Australia has cut interest rates by 1%.
In the UK Alastair Darling pleads with Mervyn King to cut rates but is doing nothing to back up his pleas. There is no guarantee King will listen. It seems he'd rather watch London burn. And Darling pretends there is nothing he can do about that.
There is. The government gave the Bank of England the right to set rates. It can take it away again. Tomorrow might be a very good time to do that.
And we don't need a cut of 1%. Vince Cable has suggested 2%. He's right. Nothing less will do. I'd go for more: 3% would create solvency on many of the toxic loans now bringing banks down. Sterling will withstand it for the time being. The massive deflationary pressure in the economy requires it.
Please Alastair, do it now.
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Richard:
I agree that we need far looser monetary policy now—in 1990 the Japanase took 18 months to get interest rates to 1%, and that was too long to avoid deflation. We’re already a year into the crisis.
But, crucially, we also need proactive fiscal policy to counteract the enormous delationary shock of the financial crisis. Taking the bottom 50% of households out of tax altogether a la John Cruddas would be great, but Britain is already running a govt deficit and total indebtedness has risen sharply with the bailout. To claw back some of the tax relief to those who most need it, we need to raise the MRT on ‘top incomes’. The Cruddas proposal of 48% above £185k is ‘revenue neutral’. That’s why I’ve proposed an MRT of 50% above £150k and 60% above £250K—to find money for other things (eg, more social spending of all sorts).
Hardly the ‘politics of envy’—it’s now the ‘poltics of survival’, and the public mood has turned against the Super Rich.
George