flavianopolis

Thursday this week the Bank of England lowered the Bank rate. I believe that the Bank rate has been lowered against the will of the very hawkish and yet diplomatic Governor of the Bank of England, professor Mervyn King. Under so called extreme circumstances the government has the power to give the Bank of England instructions on interest rates for a limited period of time and I believe that it has been sufficient for Mr. Brown to threaten the Bank to use this opportunity. Probably Mr. Brown believes that easy money will get him reelected.

But he is mistaken.

The former Chancellor of the Exchequer Mr. Clarke lowered the Bank rate against the recommendations of the Bank in, I believe 1995, and two years later the Conservative Party lost general elections. In 2005 the supposedly independent Swedish Riksbank lowered it's repo rate to 1,5% and about one year later the Swedish government lost the elections. From 1970 until 1974 there was a massive inflation in the UK and in 1974 the Conservative Party under the leadership of Mr. Heath lost the elections.

What those politicians believe is that you can print money without any effects on the price level.

However: A more bountiful issuance of money in most cases only bring about higher prices with the result that only those who are lucky enough to be able to spend the additional "manna" before prices have adjusted to the monetary expansion enjoy any benefits from a monetary expansion. Most people actually suffer losses from credit expansion and that is the reason why governments who try this nonsense usually loose elections.