Wanted:
Outstanding communication skills; candidates must be able to make a strong contribution to the MPC’s communications, explaining policy decisions to the public.
- Ad for external member of the MPC.
Ability to parry, obfuscate and prevaricate also necessary:
The Government is set to throw out the 165-year old law that obliges the Bank to publish a weekly account of its balance sheet - a move that will allow it theoretically to embark covertly on so-called quantitative easing.
The ostensible reason for the reform, which means the Bank will not have to print details of its own accounts and the amount of notes and coins flowing through the UK economy, is to allow the Bank more power to overhaul troubled financial institutions in the future, under its Special Resolution Authority.
The BoE is already slipping down the central bank comms league. To be sure, the proposals do not abolish the publication of the data altogether, they simply move it from a weekly to a monthly basis. But the move should still take us further into the realms of Bank-of-Japan-like monetary mysticism. Clarity is not the objective.
What exactly the BoE or the government are trying to hide remains to be seen. One possibility though, is perhaps that they’re fed up of inviting idiotic comparisons in the UK press to Weimar or Zimbabwe.
Anyway, quantitative easing is already underway donchaknow. A little late to hide it now.
The Telegraph continues:
Among the details which will no longer be published are those revealing the extent to which London’s banks are using the Bank’s deposit facilities - a yardstick of pressure in the financial system.
More specifically, the BoE’s deposit facilities are a yardstick for quantitative easing. Increases in bank reserves (Unsterilized) are increases in monetary base.
And as Willem Buiter will tell you, just such an increase in M0 - an increase in the quantity of money - is progressing nicely. (Click image for a larger version).
Buiter is also worth reading as an antidote to all those flippant historical comparisons between QE and hyperinflation.
As long as the fear, risk-aversion, and partly irrational despondency that have the banks in their grip persist, the increase in M0 since September 2008 will not be inflationary. It reflects the central bank leveraging up to counteract the otherwise excessively rapid, sudden and destructive deleveraging of the commercial banks.
Which is not to say there isn’t, in the future, an inflationary threat.
When fear and panic eventually desist, however, it is essential that the central bank stand ready to take back the injection of liquidity provided since September 2008. Indeed, as I hope and expect that the Bank of England will, during the rest of this year, engage in ‘printing money’ on a much larger scale than it has thus far , the need for an eventual massive contraction in the monetary base when the private financial sector rediscovers its poise and confidence, will be paramount if the UK is to avoid a major burst of inflation a few years down the road.
The key thing will be to watch another BoE metric: the money multiplier - the ratio of broad money (M0 plus consumer and private sector bank deposits) to base money. The money multiplier measures, essentially, the inflationary effectiveness of monetary base. A lower money multiplier - as is currently the case - means money is simply being held by the banks, and not transmitted through the economy. If and when the money multiplier begins to rise again, then will be the time to worry about inflation.
But then again, maybe we won’t have time to worry. The money multiplier would be another statistic that disappears from weekly BoE reports if the government gets its way.
