Duncan’s Economic Blog

Bloomberg on Cameron

Posted in Uncategorized by duncanseconomicblog on October 9, 2009

I sometimes think that those you work outside finance don’t ‘get’ what a big thing Bloomberg is. The public website is decent enough, but nothing beats an actual Bloomberg Terminal (and at $1,500 per month, I’d hope not). There are thousands of them around the world, in every fund managers office, on every trading floor. It’s used for everything – data, news, charting, messaging other people, trading – you can even book flights  through them. For many people in ‘the city’ not five minutes goes by without glancing at the terminal, checking news, checking prices.

So stories that make the Bloomberg top news page get a lot of readers.

I think this one is worth sharing.

 Oct. 9 (Bloomberg) — Conservative leader David Cameron’s suggestion that the Bank of England end its asset purchases soon was criticized by two former central bank officials, a setback to the opposition’s effort to build credibility on the economy.

David Blanchflower, who left the bank’s Monetary Policy Committee in May, said Cameron’s speech yesterday was “bizarre” and if put into practice may tip the U.K. into a “depression.” Shamik Dhar, a former Bank of England economist, said “at best this is wrong and at worst downright dangerous.”

Without mentioning the central bank, Cameron told his party’s conference in Manchester that he opposed creating money, saying “sometime soon that will have to stop, because in the end, printing money leads to inflation.”

“I’ve been quite a critic of the Bank of England’s tactics in printing money, but the principle is a very good one,” said Steven Bell, chief economist at London-based hedge fund GLC Ltd. and a former U.K. Treasury official. “It has lowered bond yields and improved prospects for economic recovery.”

The yield on the 10-year U.K. government bond was 3.35 percent yesterday, compared with 3.64 percent on March 4, the day before the effort started.

Bell said Cameron’s remarks suggested that the Conservatives may reverse the policy if they win the election, due by June 2010, and that the comments were “unhelpful and surprising.”

Cameron’s remarks about the central bank are unlikely to register with voters, though attacks on his economic credibility might, said Andrew Hawkins from ComRes Ltd., a polling company.

“I don’t think people have understood Cameron’s economics and it is his weakest flank,” Hawkins said.

“If we stopped supporting the economy now it would crash,” Darling said. “Every country in the world and just about every informed commentator is saying the same thing. The job is not finished. The Tories have been wrong at every turn.”

Blanchflower said Cameron’s program was “the most wildly dangerous thing I have seen in a hundred years of economic policy in Britain.”

The economist from Dartmouth College in Hanover, New Hampshire, who was among the first to urge the central bank to stimulate the economy, said the Conservatives showed “no understanding of economics. It could drive the economy into depression.”

Dhar, now an economist at Fathom Financial Consulting in London, said that the central bank’s asset-purchase program, known as quantitative easing, should continue as long as institutions hoard cash and ration loans.

“Obviously, you have to stop QE at some stage, but this sounds like he’s ideologically opposed to it,” Dhar said. “It’s only ideologues that want to cut it off.”

“Printing money will lead to inflation when you’ve got an economy running with no spare capacity, but that’s not the case now,” said Peter Dixon, an economist at Commerzbank AG in London. “We could print money without inflation for some time to come. Now is not the time to take back unconventional stimulus measures, that’s a long way down the road.”

(All emphasis mine)