pandora rings John Redwood responds Ben Chu In

John Redwood has responded to my blog last week in which I criticised the Wokingham MP for presenting himself as the Cassandra of the credit crunch (all-seeing,pandora bracelet The Jamie Whyte Trade-off Amol, ignored):
It’s odd for someone who was supposedly worried about excessive debt to have been complaining that market interest rates were too high. Higher rates were surely a good thing (in the analysis of 2011 Redwood) in that they discouraged excessive borrowing.
As you can see, the ECB was the only major Western central bank to raise rates after August 2007. And that was only by 25 basis points. The Fed and the Bank of England began cutting interest rates almost from the moment Mr Redwood’s report appeared. And the ECB followed in the autumn of 2008. So far from “turning the money off”, as Mr Redwood puts it, the central banks turned it on.
Here’s what the Federal Reserve did:
This is not the view of one who sought to praise the excesses of the easy credit era. Mr Chu could criticise me for hoping the Central Banks would understand how dangerous the structure they had allowed to happen had become, and would proceed at a sensible pace with sorting it out. Instead they decided on the dramatic option of turning the money off and bringing on the inevitable crash. I did forecast possible recession, well before it was acceptable to mention the ‘r’ word in UK political debate, let alone forecast one. I also forecast the end to the favourable downward pressure on prices from Indian and Chinese competition,The electorate is not a person Ben Chu Independent Eagle Eye Blogs, which has come through as high UK inflation subsequently.
I argued in the credit bubble that rates were too low and credit was growing excessively. In the slump I argued that the authorities were starving the markets of liquidity and bringing down good assets with bad. In the Review we made it clear that ‘institutions which take client money and place it on their own balance sheets should have to meet capital adequacy requirements and strict reporting requirements’. Mr Chu says the problem was the experienced investors. The problem was the scale of bank balance sheets, which expanded massively compared to the 1980s and 1990s when I was involved in financial regulation. The regulators in 2007 accepted levels of gearing we never imagined were possible or sensible, and which they now regret.
As he argues on page 3 of his report, remarking on the general global economic conditions of low borrowing rates:
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Mr Chu should remove his false allegations against me. I did not welcome excessive credit in 2006-7 and have always favoured counter-cyclical bank cash and capital regulation.”
And here’s what the European Central Bank did:
No actually
Mr Redwood seems to argue that disaster for the global economy could have been averted if central banks had raised interest rates more slowly. That’s a big and quixotic claim. It doesn’t sound like the sort of argument that someone who was worried about the vast amount of bad debt in the system would make.
I also don’t find Mr Redwood’s protestations that he was worried all along by low interest rates convincing.
Even if you believe that the central banks caused the credit crunch by tightening too hastily, they had already performed the bulk of their tightening by the time Mr Redwood’s report came out. He apparently didn’t notice.
‘There is considerable uncertainty in world markets about how far the Federal reserve Board,pandora bracelets Libya a deafening silence Jod, the European Central Bank and the Bank of England may go in raising rates to squeeze inflation out of the system. They must know that huge pyramids of debt throughout the system, and inflation, will not be killed unless the appetite for more debt is blunted. They also know that if they push interest rates too high for too long they could bring the debt structures crashing down, as we have seen with the sub prime mortgage collapse in the USA,pandora rings, leading to falling asset prices, rising unemployment and even recession’
Moreover, the timeline of interest rate movement doesn’t favour Mr Redwood. His report for the Conservatives was released in August 2007. So one would assume that, shortly after, the Bank of England, the Federal Reserve and the European Central Bank all hiked interest rates with aggressive stupidity, right?


Here’s what happened to Bank of England interest rates from August 2007:
“Mr Chu has read very selectively in his critique of my views prior to the Credit Crunch. Had he read on beyond his quote from me concerning the piles of debt he would have seen:
“The UK has not performed that well against this very favourable background. We have experienced higher interest rates than most of our main competitors.”
A few points in response.
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