I am one of those people who go around saying ‘You know what, if that Ken Clarke was Shadow Chancellor my decision to not be a Tory would be much more difficult.  That Ken’s alright.  Knows how to cut a deficit, does Ken, and did it with a chuckle’.  That sort of thing.

And he is not afraid of speaking economic orthodoxies at a time when every commentator seems to be going all nef.

Which makes it all the sadder to see how he has gone a bit doolally about the IMF and a need to support the UK if there is a hung Parliament.

“Sterling will wobble. We have seen even minor flickers in the opinion polls causing problems with interest rates in the recent past. If the British don’t decide to put in a government with a working majority, and the markets think that we can’t tackle our debt and deficit problems, then the IMF will have to do it for us.”

Really? When in the recent past have we had problems with interest rates?

Ironically, Anatole Kaletsky in the Times provides an indirect explanation for why the IMF is not going to be needed now (ironically, because it is in a column pointing out how difficult things would have been had we been in the Euro.  Fair cop; that would have been a bad call).  Here is Anatole:

Why, then, are financial pressures so much more intense in Greece? Mainly because the British Government borrows in its own currency and can therefore simply print more money in order to repay its debts if required. This, in fact, is exactly what the Bank of England did last year, creating new money to the tune of around £170 billion. The ability to print money can create inflation if the Bank of England miscalculates; inflation rose to 3.4 per cent in March. But the independence of monetary policy gives the British Government a freedom to set taxes and public spending in response to the decisions of British voters, instead of the demands of international organisations or bond market investors

We borrow in sterling, we are legally allowed to print sterling.  If the IMF were called up to ‘help us out’ they would look rather quizzical, search through the locker for some pounds, and then turn around to us and ask for them.    Yes, this was the situation we were in back in 1976 – but back then, with inflation running at 15% or so, money-funding the deficit was adding fuel to a fire – whereas now it is a generally popular stimulative tool (read my piece on QE).

Of course, we expect Osborne to join such hysteria (watch this debate; Darling does well IMHO; Vince’s point about cross party consensus is bang on as well).  George has form from November 2008 (Google ‘sterling crisis’.  In fact, from my past, deep research techniques, you get a whole bunch more hits for Osborne and Sterling Crisis than for Osborne and Quantitative Easing.  Which I think is telling).

But from sensible, pragmatic Ken?  Tsk.  There must be something funny in those big cigars he likes to smoke.


15 thoughts on “What is Ken Clarke ON?

  1. “Why, then, are financial pressures so much more intense in Greece? Mainly because the British Government borrows in its own currency and can therefore simply print more money in order to repay its debts if required. This, in fact, is exactly what the Bank of England did last year, creating new money to the tune of around £170 billion.”

    By God, this is almost true. And in the Times as well!

    The “printing new money” language is unhelpful as well as being inaccurate. And I don’t think that it descibes QE particularly well either, which is better described as an asset swap IMO, where the government trades liquid non-interest bearing govt liabilities for less liquid interest bearing liabilities (i.e. there’s no increase in net financial assets / outsider assets held by non-govt sector). But still, impressively rational and hysteria free. Is Kaletsky always like this or is this the result of his attendence of the INET conference the other week?

  2. He’s on the KoolAid and has been for some time (pretty much since the Tory leadership election). He’s actually quite a smart, and half-way decent, guy the rest of the time but he’s decided to back the party line no matter what bollocks it makes him spout sometimes.

  3. Spoken like a true Modern Monetary Theory Chartalist, Vimothy.

    It is sad to see Ken Clarke joining the echo chamber of the scare machine. Sure market participants have convinced themselves that any clear winner is better than a minority government or coalition. However, I don’t buy the theory that horse trading necessarily means they will be more lax with the structural deficit. IMF and gilt market strikes is just pure hysteria. Gilt market strikes are very rare occurrences and happen because of out of control high inflation not the level of issuance. Why lend to the government with a yield of 12% when inflation is running at 20%? ( mid 1970s)

    Another thing that Anatole could have mentioned that left Greece vulnerable is that they rely on external buyers for over 80% of their debt sales.

    1. And also: if you want a E-exposure to pay your future pensioners, you have a dozen other countries to buy off. Whereas if you have a lot of £ pensioners, they need £ debt. Nice …

    2. Hmmm, not sure that I consider myself to be a Chartalist. I do credit the MMT crowd with the correct understanding of fiscal policy–that it is necessary to create full employment, that growing economies require deficits to be in long run equilibria, and that the deficit is endogenous and determined by the propensity of the private sector to accumulate wealth. But you don’t need Chartalism to get this. You could get it from (Nobel Laureate) Bill Vickrey. Or there’s always that hoary old radical, Karl Marx: “if nominal income is growing, the appropriate equilibrium condition calls not for a balanced budget but for a deficit big enough to keep the debt growing in proportion to income, the proportion being determined by portfolio considerations”. Or was that Robert Solow? I forget…

  4. I woke up to Ken Clarke saying that garbage. I’m not au fait with the 1970s much, but what I do know is that the IMF loan had nothing to do with the hung parliament. I also don’t see why he brought up the Lib-Lab pact, since it happened a year after Healey went to the IMF.

    And government’s having majorities isn’t some magical solution to economic troubles. Look at, say, devaluation under Wilson in 60s. That was more than a “wobble” for Sterling then.

    On the debate, I thought Neil and Flanders ganged up on Vince Cable during the debate. Bit of a hatchet job. And then Osborne reveals a letter criticizing Lib Dem tax avoidance policy. What was that guy doing writing to Osborne, unless he’s a Tory?

    Talking of IMF, you seen their latest World Economic Outlook yet? Here:


    They seem to agree with you on inflation. Down to 1.6% next year, with current account deficit worsening a bit too. That’s with 2.5% growth.

    1. I’ve printed that IMF report and am about to ruin my evening reading it. The Wire sits, paused, on the telly

  5. “What is Ken Clarke ON?”

    It’s called “election time”.

    Come along Giles, you’ve read some Buchanan. Politicians will do and say anything to remain politicians.

    Sorry, what was that? You don’t believe in public choice economics? Well, you can hand in your economist’s secret decoder ring then.

    1. Yeah, dropping the veil. We know he knows. And I appreciate that you know I know that he knows, really, that the IMF ain’t coming in. But I know that you know that I can’t really know what I think he ought to know …. during an electon campaign.

      Buchanan – the US nutjob? I’m less well read than you think clearly, gettting less well read every day

      1. Yes, James Buchanan, the Nobel Laureate, not Pat Buchanan the US nutjob.

        ….although there are those who think that James B somewhat over eggs his pudding.

  6. Talk of the IMF might be over-egging the pudding a little bit, but Ken does have a real and valid point.

    It’s not jsut government debt which is the problem, though there is a huge problem there. There is another £1.3tr of mortgage debt sitting on top of it, which will reset or roll higher if Govt. yields rise. Homeowners most definately cannot print money, so serious problems could again develop in the housing market (which we have thus far been mostly insulated from, unlike the US).

    Gilts themselves are near all time lows, have benefitted from QE, but base rates are as low as they can go, inflation is a worry and there is a lot of issuance coming. They are a terrible investment at the moment, so the ice the government are treading on is very thin regarding budget deficits. The IMF might not need to step in but it doesn’t mean the fallout is any less severe.

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