Across the pond, Fleet Street Daily’s Ben Traynor says the Bank of England has about as much idea as the rest of us when it comes to the current economic crisis. Worse still, Ben says embattled British prime minister Gordon Brown could do even more damage to the economy as he seeks a short-term reprieve in opinion polls by targeting major oil companies.

“This is just a transitory period of subdued growth and we will get through the other side and the growth will resume to more normal levels.” - Charles Bean, Bank of England deputy governor, August 25 2008.

“It’s fair to say that, if you look at the shocks impinging on us, this is at least as challenging a time as back in the 1970s.” - Charles Bean, Bank of England deputy governor, August 25 2008.

Charles Bean - who was Bank of England chief economist until taking over as deputy governor last month - said both of these things yesterday. He was speaking at Jackson Hole, Wyoming, during the annual conference of central bankers.

What are we to make of these two statements? And, more to the point, how much credence should we give to the Bank’s predictions?

Let’s kick off with statement one. Bean reckons we’ll see subdued growth for a bit, but then it’ll all be OK again. He based this statement on the prospect of lower inflation next year (I agree with this prognosis) and more stable credit markets (I’m more sceptical on this one).

Statement one is the sort of thing a public figure says when he wants to sound reassuring. But — and this is quite reasonable, of course — Bean was unable to stick his neck out and say how long he reckons the pain will last.

Moreover he was at pains to cover his behind, lest he be guilty of sowing false hope.

“We’ve got our fingers crossed that things will improve,” he said. “But there is the recognition that there is still a long way to go yet.”

“Fingers crossed” just about sums it up for statement one. The Bank has as much idea as the rest of us how long this problem will last. Its people are, basically, hoping for the best — giving an outward impression of calm while dropping heavy hints that we should batten down the hatches.

On to statement two. Bean says the situation is at least as bad as the 1970s. I agree.

There are several parallels between our current situation and the 1970s, including:

• Disgruntled public sector unions demanding higher pay
• The cost of energy (especially oil) has surged
• The economy has ground to a halt
• We have an unelected Labour prime minister struggling in the polls, so desperate to find a way out he’d sacrifice the economy for any short-term respite

A couple of words on that last point. In the 1970s it was Jim Callaghan who played the role of embattled, unelected PM. In the mid-1970s the economy was struggling. There is suspicion that the government, in cahoots with the Bank of England, attempted to engineer an export boom by way of a ‘managed depreciation’ of the pound.

Except the depreciation wasn’t ‘managed’. After the Bank cut rates in March 1976, the pound went off a cliff — and took the economy down with it.

Callaghan took over as PM in April of that year. By autumn there was a feeling that he would call an election — despite everything, Labour was ahead in the polls. But he didn’t (remind you of Gordon Brown in autumn 2007?).No, Callaghan stayed on. And, by doing so, he got to add the IMF crisis and the Winter of Discontent to his list of ‘accomplishments’.

Today, of course, we have Gordon Brown — a desperate man leading a collection of increasingly desperate MPs. It seems Brown may be bounced into imposing a windfall tax on oil companies. This could have a real negative impact on Britain, especially if oil companies with headquarters here decide to set up home elsewhere.

But it would make headlines in the short-term, so Brown might well go for it. Desperate times call, it seems, for knee-jerk responses.

That, however, is a whole other topic. For today, let’s content ourselves with making sense of Charlie Bean’s speech. Basically, things will be better one day, but we don’t know when. In the mean time, they will probably be worse. We don’t know how much worse, but probably at least as bad as 30 years ago (which was bad).

Source: What Is The Bank Really Saying?