Latest / Merryn Talks Money / Mervyn King Says the Bank of England Is Making a ‘Big Mistake’

Transcript

Mervyn King Says the Bank of England Is Making a ‘Big Mistake’ · Merryn Talks Money

• 0:00
  Speaker 1: John Marden.
• 0:03
  Speaker 2: How do you feel, John, about owning a lot more
• 0:06
  Speaker 2: private equity?
• 0:07
  Speaker 1: Oh, I can't get enough of private equity.
• 0:10
  Speaker 2: I can't get another of it, because you know the
• 0:13
  Speaker 2: great thing about private equity, And I can tell you
• 0:16
  Speaker 2: the great thing about private equity because we've been told,
• 0:19
  Speaker 2: we've been told by our Chancellor, Jeremy Hunt, who's often
• 0:22
  Speaker 2: right right, that if we do what he says, and
• 0:28
  Speaker 2: our defined benefit pension providers put five percent of our
• 0:32
  Speaker 2: pension money into unlisted companies, we will be twelve percent
• 0:38
  Speaker 2: richer over our career and we will all get one
• 0:41
  Speaker 2: thousand pounds more a year when we are retired. Now,
• 0:44
  Speaker 2: in some of the bits in BOS when he talks
• 0:46
  Speaker 2: about this, he says as much as all might, etc.
• 0:49
  Speaker 2: But on the government website it actually uses the word
• 0:52
  Speaker 2: will you will be twelve percent richer, you will have
• 0:56
  Speaker 2: one thousand pounds more a year. And I think that
• 0:59
  Speaker 2: was pushing it a little.
• 1:00
  Speaker 1: I mean the past. There's no guy to the future.
• 1:03
  Speaker 1: And also I would just like to mention that did
• 1:06
  Speaker 1: you say defined benefit pension schemes.
• 1:09
  Speaker 2: No defined contribution pensions games? Did I get?
• 1:12
  Speaker 1: Okay?
• 1:12
  Speaker 2: It's because all my fantasies involved defined benefit pensions games
• 1:16
  Speaker 2: and I can't there in my head all the time,
• 1:18
  Speaker 2: but in this case, I mean defined contribution the ones
• 1:21
  Speaker 2: that you and I have.
• 1:22
  Speaker 1: That's what that was. One I was saying, I don't
• 1:24
  Speaker 1: have a dB pension, I was, but yeah, not my dream.
• 1:30
  Speaker 2: In my dreams, defined benefit pensions. You know, you have
• 1:32
  Speaker 2: dreams and you've nearly got something, you're grabbing for them,
• 1:35
  Speaker 2: and then you wake up.
• 1:36
  Speaker 3: That's what DB's are.
• 1:37
  Speaker 4: To me.
• 1:40
  Speaker 1: It's holy grail. Yeah, no, I think that's actually kind
• 1:44
  Speaker 1: of well, be very hard to get away with that
• 1:47
  Speaker 1: in a financial promotion or any kind of fund management literature,
• 1:51
  Speaker 1: I have to say. And also, I mean it goes
• 1:55
  Speaker 1: back to when we were talking about about private equity
• 1:58
  Speaker 1: after your chat with Health and Steers a couple of
• 2:01
  Speaker 1: weeks ago from Pinete, and you know, we just don't
• 2:06
  Speaker 1: know if the same drivils that need private equity do
• 2:09
  Speaker 1: we all during the ultra law reader at our own still,
• 2:13
  Speaker 1: So it's not we can protect what's going to happen
• 2:15
  Speaker 1: with it next.
• 2:16
  Speaker 3: But there's then, and there's more.
• 2:18
  Speaker 2: There's more weirdness dug into this than you can possibly
• 2:22
  Speaker 2: imagine I've been writing. If I wrote a column about
• 2:24
  Speaker 2: it last week, and I found it absolutely fascinating that,
• 2:27
  Speaker 2: you know, there's there's a couple of things going on
• 2:28
  Speaker 2: here that are really worth mentioning. The first one is
• 2:31
  Speaker 2: that eight of our big providers have made this commitment
• 2:35
  Speaker 2: to put five percent of our money into private equity
• 2:38
  Speaker 2: in order to boost the UK economy, but there is
• 2:41
  Speaker 2: no obligation for them to invest in unlisted stocks in
• 2:46
  Speaker 2: the UK, so that five percent financed by tax relief
• 2:51
  Speaker 2: from our government, which of course comes from us in
• 2:53
  Speaker 2: the first place, because that's how tax really works. Our
• 2:56
  Speaker 2: money going.
• 2:57
  Speaker 3: To boost unlisted companies broad so that makes no sense.
• 3:02
  Speaker 2: And then, of course the other thing that Jeremy Hunt
• 3:04
  Speaker 2: is really keen to do at the moment is to
• 3:06
  Speaker 2: boost listed companies in the UK, to persuade people to
• 3:09
  Speaker 2: list in the UK and get more money into listed companies. Now,
• 3:12
  Speaker 2: if you say to the dB pension fund to by
• 3:14
  Speaker 2: the way, I have more of their total assets in
• 3:17
  Speaker 2: listed UK companies than the defined benefit pension funds to
• 3:20
  Speaker 2: do more like six than three four percent. If you
• 3:23
  Speaker 2: say to them, now you've got to take money and
• 3:25
  Speaker 2: you've got to shovel it into unlisted where's that money
• 3:28
  Speaker 2: going to come from straight out of listed.
• 3:31
  Speaker 1: Yeah, you know, we make up your mind.
• 3:33
  Speaker 2: Everybody make up your mind.
• 3:36
  Speaker 1: Can I just pause it something very quickly? And I
• 3:38
  Speaker 1: don't know if you've thought about this, but I was
• 3:40
  Speaker 1: having a very quick look at what the industry body
• 3:43
  Speaker 1: said about these proposals just before the conk can you
• 3:47
  Speaker 1: know made concrete. And one of the things that struck
• 3:51
  Speaker 1: me they were focused on mostly was that they were
• 3:53
  Speaker 1: fared up with the focus that calls on in cost.
• 3:59
  Speaker 1: So they were tom but hoo, you know, the definitely
• 4:01
  Speaker 1: one basis point can change the pension the pervader who's chosen.
• 4:07
  Speaker 1: And one of the points of investing in unlisted companies
• 4:10
  Speaker 1: is that you're able to ob basically charge more for
• 4:12
  Speaker 1: doing it. And I'm just wondering if there's a wee
• 4:14
  Speaker 1: bit if I'm not saying it's a bad thing, you
• 4:17
  Speaker 1: move the focus away from the can absolute can laser intensity.
• 4:22
  Speaker 3: That it's a really bad thing. It really is.
• 4:27
  Speaker 2: Years John and I, you and I have been lobbying
• 4:30
  Speaker 2: to bring down the cost of investment. Years we have
• 4:32
  Speaker 2: been saying there is only one certainty when you invest in.
• 4:35
  Speaker 2: That is the price of that investment. Everything else is speculation, forecast,
• 4:39
  Speaker 2: and prediction, and we know this is all meaningless.
• 4:41
  Speaker 3: Meaningless nonsense.
• 4:42
  Speaker 2: The only thing you know that absolute certain is the cost.
• 4:48
  Speaker 2: And we've done article after article after article explaining about
• 4:51
  Speaker 2: the compounding effect of those costs. Yes, it is the
• 4:54
  Speaker 2: most important thing. Yes, there should be absolute laser focus
• 4:57
  Speaker 2: on costs all the time.
• 5:00
  Speaker 1: Well, in that case, you know, maybe this is the
• 5:03
  Speaker 1: then end of the wedge to moving away from that
• 5:05
  Speaker 1: if you see what I mean, Well, because nothing else
• 5:09
  Speaker 1: explains I think, well, why private equity in like the
• 5:13
  Speaker 1: US or something like that, you know, why would that
• 5:16
  Speaker 1: be allowed in these portfolios?
• 5:17
  Speaker 3: God, these people are good at lobbying.
• 5:20
  Speaker 1: Yes, I think so. I'm I'm glad you has the
• 5:24
  Speaker 1: best lobbyers.
• 5:25
  Speaker 2: He's the best lobbyist. I mean, I don't know, we
• 5:27
  Speaker 2: make a list of this, you know, other people do
• 5:28
  Speaker 2: best retirement spots and that kind of thing. We're gonna
• 5:30
  Speaker 2: be the best lobbying sectors. And I'm only guessing here, right,
• 5:34
  Speaker 2: But i'd go private equity and house building.
• 5:37
  Speaker 1: Yeah they are, They're pretty good. They're pretty good.
• 5:40
  Speaker 2: Yeah, I mean help to buy someone give the lobbyists
• 5:43
  Speaker 2: who brought that to the.
• 5:44
  Speaker 1: Front and price absolute genius.
• 5:47
  Speaker 2: Anyway, all that aside. The thing that bothers me most
• 5:51
  Speaker 2: about this, absolutely most about this, is that while it's
• 5:54
  Speaker 2: not compulsory, it's a voluntary compact. I think it's one
• 5:57
  Speaker 2: of the voluntary compact compacts that we can file than
• 6:00
  Speaker 2: do what I tell you, or I'll make.
• 6:01
  Speaker 3: You do what I tell you. It's one of those
• 6:03
  Speaker 3: monutory things.
• 6:05
  Speaker 2: And it's the beginning of the government directing the acid
• 6:09
  Speaker 2: allocation inside what we once believed to be our own portfolios.
• 6:14
  Speaker 2: And once you've started down that path, I don't know
• 6:17
  Speaker 2: how you stop it.
• 6:18
  Speaker 1: Yeah, it's the thin end of a lot of wages,
• 6:21
  Speaker 1: it is. And whenever you think that, you know, next
• 6:24
  Speaker 1: year probably get I mean very lately, get a definite
• 6:28
  Speaker 1: flavored of government which might have completely different views on things.
• 6:33
  Speaker 1: And now the doors weighed open for you know them
• 6:36
  Speaker 1: in any future government too.
• 6:37
  Speaker 2: Absolutely, this year private equity. Next year you're financing the
• 6:42
  Speaker 2: Greens transition, somebody else's infrastructure projects, you know, maybe even
• 6:47
  Speaker 2: HS two getting to London, I don't know anything.
• 6:51
  Speaker 1: By that same will be the deficit. All all your
• 6:54
  Speaker 1: money is going into guilt where you like it, just.
• 6:57
  Speaker 3: It's all your money into it.
• 7:00
  Speaker 2: But you know, it's an interesting slippery slope and one
• 7:02
  Speaker 2: that I think we should all be extremely concerned about.
• 7:04
  Speaker 2: This is this is proper financial oppression, and on that
• 7:10
  Speaker 2: deep problem replaced enough, I don't want to talk about
• 7:13
  Speaker 2: your oppressions. Welcome to Maren Talk to Money, the podcast
• 7:20
  Speaker 2: in which people who know the markets explain the markets.
• 7:23
  Speaker 3: I'm Maren Sumset Web.
• 7:24
  Speaker 2: This week, our guest is Lord Mervin King, former Bank
• 7:27
  Speaker 2: of England governor who served at the Bank from two
• 7:29
  Speaker 2: thousand and three to two and thirteen.
• 7:34
  Speaker 3: Mevin, Hello, thank you so much for being with us today.
• 7:37
  Speaker 4: Pleasure to join you.
• 7:39
  Speaker 3: Well, I'm not sure there's going to be too many
• 7:41
  Speaker 3: pleasureable things to talk about today, but let's let's give
• 7:43
  Speaker 3: it a go.
• 7:44
  Speaker 5: I think that the big question here, the big topic
• 7:47
  Speaker 5: is obviously inflation.
• 7:48
  Speaker 3: So let's start by talking a little.
• 7:51
  Speaker 5: Bit about how we got here with inflation at such
• 7:55
  Speaker 5: high levels in the UK.
• 7:56
  Speaker 3: It seems to us as though the Bank of.
• 7:58
  Speaker 5: England has along the way made a couple of pretty
• 8:01
  Speaker 5: extreme mistakes, and I wonder if we could just have
• 8:04
  Speaker 5: you will take on how got you two percent of
• 8:06
  Speaker 5: the target were nowhere in.
• 8:09
  Speaker 4: The Bank of England is in good company because all
• 8:12
  Speaker 4: the major central banks have made the same mistake. They
• 8:16
  Speaker 4: did have some bad luck. You can't blame them for
• 8:19
  Speaker 4: the rise in energy and food prices resulting from the
• 8:22
  Speaker 4: Russian invasion of Ukraine. But I think you can blame
• 8:27
  Speaker 4: central banks for printing a large amount of money during
• 8:30
  Speaker 4: the pandemic when there was no real need to do it. Now,
• 8:35
  Speaker 4: I think the problem does not stem from central banks.
• 8:39
  Speaker 4: It stems from the economic profession, the academic profession, which
• 8:45
  Speaker 4: has generated a large number of very brilliant young economists.
• 8:51
  Speaker 4: But they've all been trained to believe the same thing,
• 8:55
  Speaker 4: and they've all gone to work in central banks. So
• 8:58
  Speaker 4: what is what is it that they leave that's a mistake.
• 9:02
  Speaker 4: The big mistake is to think that money has absolutely
• 9:06
  Speaker 4: nothing to do with inflation. This is a very odd viewpoint,
• 9:11
  Speaker 4: because inflation is a fall in the value of money,
• 9:13
  Speaker 4: So you would think that the amount of money that
• 9:16
  Speaker 4: the central bank's print would have something to do with inflation,
• 9:20
  Speaker 4: And indeed history tells us that if you print enough money,
• 9:23
  Speaker 4: you will get inflation. Why does the academic profession go
• 9:28
  Speaker 4: down this road. I think it's because they wanted to
• 9:32
  Speaker 4: be a very scientific discipline and in the nineteen eighties,
• 9:36
  Speaker 4: the relationship between the amount of money and the economy
• 9:40
  Speaker 4: and the inflation didn't seem very stable. It moved around. Now,
• 9:46
  Speaker 4: in large part that was because there was a good
• 9:49
  Speaker 4: deal of financial deregulation, but it was also political that
• 9:53
  Speaker 4: people like Milton Friedman in the United States were seen
• 9:56
  Speaker 4: as very right wing and they wanted a more lef
• 10:00
  Speaker 4: wing a view of inflation. Now, this itself is odd
• 10:03
  Speaker 4: because if economics is a science, then it shouldn't really
• 10:07
  Speaker 4: affect what you believe scientifically, should not be affected by
• 10:12
  Speaker 4: your political viewpoint. But people honed in on the idea
• 10:16
  Speaker 4: that inflation was really entirely driven by what people expect
• 10:21
  Speaker 4: to happen. There's some truths in that, but of course
• 10:25
  Speaker 4: the real question then is what makes them expect inflation
• 10:29
  Speaker 4: to be close to the target? And you would think
• 10:33
  Speaker 4: that what they would leave would depend on what they
• 10:36
  Speaker 4: see in the economy and what central banks are actually doing.
• 10:42
  Speaker 4: But in fact this new theory said no inflation expectations,
• 10:48
  Speaker 4: and so inflation itself will always be driven by the target. Well,
• 10:53
  Speaker 4: this is a very odd theory. It's completely circular. And indeed,
• 10:58
  Speaker 4: if you'd look at the models which not just the
• 11:01
  Speaker 4: Bank of England but other central banks use. Whatever you
• 11:06
  Speaker 4: do to monetary policy, inflation always comes back to two percent.
• 11:11
  Speaker 4: Why does it do that because the model says it
• 11:13
  Speaker 4: has to. It's built in. It's an assumption. Well, if
• 11:17
  Speaker 4: you have a central bank saying we assume that inflation
• 11:20
  Speaker 4: will always come back to two percent, what you've done
• 11:24
  Speaker 4: is to replace Milton Friedman's maxim that inflation is always
• 11:29
  Speaker 4: an everywhere a monetary phenomenon by a new maxim that
• 11:33
  Speaker 4: says inflation is always an everywhere a transitory phenomenon. And
• 11:39
  Speaker 4: this is simply demonstrably false, and it has been demonstrated
• 11:43
  Speaker 4: as false by what central banks did in twenty twenty
• 11:47
  Speaker 4: and twenty one when they printed a very large amount
• 11:50
  Speaker 4: of money despite the productive potential of the economy falling
• 11:55
  Speaker 4: quite sharply because of lockdown, economy could not produce as
• 11:59
  Speaker 4: much as when we didn't have a lockdown. Well, the
• 12:03
  Speaker 4: worst thing you can do in that situation is to
• 12:06
  Speaker 4: try to boost demand, because what you end up seeing
• 12:10
  Speaker 4: is too much money created by central banks chasing too
• 12:15
  Speaker 4: few goods created by the lockdowns. And if you've got
• 12:19
  Speaker 4: too much money chasing too few goods, that is the
• 12:22
  Speaker 4: absolute classic recipe for inflation. So this was predictable. It
• 12:27
  Speaker 4: was indeed predicted, And I don't want to blame individuals
• 12:31
  Speaker 4: in central banks, or even actually a particular central banks
• 12:35
  Speaker 4: such as the Bank of England. They were all following
• 12:38
  Speaker 4: the same conventional wisdom which would arisen over the last
• 12:42
  Speaker 4: ten to fifteen years in the academic economics profession, completely
• 12:47
  Speaker 4: contrary to the lessons of history and the sort of
• 12:50
  Speaker 4: textbooks that people were reading in the nineteen fifties and
• 12:53
  Speaker 4: nineteen sixties. And indeed, there's hardly anyone left in a
• 12:57
  Speaker 4: central bank now who remembers not only those textbooks but
• 13:01
  Speaker 4: also the inflationary experience of the nineteen seventies. So people
• 13:05
  Speaker 4: got lulled into thinking that just because they had a
• 13:09
  Speaker 4: target of two percent, that they could assume that inflation
• 13:12
  Speaker 4: would always come back to that whatever they did, and
• 13:16
  Speaker 4: that clearly was very fulish, and it led to the
• 13:18
  Speaker 4: inflation that we've seen.
• 13:20
  Speaker 2: An extraordinary situation, isn't it.
• 13:22
  Speaker 5: I mean, if you look back to those beginning days
• 13:24
  Speaker 5: of the pandemic, when we were destroying supply chains across
• 13:28
  Speaker 5: the world, destroying productive capacity, the correct thing.
• 13:31
  Speaker 2: At that point to do would have been to damp.
• 13:33
  Speaker 5: And down demand at the same time, rather than to
• 13:36
  Speaker 5: try and shovel demand up to save the situation.
• 13:39
  Speaker 3: It was completely the wrong way around. But there were
• 13:41
  Speaker 3: voices then, and there you were.
• 13:43
  Speaker 5: One of them, and you and I both know several
• 13:45
  Speaker 5: other economists who spoke about this kind of thing from
• 13:48
  Speaker 5: the very beginning, who insisted that money would make a difference.
• 13:52
  Speaker 3: Their voices weren't heard.
• 13:54
  Speaker 2: So it's interesting that in any science, if we consider
• 13:57
  Speaker 2: economics of science, you can get to the point where
• 13:59
  Speaker 2: there is full group think.
• 14:01
  Speaker 4: So this was genuine academic group think right across the
• 14:06
  Speaker 4: industrialized world. And in part it's because although there are
• 14:12
  Speaker 4: central bankers from many different countries involved in this, they
• 14:16
  Speaker 4: all went to graduate schools with exactly the same assumptions
• 14:21
  Speaker 4: built into their courses, namely that inflation really has nothing
• 14:26
  Speaker 4: to do with money and we can forget about money altogether.
• 14:29
  Speaker 2: Well, it's the same, isn't it. The idea that you can.
• 14:32
  Speaker 5: You can always create inflation if you're print too much
• 14:35
  Speaker 5: enough money, and you can always get rid of inflation
• 14:38
  Speaker 5: if you come down on it hard enough. Yes, brings
• 14:42
  Speaker 5: us to the next bit, which was because of that
• 14:45
  Speaker 5: original mistake the Bank of England, like other central bank banks,
• 14:49
  Speaker 5: failed to take action soon enough, and possibly if they'd
• 14:53
  Speaker 5: started coming down very hard last year and putting interest
• 14:56
  Speaker 5: rates up to anywhere where any anyone with an idea
• 14:59
  Speaker 5: history of might thought they should have been, we might
• 15:01
  Speaker 5: not be quite where we are now. But they didn't,
• 15:03
  Speaker 5: and here we are.
• 15:05
  Speaker 3: Is it too late?
• 15:06
  Speaker 4: Interestingly, the risk could be the other way around now
• 15:09
  Speaker 4: that having printed far too much money through quantitative easing
• 15:15
  Speaker 4: as it's called literally electronically printing money in both twenty
• 15:21
  Speaker 4: twenty and twenty twenty one, then they did try to
• 15:25
  Speaker 4: correct policy in twenty twenty two. I think, having made
• 15:31
  Speaker 4: a big mistake, it would have been better to have
• 15:33
  Speaker 4: tightened much faster in twenty twenty two, even better not
• 15:37
  Speaker 4: to have printed the money in twenty and twenty one.
• 15:40
  Speaker 4: Now we're in twenty twenty three and the impact of
• 15:44
  Speaker 4: the interest rate increases and the end of quantitative easing
• 15:49
  Speaker 4: is beginning slowly to feed through. And what you're seeing,
• 15:52
  Speaker 4: especially in the United States, which I suspect made the
• 15:56
  Speaker 4: biggest policy mistake, is that the amount of money in
• 16:01
  Speaker 4: the economy in the hands of whether it's households or businesses,
• 16:05
  Speaker 4: is actually falling. You don't want it to fall in
• 16:09
  Speaker 4: normal times, You want it just to grow in a
• 16:13
  Speaker 4: low positive rate that will support growth but not lead
• 16:16
  Speaker 4: to either inflation on the upside or to a recession
• 16:20
  Speaker 4: on the downside. And I think it's quite possible that
• 16:23
  Speaker 4: having lost control of inflation, and therefore having lost a
• 16:27
  Speaker 4: good deal of credibility, that central banks will see that
• 16:33
  Speaker 4: the safest course for them is one of overkill now,
• 16:37
  Speaker 4: so that they do bring inflation back to two percent,
• 16:40
  Speaker 4: And if they carry on for the next six months
• 16:42
  Speaker 4: or so tightening monetary policy, it could well be that
• 16:46
  Speaker 4: they generate both a recession as well as a sharp
• 16:51
  Speaker 4: fall in inflation. After all, we know it takes a
• 16:54
  Speaker 4: long time between when you change monetary policy and its
• 16:57
  Speaker 4: effect on inflation. You know, these are the so called
• 17:01
  Speaker 4: famous long and variable lags eighteen months to two years,
• 17:06
  Speaker 4: maybe a bit less in some cases, longer in others.
• 17:09
  Speaker 4: But you know, eighteen months ago interest rates were still
• 17:14
  Speaker 4: very close to zero. So if what we're seeing is
• 17:17
  Speaker 4: the consequence of that, it's not surprising that inflation has
• 17:22
  Speaker 4: not yet started to fall sharply, at least in its
• 17:25
  Speaker 4: underlying sense. And I think therefore the risk is that
• 17:30
  Speaker 4: having ignored money when inflation was rising, they're now ignoring
• 17:35
  Speaker 4: money when money is ignoring money when inflation is actually
• 17:40
  Speaker 4: about to thall. And what we could see therefore is
• 17:43
  Speaker 4: a mistake in both directions over a period of three
• 17:47
  Speaker 4: or four years.
• 17:48
  Speaker 5: Yes, I did say at the beginning that this wasn't
• 17:49
  Speaker 5: going to be a particularly cheerful conversation.
• 17:53
  Speaker 2: It is the case that broad money is that board
• 17:55
  Speaker 2: money's playing in the UK is falling.
• 17:56
  Speaker 3: Isn't it on a month and month?
• 17:59
  Speaker 4: It's a bit it's erratic in the UK, it's clearly
• 18:02
  Speaker 4: falling sharply in the US, and there are signs that
• 18:05
  Speaker 4: it's falling here too. Since it's erratic month on month,
• 18:10
  Speaker 4: you can't be entirely sure how long that will persist.
• 18:13
  Speaker 4: But certainly there are a lot of signs now that
• 18:15
  Speaker 4: the tightening of monetary policy is beginning to feed through.
• 18:19
  Speaker 4: But of course, having lost credibility, it's tough now for
• 18:22
  Speaker 4: central banks to you to take a balanced view, because
• 18:27
  Speaker 4: they may feel that the worst thing for them is
• 18:31
  Speaker 4: to be proved wrong again on the upside, And we
• 18:36
  Speaker 4: just have to wait and see what actually happens. But
• 18:40
  Speaker 4: the intellectual failure here that is to ignore money. Means
• 18:46
  Speaker 4: that I worry that central banks are now setting policy
• 18:50
  Speaker 4: by looking at the latest inflation number. And since there
• 18:53
  Speaker 4: are lags in monetary policy, just as there are between
• 18:56
  Speaker 4: when you steer a boat and the change and the
• 18:59
  Speaker 4: tiller actually a fects the direction of the boat. If
• 19:02
  Speaker 4: you're not careful, if you just look ahead of your nose,
• 19:06
  Speaker 4: then you'll end up in the bank. And I worry
• 19:10
  Speaker 4: here that you know, they haven't got a theory of inflation.
• 19:14
  Speaker 4: Having thrown money out of the out of the theoretical
• 19:18
  Speaker 4: framework they do use, they haven't replaced it with anything.
• 19:22
  Speaker 4: All they had was inflation's bound to come back to
• 19:24
  Speaker 4: two percent because we say it will. Well, we know
• 19:27
  Speaker 4: that's no longer true. And therefore they've got to have
• 19:31
  Speaker 4: some sort of theory about how a change in interest
• 19:34
  Speaker 4: rates or the amount of money they print feeds through
• 19:37
  Speaker 4: to the economy. And that's what their models do not
• 19:40
  Speaker 4: incorporate at present. And therefore we could end up with
• 19:46
  Speaker 4: a sharper fall than inflation and a deeper recession than
• 19:49
  Speaker 4: they presently expect. But nothing is certain. That's the big challenge.
• 19:55
  Speaker 4: You know, they can't guarantee that, and therefore I suspect
• 19:58
  Speaker 4: that they will, for the sake of their own credibility,
• 20:01
  Speaker 4: have to play very safe by keeping rates higher for longer.
• 20:05
  Speaker 2: Yeah, I'd be surprised if that credibility comes back in
• 20:08
  Speaker 2: a hurry.
• 20:09
  Speaker 5: One of the things that we keep looking at at
• 20:11
  Speaker 5: the moment is the extent which the transmission mechanism of
• 20:14
  Speaker 5: raising interest rates is extended.
• 20:16
  Speaker 3: It takes longer than it.
• 20:17
  Speaker 5: Used to take because of the way that the housing
• 20:19
  Speaker 5: market is now a set up in the UK with
• 20:21
  Speaker 5: something like thirty six percent of pons owned out right
• 20:24
  Speaker 5: and twenty eight percent being on mortgages, but the majority
• 20:27
  Speaker 5: of those being fixed rated either two years or five years, etc.
• 20:31
  Speaker 5: So instead of being able to snap your fingers and
• 20:33
  Speaker 5: have everybody paying six percent of all of a sudden,
• 20:35
  Speaker 5: in fact their only roll off very slowly, month by
• 20:38
  Speaker 5: month by month. The effect of that on dampening demand,
• 20:40
  Speaker 5: instead of being maybe a year, is definitely more like
• 20:43
  Speaker 5: two years, maybe two and a half.
• 20:45
  Speaker 3: And that may not be fully.
• 20:46
  Speaker 5: Factored in to the Bank of England's thinking, or may
• 20:48
  Speaker 5: not have been when they started this person.
• 20:50
  Speaker 4: I think they are conscious of that, and they therefore
• 20:54
  Speaker 4: they can try to incorporate that into their projections and
• 20:58
  Speaker 4: their judgments. I think there is one factor which will
• 21:02
  Speaker 4: operate in their favor, which is that the high energy
• 21:06
  Speaker 4: and food prices that we saw a year ago are
• 21:09
  Speaker 4: beginning to drop out of the twelve month measure of inflation,
• 21:14
  Speaker 4: and therefore we could see it over the rest of
• 21:16
  Speaker 4: this year, you know, a significant fall and inflation which
• 21:20
  Speaker 4: might change people's perceptions about whether or not the Bank
• 21:25
  Speaker 4: of England can regain control of inflation. And that could
• 21:28
  Speaker 4: be true even if underlying inflation that is consumer price
• 21:33
  Speaker 4: inflation excluding food and energy prices, even if that remains elevated,
• 21:40
  Speaker 4: and it may help the bank to see some fall
• 21:44
  Speaker 4: in headline inflation that people will feel are well, at last,
• 21:48
  Speaker 4: it's beginning to come down, so we can calm down
• 21:51
  Speaker 4: a bit. They seem now to have done enough to
• 21:54
  Speaker 4: regain control, and my guess is that, you know, I mean,
• 21:58
  Speaker 4: I'm confident they can bring it back to two percent.
• 22:02
  Speaker 4: The problem they've got now is that having lost credibility
• 22:07
  Speaker 4: and control, I think of people's beliefs about people are
• 22:12
  Speaker 4: talking about inflation a great deal now that you may
• 22:15
  Speaker 4: need to go through a period of significant labor market
• 22:19
  Speaker 4: weakness in order for people to feel that well, inflation
• 22:24
  Speaker 4: is again once again something of the past and not
• 22:28
  Speaker 4: the future. But this is difficult to judge. We haven't
• 22:32
  Speaker 4: been in this position for a long time now, and
• 22:37
  Speaker 4: trying to guess how people will respond to movements in
• 22:41
  Speaker 4: headline inflation is never easy.
• 22:43
  Speaker 5: No, but I think we can. We can see it
• 22:45
  Speaker 5: in the labor market, can't we, And that for a
• 22:47
  Speaker 5: long period when inflation has been knocking around one two
• 22:50
  Speaker 5: percent not much more, people don't really think.
• 22:52
  Speaker 2: About the effect that has on their real purchasing powers.
• 22:54
  Speaker 2: Everybody understands what inflation does their purchasing power.
• 22:57
  Speaker 3: So the idea that over the next few years.
• 23:00
  Speaker 2: People might again begin say as the actually really matter,
• 23:02
  Speaker 2: it doesn't make any difference from me, etc.
• 23:04
  Speaker 3: That shit is slightly saled.
• 23:05
  Speaker 2: We now have a generation of people who are going
• 23:07
  Speaker 2: to have an.
• 23:07
  Speaker 5: Eye on inflation in how to affix their purchasing power
• 23:11
  Speaker 5: long term, and that.
• 23:12
  Speaker 2: Seems to be something that might change the dynamics of
• 23:15
  Speaker 2: the labor market.
• 23:16
  Speaker 4: Yeah. I think that's right. And my definition of price
• 23:20
  Speaker 4: stability would be when people no longer talk about inflation,
• 23:26
  Speaker 4: and that we got to that point to be at
• 23:28
  Speaker 4: a quarter of a century, when people really didn't talk
• 23:30
  Speaker 4: about inflation. Now it's right back again as the center
• 23:33
  Speaker 4: of many conversations, and we need to go through a
• 23:37
  Speaker 4: period again in which by keeping inflation close to two percent,
• 23:42
  Speaker 4: we can get back to the position in which people
• 23:45
  Speaker 4: stop worrying about inflation. It just isn't part of how
• 23:48
  Speaker 4: they think about their behavior, whether it's in terms of
• 23:51
  Speaker 4: the wages they will settle for, or the investment decisions
• 23:55
  Speaker 4: or pricing decisions made by businesses. It's very This is
• 23:59
  Speaker 4: the unfortunate consequence of having it allowed inflation to get
• 24:03
  Speaker 4: out of control.
• 24:05
  Speaker 2: Do you still think that two percent is the correct target?
• 24:08
  Speaker 4: I think it is for a number of reasons. First,
• 24:12
  Speaker 4: we'd like inflation really to be effectively zero on average.
• 24:17
  Speaker 4: The official measures of inflation do not capture improvements in
• 24:21
  Speaker 4: the quality of goods and services that happen from one
• 24:25
  Speaker 4: year to the next, And although the Office for National
• 24:28
  Speaker 4: Statistics tries its best to take into account some aspects
• 24:33
  Speaker 4: of that, there are still significant changes and the quality
• 24:36
  Speaker 4: of goods and services that are just not picked up
• 24:39
  Speaker 4: in looking at prices and what seem to be similar
• 24:41
  Speaker 4: things in the shops this year to the ones that
• 24:44
  Speaker 4: we measured the price of last year, and that accounts
• 24:48
  Speaker 4: for easily one percent, possibly a bit more of an
• 24:52
  Speaker 4: apparent inflation rate, but doesn't correspond to any real inflation.
• 24:57
  Speaker 4: So I think you'd want to adjust whatever target you
• 25:00
  Speaker 4: had for that. And well, indeed, there was a point
• 25:04
  Speaker 4: when people thought, well, we should cut the two percent
• 25:06
  Speaker 4: target to one percent.
• 25:08
  Speaker 3: Thank goodness, no one did that.
• 25:10
  Speaker 4: Yes, so I think it wouldn't make sense to have
• 25:15
  Speaker 4: an inflation target of sort of one point seventy three
• 25:18
  Speaker 4: percent and whatever some academic evidence showed for quality change.
• 25:23
  Speaker 4: Two was a nice round number when we started with
• 25:26
  Speaker 4: inflation targeting in the early nineteen nineties. Actually, most people
• 25:30
  Speaker 4: didn't believe wouldever get down to two percent, but we
• 25:33
  Speaker 4: did it.
• 25:34
  Speaker 2: With a pretty nasty recession in the early nineties.
• 25:36
  Speaker 3: It didn't just happen. It was a lot of unpleasantness
• 25:39
  Speaker 3: to get.
• 25:39
  Speaker 4: It was difficult in the early eighties and nineties to
• 25:43
  Speaker 4: bring inflation down, but it was achieved, and once it
• 25:46
  Speaker 4: was achieved, it stayed low. That was the great achievement
• 25:49
  Speaker 4: of inflation targeting. And so I don't think that aiming
• 25:54
  Speaker 4: at that is a mistake. I think it's the right
• 25:56
  Speaker 4: sort of number. And if you want to explain to
• 25:58
  Speaker 4: people what the inflation tip is. You need a decent
• 26:01
  Speaker 4: round number to explain it. Because at two percent, people
• 26:04
  Speaker 4: don't talk about inflation. This will be the worst possible
• 26:08
  Speaker 4: time to change the target. You know, just because you're
• 26:12
  Speaker 4: having difficulty in meeting the target. You don't just change
• 26:16
  Speaker 4: the target. That would undermine the credibility of the entire regime.
• 26:20
  Speaker 4: And the same academic approach to monetary policy which I
• 26:24
  Speaker 4: described earlier is responsible for some people arguing that the
• 26:29
  Speaker 4: target should be raised, and on the grounds that, well,
• 26:33
  Speaker 4: you know, three percent is it's so different from two percent.
• 26:37
  Speaker 4: But the point is if you as soon as inflation
• 26:39
  Speaker 4: goes above the target, you sort of move the target
• 26:42
  Speaker 4: up and say, well, it doesn't really matter that we
• 26:44
  Speaker 4: missed it very much, does It will change the target
• 26:47
  Speaker 4: to three. You know, the next thing, you know, it'll
• 26:49
  Speaker 4: be moved to four. People just will not believe that
• 26:53
  Speaker 4: you are serious about keeping inflation low and stable. So
• 26:56
  Speaker 4: I can't see any obvious merit in moving the target
• 27:00
  Speaker 4: at all. It's arbitrary to some extent, but it is
• 27:04
  Speaker 4: I think a reasonable approximation to price stability. We need
• 27:08
  Speaker 4: to get back to two percent, and then remember that
• 27:11
  Speaker 4: money does matter.
• 27:13
  Speaker 2: Do you think the bank itself is in any danger?
• 27:17
  Speaker 5: There is now a lot of conversation around around the
• 27:20
  Speaker 5: fringes of the profession are at Bank of England independence
• 27:23
  Speaker 5: and maybe it hasn't been got quite right, and maybe
• 27:25
  Speaker 5: that needs a bit of a briefink.
• 27:27
  Speaker 4: I think not. I mean, I'm on the House of
• 27:29
  Speaker 4: Lords Economic Affairs Committee, and we're conducting an inquiry into
• 27:34
  Speaker 4: the way in which independence has been operated and how
• 27:38
  Speaker 4: it's functioned over the past quarter of a century. Because
• 27:41
  Speaker 4: it's exactly twenty five years ago this month since the
• 27:45
  Speaker 4: legislation creating a Bank of England came into effect. Creating
• 27:49
  Speaker 4: an independent Bank of England came into effect. I don't
• 27:52
  Speaker 4: want to front run any conclusions we may or may
• 27:54
  Speaker 4: not reach in our report, which I expect to be
• 27:57
  Speaker 4: published in the autumn. We've still got more evidence to take. Clearly,
• 28:03
  Speaker 4: a lot of things have changed since the Bank of
• 28:07
  Speaker 4: England was first made independent. In particular, it has a
• 28:13
  Speaker 4: much greater set of responsibilities now than the bank had
• 28:17
  Speaker 4: in the early nineteen or mid nineteen nineties. This was partly,
• 28:21
  Speaker 4: of course, the consequence of the financial crisis, where which
• 28:25
  Speaker 4: led to the bank being given responsibility for financial regulation
• 28:30
  Speaker 4: of banks and insurance companies, and also a wider responsibility
• 28:36
  Speaker 4: for financial stability with new instruments to use in that context.
• 28:42
  Speaker 4: But also because more recently Chancellors of the Exchequer have
• 28:46
  Speaker 4: been tempted to lengthen the remit of the Bank of
• 28:51
  Speaker 4: England and to add lots more things like climate change
• 28:55
  Speaker 4: and other issues which the Bank are supposed to take
• 28:58
  Speaker 4: into account when making its decisions. So I think there's
• 29:03
  Speaker 4: a lot to be said for simplicity, for not making
• 29:06
  Speaker 4: things too complicated, and for making sure that the Bank
• 29:10
  Speaker 4: of England is responsible for achieving its main objectives.
• 29:15
  Speaker 2: Yeah, and it also means that we end up with
• 29:17
  Speaker 2: headlines like we had recently of that and we're barely
• 29:20
  Speaker 2: putting in or the Bank of England putting in heat
• 29:22
  Speaker 2: pumps in this kind of thing which makes everyone roll
• 29:24
  Speaker 2: their eyes slightly. It will make not a blind bit
• 29:26
  Speaker 2: of difference to anything, but everyone would really rather that
• 29:29
  Speaker 2: banking was focusing on inflation than heat pumps. It's also
• 29:32
  Speaker 2: something in the newspapers saying that the average Bank of
• 29:35
  Speaker 2: England employee.
• 29:36
  Speaker 5: Only worked in the office two days a week, which
• 29:39
  Speaker 5: seems to me something that may affect the way they
• 29:41
  Speaker 5: operate in that so we certainly find that the more the.
• 29:44
  Speaker 2: More you talk, the more you argue, the more likely
• 29:47
  Speaker 2: you are to get the correct result. And it's much
• 29:48
  Speaker 2: harder to do that out of the office than in
• 29:50
  Speaker 2: the office.
• 29:52
  Speaker 4: I'm sure that the management of the bank would like
• 29:55
  Speaker 4: people to go in more often.
• 29:57
  Speaker 2: Why don't they just pull them to then?
• 29:59
  Speaker 4: Well it you might ask to say a question of
• 30:01
  Speaker 4: every institution in the city. I mean, the city of
• 30:04
  Speaker 4: London is not full on Mondays and Fridays, And partly
• 30:09
  Speaker 4: it's because after the pandemic, people have discovered that they
• 30:15
  Speaker 4: quite like working at home part of the week. It
• 30:17
  Speaker 4: adds a great to the flexibility to their lives. And
• 30:20
  Speaker 4: if you want to get the best people to work
• 30:22
  Speaker 4: for you, you need to offer a competitive package. The bank's
• 30:27
  Speaker 4: not really in a position to offer significant financial rewards,
• 30:31
  Speaker 4: so anything it can do to make working for the
• 30:33
  Speaker 4: bank more attractive clearly improves the quality of the package
• 30:37
  Speaker 4: it can offer its staff. But I think this is
• 30:39
  Speaker 4: something which we have no experience of this happening. It's
• 30:45
  Speaker 4: nothing like this happened in my lifetime so up until now.
• 30:49
  Speaker 4: So I think we just have to feel our way.
• 30:51
  Speaker 4: It's quite possible that three years from now will be
• 30:54
  Speaker 4: back in the world in which everyone wants to work
• 30:56
  Speaker 4: five days a week. But I take your point, which
• 30:59
  Speaker 4: is the seeing people is very important.
• 31:03
  Speaker 5: I go find benefit pension scheme. It's the best one
• 31:07
  Speaker 5: in the world, isn't it.
• 31:09
  Speaker 4: Well, it's not available now to new entrants.
• 31:12
  Speaker 3: No, I take it back to England. I'm not coming.
• 31:16
  Speaker 4: So I think it's very difficult for employers in the city.
• 31:20
  Speaker 4: One of the great disadvantages which London has over other
• 31:24
  Speaker 4: centers is that if once people have started a family,
• 31:32
  Speaker 4: they are not paid enough to enable them to live
• 31:35
  Speaker 4: comfortably in central London, so they live a long distances
• 31:39
  Speaker 4: away and that makes commuting difficult. So that's exactly a
• 31:43
  Speaker 4: situation in which the ability to work from home. You know,
• 31:46
  Speaker 4: it has a lot to be said for it.
• 31:48
  Speaker 5: On the glossed and got in nice house price crash
• 31:50
  Speaker 5: on the way, haven't we, So that should help out well.
• 31:53
  Speaker 4: I don't like to forecast. I won't forecast where the
• 31:56
  Speaker 4: economy is going, and certainly not asset prices. But it
• 32:00
  Speaker 4: just goes. It goes back to what I said earlier,
• 32:02
  Speaker 4: which is the impact of the tightening of monetary policy
• 32:06
  Speaker 4: that we've seen I think has pretty much eliminated the
• 32:12
  Speaker 4: monetary overhang that was created in twenty and twenty one.
• 32:18
  Speaker 4: Going forward, we need to be careful. But if you
• 32:22
  Speaker 4: move from a world of very low interest rates where
• 32:25
  Speaker 4: people expect this to continue and return sensibly in my view,
• 32:30
  Speaker 4: to a world of higher interest rates of the order
• 32:35
  Speaker 4: of where we were before the financial crisis, then you
• 32:39
  Speaker 4: would expect asset prices relative to incomes to fall back.
• 32:43
  Speaker 4: And that's what we have and are seeing. And that's
• 32:46
  Speaker 4: true of all asset prices, both are stocks, bonds, houses,
• 32:51
  Speaker 4: and all other assets. So I think we were living
• 32:54
  Speaker 4: in a world that was clearly unsustainable between the end
• 33:01
  Speaker 4: of the financial crisis and more recently in which people
• 33:05
  Speaker 4: believe that very low interest rates could actually be around
• 33:09
  Speaker 4: for a very long time.
• 33:10
  Speaker 2: Can I ask you about Brexit in terms of inflation.
• 33:15
  Speaker 2: One of the things that people often say is that
• 33:17
  Speaker 2: we have it much worse in the UK because of Brexit.
• 33:20
  Speaker 3: Do you see evidence of that? Because when we.
• 33:24
  Speaker 2: Look across to the EU s not all countries, but
• 33:27
  Speaker 2: several countries with inflation rates at least des not as ours,
• 33:30
  Speaker 2: there doesn't seem to be that much difference, but nonetheless
• 33:32
  Speaker 2: it's an idea that has definitely taken hold.
• 33:35
  Speaker 4: The problem is that Brexit was such a divisive issue
• 33:38
  Speaker 4: in the UK that roughly one half of people who
• 33:42
  Speaker 4: talk about this want to believe that anything bad is
• 33:46
  Speaker 4: the consequence of Brexit, and the other half want to
• 33:50
  Speaker 4: believe that if only Brexit were implemented appropriately, our economy
• 33:54
  Speaker 4: would be better than all other economies. I find it
• 33:58
  Speaker 4: very hard to come up with any of it. It's
• 34:00
  Speaker 4: really to either side of this. We didn't leave the
• 34:03
  Speaker 4: EU until the end of January twenty twenty. Within a
• 34:08
  Speaker 4: month we were plunged into a global pandemic, which led
• 34:12
  Speaker 4: to a fall of GDP of twenty percent. That clearly
• 34:16
  Speaker 4: wasn't the result of Brexit. It was a global pandemic.
• 34:19
  Speaker 4: Now we've got the Russian invasion of Ukraine. Now, whatever
• 34:23
  Speaker 4: view people take about Brexit, I don't see how you
• 34:27
  Speaker 4: can argue that what's happened since January twenty twenty sheds
• 34:32
  Speaker 4: any light at all on the long term consequences of Brexit.
• 34:37
  Speaker 4: Everything has been overwhelmed by the effects of the pandemic
• 34:42
  Speaker 4: and now the Russian invasion of Ukraine. So people do
• 34:46
  Speaker 4: take different views on Brexit, but I just can't see
• 34:50
  Speaker 4: that there is any evidence there that one could use
• 34:53
  Speaker 4: to argue strongly that all of these things are the
• 34:56
  Speaker 4: consequence of Brexit. You can understand what's happened to inflation
• 35:01
  Speaker 4: in different countries by looking at the common intellectual mistake
• 35:05
  Speaker 4: that was made, the extent to which each country generated
• 35:09
  Speaker 4: a monetary overhang, and then the direct impact of higher
• 35:14
  Speaker 4: energy and food prices on domestic households and the consequences
• 35:19
  Speaker 4: for CPI inflation.
• 35:21
  Speaker 3: Any central banks not make the mistake.
• 35:24
  Speaker 4: Well, I think in the emerging markets world they were
• 35:28
  Speaker 4: much prompter. They didn't create vast amounts of money. They
• 35:31
  Speaker 4: were prompter to raise interest rates when they saw some
• 35:34
  Speaker 4: of the consequences of higher energy and food prices for
• 35:38
  Speaker 4: their own economies. Japan is in a situation where they
• 35:44
  Speaker 4: have had reasonably low growth rates of broad money for
• 35:48
  Speaker 4: a long while, which is why they hadn't had high
• 35:51
  Speaker 4: inflation that continued. So it's not the case that everybody
• 35:55
  Speaker 4: had higher inflation. You could just simply assume because central
• 35:59
  Speaker 4: bank announced the target, everyone would believe them completely and
• 36:03
  Speaker 4: inflation would never deviate in a longer run sense from
• 36:08
  Speaker 4: the target.
• 36:09
  Speaker 2: It reminds me of young people often talk about manifesting things.
• 36:15
  Speaker 3: And then there was a book I can't rent.
• 36:16
  Speaker 5: It's called that taught everybody how to manifest And if
• 36:19
  Speaker 5: you think about something and want it badly enough, it
• 36:21
  Speaker 5: will come to you. And we've been talking a while,
• 36:23
  Speaker 5: but a couple more things than I know everyone listening
• 36:25
  Speaker 5: is going to want to hear from you. The first
• 36:27
  Speaker 5: thing is a central bank digital currencies.
• 36:30
  Speaker 3: We talk about this a lot.
• 36:31
  Speaker 5: And John and I we think to ourselves, we can't
• 36:33
  Speaker 5: really see the point, like a solution looking for a problem.
• 36:37
  Speaker 3: But do you see it differently?
• 36:39
  Speaker 4: No, I mean the same House of Lords committee that
• 36:42
  Speaker 4: I mentioned earlier wrote a report on this and we
• 36:47
  Speaker 4: subtitled the report a solution in search of a problem. Well,
• 36:50
  Speaker 4: there you go, and I think it is. So the
• 36:55
  Speaker 4: four words central bank digital currencies. Well, first, it's not
• 36:58
  Speaker 4: a currency because if it were to come into effect,
• 37:01
  Speaker 4: it would still be in sterling, so the value of
• 37:04
  Speaker 4: Sterling would still be set by the Bank of England
• 37:06
  Speaker 4: through the Monetary Policy Committee. So it's not a new currency.
• 37:10
  Speaker 4: Bitcoin is a currency, perhaps may not be a very
• 37:12
  Speaker 4: good one, but it's a cut potential currency. Sterling is
• 37:17
  Speaker 4: a currency. But if this Bank of England introduced a CBDC,
• 37:21
  Speaker 4: it would still be in sterling at all. Well, there's
• 37:25
  Speaker 4: nothing new about digital. I every day go on to
• 37:28
  Speaker 4: my bank account online and I can transfer money into
• 37:33
  Speaker 4: my account out of my account. I can make transactions.
• 37:37
  Speaker 4: I don't have to carry notes around in order to
• 37:40
  Speaker 4: pay for things. I can use a card. It's all digital.
• 37:43
  Speaker 4: So's nothing new in it being digital. Why do we
• 37:48
  Speaker 4: want a central bank version of it? And I think
• 37:51
  Speaker 4: this is odd because we want a competitive payment system.
• 37:56
  Speaker 4: We want our banks to compete with each other to
• 37:59
  Speaker 4: ensure we get a decent service. What you do not
• 38:02
  Speaker 4: want is to create a state monopoly, particularly one that
• 38:06
  Speaker 4: has no experience of dealing with large numbers of customers.
• 38:11
  Speaker 4: So you know it would pity. Andrew Bailey is sitting
• 38:15
  Speaker 4: in his office and the phone rings, and his secretary says, afraid,
• 38:18
  Speaker 4: we got that missus Smith from Guildford on the phone again.
• 38:21
  Speaker 4: She can't log into her account to speak to you.
• 38:25
  Speaker 4: So I just don't know why people think that this
• 38:29
  Speaker 4: is a great idea. I just don't think that it
• 38:32
  Speaker 4: really solves any of the problems that we're concerned about.
• 38:37
  Speaker 4: It is a solution in search of a problem, and
• 38:40
  Speaker 4: it has one potentially serious drawback, which is that if
• 38:46
  Speaker 4: the banks were still operating bank accounts and there were
• 38:50
  Speaker 4: to be some hint of a financial problem, such as
• 38:53
  Speaker 4: we saw in the US in the spring with Silicon
• 38:56
  Speaker 4: Valley Bank, everyone would have a very strong incentive to
• 39:01
  Speaker 4: switch their money from their own bank account into an
• 39:04
  Speaker 4: account with the Bank of England. That would destabilize the
• 39:08
  Speaker 4: banking system, at which point the Bank of England would
• 39:11
  Speaker 4: then hand the money back to the banks in order
• 39:14
  Speaker 4: to support them so they didn't fail. This is wholly
• 39:17
  Speaker 4: unnecessary and we don't need to do it. So I
• 39:23
  Speaker 4: just can't see the virtue of spending a lot of
• 39:27
  Speaker 4: money rushing into this sort of innovation, all right, So.
• 39:31
  Speaker 3: That's a note to CBDCs.
• 39:33
  Speaker 5: Then one of the places perhaps where second mover advantage
• 39:36
  Speaker 5: might be the one to go for the other question
• 39:39
  Speaker 5: that will then if I don't ask you, everyone will
• 39:41
  Speaker 5: ring in and ask me why I didn't ask you.
• 39:43
  Speaker 5: Is about gold and the extent which that still plays
• 39:46
  Speaker 5: a part in the financial system and will do indefinitely.
• 39:50
  Speaker 4: Doesn't play a big role nowadays in retail transactions and decisions.
• 39:57
  Speaker 4: Some wealthier people may just to invest some money in gold.
• 40:02
  Speaker 4: One reason for doing that would be to see what
• 40:05
  Speaker 4: central banks are doing. And it's quite noticeable that central
• 40:08
  Speaker 4: banks have been increasing their holdings of goals. One reason
• 40:12
  Speaker 4: for that, I think, and it opens a Pandora's box
• 40:18
  Speaker 4: which will be I think a big issue in the
• 40:21
  Speaker 4: next ten fifteen years, is that the impacts of sanctions
• 40:26
  Speaker 4: that were imposed on Russian individual institutions after the invasion
• 40:31
  Speaker 4: of Ukraine means that it's no longer quite so obvious
• 40:37
  Speaker 4: that if you put your money into dollars in the
• 40:40
  Speaker 4: United States that the rule of law would protect your holdings.
• 40:45
  Speaker 4: If it turns out that the US Congress or the
• 40:48
  Speaker 4: US President doesn't like who you are or what your
• 40:51
  Speaker 4: political opinions are, it's possible in the future that you
• 40:57
  Speaker 4: may be subject to restrictions on access to your own wealth.
• 41:03
  Speaker 4: And the one thing that you know has always been
• 41:06
  Speaker 4: true in terms of international settlement of transactions is the
• 41:11
  Speaker 4: use of gold. Everyone will accept that and use it,
• 41:14
  Speaker 4: so I could certainly see why both countries and central
• 41:18
  Speaker 4: banks have decided that, you know, having a bit of
• 41:21
  Speaker 4: gold not a bad idea. You could always make transactions
• 41:25
  Speaker 4: using it well, and if that demand for gold, you know,
• 41:30
  Speaker 4: persists that's going to underpin the value of gold.
• 41:36
  Speaker 2: Okay, well, I think I know. The answer to the
• 41:39
  Speaker 2: last question I'm going to ask you is one that
• 41:42
  Speaker 2: I ask all our interview is if you had to
• 41:44
  Speaker 2: hold personal portfolio, which of course you'd never reveal for
• 41:48
  Speaker 2: a decade, either gold or bitcoin, which one would it be?
• 41:55
  Speaker 4: It would not be bitcoin, but I think I could
• 41:57
  Speaker 4: do better than either. Really want a more diversified portfolio.
• 42:02
  Speaker 4: But I would not hold bitcoin or any other currency
• 42:06
  Speaker 4: like that because I don't understand what gives it value
• 42:12
  Speaker 4: other than I might be able to find somebody to
• 42:15
  Speaker 4: sell it to at a higher price than I paid
• 42:17
  Speaker 4: for it myself. Bitcoin is not used widely in transactions.
• 42:23
  Speaker 4: I'm not going to pay for my taxi fare or
• 42:25
  Speaker 4: my restaurant using bitcoin, And I personally would think that
• 42:30
  Speaker 4: it is subject to, as we've seen in the past,
• 42:33
  Speaker 4: extraordinary volatility, and that's not the kind of volatility I
• 42:39
  Speaker 4: want to be exposed to. I would much rather hold
• 42:43
  Speaker 4: a cross section of equities, tuting overseas equities. And I
• 42:48
  Speaker 4: shall emphasize this for your listeners that I am not
• 42:51
  Speaker 4: qualified to give investment advice. I don't wish to be
• 42:55
  Speaker 4: prosecuted for doing it.
• 42:57
  Speaker 3: That's not investment advice.
• 42:58
  Speaker 2: I was sure, sure expression of personal opinion, Levan, thank
• 43:04
  Speaker 2: you so much for being this day.
• 43:05
  Speaker 3: That was really interesting.
• 43:06
  Speaker 4: Thank you, Thank you Mareth.
• 43:15
  Speaker 2: John. There was a lot of interesting stuff in there,
• 43:18
  Speaker 2: a lot of conversations that I'm sure Mervyn would like
• 43:20
  Speaker 2: to have directly with the Bank of England.
• 43:22
  Speaker 3: And perhaps your ideas.
• 43:23
  Speaker 2: But one of the things that I found most interesting
• 43:25
  Speaker 2: there and I would love to talk about you with,
• 43:27
  Speaker 2: is this idea that we've got to stop blaming Brexit
• 43:30
  Speaker 2: for everything here. The world is extremely complicated. The last
• 43:33
  Speaker 2: couple of years have been off the scale complicated. So
• 43:37
  Speaker 2: the idea that you can look at inflation rates in
• 43:39
  Speaker 2: the UK and go, oh yeah, Brexit, it's close to nonsense,
• 43:43
  Speaker 2: isn't it.
• 43:44
  Speaker 1: Yeah, it's too easy, moving away from all of the
• 43:49
  Speaker 1: political stuff about it. It has become a kind of character
• 43:51
  Speaker 1: all excuse and obviously that a lot of people heavily
• 43:55
  Speaker 1: invested in an overproduced kind of late elite section who
• 43:59
  Speaker 1: you know, want to find things to blame on Brexit,
• 44:05
  Speaker 1: and you know whatever, I'm happy but the result that's
• 44:08
  Speaker 1: absolutely fine, you know. I don't really care. But the
• 44:11
  Speaker 1: point is that from an economic point of view, and
• 44:14
  Speaker 1: actually think that was really interested that Mevin raised that,
• 44:17
  Speaker 1: and I haven't really heard that from anyone else. Right
• 44:20
  Speaker 1: at the start, he's talking about how moved away from
• 44:22
  Speaker 1: money tourism because you wanted a more left wing explanation
• 44:25
  Speaker 1: for inflation. And one thing I've found about when you
• 44:28
  Speaker 1: interact with economists like online, it's like it's the most
• 44:33
  Speaker 1: tribally political ones who will swear blind that there's nothing
• 44:36
  Speaker 1: political about economics and you know that it's all fact based,
• 44:40
  Speaker 1: and it's just clearly not the case. It's the most
• 44:45
  Speaker 1: political social science out there, really.
• 44:48
  Speaker 2: Absolutely, because it's not there's nothing to really hold onto
• 44:53
  Speaker 2: in anything, and you can never prove that any one
• 44:55
  Speaker 2: effect is a direct result of another effect. You can
• 44:57
  Speaker 2: shift it in any political direction.
• 44:59
  Speaker 3: That you want.
• 45:00
  Speaker 1: Yeah, I mean, it's it's why the whole thing, but
• 45:02
  Speaker 1: physics envy is is that's the fundamental reason. It's so stupid,
• 45:06
  Speaker 1: because you know, it's at the end of the day,
• 45:08
  Speaker 1: gravity works whether you're left wing or right wing, and
• 45:10
  Speaker 1: you can demonstrate that, but there is nothing in economics
• 45:13
  Speaker 1: that you can really do that for. And then the
• 45:16
  Speaker 1: fact that every time you know, the regime changes, they
• 45:20
  Speaker 1: can economic regime, all of the explanations from the last
• 45:24
  Speaker 1: lot go out of the window. It just kind of
• 45:26
  Speaker 1: goes to show that It's like, you know, how else
• 45:28
  Speaker 1: could we have ended up with the absolute lunacy that
• 45:30
  Speaker 1: is MMT as being something that people were taking seriously.
• 45:35
  Speaker 2: It was a varied when people took that seriously that
• 45:39
  Speaker 2: you could just print as much money as you liked
• 45:41
  Speaker 2: and pay for anything that you wanted and it wouldn't
• 45:44
  Speaker 2: be inflationary. But if by any chance it was inflation,
• 45:47
  Speaker 2: where you could easily and suddenly bump up taxes up
• 45:51
  Speaker 2: to such a level as to make the inflation go away.
• 45:53
  Speaker 1: Yeah, and I mean to be fair that they you know,
• 45:56
  Speaker 1: the other side that the flip side of that on
• 45:58
  Speaker 1: the libertarian angle is arguably coy. You know, there's magic
• 46:03
  Speaker 1: money that will keep kind of governments you know, in
• 46:06
  Speaker 1: check and can like create this amazing kind of like
• 46:09
  Speaker 1: libertarian society because you know, we can all transact directly
• 46:12
  Speaker 1: with one another with Betsy digital code that will bounce
• 46:17
  Speaker 1: between being both one dollar and one hundred thousand dollars
• 46:20
  Speaker 1: a pop. Now it's get Kenna like equally ridiculous in
• 46:23
  Speaker 1: a different way, although at least there's some maths behind it.
• 46:27
  Speaker 2: You know, John, All I can say is thank God
• 46:29
  Speaker 2: for our neutrality and rationality.
• 46:33
  Speaker 1: Yeah, objectiveness the middle name.
• 46:35
  Speaker 2: We are needed. Thanks for listening to this week's Marin
• 46:47
  Speaker 2: Doog's Money. We'll be back next week in the meantime.
• 46:49
  Speaker 2: If you like our show, rate review, and subscribe wherever
• 46:52
  Speaker 2: you listen to podcasts. This episode was hosted by me
• 46:54
  Speaker 2: Maren zum zep Web. It was produced by some Mesadi
• 46:57
  Speaker 2: and Moses, and additional editing by Blake Maple's special thanks
• 47:01
  Speaker 2: of course to Mervin King and to John Steppek, and
• 47:03
  Speaker 2: of course our weekly reminder to sign up to John's
• 47:06
  Speaker 2: daily newsletter, Money Distilled. The link for this is in
• 47:09
  Speaker 2: the show notes if you haven't already clicked on it,
• 47:11
  Speaker 2: which I'm sure you will have by now,