The Bank Of England Keeps The Base Interest Rate Low. As If It Changes Anything

October 8, 2009

R.F.Wilson writes: The Bank of England has kept the base interest rate at 0.5 per cent at today’s meeting of its Monetary Policy Committee.

Judging by the excited coverage in the TV and radio news bulletins it was supposedly some big affair. All sorts of experts sprang out from everywhere and told us how important it was to keep the interest rates low to help the economy recover. Incidentally, on this occasion no one was saying that it was actually showing any signs of recovery, as it has become fashionable for government ministers and some especially well informed money men to say.

But my question is this: how exactly does keeping the base interest rates low help the British economy? Because the banks are still not lending properly and, what is even more important, they charge relatively high interest on their loans if you compare it to the base rate. I am not even talking about secondary market lenders and credit card companies that pay absolutely no attention to the base rate and slap 20 per cent and more on top of it. These are loan sharks and whatever rate you set, they would always add a huge margin of profit for themselves. Most of these so-called ‘lenders’ should have been capped a long time ago and not allowed to rob millions of people at a time when they are struggling to survive.

So what exactly is the point of the Bank of England setting base interest rates? And what is exactly the point of the BoE being there at all? It should have been at the forefront of dismantling the current corrupt and incompetent banking system, recalling banking licences and investigating which banks operated while insolvent at the height of the financial crisis. The BoE should have also introduced emergency measures to force the banks to lend money to businesses at minimal rates.

But the BoE did not do any of that. It kept the status quo in place and basically sided with the money men. For that alone Mervin Kings, the governor of BoE, should have been forced to stand down, along with his deputies. But he is still there, pretending that inflation is under control due to his wonderful policies. The real inflation rate is hovering over 20 per cent at least, but we are all told that it is actually 1.8 per cent.

I find it quite amazing that the Bank of England has been allowed to continue as it is, considering what has happened. The central bank in any country – and the BoE is the central bank of Britain – is usually the first to notice that the banking sector is getting out of control. It is laughable to imagine that the BoE was unaware that the banks were gambling away billions and packaging and repackaging toxic debts and selling them on. If it did not know about it, then it should be simply disbanded. And if it did but kept silent, then all of its top people should be held responsible for that.

By the way, the BoE knows perfectly well that banks continue to conceal their losses and fiddle their books. Any time soon a new bail out would be needed to save the money men. Why is it that no one is talking about it?

Central banks in most countries tend to treat their funds as if they are their own, forgetting that it is actually taxpayers’ money. They constantly lend commercial banks vast amounts of money at very low rates which are then passed on to customers at much higher rates. Technically speaking, taxpayers’ money is used by the banks to make huge profits. In the past year and a half astronomical sums were injected into the markets by the BoE to supposedly help the financial sector to recover and pull the economy out with it. It did not happen. And it will not happen, as the failed banks should have been allowed to go down rather than showered with public money. In effect, the BoE has demonstrated to everyone that it was sailing in one boat with the money men when it should have been looking after the interests of the taxpayers and the nations as a whole.

I suppose the next time the Bank of England’s monetary committee gets together to review the base interest rate it should be a quiet occasion and the media should not really make a big fuss out of it. Whatever the decision, it is the people who would lose out and the money men who would gain.

– End –

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