Adam Posen

14th September 2011

He urged them to engage in more quantitative easing and consider direct lending to small and medium-sized enterprises unable to get credit elsewhere.

Posen demanded policymakers refuse to be "slowed, confused or intimidated by such false claims" – referring to those who claim aggressive monetary policy responses would be ineffective.

Largely ignored by the media during the first half of the year, when attention focused on rising consumer prices, reports Reuters, Posen's calls have gained more attention as economies in the United Kingdom and elsewhere have stalled.

However, Mindful Money blogger Shaun Richards, does not agree with Posen – particularly with regard to inflation, which Posen believes "isn't an issue", writes Shaun.

He says on his blog: "The problem with that is that over the course of the credit crunch he and his colleagues at the Bank of England have been wrong and then wrong again over the likely path of inflation for the UK. For example the Quarterly Inflation Report in August 2010 if you stare hard at the fan chart informs us that inflation as measured by CPI would be just above 2% and be about to fall below target at the end of the year."

Since October 2010, Posen has been a lone voice calling for the Bank to undertake more quantitative easing by doing another 50 billion pounds of asset purchases.

However, Shaun Richards has long argued against the sense of further QE, saying that "for advocates of QE there is the inescapable logic that if it has not worked once why will it work this time? Or indeed the next or the next?"

Ian_Jones comments on the blog: "If they do more QE they may find it has the opposite effect to that intended. They will reach a point where the risk of inflation will outweigh the benefit of safety and there will be a rush for the exit. If Gilts crash then so does the UK banking system as the banks have been forced to buy Gilts to increase their capital."

Yet the call for more lending to SMEs is echoed by online "dragon" Julie Meyer, who says in her interview with Mindful Money: "Building the economy means growing SMEs and providing the right environment for this to happen. We should be creating a positive tax environment  – we could be making tax concessions/ benefits for SMEs and the employees who work for them. We should do that and force the lending targets for banks – particularly the ones that we own – as I am skeptical that this is being done. We should also grow content, IT, media companies – the rest of the vertical industries that the UK is strong in."

Shireblogger adds on Shaun's blog: "What he said on SMEs/credit was worth reading and I am pleased a policy maker is pointing to the failed system of intermediating credit to entrepreneurs / SMEs – as Haldane says its Risk Off in a form of collective death wish."

Sign up for our free email newsletter here, for your chance to win an iPad 2.

Leave a Reply

Your email address will not be published. Required fields are marked *