In a report for the Centre for Policy Studies, which he chairs, Saatchi primarily blames inflation-targeting by the Bank of England for the current economic crisis. He argues that bankers, regulators and credit rating agencies are all victims of the “myth” that if policymakers could maintain low inflation, then growth, employment, prosperity and stability would follow.
Saatchi says by creating the false impression that low inflation meant financial stability and then measuring “the wrong kind of inflation” – the consumer price index – policymakers encouraged the view that it was safe to borrow and invest.
He says: “The myth led bankers to lend more, traders to risk more, homeowners to borrow more, regulators to relax more, and politicians to boast more – about the end of boom and bust. When the myth collapsed, it took all of us down with it – academics and auditors, bankers and bakers, economists and electricians. We all went into the dark.”
Belgravia Insurance Consultants Consultant Paul White says: “For a while, it seemed like Gordon Brown was right when he said we had come to the end of boom and bust. As it turns out, Mrs Thatcher was correct when she said you cannot buck the market.”
Ample Financial Services director Colin Parkin says: “It is wrong to use inflation in isolation as a marker of financial stability. A number of factors should be taken into account. IFAs were saying for years that the lending policies of banks were fundamentally flawed. They went on a rampant orgy and it was always going to end in grief.”