The best way to get less of something is to tax it, so nobody should have been surprised when Japanese GDP cratered after the sales tax was raised from 5 per cent to 8 per cent in April.
What the government didn’t expect, and what is encouraging Prime Minister Abe to delay (if not renege on) the plan to raise the tax rate to 10 per cent, was the economy’s failure to snap back. For example, the latest data show that real household consumption, excluding imputed rent, plunged by 3.5 per cent over the past 12 months to its lowest level since the Tohoku earthquake hit in 2011:
From Adam Posen, writing in the Cato Journal…
This article challenges the validity of the the assumption that monetary policymakers can correctly identify asset price bubbles in time to respond preemptively (or at least usefully). This is something where many policymakers even previously skeptical now feel they can be like Supreme Court Justice Potter Stewart and recognize obscenity in asset prices when they see it. Some patterns do emerge if we look more carefully at the historical record of asset price booms and busts, but, in light of those patterns, the prospect of getting the call right becomes very daunting. The difficulty arises because of the complex nature of asset price booms and busts, a complexity that seems to be overlooked in the advocacy of leaning against the wind.
Abenomics: it’s as divisive as it is fun to say.
We should start this round with Adam Posen, who used to sit on the Bank of England’s Monetary Policy Committee and penned an Abenomics op-ed in the FT on Wednesday. Read more
Ultimately, central bank independence depends upon having built a coalition of support in society for that independence – legislative rules and protections regarding the central bank’s ability to set monetary policy will change to reflect sustained variations in that degree of support, albeit with some lag. The only way for a central bank to defend its instrument independence is by making a persuasive case to the public, or at least to a majority of their elected officials, that it is doing a good job. That kind of transparent accountability has been the source of inflation targeting’s success in anchoring inflation expectations, which shows how this can work.
Thus, religious declarations of what assets a central bank should or should not handle in its pursuit of monetary policy goals, or of what constitute fiscal versus monetary policy, are shibboleths. They are mouthed with fervor but should not be taken seriously. What matters instead is that the goals of monetary policy being pursued are consistent with the central bank’s legislated mandate, that the means used in that pursuit are transparent to monitor, and that the central bank can and does explain why the means fit the goals. In short, monetary policy is like any other delegated public responsibility. Read more
This is careless. The Bank of England has managed to lose Adam Posen, the outspoken American dove on the Monetary Policy Committee. He’s off to the Peterson Institute in Washington, from whence he came three years ago, taking over as president of the renowned think tank from Fred Bergsten.
John Kemp at Reuters has made the point that Posen may in any case have decided not to seek a second term on the MPC when his current stint expires in August. In March last year, in a Guardian interview, he said that if he was proven wrong in his calls for more quantitative easing in Britain he would change his vote and retire from the committee. Read more
Posen, of course, is the Bank of England’s perennially frustrated dove and proponent of looser fiscal and monetary policy.
His case is that although the recoveries in both countries have been inadequate, UK growth has lagged and inflation has been higher for three sets of reasons: Read more
Bank of England policymaker Adam Posen looks set to vote for another cash injection for the faltering British economy next week, and expressed some confidence that other central bankers may join him, says Reuters. Mr Posen suggested on Thursday that he might vote for an extra £75bn of quantitative easing next week – at the upper end of analysts’ predictions – as forecasts suggest inflation will fall sharply. On Wednesday the Bank completed the £75bn of gilt purchases that it started in October, and most economists polled by Reuters expect the central bank’s Monetary Policy Committee to raise the purchase target by £50bn on February 9. In an interview with financial news channel Bloomberg TV, Mr Posen gave the clearest commitment from any MPC member to date that he was planning to vote for more QE. “I am certainly leaning towards doing more QE if we don’t change the forecast,” he said.
If you can tell a little about someone from the books they read, you can tell a lot about them from the books they write, especially if they’re a central banker.
Morgan Stanley economist Spyros Andreopoulos has dipped into the library at the “Global Central Bank” and draws comfort from the number of “depression economics” tomes on its shelves. In case you were wondering, some of the “scholars” are: Read more
While everything blows up… a blow-out speech by Adam Posen:
Make no mistake, the right thing to do right now is for the Bank of England and the other G7 central banks to engage in further monetary stimulus. If anything, it is past time for us to do so. The economic outlook has turned out to be as grim as forecasts based on historical evidence predicted it would be, given the nature of the recession, the fiscal consolidations underway, and the simultaneity of similar problems across the Western world. Sustained high inflation is not a threat in such an environment, and in fact the inflation that we have suffered due to temporary factors in the UK is about to peak… Read more
George Osborne has opened the door to new forms of quantitative easing by the Bank of England as concerns mount in the Treasury over the state of the economy, the FT says. Any move to a second round of QE would require Treasury approval. Mr Osborne gave every indication he would give his assent, even for purchases of assets other than gilts. The chancellor made it clear he saw no barriers to a second round of quantitative easing – creating money to pump into the economy – if a request came from the Bank, and raised no objections to the possibility of the Bank extending its purchases to assets other than gilts. Adam Posen, an external member of the Bank’s monetary policy committee, now believes his year-long call for more QE has been fully vindicated. In a speech on Tuesday, he is expected to push the Bank to go further and buy not only gilts but other, more risky, assets. Economists have increasingly fallen in behind Mr Posen in recent weeks, urging the Bank to restart QE in the wake of weakening economic data, financial market turbulence and the eurozone sovereign debt crisis.
The minutes of the Bank of England’s MPC meeting in March released on Wednesday morning show that the committee lines up in exactly the same way as it did last month.
One member (Posen) wants to ease monetary policy, by increasing QE. Five members (King, Tucker, Fisher, Bean, Miles) voted for no change at all. Two members (Weale, Dale) voted for a 25 basis points increase in bank rate. And one member (Sentance) voted for a 50 basis point increase. Read more
In a way, you sort of have to give gilts credit for hanging on to the anchor even as HMS QE2 sails out of reach, out of the harbour, into the distance, based on stronger UK GDP data.
Sure, 10-year gilts are already selling off — from historic lows – chart via Bloomberg (click to enlarge): Read more
Still fresh after his performance as the lone dissenting dove on the UK’s Monetary Policy Committee, Adam Posen has now used the expertise for which he is perhaps best known — Japan’s lost decade(s) — to argue in a speech that easy monetary policy doesn’t lead to asset bubbles. Not inevitably, anyway.
Posen’s targets in the speech are the world’s surplus countries, which he believes should embrace more accomodative monetary policy to stimulate domestic demand. Read more
Here’s something for Adam Posen and all those in favour of further quantitative easing to chew on; UK retail sales have fallen for a second month in a row according to the Office of National Statistics:
Between August and September total sales volume decreased by 0.2 per cent. Predominantly food and non-food stores both increased by 0.1 per cent. Within predominantly non-food stores there were rises across all sectors apart from textile, clothing and footwear stores which fell by 0.8 per cent. The largest rise was other stores at 0.7 per cent. Non-store retailing decreased by 0.5 per cent. Read more
Finally, the three-way split into one hawk, one dove — and seven undecided — has occurred at the Bank of England.
From the minutes of the Monetary Policy Committee’s October meeting: Read more
What then has the City made of Meryn King’s “sober” speech to a gathering of business leaders in Wolverhampton on Monday?
The media has focused on the Bank of England governor’s warning that the international monetary system had become “distorted”. Read more
The UK faces a protracted economic slump unless authorities act quickly to stimulate the economy, an influential adviser to the Bank of England has warned, reports the FT. In an unusually explicit call, Adam Posen, an external member of the Bank’s monetary policy committee, rejected the IMF’s upbeat view of the UK economy, issued on Monday and called in a speech for more monetary easing. While the Bank is not expected at next week’s meeting to approve a restart of quantitative easing, or printing of more money, his concerns are “shared” by other MPC members, says the FT. Posen’s argument is well worth reading in full, notes the FT’s MoneySupply blog.
Gold glittering past a nominal record high:
The outlook for the UK economy is so uncertain that while interest rate increases can’t be ruled out, further quantitative easing could equally be needed, the Bank of England’s Adam Posen said Tuesday, in an interview with Dow Jones. Posen said the BoE will watch economic indicators, which could suggest the need for more loosening, as well as inflation, which could suggest the need for tightening. However, Posen said that the BoE’s current inflation projections indicate “more than 50 per cent likelihood in my estimation the right next move will be to loosen rather than to tighten” monetary policy.
Bank of England Monetary Policy Committee member Adam Posen is a samurai film fan, FT Alphaville writes — but he’s certainly not a fan of citing Japan’s lost decade as a lesson for western central bank intervention. Read more
Central bankers, as Alan Greenspan learnt to his regret, need to look like they have a plan B.
And so does the Bank of England. Combative MPC member Adam Posen on Tuesday morning seems to be dropping strong hints that something could be cooking over on Threadneedle Street. Read more
The good news — quantitative easing will not cause inflation.
The bad news — we need to reform the whole banking system before QE can be withdrawn. Read more
Adam Posen, the new addition of the Bank of England’s monetary policy committee, has been speaking on Tuesday morning at his appointment hearing before Parliament’s Treasury Committee.
And true to form Posen, who has called for wholesale sackings at failing banks, is speaking his mind. Read more
Hey, this should be fun.
The Treasury has just announced that one Adam Posen is to join the Monetary Policy Committee, replacing Tim Besley. Read more
The Fed has of course taken on much of Bear Stearn’s credit risk, and last week expanded its emergency lending to primary dealers. So what will Wolf and the economic pundits make of the financial regulation revamp, to be announced later today – which proposes enhanced supervision of investment banks on a temporary, rather than permanent basis?