Douglas Carswell's Blog

Interest rates denialism

Another month, another flawed decision by the Bank of England's Monetary Policy Committee.  Interest rates are to be kept close to zero.

If a state quango set the price of tea or laptops artificially low, you'd expect a short-lived glut of over consumption - followed by a chronic shortage, as the supply of those items dried up.  That is pretty much what has happened with the market in credit.

Given the unique ability of the big banks who supply credit to conjure more of it out of thin air to meet the appetite for rock bottom loans, the glut period lasted years, rather than days.  However, the outcome - a chronic shortage - is just as inevitable.

Since the credit crunch, as Daniel Hannan points out, the MPC planners have continued to prescribe a strong dose of low interest rates to a malady caused by low rates.  The medicine is the illness. 

It was once considered radical to suggest that state planners quit running factories and industry.  Perhaps what we now need is to stop state planners from setting interest rates?

High inflation in the age of the internet?  Monetary folly at a time folk have almost as much choice as to which currencies they shop with as they do over what they buy?  Perhaps the days of state run money are numbered. 

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