Isn’t it time there was an INDEPENDENT audit of the Bank of England?

So the Bank of England was out with another fluff piece ‘evaluating’ the effectiveness (or not) of all their money printing – which they still quaintly call quantitative easing.

First up the entire premiss of this paper is all wrong from the get-go. Why on earth are we allowing the people that are running the program (the BoE) to evaluate their own work? It’s akin to allowing children to mark their own homework – which we’re pretty sure still doesn’t happen. Just how unbiased can the BoE be when evaluating their own work?

Rather this should be being done, not just on the QE side but across all the central bank does, by at the very least some outside auditors sent there under terms set out by the Parliamentary Public Accounts Committee or Treasury select committee.

Or better yet, why doesn’t Parliament use the National Audit Office, this is exactly what the government funded NAO is there for, to evaluate the effectiveness of government programs. And before people cry ‘but the BoE is independent’ we suggest the people look up just who ‘owns’ the BoE (hint – it was Nationalized in 1946).

And there is no bigger more important government program right now than all the money printing going on at the BoE. It is simply ridiculous that Parliament stands by and accepts a 22 page report by the Bank themselves on the effectiveness of their own programs.

In short isn’t it time that the NAO is sent into the Bank for a root and branch audit of the effectiveness?

Oh, and let’s not forget Paul Tucker’s involvement in the entire LIBOR scandal – the Bank’s deputy no less. His rather opaque and seemingly contradictory evidence to the Treasury select committee about just how involved the BoE was or was not in the LIBOR fixing scandal itself should’ve been all the impetuous required for massive calls for an independent audit.

And for those who posture ‘won’t an audit damage the independence of the BoE’ we respectfully ask them to pull their head out of the clouds, or wherever they’ve stuck it, and look at the cold hard facts of reality. No independence really exists, and in fact we wholeheartedly agree with Ron Paul when he says that independence is simply a by-word for ‘secrecy’.

Getting that off our chest, let’s take a look at the conclusions of the compromised evaluation by the BoE.

The past few years have been extremely difficult for many households, with weak growth and above-target inflation being the painful but unavoidable consequences of the severe financial crisis…

If it was ‘unavoidable’ then why does the 2% “at all times” government mandate target even exist? Wouldn’t it be far more honest to change the target because in the Bank’s eyes it is ‘unavoidable’?

No, instead the UK public are treated like children and the pretense that is the 2% target is wheeled out over-and-over when in reality no such 2% target exists - something we’ve been banging the drum about now for months (read this, this and this).

The simply reality is that the BoE positively wants higher than target inflation – they just haven’t bothered to tell the UK public or change their legal requirement. The real reason they want it is so they can inflate away the UK’s profligate spending and hence debt and stick the bill to savers and pensioners. It’s just when put honestly like that we think a few eyebrows might be finally raised amongst the UK populace.

Also note that there is no real clarification to the point that above target inflation was/is ‘unavoidable’. A statement like this needs much more deeper explanation and in point of fact needs to be independently audited to see if it is even true.

Bland catch-all statements like that are simply not good enough when you consider the billions and billions of Pounds we’re talking about.

Was it really ‘unavoidable’ and if so why? Just saying it was doesn’t cut it these days.

…and the associated deep recession, as well as a sharp rise in oil and other commodity prices.

Remember that statement, it will become important in a moment.

In response to these difficult circumstances, monetary policy has been exceptionally expansionary for an unusually long period of time. That has supported nominal spending and incomes in the economy as a whole, mitigating the adverse effects of the financial crisis and subsequent recession. Without the loosening in monetary policy, it is likely that the economic downturn would have been far more severe, to the detriment of almost everyone in the economy, including savers and pensioners.

Would it? According to who? Again, claims like this simply have to be independently verified to be valid.

Some pension schemes have been adversely affected by the direct effects of QE. In particular, for a DB pension scheme in substantial deficit, asset purchases are likely to have increased the size of the deficit. That is because although QE raised the value of the assets and liabilities by a similar proportion, that nonetheless implies a widening in the gap between the two. By contrast, for a typical fully-funded DB pension scheme, asset purchases are likely to have had a broadly neutral impact on the net value of the scheme.

Like we said, sticking the bill to pensioners and savers? Is this fair? Is it moral? Does this help the economy at all? Aren’t we in fact destroying capital (savings/underconsumption) in a country that is obviously capital-starved?

In fact isn’t the only way an economy can grow through savings/underconsumption?

Don’t these claims need much more careful examination and scrutiny at the very least?

The fall in gilt yields raised the value of the pension fund’s liabilities. But the associated increase in bond and equity prices raised the value of their assets by a similar amount. Likewise, asset purchases are likely to have had a broadly neutral impact on the value of the annuity income that could be purchased with a personal pension pot. The fall in gilt yields reduced the annuity rate. But this was offset by the rise in the value of equities and bonds held in the fund.

Note that the BoE is taking full credit for supporting the prices of equities (where is that in the government’s legal requirement of the Bank again?) and bonds? So basically admitting that QE can and does affect prices. It’s just that in this case the Bank like’s to cherry-pick which prices they say the money printing affects – they like to say that they’ve raised the value of the FTSE, which is apparently very palatable to the UK public – well, 5% at least.

But if QE can affect those prices, what about the prices of commodities like food and petrol? Is it not a the very least possible that QE has also pushed up those prices too? This is always ignored by the BoE and commodity price rises are always and forever because of some random ‘shock’ and NEVER because of all the money printing according to the BoE.

You see, in the eye’s of the BoE they only push up ‘good’ prices (equities, housing, bonds) but never-ever push up ‘bad’ prices like food or petrol or raw materials.

Is this true? Is this even believable? Can the BoE really have such command over the economy that it can make prices rise where it wants? Can anyone? Don’t we need to explore even just the possibility that the incredible food price inflation that’s been seen in the UK might, at the very least in part, have something to do with all this money printing?

Doesn’t food price inflation hit the poorest the most? Doesn’t food make up more of the poor’s disposable income? Just how many of the poor own stock in the FTSE? Just how many of the poor pay into a pension plane at all? Doesn’t it look like the poorest are being asked to pick up the tab?

Don’t these questions need to be independently explored?

Furthermore, the pension income of those already in receipt of a pension before asset purchases began has not been affected by QE, and the same is true for the retirement incomes of people coming up to retirement in a DB pension scheme. The main factor affecting the valuation of DB pension schemes and DC pension pots over the past five years has been the fall in equity prices relative to gilt prices. That fall in the relative price of equities was not caused by QE, and stemmed in large part from the reluctance of investors to hold risky assets, such as equities, given the deterioration in the economic outlook, almost certainly as a result of the financial crisis.

In short, by the Bank’s own admission, QE has helped the very wealthiest in the UK, and somehow we’re just expected to swallow that it then must follow that the poorest are also better off, somehow, and that the BoE ONLY ever affects ‘good’ prices.

So isn’t it time we start seeing posters like this everywhere in the UK?

Allowing the BoE to evaluate its own programs is a totally disservice to the British people and to democracy itself.

After all, if you’ve got nothing to hide…

Audit the Bank of England… NOW.

Related posts:

1. As the Bank of England finally admits it is trying to achieve higher than 2% inflation – it is simply now time for Mervyn King to be sacked and stripped of his Knighthood
2. As the CPI falls for a third month the Bank of England has still produced 41% more price inflation than they should
3. Bank of England Minutes: All aboard the Inflation Express
4. Producer prices in the UK fall giving the Bank of England more scope to print
5. Bank of England losing credibility according to… the BoE

Link to this article: : http://www.goldmadesimplenews.com/analysis/isnt-it-time-there-was-an-independent-audit-of-the-bank-of-england-7743/

Posted by Thomas Paterson on Aug 24 2012. Filed under Analysis. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.