David Miles, the only one of the Monetary Policy Committee’s nine members to call for more money printing at the past two votes, has given an interesting speech today.
The speech presents the case for doing more based in part on the view that, if the MPC continues to do nothing, or — worse still — tightens policy, then this could destroy the UK economy’s productive capacity and, hence, its ability to grow at the pace seen before the financial crisis.
Were the minutes of May’s Monetary Policy Committee meeting, out today, dovish or hawkish?
The vote, which left David Miles as the sole member voting in favour of more money printing for the second month in a row, was more hawkish than most had expected.
For almost the entire time the Bank of England has enjoyed operational control of monetary policy, the redistributive effects of monetary policy have rarely hit the headlines.
The public appeared to accept that interest rate rises hit borrowers and benefited savers and vice versa. The vast majority of the commentary related to the analysis of whether any monetary policy change was warranted by the prospects for inflation. This, in Britain at least, was the way the Bank of England liked it.
Unelected officials feel very uncomfortable about being seen to favour one group of society over another. Redistribution, after all, is properly something for elected politicians, since it involves using the power of the state to take money from some to give it to others.
It is noteworthy, therefore, both that the distributional effects of quantitative easing are now being raised vocally by strong lobby groups and that the Bank is feeling peeved, rightly so.
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ECB’s big bazooka
Next week’s main event is, of course, the European Central Bank’s second offer of cheap three-year loans.
Attention is fixed on whether the take-up will be greater or less than in December, when the central bank loaned €489bn.
External Monetary Policy Committee member David Miles has been re-appointed for another three-year term, meaning he will serve on the MPC until the end of May 2015.
Since joining the committee, Mr Miles has voted with the majority except on two occasions in 2009. In August, he voted for a £75bn increase in the Bank’s quantitative easing programme, while the majority backed a £50bn expansion. In the November, he voted for a £40bn-worth of additional asset purchases, rather than £25bn.
External MPC member David Miles said last week he was a lot more concerned about getting capital requirements right than liquidity buffers.
This is odd. Few would deny that banks needed more and better quality capital. But, as Andy Haldane, the Bank of England’s executive director for financial stability, said on Monday, liquidity droughts were perhaps the defining feature of the crisis during 2007 and 2008.
Maybe Mr Miles was reluctant to address what has become one of the most controversial aspects of the Basel III regulatory framework.
But not Mr Haldane. He has suggested haircuts on collateral as a means to avoid systemic liquidity crises.