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					Monetary Policy Forum

The Launch of the Monetary Policy                     article can be found at: http://www.telegraph.
                                                      co.uk/finance/financetopics/recession/4570994/
Fathom launches new Monetary Policy Forum, to         B a n k- o f- E n g l a n d - c h a l l e n g e d - b y- n e w-
take place on a quarterly basis.                      indepndent-Monetary-Policy-Forum.html
The launch of the Forum, on 10 February 2009
has been well received and widely covered.Below       Three former members of the rate-setting
quotes from the major media:                          monetary policy committee will on Tuesday call
                                                      for the Bank of England to move towards creating
   “Buying homes on the verge of repossession         money to buy assets as the most effective means
to add money to the economy may prove an              of battling recession.
effective tool to fight the recession, Fathom says.      The call from Sushil Wadhwani, DeAnne
U.K. economic prospects may be even “bleaker”         Julius and Willem Buiter for the Bank to start
than those released in the Bank of England’s          quantitative easing will come at the launch of a
quarterly inflation report tomorrow, it forecasts.”   monetary policy forum set up by Fathom Financial
   Bloomberg - Full article can be found at:          Consulting to enhance scrutiny of monetary
http://www.bloomberg.com/apps/news?pid=ne             policy decisions. The Financial Times - Full
wsarchive&sid=aWPDskg_8RFE                            article can be found at: http://www.ft.com/cms/
                                                      s/0/35591ac2-f6ff-11dd-8a1f-0000779fd2ac.
“Three former members of the Monetary Policy          html?nclick_check=1
Committee have formed a shadow economic
forum to highlight the shortcomings of the Bank       Former members of the monetary policy
of England’s rate-setting body and present            committee will this week call on Mervyn King
alternative options for policy makers.                to tear up the Bank of England’s complex
   DeAnne Julius, Willem Buiter, and Sushil           mathematical model of the economy, as the Bank
Wadhwani will be part of the Monetary Policy          is accused of having exacerbated the recession
Forum (MPF), which launches today, a day before       by failing to cut interest rates fast enough when
the Bank presents its latest quarterly Inflation      the credit crunch hit. The Guardian / The
Report.                                               Observer - Full article can be found at:
   The MPF is calling for a radical overhaul of the      http://www.guardian.co.uk/business/2009/
policy framework and immediate quantitative           feb/08/bank-of-england-governor#box
easing to mitigate the effects of the financial
crisis.                                               Fathom is calling for the government to consider
   The forum plans to meet once a quarter, just       quantitative easing as it launches its Monetary
before the Bank’s Inflation Report is published.      Policy Forum.
   The Times - Full article can be found at:          It says that the government should buy houses
http://business.timesonline.co.uk/tol/business/       directly and instruct the Bank of England to print
industry_sectors/banking_and_finance/                 the money to pay for them, to form a floor under the
article5700533.ece                                    housing market and provide much-needed liquidity
                                                      to the economy. Mortgage Strategy - Full article
DeAnne Julius, Willem Buiter, and Sushil              can be found at: http://www.mortgagestrategy.co.uk/
Wadhwani will be part of the Monetary Policy          cgi-bin/item.gi?id=180687&d=403&h=401&f=402
Forum, created by Fathom Financial Consulting to
present the shortcomings of the MPC and present       Dr Deanne Julius, Sushil Wadhwani and Willem
alternative options for policy makers.                Buiter are all part of a new monetary policy forum, set
   Launching today, a day before the Bank             up by Fathom Financial Consulting.
presents its latest Quarterly Inflation Report, the      The forum is designed to scrutinise the Bank’s
MPF is calling for a radical overhaul of the policy   Monetary Policy Committee (MPC). BBC Online - Full
framework and immediate quantitative easing to        article can be found at: http://news.bbc.co.uk/1/hi/
halt the deepening crisis. The Telegraph - Full       business/7881178.stm
Monetary Policy Forum
‘End of Monetary Policy?’ Debate –                    to focus on qualitative easing, not ZIRP…
Key Quotes                                               “This country simply cannot afford a big fiscal
                                                      package. The government should put a cap on
Erik Britton                                          budget deficit. It needs to put parameters in
  [on Gordon Brown and Mervyn King’s faith in         place in order to restore confidence.”
cutting interest rates to boost the economy]
  “We don’t doubt their belief, we doubt that it’s    Sushil Wadhwani
justified.”                                              [on the Bank’s failure to act]:
  “There’s been a blind spot in the way the Bank         “The Bank of England was too seduced by
has thought about housing.”                           efficient market theory… it failed to lower rates
  “We support quantitative easing and, in             quickly enough because it worried about the
particular, we would target it at housing.”           inflationary effects of high oil prices… but it also
                                                      failed to allow for the possibility of a bubble in the
Willem Buiter                                         commodities market because of too great a belief
   [on the BoE’s modelling tool BEQM and their        in market forces.”
analytical framework]                                    “The key lessons we should have learnt from
   “doesn’t allow the important questions to be       Japan are that firstly you must prevent asset
asked.”                                               bubbles being created – you must not let this
   [on fiscal stimulus leading to higher debt and     situation happen. Secondly, if you do get a
taxes in future]                                      bubble, then when it bursts you have to go for it
   “The credibility of the government to make         aggressively and quickly.”
long-term binding commitments isn’t there. You              “The appropriate policy response is shock
can’t preside over a feast of debauchery for ten      and awe. We need to try everything – ZIRP,
years and then expect people to believe you have      quantitative and qualitative easing, and fiscal
turned into St Augustine.”                            policy – aggressively.”
   [on the devaluation of the Pound]                     [On whether the Bank should have prevented
   “Sterling has tanked… and a good thing that        the bubble in the housing market by raising
is too!”                                              interest rates]: “There should have been more
   [on credit easing via the creation of a “good      leaning against the wind, this might have helped
bank”]                                                stabilize expectations. It would have been better
   “The government should not be so determined        to have had a mild recession a few years ago
to save existing institutions… it should seek to      than a depression now.”
save banking, not the banks.”
   “It’s impossible to predict how much               Danny Gabay
quantitative easing you need. You just keep              “I think we are all agreed that if and when the
pumping it in until it starts working.”               time for quantitative easing arrives, it should be
   [on learning lessons from the Fed and the US       a monetary policy decision, taken by the Bank of
experience]                                           England. The problem right now is that investors
   “We have a lot to learn from the Fed, however,     are unsure as to who is actually pulling the levers
we must not forget that the Fed has created the       of UK macroeconomic policy”.
world’s biggest moral hazard machine through
indiscriminate bail-outs”

DeAnne Julius
   [on the current economic climate]:
   “Is the Bank’s analytical framework to blame?
Yes, in part.”
   “It’s not the base rate that is the problem with
this economy: liquidity is the problem… it’s time