BoE urged to adopt aggressive measures
A LBank of England policymaker has issued an unprecedented call for the Bank to "aggressively" print money and buy mortgage books from the banks to save the economy and protect democracy itself from the dire consequences of a long slump.
With none of the usual temporising, Adam Posen, an American academic who serves as an external member of the Monetary Policy Committee (MPC), said: "The case I wish to make is that monetary policy should continue to be aggressive, about promoting recovery, and, subject to further debate, I think further easing should be undertaken."
Citing Japan's decades of post-bubble stagnation after 1990 and the pre-war rise of fascism in Europe, Mr Posen cautioned that such low growth might "erode political moderation and the liberal governments we also must pass on to future generations".
Despite a relatively upbeat report on the UK from the IMF this week, Mr Posen warned: "This is not a normal situation with finely balanced risks on both sides or with monetary policy able to finely calibrate to an outcome."
And, for the first time, an MPC member has openly advocated switching from purchase of government securities to corporate bonds, commercial paper and "high quality" mortgages to underpin the supply of credit in the economy.
Mr Posen dismissed the fears expressed by MPC colleagues, notably fellow external appointee Andrew Sentance, that price pressures in the economy may build, especially as inflation is expected to remain above target next year.
This "misplaced fear" was less potent than "some very serious risks if we make policy errors by tightening prematurely, or even if we loosen insufficiently. Those risks are not primarily the potential for a double-dip recession.
"The risks we face now are the far more serious ones of sustained low growth turning into a self-fulfilling prophecy, and/or inducing a political reaction that could undermine our long-run stability and prosperity".
This explicit call for more "quantitative easing" echoes the debate within the US, where the chairman of the Federal Reserve, Ben Bernanke, has talked about ~ a new stimulus.