A central banker has three types of club in his bag: exhortation, instruction and interest rates. Just as golfers may have different putters, irons and woods, everything else is essentially a variant on the three basics.

Last week two central bankers were out on the course; for the Bank of England, Mark Carney mused about instruction. The smart modern name for this is “macro-prudential policies” and the idea is to use them when the bankers ignore calls to behave sensibly, as they always do once things start heating up,.

When they’re deaf to speeches about lending too much on property then Mr Carney’s big idea is to place limits on what they can lend in particularly hot sectors, like, er, property. This will force them to redirect the firehose of money into productive parts of the economy.

The Bank’s Financial Policy Committee claims to have found lots of ways of doing this, in particular controlling mortgages without clubbing homeowners with higher interest rates. Essentially, they boil down to two. Either “Would you mind not lending so generously?” or “Tell the borrowers to form an orderly queue,” aka rationing .

Mr Carney is too young to remember the last time we tried this, but it didn’t work then, and it won’t work now. Co-incidentally (or not) Mario Draghi, his opposite number at the European Central Bank, was also musing about control of banks’ irrational exuberance. He’s pretty straightforward: “A distinct advantage of monetary policy as compared with macro-prudential policies is its robustness to regulatory arbitrage and its ability to get in all the cracks.”

In other words, bankers will find ways of gaming the rules. Loans get re-classified from commercial property into “business development” and surveyors take a rosy view, with magical effects on loan-to-value ratios for mortgages. There is already plenty of that in London. The banks can get round the mumbo-jumbo of  macro-prudential policies, but they can’t get round higher interest rates.

Smoke gets in your eyes

It’s the biggest wood-burning stove in North Yorkshire, and it’s even cheaper to run than fuelling it with fivers. That’s Drax, Britain’s largest power station, which is sitting on coalfields it’s trying not to use. Instead,  it’s shipping wood pellets across the Atlantic, storing them in high-tech domes lest they explode, and burning them.

This is splendidly green, a “roadmap for the future” as hapless Ed Davey, the current energy secretary, put it when he visited. If the smoke doesn’t make your eyes water, then the price will. As Guy Chazan spelled out in gruesome detail this week, the subsidies for Wooden Drax make the nuclear deal with EDF look like a bargain for the taxpayer.

The government is using its preferred method of obfuscation on pricing, the contract for differences, but is effectively guaranteeing to pay £105 per megawatt hour, or twice the current wholesale price. To make matters worse, there are plenty of critics who argue that wood-burning isn’t really green at all, since the trees take ages to grow again.

Still, never mind. Drax shares have had a fine run this year ahead of Mr Davey’s visit. He loves this sort of stuff, but once he’s gone from energy, and the real costs start to bite, it could be a different story.

Two views make a market

Forecasting is always difficult, especially for the future. You can always ask an expert, of course, and here are two. Firstly, Robert Parkes at HSBC. He tracks corporate earnings, noting how analysts’ expectations fall from fantasy to reality as the results date draws near. However, he’s spotted something unusual: the companies are beating analysts’ expectations, and are still miles short of what they made in 2007, particularly in continental Europe. In other words, shares are still cheap.

Oh no they’re not, says SocGen’s Albert Edwards (as he nearly always does). He admits he’s wrong 90 per cent of the time, but at least he’s consistent. He sees a yen devaluation destabilising the economies of much of Asia, and concludes that “a deflation scare is set to crush US equities.” A very happy Christmas to his many fans. Not so sure about the New Year.

This is Saturday’s FT column (with apologies for delayed publication)

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