The monetary policy committee

9 May 2009

I’m your man for the job, Chancellor

HM Treasury has placed an advert in the Economist looking for a new external member of the Bank of England’s Monetary Policy Committee, the body that sets UK interest rates, to succeed David Blanchflower. I have decided that it is my duty to apply and have therefore sent this letter to Alistair Darling, who will make the decision.

Dear Mr Darling,

I would like to apply for the vacant post of external member of the Bank of England’s Monetary Policy Committee. Admittedly, beyond a grade A at ‘O’ level, I don’t have any formal qualifications in economics, but your advert does not specify these as essential. Instead, you have asked for a letter ‘summarising evidence from your career which best demonstrates your qualifications for the appointment’. So here goes.

Economist or not, I did at least foresee the housing market collapse, which is more than some members of the MPC managed to do. My eye was taken particularly with a speech made by Kate Barker on 23 October 2007, in which she declared that it was ‘not immediately obvious’ why the credit crunch and the Northern Rock crisis would provide ‘a trigger which significantly alters previous expectations of continued house price growth’.

For some years I had been arguing that the housing market was a speculative bubble which would burst the moment that lenders decided enough was enough. Here, for example, is what I wrote in the Daily Telegraph on 30 June 2007, six weeks before the beginning of the credit crunch: ‘Many explanations have been put forward for the trebling of prices over the past decade: low interest rates; poor returns on the stock market; the failure of the government to build enough houses. All, ultimately, have contributed to spiralling prices — and the resulting plight of today’s first-time buyers. But the truth is that all the above explanations miss the point. House prices cannot rise above the level which buyers can afford to pay. And that is influenced by one factor above all: the size of the mortgage loan that lenders are prepared to advance. Clearly, [the easing of lending criteria] cannot go on forever... So what happens if lenders do one day decide that they are taking too big risks, and start to tighten their lending criteria? It isn’t hard to guess.’

1 | 2 Next page

JohnAnt

May 9th, 2009 5:02pm Report this comment

Indeed, Ross. And because of such timely articles, I saw the light and sold in 2007. I have been trying to point out since then to eager estate agents that 'buying' a property is a decent long-term prospect for somebody with no money, but those of us who have the cash to buy one will be looking for value, in the current absence of which we'll be investing it elsewhere. I'm up about 40% on my November equity fund investments.

Post comment