George: time to call in the Plunge Protection Team

The Chancellor’s efforts to reduce the deficit are simply not working. From April – June this year the deficit increased by £4.5 billion more than the same period twelve months earlier. Perhaps help is needed. One solution is to call in a rescue group.

Executive order 12,631 was signed on 18 March 1988 by US President Ronald Regan. Called initially ‘The Working Group on Financial Markets’ it was formed to react to circumstances in the financial markets following ‘Black Monday’ on 19 October 1987. Its purpose was to recommend legislative and private sector solutions to “enhance the integrity, efficiency, orderliness, and competitiveness of US financial markets and maintaining investor confidence.”

The members were the Secretary of the Treasury (Chairman), the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission and the Chairman of the Commodity Futures Trading Commission.

The group was called ‘The Plunge Protection Team’ by the ‘Washington Post’ but it quickly faced editorial criticism for going beyond its legal mandate. There were suspicions that either the Federal Reserve or the Government were supporting stock prices. Other conspiracy theories went even further including the illegal use of stock index futures. More moderate commentators suggested that the group was merely using ‘moral suasion’ In 2008 the group said that it was taking action to stabilize the financial system. It has since faded from sight.

There is little doubt that the Chancellor will have his own version of the ‘Plunge Protection Team.’ However his own efforts have been affected by his decision to carry out a wholesale re-organisation of financial regulation which has undermined the work of the Financial Services Authority, The Treasury and the Bank of England. The regular conflicts between the Governor of the Bank of England and the Treasury Select Committee chaired by Andrew Tyrie MP is indicative of the tensions. The whole situation is complicated by the stresses of trying to hold the Coalition together.

The Summer recess is here and the Olympic Games will dominate public attention. The Eurozone is still holding and the reduction of the UK deficit is nowhere near on target. Little is being said about the reorganisation of the NHS but anecdotal evidence suggests there are real problems ahead.

The Chancellor will probably not form a ‘Plunge Protection Team’. In truth there are suspicions that he is rapidly running out of any new ideas at all.

 

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