I am not a fan of outsized monetary accommodation in a declining growth frame…but what can you do?

Irrespective, deflation is not the issue, but slowing growth within a complex frame over burdened with financial excess and key structural imbalances. 

A recent speech by Andy Haldane has kept the interest rate/zero lower bound debate “bubbling”.   In this speech, “How Low Can You Go”, Haldane broached the issue of monetary policy in the event of another demand shock.  He is quite right to do so since monetary policy would have little room for manoeuvre with interest rates only a scuff mark away from 0%.  His musings suggested getting rid of cash and bringing in negative rates.

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Bank of England Stress Test

“..the stress-test results and banks’ capital plans, taken together, indicated that the banking system would have the capacity to maintain its core functions in a stress scenario. Therefore, the FPC judged that no system-wide, macro prudential actions were needed in response to the stress test.”

My main concern with the stress tests is that the explanatory document came bereft of the underlying economic scenarios!   How far did GDP fall, for how long and what was the recovery like?  Did IRs stay at an elevated 4+ plus from current levels or did they fall?  I have not got a clue as this exercise seemed to focus on fairly extreme contractions in domestic property markets, higher interest rates and some assumptions re mortgage, personal debt and CRE defaults.

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Comments on Bank of England’s Quarterly Bulletin on Household Debt and Spending

The Bank of England report “Household debt and spending” stated that “it is difficult to evaluate whether debt has had any impact on UK household spending using aggregate data alone. Indeed, UK consumption grew at roughly the same rate between 1999 and 2007, when debt was rising rapidly, as it did between 1992 and 1998, when debt did not increase relative to income. This, together with the fact that increases in household debt were largely matched by a build-up in assets, is consistent with the suggestion that increases in debt did not provide significant support to consumption.”

First of all household expenditure did not grow at roughly the same rates over this period:


I have used the start point for the analysis as the peak of the previous economic cycle given that part of the growth in the early 1990s would have been due the rebound in consumption from this earlier recession.  In fact, we can see that growth initially accelerated to Q4 1994, but then set off again on a second substantial leg that peaked between Q1 2000 and Q4 2001.

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