So -
'Explains what, boss?'
Explains breaking the bank, Voice.
'Oh, okay.'
Breaking the bank: Expert explains why removing interest on reserves would 'tie one hand behind the back of the Bank of England.'
You see?
'Yeah. But there's something wrong. That wasn't me speaking, boss.'
Christ! I'll fix it then ...
Breaking the bank: Expert explains why removing interest on reserves would "tie one hand behind the back of the Bank of England."
Happy now?
'Yes. / I'm no expert.'
Really?
Anyway ...
As the Chancellor finds himself -
'Hang on!'
What?! FFS!
'Which Chancellor is this?'
I don't know, Voice. The email is from last Monday.
'Okay. / Continue!'
Thank you!
As the Chancellor finds himself under pressure because of his £43bn tax-cutting programme, it is understood that the Treasury is weighing up a number of options to tap banks for cash. These include scrapping the interest which the Bank of England pays on some deposits held by lenders - mainly high street banks including Lloyds, NatWest and HSBC. Dr Alfred Duncan, Senior Lecturer in Economics at Kent, explains why now is not the time to weaken the effectiveness of monetary policy.
And our Dr Alfred is the expert. 'Nice one!' And that's Kent University, by the way. 'Nice one!'
"The Treasury is reportedly investigating the removal of interest payments on bank reserves as a measure to raise revenue. This measure would make monetary policy more difficult to implement, could worsen economic growth, and wouldn't necessarily bolster public finances.
"High street banks hold reserves accounts at the Bank of England which they use to settle payments and manage cash flow. These reserve accounts earn a small amount of interest, the Bank of England base rate minus a small spread. The Bank of England started paying interest on reserve accounts prior to the Global Financial Crisis, at the time following other central banks in other advanced economies."
Very interesting. 'Is there much more of this?' Be quiet, Voice.
"By paying interest on reserves, the Bank of England found that they could more tightly control the interest rates the banks charge each other for overnight and short-term loans. Banks would no longer lend for less than the interest they could earn on reserves. As a consequence, the Bank gained tighter control over interest rates for mortgages and business loans, and ultimately economic activity and inflation.
"Before the Bank of England paid interest on reserves, the quantity of reserves had a big influence on market interest rates: the more excess reserves, the more market interest rates could fall below the Bank of England's target. By paying interest on reserves, the Bank of England could separate their balance sheet policy, which includes financial stability interventions, from monetary policy, their control of inflation. When the Bank of England supported a financial market during a crisis, creating new reserves in the process, the interest paid on reserves meant that this didn't lead to high inflation.
"This was particularly important after the mini-budget. The Bank of England was able to stabilize the market for long term government bonds, which are crucial for pension funds, without jeopardising their own efforts to bring down inflation."
Alf, mate - 'Let him finish, boss.' Yeah, right.
"Without interest on reserves, the Bank of England would have less control over the interest rates that banks charge for short term loans. Ultimately, this would feed through to the interest rates that banks charge for mortgages, for business investment, and even for investment in energy security. The effects of monetary policy on the economy and inflation would become more uncertain. We would be asking the Bank of England to fight inflation with one hand behind their back.
"To regain control without interest on reserves, the Bank of England may need to shrink their balance sheet, and more closely control the quantity of reserves. This could mean a much quicker Quantitative Tightening programme than currently expected, selling government bonds and likely increasing the costs of borrowing for the government and for families and businesses.
"With inflation at its highest levels in a generation, and the UK economy facing a challenging outlook, now is not the time to weaken the effectiveness of monetary policy."
Er ...
Alfred Duncan is a Senior Lecturer in Economics at the University of Kent. His main research area is macroeconomics with incomplete financial markets.
Well ... Thank you, Dr Alfred.
But, uh ...
You know how it is, don't you?
The way things are going, like.
Never mind.
ENDS
ENDS
ENDS
...
Anything else? Music?
I've written more than half of the lyric for Life and Death. I hope to finish the rest of it this week, and maybe get the lyric for the short 2.20 tune, too.
I had a psychological breakthrough last week. I realized that it doesn't matter what you put in a lyric ... as long as it's good.
You see, if it's a bad lyric ... people notice. But if it's a good lyric ... they focus on the music.
Oh, and I've rearranged the album a bit -
Mighty Soul
Shady, Dodgy, Shifty
The Future
2.20
Round The Bend
Love Me
Stella
Malibu
Good Times
Nothing
Life and Death
Man, that is some album!
Ha, ha, ha!
Laters, pop tarts!
