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New MPC member says Bank’s stimulus on track

Newly appointed Monetary Policy Committee member Dr. Adam Posen says the UK is on track to successfully complete its financial stimulus package.

Speaking to the Treasury Select Committee this morning Posen, a US macro-economic policy expert from Washington DC, said the UK is “beating the clock” when it comes to fixing the economy and the banks.

He said: “It’s pretty clear what the ideal should be – you fix the banks before you run out of fiscal borrowing, full stop. The UK is much closer to beating the clock on this than the US or most of the other major economies. Everyone here has been much more forthright and aggressive in dealing with the banking problem.”

But Posen warned that if a country’s banks are not capitalised by the time a stimulus package run out, an economy could hit another credit crunch.

He said: “At some point there will be a hard constraint on your borrowing and if you haven’t fixed the banks by the time you get to that constraint you will end up with another credit crunch, financial fragility and a lack of confidence in the economy – it’s a very serious matter.”

When asked about the nature of any UK recovery, Posen argued that it was very difficult to predict when things will stabilise. He said that rather than a curve, the economy will experience a “sawtooth pattern” as it moves up and down, much like the economy of Japan in the nineties.

He said: “We are looking at firm conditions, and it would surprise me if we were back to positive growth by 2010, but it will not be a smooth ride.”

Posen also played down the bank of England’s decision to pause on its quantitative easing strategy. He said the MPC may continue to stop and start easing as it assess its impact from one month to the next.

He said: “Much too much is being made of this so-called pause. The Bank is still engaged in quantitative easing, it has not withdrawn quantitative easing and it has not foreclosed on future quantitative easing, it is just trying to calibrate the right number and it’s very hard to work out what the right number is.”


Fresh out of shame

The principle of leaning against the cycle is easy to agree. For some reason, this sentence, taken from Alastair Darling’s statement to the House of Commons on reforming financial markets, worries me – and I don’t think it is just because it appears that the Chancellor is borrowing soundbites from fortune cookies or possibly cryptic crossword clues in The Times.

Raise the red flag issues

In 1865, Britain introduced the Locomotives on Highways Act, better known as the Red Flag Act. Among other things, the act stipulated that all mechanically powered road vehicles must be preceded by a man on foot waving a red flag to warn the public.

Finding security in bond markets

Martin Foden, head of credit research at Royal London Asset Management, explores the role of secured bonds, considering the impact of default and the characteristics of secured bonds versus supranationals and highlighting some examples. He also examines the evolution of the credit market and rating agency inefficiencies. Read the article in full: The value of […]


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