Both the British Chancellor, Alastair Darling and the shadow Chancellor, George Osborne, have been on the radio this morning, resisting the idea that interest rates are political. Instead they have argued, vehemently, that the Bank of England is independent, and that the Bank must decide whether or not to lower interest rates.
First, the BoE is not independent. It is a nationalised central bank. It is owned by the government. By taxpayers. Second, the BoE’s governor, Mervyn King operates under a mandate from the Chancellor – a mandate to prioritise suppressing inflation – over all else. In other words, at a time of crashing oil and commodity prices, at a time of global economic meltdown, he must care less about small businesses, households and individuals and instead go after a non-existent threat of inflation.
The governor does not have an independent mandate. If he is to do something about lowering interest rates, the government must change the mandate. The political mandate must be changed!
In May 1997, Gordon Brown wrote to the governor, and reaffirmed that the Bank is to remain in public ownership. He then charged the Bank with fixing rate of interest “to deliver price stability – as defined by the government’s inflation target.” (Bank of England’s site – monetary policy committee’s remit.)
This is not independence. Gordon Brown gave the mandate. He is a politician. He is elected by us to act as a guardian of our finances. He can take the mandate away. Or he can amend it.
Alternatively he can allow borrowers – that owe money on billions of pounds – to continue being bankrupted by high, real rates of interests – crippling borrowing costs. Re-capitalising the banks; throwing money at the problem, as Hank Paulson has learnt to his cost in the United States, will not work. What matters now is that the cost of borrowing must be brought down, so that all those heavily indebted, banks, companies, households and individuals – can breathe, economically speaking.
Right now, their heads are being held below the water by very high rates of interest. Pouring more water down their throats – forgive the ghastly analogy – will not stop them drowning!