The Sarcasm Report v.100

I wanted the 100th report to be something special. I have to tell you that I was more than a bit concerned that it would not live up to expectations. A major source of sarcasm stress has been lifted from my shoulders though and I have the Bank of England Governor Mervyn King to thank. My hat is off to you sir!

May 2, 2011
BOE’s King Says Higher Interest Rates Would Exacerbate Debt Woes

“The economic consequences of high-level indebtedness now would become more severe if rates were to rise,” King said yesterday at a committee of the European Parliament in Brussels.

I've run some simulations of this effect on the back of a candy bar wrapper. It turns out that he might actually be onto something here. From what I can see, if you double your debt while also doubling the interest rates on that debt then it can actually make you feel like you've been @#$%ed four times over. I'd post the stick figure chart but I don't think it is suitable for all family members.

“The problem of leverage, the sheer volume of debt in the economy, is still very large and this poses massive macro- economic challenges,” King said. “I think these macro-economic challenges will last many years.”

Someday we will look back on King's words and consider him to be one of the twin Nostradamuli* of our modern era. I don't know what they are paying him, but it clearly isn't enough.

COMMENTS ON ‘RISK AND UNCERTAINTY IN MONETARY POLICY’ BY ALAN GREENSPAN, AEA ANNUAL CONFERENCE, 2004 - Mervyn King

Greenspan argues that asset prices are not targets in themselves, but they are an important part of the transmission mechanism. I agree. In the United Kingdom, we have also had to deal with our fair share of large movements in asset prices during recent years - a 20% rise in the effective exchange rate in the late 1990s and, more recently, house prices rising at more than 25% per annum. This, of course, is in addition to the rapid rise and fall in equity prices during the past five years. Recent Bank of England policy has arguably been similar to that of the Federal Reserve, which is described by Greenspan as ‘mitigat[ing] the fallout when it occurs’. It is hard to forecast asset price movements accurately or to identify asset price ‘bubbles’.

Alan Greenspan & Mervyn King: Price Line Mitigators!



* I was not sure how to pluralize Nostradamus. I opted for using botulus to botuli as a guide. I wanted this analysis to appear to be at least as scientific and objective as central bank policies. As an added bonus, who doesn't like botulism? You can always mitigate the fallout when it occurs. Right?