Bank of England to consider £50bn stimulus for economy [Telegraph]

Bank of England policymakers may opt to inject a further £50bn of stimulus into Britain’s ailing economy this week, according to leading economists.

Bank of England to consider £50bn stimulus for economy

Worsening economic prospects could force the hand of the Bank’s Monetary Policy Committee, which last month voted to pause its purchase of government bonds after pumping £325bn into the market through quantitative easing.

Since then however, the data have painted a picture of a worsening, not improving outlook for the British economy, and there is no sign of a solution to the eurozone crisis.

The Office for National Statistics said the recession that began in the first quarter was deeper than it initially thought, with the economy shrinking by 0.3pc in the first three months of the year and not 0.2pc as it previously estimated.

Then on Friday the Markit/CIPS manufacturing PMI showed the sector shrank at the fastest pace in three years in May, suggesting manufacturing will be a drag on the wider economy in the second quarter.

George Buckley, economist at Deutsche Bank, said the grim manufacturing PMI survey was “a game changer”.

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UK may need more QE, warns Bank of England’s Adam Posen as he steps down from the MPC [The Telegraph]

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Bank of England policymaker Adam Posen said he had been too optimistic about the UK economy’s prospects, suggesting he should not have dropped his call for more stimulus.

UK may need more QE, warns Bank of England's Adam Posen as he steps down from the MPC

His comments came as the Bank revealed Mr Posen will not seek reappointment to the Monetary Policy Committee when his three-year term comes to an end on August 31.

Known as an arch dove, in favour of looser monetary policy, Mr Posen had repeatedly called for more quantitative easing (QE) until he unexpectedly voted against an extension to the £325bn programme in April.

“I had been hopeful in the last few months that after we did an additional £125bn [of QE] that was getting close to enough. Now I’m debating whether I was premature to think that,” he said yesterday .

Minutes of the May meeting to be published on May 23 will reveal whether or nor Mr Posen changed his vote back in favour of more QE, although economists said this was unlikely.

“Although his comments suggest he did not switch his vote back to supporting QE, there is clearly a good chance that he will resume voting for a QE extension,” said Simon Hayes of Barclays Capital.

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Antal Fekete Responds To Ben Bernanke On The Gold Standard

Tyler Durden's picture
Submitted by Tyler Durden on 03/21/2012 12:04 -0400

Yesterday, Ben Bernanke dedicated his entire first propaganda lecture to college student to the bashing of the gold standard. Of course, he has his prerogatives: he has to validate a crumbling monetary system and the legitimacy of the Fed, first to schoolchildrden and then to soon to be college grads encumbered in massive amounts of non-dischargeable student loans. While it is decidedly arguable that the gold standard may or may not have led to the first Great Depression, there is no debate at all that it was sheer modern monetary insanity and bubble blowing (by the very same professor!) that brought us to the verge of collapse in the Second Great Depression in 2008, which had nothing to do with the gold standard. And as usual there is always an other side to the story. Presenting that here today, is Antal Fekete with “The Gold Problem Revisited.”

THE GOLD PROBLEM REVISITED (pdf)

Antal E. Fekete

The article The Gold Problem of Ludwig von Mises, published 47 years ago in 1965, just six years before he died (the gold standard died with him in the same year) has some breath-taking thoughts, for example, “the gold standard alone can make the determination of money’s purchasing power independent of the ambitions and machinations of governments, of dictators, of political parties, and of pressure groups”, or: “the gold standard did not fail: governments deliberately sabotaged it, and still go on sabotaging it.” But for all our admiration we would be amiss if we did not point out certain errors in his article. These are all errors of omission, and correcting them would hopefully make the Mises article even more helpful to the discriminating reader.

Mises fails to answer his own question why gold is the best choice to serve as money. Indeed, why not another commodity, or a basket of commodities? The reason is that the marginal utility of gold is unique in that it declines at a rate slower than that of any other substance on Earth. Various assets have various marginal utilities which determine their value. All of them decline, albeit at various rates. In other words, economic actors accumulate assets increasingly reluctantly, up to their satiation point that will be reached sooner or later. For gold, this point is removed farther, so far indeed that for all practical purposes it is beyond reach.

Therefore if you substituted another commodity, or basket of commodities for gold, then you would end up with a unit of value the marginal utility of which was inferior. It would decline at a rate faster than that of gold. It would be akin to substituting a yardstick made of rubber for one made of metal.

1. The futility of inflationary policies

Mises ignores the fact that newly created money can be spent not only on goods and services, but also on financial assets. This is the proverbial fly in the ointment of the inflationary argument. It is also a subtle one, so much so that the government as the would-be perpetrator of inflation often falls victim to it. It may think that it is promoting inflation while, in fact, it acts as quartermaster for deflation.

By restricting the circulation of gold money or by other means, the government can make financial speculation more attractive. In doing so it wants to reduce the amount of money available for buying goods and services. This strategy of the government and its pseudo-economists consists precisely in channeling enough of the newly created money into speculative ventures so that the untoward consequences of price and wage rises will not occur, or they will occur later, so that the causality relation is obscured.

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