THURSDAY, JANUARY 8, 2009
+++ BoE Cuts Half Point Off Rates +++
UPDATE : Am particularly impressed with the insight of Edmund Conway, the Telegraph's economics editor, with the base rate now at 1.5% he sagely tells us "Interest rates are now nearing their bottom". Well spotted Ed.
Wheel Barrow Based Monetary Policy
He is not the only one, Rachel Reeves, former Bank of England economist turned Labour candidate for Leeds West, writes in the latest Fabian Review:
Print More MoneyGuido warned about the coming of Mugabinomics in November, when Gavyn Davies advocated a wheel barrow based monetary policy. What should you do in this situation? If you don't have productive assets (such as being a business owner) exchange cash for hard assets, gold is the traditional refuge.
Quantitative easing, a radical policy option which was used in Japan in 2005 to end their 15 year recession, could be used now in the UK. Quantitative easing is a policy tool used when conventional monetary policy no longer works - as they nominal interest rate approaches zero. The Bank of England can either print more money or buy government and corporate debt so that long term interest rates fall. Quantitative easing is not without risks (it can push up inflation) but the potential benefits now outweigh these risks. Such a strategy is increasingly seen as a way to kick-start the economy and should be adopted.
Sir Michael White sneered at Guido last year for telling co-conspirators tobuy gold. In a period when stocks fell some 30%, sterling denominated investors who bought at the beginning of the year have seen it rise 41% from £424 to £599 an ounce today. If this year we see "quantitative easing"(printing money), holding gold will be insurance as much as an investment.