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Why Poor People Lose (& Wealthy Win) In BoE's Effort To Crush The Pound - boe policy

"We have a clear monetary policy framework in the United Kingdom," Bank of England head Mark Carney said earlier this week.

We agree.

The BoE's policy is crystal clear:

  1. Flood the economy with pounds; thereby...
  2. Devaluing the currency in an effort to stave off the UK's slowing economic growth;
  3. Pump the FTSE full of easy money.

And that's precisely what's happening this morning. The pound is down 1.7% today, bringing its year-to-date decline to -16%. Meanwhile, the FTSE is up 0.7% today and +13.3% year-to-date.

Bloomberg blames a "flash crash" for the pound's drop today, caused by blips in algorithmic trading models. #Cool. But the year-to-date call on the pound has everything to do with the BoE's pernicious policy to do whatever it takes to devalue the currency.

And while that's great for wealthy Londoners who have the dough to buy stocks, the true losers in this regime are the country's poor, who who can't afford to offset the resulting loss of purchasing power with gains in the stock market. Hedgeye CEO Keith McCullough calls this out in a note sent to subscribers today:

"Why is it that every time something crashes faster than it’s already been crashing (in this case for months), everyone calls it a “flash crash” and blames the algos? #1 to blame here is the Bank of England who has an explicit policy to devalue (crash) the purchasing power of the people in exchange for FTSE, etc. asset inflation that isn’t driven higher by algos?"

Why Poor People Lose (& Wealthy Win) In BoE's Effort To Crush The Pound - ftse 10 7

Britain's new Prime Minister Theresa May called the BoE's Carney out on this earlier in the week saying low rates had "bad side effects." She continued:

"People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer.  A change has got to come. And we are going to deliver it."

Carney's response?

"I entirely agree with the spirit of what the prime minister said. Monetary policy has been overburdened and we need a better balance between monetary policy and fiscal policy."

In other words, here comes the big push for fiscal spending (and the BoE keeps monetary policy easy). Don't expect relief for Britain's poor any time soon.

the central-planning gong show continues...