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Mervyn King warns against ‘premature’ interest rate rises

Mervyn King
Lord Mervyn King: At his last Treasury select committee hearing

Bank of England governor Lord Mervyn King says it would be “premature” to raise interest rates now, adding they are set to remain low for some time to come.

Speaking at his final Treasury select committee hearing today, King said monetary policy should remain loose and defended the use of quantitative easing.

King, who is set to leave the role on 1 July, moved to calm global markets after a tumultuous week in which equities fell and Government bond yields rose on the back of signals by the Federal Reserve that it would start to unwind its QE programme.

He said: “The view that we are definitely at the beginning of the end and we definitely need to raise interest rates is a premature judgement about where we are.

“No central bank has rapidly moved down that course. The Federal Reserve has merely said that the easing with which it was still engaging may taper at some point depending on economic conditions.”

King added: “The idea we are about to return to normal levels of interest rates is premature. One of the reasons it would be premature to do it more quickly is precisely because households have high levels of debt.”

Lord King also praised the “landmark” parliamentary commission on banking standards report, published last week, and hit out at bank lobbying.

He highlighted the sector’s reaction to last week’s Prudential Regulation Authority report demanding banks fill a £13bn black hole in capital.

Lord King said some bank chief executives’ first call was to complain to Number 10 or 11 Downing Street after being told to raise more capital and it had “crossed the line” of acceptable lobbying.

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There are 2 comments at the moment, we would love to hear your opinion too.

  1. What an unreconstructed, yet confused old Troskyite despot Mervyn King is. I doubt he’d be happy to be called many of those things, but here’s why.

    He is saying that we need to keep interest rates down (ie savers and to a lesser degree taxpayers must subside borrowers), because of the high levels of debt (ie people who have borrowed too much have…borrowed too much).

    So, he, an unelected official (the despot) considers it his role to put in place a policy of wealth redistribution (the Trotskyite), whereby those with some savings, however small, should subsidise borrowers however large (the confused Communist). Furthermore, the more you have borrowed (to buy, in an evil capitalist way, say more material goods or property), the more subsidy you get. Sounds a bit of a perverse good cause to me.

    Furthermore, if you are a follower of Brownian economics, you’d know that the “best” member of the population is the one who borrows the most because that provides the biggest injection into the economy. Well, up to a point. Indeed, up to the day after the loan is spent, from whence onward the person contributes less to the economy because part of their future earnings is being used up servicing debt rather than consuming. Indeed once they have borrowed and spent, the indebted should in theory be cast aside, because, having maxed out their credit limits, they are frozen out of the borrowing game. Those with a bit of debt headroom left or even positive cash balances, despite previous resistance, might at least be tempted over to the dark side.

    What this shows is that poor old Mr King is confused old buffer who doesn’t really appear to have the first clue what he’s talking about. Arguably then the only clever thing he ever did was line his own pockets with the massive pension he is now about to enjoy, also at my expense.

    Aren’t public servants marvellous?

  2. Savers (those who lent money to banks) were the ones who should have lost their money. Instead taxpayers rescued them.

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