Governor of the Bank of England Mervyn King says there are growing signs of a global economic disaster.
THE world is facing the worst financial crisis since at least the 1930s, ''if not ever'', according to the governor of the Bank of England.
Sir Mervyn King was speaking after the decision by the central bank's Monetary Policy Committee to put £75 billion ($A119 billion) of newly created money into the economy in a desperate effort to stave off a new credit crisis and a recession in Britain.
Economists said the bank's decision to resume its quantitative easing (QE), or asset purchase program, showed it was increasingly fearful for the economy, and predicted more such moves ahead.
Advertisement: Story continues belowSir Mervyn said the bank had been driven by growing signs of a global economic disaster. ''This is the most serious financial crisis we've seen, at least since the 1930s, if not ever. We're having to deal with very unusual circumstances, but [will] act calmly and to do the right thing.''
Announcing its decision, the bank said that the euro-zone debt crisis was creating ''severe strains in bank funding markets and financial markets''. The Monetary Policy Committee (MPC) also said that the inflation-driven ''squeeze on households' real incomes'' and the government's program of spending cuts would ''continue to weigh on domestic spending'' for some time to come.
The ''deterioration in the outlook'' meant more QE was justified, the bank said.
Financial experts said the MPC's move would be a ''Titanic'' disaster for pensioners, savers and workers approaching retirement. Sir Mervyn (pictured) suggested that was a price worth paying to save the economy from recession.
Under QE, the central bank electronically creates new money which it then uses to buy assets such as government bonds, or gilts, from banks. In theory, the banks then use the cash they gain to increase their lending to businesses and individuals.
By increasing the demand for gilts, QE pushes down the interest rate yields paid to holders of these and other bonds. Critics of the policy say it pushes up inflation and drives down the pound.
The National Association of Pension Funds called for urgent talks with ministers to deal with the negative impact of lower gilt yields on pension funds. NAPF chief executive Joanne Segars said QE made it more expensive for employers to provide pensions and would weaken the funding of schemes as their deficits increased. ''All this will put more pressure on employers at a time when they are facing a bleak economic situation,'' she said.
Ros Altman, of Saga Group, said the latest round of QE was ''a Titanic disaster'' that would increase pensioner poverty. As well as fuelling inflation, she said, falling bond yields would make annuities more expensive, ''giving new retirees much less pension income for their money and leaving them permanently poorer in retirement''.
The MPC also voted to leave the bank rate at its historic low of 0.5 per cent, another decision that hurts savers. Protesters outside the bank's headquarters smashed a giant piggy bank to symbolise the situation of pensioners and others forced to raid savings to keep up with the rising cost of living.
Asked about the plight of savers, Sir Mervyn said it was more important to support the wider economy than to support them. He suggested that savers would not be helped by deliberately pushing the British economy into recession. The decision was the first move on QE since 2009, during the global credit crisis, when the bank injected £200 billion into the economy.
Some analysts believe that this round of QE could be less effective than the previous one, forcing the bank to create even more money this time.
Michael Saunders of Citigroup forecast that there could be as much as £225 billion more QE by next year. ''I think they will do lots more QE,'' he said.
''It's both that the economy is weak and also that the MPC's view is that QE is not a very powerful tool; or rather, it takes a large amount of QE to have much effect on the economy.''
The bank is supposed to keep inflation near a target of 2 per cent. Inflation now stands at 4.5 per cent, and the bank admitted it was likely to hit 5 per cent as soon as this month. The bank's own research shows that as well as stimulating the economy, QE pushes up prices.
The governor insisted that the MPC's decisions had been the correct response to events.
''The world economy has slowed, America has slowed, China has slowed and, of course, particularly the European economy has slowed,'' he said. ''The world has changed and so has the right policy response.''
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Friday, October 7, 2011
World on brink of disaster: Bank of England boss
Poll: Cain surges, opens up 20-point lead on Romney - Yahoo! News
In news sure to inject shock and awe into the Republican political primary season, a Zogby poll released Thursday showed Herman Cain leading the Republican field, topping former front-runner Mitt Romney by an astonishing 20 points. Cain would also narrowly edge out Obama in a general election, the poll found, by a 46�“44 margin.
Romney, the former Massachusetts governor, would lose by a point to the president, 40 percent to 41 percent. Texas governor Rick Perry, who has slipped in the polls of late, would lose to the president 45 percent to 40 percent.
The poll found that 38 percent of Republican primary voters said they would vote for Cain if the primary were held today. Eighteen percent said they would throw their support to Romney, while 12 percent each said they would vote for Perry and Texas congressman Ron Paul. No other candidate attracted double-digit support.
This is the second month in a row in which Zogby has found Cain leading the pack; he has surged another 10 points ahead of his competitors since September. Romney, on the other hand, has remained in the same place, while Perry’s share of the primary vote in the Zogby poll has steadily declined since he announced his candidacy in August.
Other pollsters have found Cain at or near the top of the field, with Fox News declaring him a top-tier candidate following its poll last week. That poll found Cain had 17 percent of the vote, trailing Perry by just two points and Romney by five.
A CBS News poll released Tuesday found Romney and Cain tied at 17 percent, with Perry trailing at 12 percent; a YouGov/Economist poll released Thursday found Cain leading with 21 percent, four points ahead of Romney.
Though many have questioned Cain’s viability as a legitimate candidate, voters are clearly giving him another look.
The IBOPE Zogby International poll is based on an online October 3�“5 survey of 1,581 voters, with a margin of error of plus or minus 2.5 percentage points. The sample of likely Republican primary voters included 796 Americans, and has an margin of error of plus or minus 3.5 percentage points.
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