What do Sweden and the UK have in common? They both have the property disease and easy access to credit in good times, which amplifies cycles. They also have a central bank that hosed petrol on the fire just as pandemic inflation was taking off.
“We are now where we are because the Riksbank pursued the strange policy of negative interest rates in the middle of a boom,” said Swedish journalist Andreas Cervenka. He is calling for a truth commission.
The Riksbank and the Bank of England both fanned the flames by launching a second round of pandemic QE in late 2020, adding stimulus as house prices went mad.
Threadneedle Street did so even though the broad money supply was by then picking up, which was not the case after the Lehman crisis when QE was needed to avert a collapse in money.
Outgoing rate-setter Silvana Tenreyro argued in a speech this April that QE is just a bond maturity swap and works only by influencing interest rates. “There is no separate ‘money’ channel that can unleash inflation,” she said.
From this unscientific premise, she argues that Covid QE2 was a liquidity insurance policy against “market dysfunction” but that since this dysfunction never happened, the bond purchases had almost no effect. No effect!
One does not have to accept the quantity theory of money, whether the Fisher and Friedman variants in the US, or the Marshall and Pigou variants at Cambridge, or the old Bundesbank variant. But one cannot credibly pretend that this exalted tradition does not exist.
The evidence for a ‘money’ channel is overwhelming, which is why the European Central Bank was established with a dual pillar system that tracks M3 money (before the ECB fell to the lira bloc).
When a central bank buys bonds from non-banks, it has a potent effect on broad money, shaping prices 18-24 months later.
If the Bank of England thinks there is no ‘money’ channel – and deputy governor Ben Broadbent seems to share this view – we have a serious lapse at the heart of our economic institutions. It also means that the Bank will be blind to the danger today as the money supply goes into accelerating contraction.
Reason Two for Britain’s outlier inflation is reliance on natural gas for electricity and home heating, a legacy of the North Sea boom.
The 13-fold rise in gas prices during Putin’s energy war exposed Britain’s Achilles’ heel.
If you pin Britain’s inflation woes on Brexit, then explain Sweden
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What do Sweden and the UK have in common? They both have the property disease and easy access to credit in good times, which amplifies cycles. They also have a central bank that hosed petrol on the fire just as pandemic inflation was taking off.
“We are now where we are because the Riksbank pursued the strange policy of negative interest rates in the middle of a boom,” said Swedish journalist Andreas Cervenka. He is calling for a truth commission.
The Riksbank and the Bank of England both fanned the flames by launching a second round of pandemic QE in late 2020, adding stimulus as house prices went mad.
Threadneedle Street did so even though the broad money supply was by then picking up, which was not the case after the Lehman crisis when QE was needed to avert a collapse in money.
Outgoing rate-setter Silvana Tenreyro argued in a speech this April that QE is just a bond maturity swap and works only by influencing interest rates. “There is no separate ‘money’ channel that can unleash inflation,” she said.
From this unscientific premise, she argues that Covid QE2 was a liquidity insurance policy against “market dysfunction” but that since this dysfunction never happened, the bond purchases had almost no effect. No effect!
One does not have to accept the quantity theory of money, whether the Fisher and Friedman variants in the US, or the Marshall and Pigou variants at Cambridge, or the old Bundesbank variant. But one cannot credibly pretend that this exalted tradition does not exist.
The evidence for a ‘money’ channel is overwhelming, which is why the European Central Bank was established with a dual pillar system that tracks M3 money (before the ECB fell to the lira bloc).
When a central bank buys bonds from non-banks, it has a potent effect on broad money, shaping prices 18-24 months later.
If the Bank of England thinks there is no ‘money’ channel – and deputy governor Ben Broadbent seems to share this view – we have a serious lapse at the heart of our economic institutions. It also means that the Bank will be blind to the danger today as the money supply goes into accelerating contraction.
Reason Two for Britain’s outlier inflation is reliance on natural gas for electricity and home heating, a legacy of the North Sea boom.
The 13-fold rise in gas prices during Putin’s energy war exposed Britain’s Achilles’ heel.
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