Clarkson's Hammer

Many years ago, the popular BBC television show Top Gear used to feature a trio of loveable rogues -- Jeremy Clarkson, Richard Hammond and James May (listed in alphabetical order because, of course, in any sensible list, James May should be first).

A long-running joke was that Clarkson would attempt to fix any fault, whether mechanical, electronic, gaseous, philosophical or entomological, with a very large hammer.

Laugh at the silly man, viewers! He thinks he can hit a delicate mechanical part with a hammer to get it working! Go on! Laugh!

Except --- thanks to the magic of television, in the next scene, he is back on the road! It worked! (But don't try it at home.)

Behind The Curtain

We all knew, of course, that a proper team of mechanics, lurking behind the camera (or behind the curtain if you prefer Wizard of Oz analogies), was actually fixing the car. That's not the point. It's not an Open University course in car maintenance, it's an entertainment programme. And goodness me, wasn't it entertaining? (I say again, don't try this at home.)

Except someone is trying this at home, aren't they? They're trying it in your home. And yours. And that guy over there. Etc.

Bank Of England

Step forward and take a bow, Andrew Bailey. The governor of the Bank of England has got out his big hammer and is going to fix the economy! Thanks Andrew!

Except there is no team of mechanics out of sight. He's really going to do this because he really does only have a big hammer and he thinks he's right. Is there anything more dangerous than someone with a large hammer who thinks he's right?

Because Andrew is going to put up interest rates to fix inflation. And we know what that means, don't we?

Give The Banks More Money

Putting up interests means that the Bank of England is ordering people to give more money to banks. 

The cost of your loan will go up, the cost of your mortgage will go up, the cost of that business's loans will go up, the cost of your landlord's mortgage will go up, so rents will go up and prices in shops will go up and everything will get much more expensive.

And where does this extra money go? This extra money that we're all being ordered to pay by Andrew Bailey?

Yes, it's going to the banks. They are going to collect more money in interest payments -- that's where all the increases lead if you just follow the money.

How much extra work are the banks doing to justify being handed a vast extra slab of income from across the population? I'm going to call it zero extra work (okay, maybe a bit of typing to change the interest rates on their leaflets and website).

Follow More Money

So Andrew Bailey is going to save the economy by driving people and businesses into bankrupcty and handing vast amounts of unearned money to banks.

You can see the banks rubbing their hands in glee right now. (With banks, that presents itself as the share prices going up.)

But wait! That's not all!

Because of the magic way the economy works, the Bank of England has given vast amounts of money to the banks, which they hold as a credit balance at (you guessed it) the Bank of England. And for the tremendous inconvenience of holding onto this money for the Bank of England (at the Bank of England), the banks get paid interest.

Can you see where this is going? The interest the banks are paid for holding on to a credit balance (which isn't theirs) will similarly go up -- because Andrew Bailey has put up interest rates.

So even more money will be paid to these banks as interest on money which isn't really theirs because the interest rate has gone up in order to save the economy.

Going On Tour

Andrew Bailey explained in an interview that he goes around the country talking to business leaders so he can be fully informed and respond to the needs of the nation. We must avoid appearing envious of his life on the road staying, one assumes, in comfortable hotels and eating in excellent restaurants on expenses.

No! Put away your envy.

Instead, wonder about these local business leaders. Are they really telling him that they'd like their loans to be more expensive, that they'd like many of their customers to go bankrupt or cut back their spending, and that they'd like all the banks to get richer?

Because if they're not telling him that, it would seem to me that maybe he's not listening so much while going on his trips. Because that's what he's serving up for them.

If I'm So Clever, What Would I Do?

Not put interest rates up.

Since I don't believe that low interest rates have caused inflation, I also don't believe for a moment that high interest rates will solve the problem.

('What do I think caused inflation?' I hear you ask... I'd suggest looking at other factors, e.g. war in Ukraine, insane speculator-driven gas price spikes, corporate profiteering, etc, etc.)

I think high interest rates will make banks richer, will cause them to hand out bonuses to their staff (for the wonderful performance of doing absolutely nothing to cause rising profits), and that will be about it.

(Oh, and the bonuses given to bank staff will cause a bit of inflation in the luxury end of the market as they all rush out to buy watches and yachts and Bentleys, etc.)

If inflation falls over the next year or so it will have nothing whatsoever to do with interest rates, in much the same way that if I go outside and do a little dance and it rains tomorrow, my dance did not cause it.

Put your hammer away, Andrew. You're not making an entertainment programme here, you're destroying the economy of a nation and the hopes and dreams of its population.

Update, 31 August 2022

Apparently one of the big investment banks reckons that inflation could hit 22% early next year.

This must mean one of two things:

• Interest rates need to go up again in order to really show inflation who's the boss.
• The interest rate rise hasn't helped against inflation and it never will because it's the wrong approach.

Surely it's only a matter of time before Andrew Bailey announces that his intervention has stopped inflation going up to 23%. But 22% is still too high and so interest rates must now rise to (checks notes -- see below) 153%.

Yep, that'll definitely do it.

(As any maths student knows, you should always show your working:

• Number of weeks in year = 52. Subtract 1 for no reason gives 51.
• Target inflation rate = 2%. Add 1 (to balance out subtracting one above) gives 3
• 51 x 3 = 153
• You're welcome.

And that's how you get to be the governor of the Bank of England.)