I produced a poster to promote the use of pension saving as a mechanism to control economic targets back in 2007. The technique has been adopted being used extensively in the United Kingdom over the last decade, enabling a closer adherence to the economic targets than any other time I am aware of. I have uploaded the poster into a Scribd document, which I have posted below allowing you to view the contents and review the full advantages of using pension saving as an economic control tool. I put the main body of the text below for you to review, however if you want to see the diagram and the full poster you will have to visit my blog morganist economics (it is the lastest post). https://morganisteconomics.blogspot.com/ The document is has copyright on it. Copyright © 2007 Peter Morgan Morganist Economics. BENEFITS OF NOT USING INTEREST RATES TO CONTROL INFLATION. (1) INTEREST RATES ARE USED TO CONTROL THE AMOUNT OF LIQUIDITY IN AN ECONOMY BY INCREASING AND DECREASING THE COST OF BORROWING BY RAISING THE BASE RATE OR REDUCING THE BASE RATE RESPECTIVELY. THIS MECHANISM REQUIRES DEBT AND MUST HAVE A HIGH LEVEL OF DEBT FOR THE INTEREST RATE ALTERATIONS TO HAVE A STRONG IMPACT ON THE LEVEL OF LIQUIDITY TO DEFLATE OR REFLATE THE ECONOMY. AS THIS MECHANISM IS DEPENDENT ON DEBT IT IS A REASON FOR GREAT CONCERN NOW THAT THE AVAILABILITY OF CREDIT IS DIMINISHING. IT IS ALSO IMPORTANT TO NOTE THAT CREDIT ONLY HAS TO BE TIGHTENED TO HAVE DEVASTATING CONSEQUENCES ON THE ECONOMY DUE TO GREATER ALTERATIONS IN INTEREST RATES BEING NEEDED TO HAVE THE SAME DESIRED RESULT WHEN THERE IS LESS DEBT IN COMPARISON TO WHEN THERE WAS MORE DEBT. FOR EXAMPLE IF HALF OF THE LOANS IN THE COUNTRY DEFAULTED A 2 % INCREASE IN THE INTEREST RATE WOULD BE NEEDED TO HAVE THE SAME RESULT AS A 1 % INCREASE WOULD HAVE HAD BEFORE THE DEFAULTS OCCURRED. UNFORTUNATELY IF THE RATE IS NEEDED TO BE INCREASED BY A GREATER AMOUNT IT WILL CREATE EVEN MORE DEFAULTS AND WILL RESULT IN FURTHER DEFAULTS TRIGGERING A CONTINUED REDUCTION IN THE EFFECTIVENESS OF INTEREST RATES TO CONTROL THE ECONOMY. (2) IF INTEREST RATES ARE NO LONGER USED TO CONTROL INFLATION THE INTEREST RATE WILL BE BASED ON SUPPLY AND DEMAND AND WILL STABILIZE, THIS IN TURN WILL STABILIZE THE CREDIT MARKET AND EASE THE CREDIT CONDITIONS THE COUNTRY IS FACING AT THE MOMENT. THE INFLATION TARGET AND THE CREDIT TARGETS NO LONGER CONFLICT WITH EACH OTHER AS THEY ARE NOW NO LONGER LINKED BY THE INTEREST RATE AT LEAST NOT AS A DIRECT FUNCTION FOR ECONOMIC CONTROL. THIS WOULD EASE THE CONDITIONS IN THE ECONOMY SIGNIFICANTLY. (3) & (4) IF INTEREST RATES ARE NO LONGER USED TO CONTROL INFLATION THE ALTERATIONS IN THE INTEREST RATE ARE LESS LIKELY TO BE AS EXTREME DUE TO NOT HAVING AS MUCH PRESSURE TO MOVE TO CONTROL THE AMOUNT OF LIQUIDITY TO ALTER INFLATION. AS A RESULT THE MARKET AND THE ECONOMY ARE FAR MORE STABLE AND DO NOT CREATE THE PRESSURES ON OTHER SECTORS OF THE ECONOMY, FOR EXAMPLE BOND PRICES HAVE A NEGATIVE CORRELATION WITH THE INTEREST RATE. (5) IF INTEREST RATES ARE NO LONGER USED TO CONTROL INFLATION THE TOOLS THAT ARE USED TO CONTROL OR ALTER THE INTEREST RATE NO LONGER HAVE TO BE USED. THERE ARE THREE MAIN TOOLS THAT THE BANK OF ENGLAND USES. NUMBER ONE, OMO’S OR OPEN MARKET OPERATIONS. NUMBER TWO, THE RESERVE REQUIREMENT THAT BANKS CAN HAVE IN THEIR DEPOSITS. NUMBER THREE, THE DISCOUNT RATE OF BONDS. THE TOOLS EFFECT THE ECONOMY AND CAN HAVE A NEGATIVE EFFECT AS WELL AS POSITIVE. BENEFITS OF USING THE CURRENT PENSION REBATE OR PENSION SAVING TO CONTROL THE ECONOMY AND HOW TO COMPENSATE FOR THE DOWNSIDES. (6) & (7) A LARGE NUMBER OF BUSINESSES REQUIRE FUNDS THAT PENSION INVESTMENT MAKES AVAILABLE. IT COULD CREATE ROOM FOR GREATER EQUITY CAPITAL IN THE MARKET AND IF THAT IS INSUFFICIENT GOVERNMENT SUBSIDIES COULD BE USED, THIS IS IMPORTANT AT THE MOMENT AS CAPITAL IS NEEDED DUE TO THE PROBLEMS IN THE SUBPRIME MARKET. (8) ONE METHOD OF INCREASING SHORT TERM CREDIT IS FOR CORPORATIONS TO USE PENSION SAVINGS FOR BORROWING, THIS IS DONE AT THE MOMENT WITH SASS - SMALL SELF ADMINISTERED SCHEMES. THEY USE THE PENSION SAVINGS OF DIRECTORS OR MANAGERS TO INVEST IN THE COMPANY TO LET IT GROW, THIS COULD BE EXTENDED TO ALL STAFF. THERE ARE SOME CONCERNS ABOUT DEFAULT OF THE CORPORATION AND THE IMPACT THAT WOULD HAVE ON THE PENSION IF THIS TECHNIQUE WAS USED, BUT IF THE STAFF’S PENSION IS BASED ON THE BUSINESS IF THE CORPORATION DEFAULTS PENSIONS WILL BE LOST COMPLETELY. (9) & (10) PENSIONS INCREASE SAVING AND ALSO INVESTMENT GIVING BUSINESSES GREATER OPPORTUNITY FOR MORE BORROWING AND AS A RESULT REDUCES THE COST OF CREDIT. BUSINESSES CAN NOW RUN SMOOTHLY AND COVER OPERATING COSTS WITHOUT HAVING HIGH INTEREST PAYMENTS AND IT HELPS DECREASE THE STRAIN OF THE CREDIT CRUNCH.