end to fiat money was founded by Steve Baker MP, a member of the TSC, who used to work in IT at Lehman Brothers before turning to politics. Affiliates of the Centre submitted five of the thirty four written testimonies and gave one of the three oral testimonies. I have no sense as to whether these submissions were coordinated or not, but thought it striking that only one of the five written submissions mentioned their affiliation in their self-description. Four of these written submissions can probably be summed up with the words ‘buy gold’; the fifth was fascinating. I have put these together at the end.
The summaries are in the order shown on the Parliamentary website, but grouped into policymakers, academics, finance folk, think tank, unaffiliated, and Cobden; I include Twitter handle where I could find it. They start long and get shorter…
Current and former MPC members
Monetary policy can affect nominal quantities, but not real ones over the long term. Real bond yields are set globally, diverging due to local risk premia or the market’s currency expectations. As a small open economy, our real rates are imported and low policy rates are a symptom, not a cause. Target saving can’t be a thing if savings rate falling. QE works. DB pension deficit not our fault, but probably haven’t hit growth much. Precautionary hiking to lean against the wind of financial imbalances appropriate only if macropru unavailable; BoE has FPC. Distributional impact analysis shouldn’t leave out impact of looser policy on overall income of both savers and borrowers (Cloyne 2016). Low productivity leads to low rates, not vice-versa. When QE is unwound BoE balance sheet will, nevertheless, need to be pretty big given regulations and banks’ demands for reserves.
Like @moyeenislam, reckons post-QE will still see huge reserve balances for banks, but QE need for duration will be absent. So BoE should own UKTBs to limit capital risk.*
*But he knows there aren’t enough T-Bills and so is flagging that the UK government needs to change its debt profile and shift it much shorter as QE unwinds. It could also be interpreted as an area for monetary-fiscal collaboration that saw the BoE signal that it will be a steady holder of short-term financing instruments for HMT and so HMT can benefit from lower debt service costs (if term premia proves to be positive).
Rate cuts and QE were appropriate responses to crisis but ushered in generally above-target inflation but not stronger growth. Much of the time the BoE was ‘looking through’ ‘one-offs’, but this looks a little silly over a decade. Adverse consequences from post-08 monetary policy felt in housing (boosting prices), pensions (elevating deficits), savings (incentivising people to spend or buy risky assets) and productivity (zombies and service sector getting trade boost from GBP weakness that made it unnecessary to invest). Hike rates.
There is also an oral testimony that you can watch here from Charlie Bean and David Miles,as well as Detlev Schlichter – a guy from (you guessed it) the Cobden Centre.
Professor Huw Dixon, Cardiff Business School @Econdixon
Policy of financial repression is being pursued and is mistaken given economic output and employment are around ‘natural’ levels, hurting savers and retail banks and helps hedge funds and investment banks. Inequality a problem but not one for monetary policymakers. Hiking rates to 3-4% will boost confidence. Doesn’t seem to understand basic monetary economics double-entry book-keeping.
Distributional effects of monetary policy changes should be analysed ex ante as they impact effectiveness of policy transmission. Also, in concerning itself with aggregates rather than distribution, a value judgement is made that market processes ensure a just distributional outcome (wages and salaries reflect worth, etc). Distributional impact of monetary policy can create social problems that require fiscal spend to fix. Bank-HMT cmte should form to discuss interdependencies.
Professor Richard A. Werner, D.Phil. (Oxon), Chair in International Banking, University of Southampton who invented the term Quantitative Easing as a recommended policy for Japan in 1995 @ProfessorWerner
Interest rates are not a useful tool of monetary policy but should rise. BoE should desist QE, try to steepen the curve, and pressure UK banks to lend to non-financial SMEs. Bank credit creation determines nominal GDP growth. HMT should stop issuing bonds and borrow from banks.
Lower interest rates make house prices rise, absent generalised deflation.
There is no NAIRU or natural rate of interest. If inflation doesn’t rise, BoE should hike rates while either HMT does coordinated fiscal easing or BoE buys lots of equities. FPC can and should maintain a price for the average value of publicly traded equities that is consistent with full employment.
Near-ZIRP & QE have probably helped at the margin but the distributional impact has been counterproductive and adverse, threatening independence. Fiscal is better. British Investment Bank. People’s QE.
QE was necessary (although not flawlessly executed); Forward Guidance was pants; inflation target should be raised to 4%; MPC should declare expected rate path; and an institutional architecture should be prepared for large-scale private asset market intervention, technocratic fiscal coordination, and introduction of helicopter money.
QE boosted asset prices, including house prices. Rents too. And wealth inequality. Monetary policy should target credit at productive investment, working with the Chancellor.
Lower rates boost household demand for housing and goods, pushing debt higher; corporates investment intentions don’t respond to changing price of debt. Fiscal expansion would’ve been better than QE.
Viscous loop in play: demographics forcing up savings rates, pushing down demand and interest rates, wrecking pensions funding and boosting demand for bonds.
QE could have been £2bn cheaper if executed via HMT issuing directly to BEAPFF (although this would have been illegal under Art 123 of Lisbon Treaty).
Association of British Insurers (although written by NIESR) @BritishInsurers
QE has increased DB pension deficits and lowered annuity rates. Under Solvency II, lower interest rates increase both the value of liabilities and the quantity of capital that insurers need to hold to insure their non-market risk, creating a trade-off between the fund’s valuation and its solvency. The highly sensitive nature of these movements to interest rates can generate volatility, which is a challenge to manage, dis-incentivises the insuring of longevity risk, and acts pro-cyclically. 50bp rate change moves Risk Margin by 20%.
Savers hit by QE, and markets have grown dependent on central bank support. Target saving not really observed, but nor have low rates reduced saving. Distribution is a matter for HMT.
QE1 was good, less so later versions. Success of policy 1980-2008 maybe dependent on coming from starting position of anachronistically high real rates. Monetary policy largely out of road; heli-money to households is the way the BoE should best respond to a downturn, should it come before rates are high enough to be cut in response.
Target saving a thing, but jury out on how big. QE sorta worked by boosting asset prices but houses are assets too. Death of DB pension system accelerated by QE, but regs and global environment too; low rates an opportunity for HMT. Nangle-Goodhart. Awesome charts.
Building Societies Association @BSABuildingSocs
QE was necessary, but further rate cuts, and in particular negative rates, could be counterproductive. Target savers abound, their number boosted by rising house prices and falling rates. Brexit will hit investment and economic growth.
Peter Dixon, senior economist at Commerzbank AG @commerzbank
Monetary policy is overburdened in the UK but the BoE has done a decent job. Target saving is a thing.
Neil Smith, Altus Investments & Plymouth University @NelsonSmythe
QE is bad unless it’s People’s QE. Abba Lerner was right and the UK should embrace Functional Finance.
Tomorrow’s Company, think tank @Tomorrows_co
QE sort of worked by boosting asset prices and household wealth (unsustainably), but a shame it was needed. Sectoral flows approach taken and monetary toolbox empty, absent overt monetary financing. Companies never reduced their hurdle rates so diminished monetary transmission. BoE chat kept GBP firm, undermining international rebalancing.
Positive Money, think tank @PositiveMoneyUK
Banks don’t really lend to businesses any more so low rates & QE just boosts asset prices (incl housing) and heighten inequality, especially between generations. People’s QE.
Loans make deposits. QE1 stopped a liquidity crunch but made the rich richer. Bank lending overwhelmingly secured on property so property cycle key. BoE should target inflation, finl stability, inequality, house price inflation and employment at a regional level, public and trade deficits and ecological considerations. And a pony.
Jubilee Centre, a Christian think tank @JubileeCentre
The system is broken. Move to 100% reserve-based banking, complete household deleveraging, and abolish LOLR as well as tax breaks associated with incurring debt.
The UK population is ageing. We can prove it. Also, monetary policy isn’t set up to deal with this.
This man has been successively ripped off, is rightly pissed off, and is articulate. Reckons MPC is not in control: private companies are.
QE should fund big venture capital funds that can equity-finance early, mid, late-stage projects or infrastructure, with spin-out privatisations profiting the state.
Today’s regime is a dog’s dinner! People’s QE.
Cobden Centre @CobdenCentre
I thought it best to group all the affiliates of the Cobden Centre together (where affiliates are defined as people described by the Cobden Centre on their website as their authors, founding fellows, directors etc). The Cobden Centre campaigns for an end to fiat money and was co-founded by Steve Baker MP who sits on the TSC.
Toby Baxendale, former vendor of wet fish and co-founder of The Cobden Centre @TobyBaxendale; Max Rangeley, founder of ReboundTAG @NotesfromMax
QE is immoral; shift to 100% reserve banking and a low tax regime should happen. The global liberal elite should be worried. Things will end badly.
Alasdair Macleod, Head of Research at Goldmoney @MacleodFinance
Buy gold. We need a policy of sound money to build solid foundations for economic growth, and a gold standard works deliver sound money. Buy gold.
Multiple monies in circulation and free banking would be great.
Whatever the question, gold is the answer.
Anthony J. Evans, ESCP Europe Business School and IEA @anthonyjevans
BoE should target nominal income rather than inflation. Policy is too loose and has generated malinvestment. Markets provide better answers than policymakers. Some nice framing of epistemological questions.