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British Ex-Finance Minister Blames Wealth Inequality on Loose Monetary Policies

CC BY 2.0 / Bo&Ko / Post Brexit slump in the economy dismissed by top global banks.
Post Brexit slump in the economy dismissed by top global banks. - Sputnik International
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Britain’s ex-finance minister suggested that the ultra-loose monetary conditions contribute to income inequality and also provided a skeptical outlook on the post-Brexit developments.

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Kristian Rouz – George Osborne, Chancellor of the Exchequer in David Cameron’s cabinet between 2010 and mid-2016, recently commented on monetary policies of the Bank of England (BOE), outlining a largely universal pattern characteristic for many advanced economies.

Ultra-affordable credit, the ex-Chancellor said, contributes a great deal to income inequality, making the rich richer, in particular. Indeed, with household indebtedness in the UK on the rise, and wage and salary expansion subdued amidst the persistently lackluster inflation, the low rate policy is a windfall of revenue for banks, whilst many Britons struggle payday to payday.

Osborne spoke with Bloomberg TV in Washington DC, where he said, in particular: "We need to offset the very necessary loose monetary policy and the distributional consequences that it is having. Essentially it makes the rich richer and makes life difficult for ordinary savers."

Lower interest rates undermine saving accounts profitability, whist negative rates deprive the savers from their own money, whilst the benefits of the unconventional monetary policies have all but exhausted themselves over the past 7-8 years. The ex-Chancellor seemingly has a notion of these unfortunate consequences, as he said that the negative consequences of low rates should be "mitigated."

"There’s a role for government policy not in stopping that monetary policy which keeps the economy strong but in mitigating its impact," Osborne said.

A businessmen walks past the entrance to a HSBC bank branch in London (File) - Sputnik International
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In the UK, the quantitative easing policies (QE), which is ultra-low interest rates coupled with bond buyouts practiced by the central bank, were implemented in a response to the global financial meltdown in 2008.

Osborne commented on the recent Brexit and a fascinating ascent of the GOP presidential nominee Donald Trump in the US, having said that many voters are extremely frustrated and irritated, not least by the inefficient economic policies.

"All of us who believe in free markets, in our democratic institutions, need to work harder to find an answer to the anger people clearly feel out there," he said.

He argued in favor of a "softer Brexit rather than a harder Brexit." David Cameron, head of the cabinet during Osborne’s time in the office, was opposed to the idea of the UK separating from the European Union (EU), and now Osborne suggests that no one really has a vision of how the UK should shape its relationships with the rest of Europe.

"We need the strongest possible ties in trade to mitigate the effects of Brexit," he said.

It is yet unclear, however, whether the effects of Brexit are overwhelmingly negative, and which trend is currently prevalent. Risk mitigation is always in place as one of the BOE tools, but the effects of Brexit thus far – a weaker pound, for one, — are seen as boosting export potential, manufacturing and domestic inflation in the UK. The risks to the financial sector require particular attention, however.

"It is too early to say what the economic consequences of Brexit will be," Osborne said, having added that austerity policies and budget revisions in the UK might entail the disruption of ties with the EU.

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