When the facts change, I change my mind. What do you do? -- John Maynard Keynes

Friday, October 7, 2011

The Bank of England moves aggressively in face of a growing global economic disaster

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UK determined not to go down with Europe—the Bank of England has sounded the alarm and is now moving aggressively while the European Central Bank (ECB) fails to act

The big story is now playing out across the “pond”--driven by growing signs of a global economic disaster, the Bank of England is putting £75billion of newly created money into the economy in a desperate effort to stave off a new credit crisis and a UK recession. In announcing the decision Bank of England Governor Sir Mervyn King said:

“This is the most serious financial crisis we’ve seen, at least since the 1930s, if not ever.  We’re having to deal with very unusual circumstances, but to act calmly to this and to do the right thing.”

Announcing its decision, the Bank said that the eurozone debt crisis was creating “severe strains in bank funding markets and financial markets”.

“The world economy has slowed, America has slowed, China has slowed, and of course particularly the European economy has slowed,” he said. “The world has changed and so has the right policy response.” The decision was the Bank of England’s first move on QE since 2009, during the global credit crisis, when the Bank injected £200 billion into the economy.

Not that any of this seems to have been obvious to the European Central Bank (ECB), whose failure to cut interest rates on Thursday was almost as surprising as the Bank of England's decision to act so precipitously and pre-emptively. http://www.telegraph.co.uk/finance/comment/jeremy-warner/8812051/Bank-of-England-hits-the-panic-button.html

City (London) traders took heart from the Bank of England’s move to boost growth, with the FTSE 100 rising 3.7 per cent -- its biggest two-day gain since 2008.

The Bank of England is now at odds with the European Central Bank (ECB), which has been moving in the opposite direction and raising rates. http://www.telegraph.co.uk/finance/financialcrisis/8810896/Bank-of-England-launches-75bn-more-QE.html

. . . . Bizarrely, the ECB still seems to be looking in the wrong direction – ever vigilantly searching the horizon for the ghost of inflation – even as the noisy locomotive of economic catastrophe bears down on it from behind. Even for such a compromised institution, with 17 masters to answer to, the incompetence of the policy stance is quite breathtaking. . . . Europe's failure to resolve its debt crisis is creating a vicious downward spiral of contracting credit and economic activity. The Bank (of England) does indeed have little option but to react in the way it has. The almost suicidal, depression economics of the eurozone leaves it no choice. . . . (emphasis added)--Jeremy Warner in the The Telegraph http://www.telegraph.co.uk/finance/comment/jeremy-warner/8812051/Bank-of-England-hits-the-panic-button.html


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