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Archive for the ‘inflation’ Category

That senior economists are even talking about inflation now, having pretended it didn’t exist for so long, should be a source of anxiety. That one of them should say something like this should be the prelude to panic.

In an opinion piece for on Friday, Mr Bean writes: “Some people have suggested that a bit of extra inflation now might actually be a good thing. After all, wouldn’t it help to get the economy going by reducing the real value of public and private debt? This is severely misguided.

“Aside from the dubious morality of redistributing wealth from savers to borrowers, we have seen from past experience that a bit of inflation has a nasty habit of turning into a lot of inflation.”

Deflation was a smoke screen for devaluation and new debt. However, someone has now broken ranks to warn of the true nature of the coming catastrophe: hyperinflation.

We’re doomed! Doomed!
Update:
Of course, I forgot. Without debt (money – or rather the promise of non-existent money), and more and more of it at that, the entire world economy would collapse into depression. Stupid me…
Get it? I don’t. Let’s get this straight again, without debt there would be no money = Great Depression II.
Well, you figure it out because I sure can’t.

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Who would have thought it? After years of denial Brown finally admits, sort of, responsibility for the banking collapse by deregulating them ‘in the nineties’, thus proving, incidentally, that the Tory banking regulatory checks and balances worked perfectly. If it ain’t broke, Brown fixes it. Now Britain’s broke.

Speaking of which, I am hoping tonight that Cameron nails Brown on the scale of the debt crisis this country faces and that his policies caused. The fact that the mainstream media can’t seem to grasp this, nor most of the bizarre economic ‘expert’ commentariat of this country (the Anatole Kaletsky-types), should not frighten the Tory leader. He must make it plain to all that we really can’t go on like this. Brown can’t blame the banks for making him cave in on deregulation ‘in the nineties’. And, as Dan Hannan I think said yesterday, if the banks’ advice about deregulation was wrong – and Brown shouldn’t have listened to it – why did he decide to listen to the same bankers over the public, trillion-pound bailout? Fool me once and all that. Two wrongs don’t make a right.

Debt. Cameron’s got to talk about it, not just to demolish Brown, but to be straight with the electorate about the scale of the challenge Brown’s scorched earth policies have left for a Conservative government to repair and for future generations to pay off. We are, indeed, all in this together. Everyone. So what is there to be done?

Well, the first thing to do is to face up to reality. The other two parties can’t do this because they are wedded to a particular ideology of big state interventionism, so the Conservatives, as always, will have to do it on their own – with a little help from the population. The reality is that public spending is bankrupting the country. I’m not saying that Cameron should be specific about where the axe will fall, but fall it must – hard and often. He’s got to level with people, but in a positive way: a little pain now; pleasure later. Reform everything, abolish waste, get more bang for your buck and fix the public finances, starting with Labour’s nightmarish overspending, currently putting us at a humiliating 20% bankruptcy risk (five times higher than France, Germany or the USA).

Labour’s all about pleasure, pleasure, pleasure -now, now, now – until there’s simply no money left to pay for it. That’s just infantile.

If the infants are returned, therefore, with “economy killer” Brown at the helm, this country will effectively be bankrupt within a few years.

As it is we already face a period of Labournomic, fake growth (where every £1 of expansion in the economy actually costs the taxpayer £2 in ‘stimulus’ money. Hey, that’s just what the figures say.) As it is we already face a period of stagflation. As it is we already face what could be another lost decade, just like the last time Labour was in charge.

Anyway, those are the sorts of things Cameron needs to talk about, along with all the optimistic stuff, obviously. People want an effective leader, not just a charming one.

Brown is neither. Cameron could be both.

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If any further evidence of the pain being caused by the inexorable slide in the value of the pound, and the subsequent inflation an import-addicted economy is suffering, were needed, the latest reports about rocketing petrol prices provide it.

The Independent, for instance, tells us that pump prices have risen by well over a fifth in the past 12 months, although it omits to mention that they were pretty stable for most of that period. It’s been the last three months or so that have seen the bulk of the spike – so far. And there is far worse to come. If you drew a graph of petrol price rises over the past 12 months, the line would roughly trace a parabola. My own local Texaco has pushed its prices up five times in the last five weeks alone – to an eye-watering 117ppl, and perilously close to the record of 119ppl, which happened when oil prices had ballooned to $147/barrel, just before the crash.

Today, as of 5.38pm GMT, the NIMEX crude oil price stands at around $81 a barrel and falling (itself an inflated price caused by artificially created conditions of scarcity by OPEC output cuts) as bad consumer spending data in the US causes further jitters on their markets. That’s a full $66 a barrel less than the previous spike – or 44%. Even taking into account Darling’s many tax rises that have since boosted that price (by about 7ppl since 2009), your pound is worth at least 35% less than it was before the crash came. The economic damage this is causing is unknown as yet, but it will be serious. Indeed, the Chancellor’s plan to slap another inflation+1p hike on the price in the budget is, quite simply, economically suicidal.

The whole mess smacks of chaos, incompetence and desperation at the heart of a government hell-bent on pursuing a scorched earth economic policy, where they continue to mask the real horror of the current state of the British economy by creating yet more debt in an attempt to delay reality till after the election. But it’s a spiral, with increased debt leading to further currency devaluations, followed by higher inflation, higher prices, especially on imports (like oil) – all paid for by us out of salaries that remain stubbornly flat – and then all that’s followed by even higher (stealthy) taxes, and the cycle is complete.

I just hope people remember whose ineptitude is responsible for this renewed impoverishment (Brown et al) – and punish them accordingly, ie: severely. Otherwise, as I’ve said before, what comes next will make March 2010 seem like the good old days. At this rate, for instance, the two-pound litre will be with us just in time for the General Election and whoever wins will send a signal to the markets, who will then determine in which direction prices will move after that. If it’s Labour, then the only way is up – for the petrol price, of course, but also for debt, the acceleration of devaluation, inflation, tax and pain.

For Britain, the only way would be down. Down and out.

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Tony, whose Cogito Dexter blog won my sincere admiration many months ago, has asked us all to join him in his campaign to Make Labour History.

He has my full support to that end. If you really do want to secure a prosperous, free, pluralist and debt-free future for your children, in the finest traditions of our great country, Tony should also be able to count on yours.

I promise that I will do as much as I can to bring about that desirable, and, for everyone in Britain, and for the nation itself, that desperately vital outcome in this Year of Change, 2010.

Bottom line: if you want to save yourselves, your economy and your nation from total socialist destruction, then Vote Conservative – and make Labour history. After thirteen years of hurt, it’s very much more than Labour deserves, and it’s what we and our country so desperately need.

(Tony: sterling work, compadre. Outstanding.)

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No one likes hindsight very much, but it really should have gone without saying in the first place that when you print 200Bn quid of unreal money just to keep going month to month, are running a record structural deficit and have public debt exposure approaching 1.5 Trillion, then you are running the severe risk of diluting your currency’s value to the point where it begins to hurt the entire economy – and hurt a lot. With inflation having spiked by 1.0% in one month, which is the largest jump on record, hitting 2.9% just as the first signs of recovery were (allegedly) being detected, then no amount of spin can disguise the fact that Britain is in big, big trouble.

There is, of course, some suspicion that this is all part of Brown’s ‘plan’ (if that is what it can be called): bankrupt the country now in order to buy some kind of election victory and then inflate away all the debt regardless of the huge amount of damage that that will do to the prosperity of private citizens, especially those who are wealth creators, self-sufficient (prudent), and savers. It will also impact heavily on home ownership, of course – which is why I suppose there has been all the clamour on the left for a return to council housing recently. All this is naturally a socialist’s wet dream – and it is precisely the total basket-case calamity that Thatcher had to confront in 1979.

But if it really is that ruinous old bastard Brown’s intention to turn back the clock to the 70s, with low or no growth, high debt, high taxes and high inflation (aka: stagflation), then even someone as self-serving and cynical as he is (beyond any shadow of a doubt) is in for a severe shock. First, it won’t work because people are on to him: no amount of attempted vote-buying is going to win him the mandate he has never, ever deserved, particularly if his ‘plan’ is to catapult Britain thirty-five years into the past, back into the economic dark ages (although some might say he has already done exactly that).

Second, it won’t work because of the sheer scale of the crisis. It is unprecedented, relatively speaking, not just in the history of Britain, but the history of any major economic power, in terms of the scale of the exposure to a possible economic tempest. QE, as Fraser Nelson (one of the very few MSM journalists who have been warning us about the inflation crisis following swiftly on from the damp squib that was deflation) has said time and again, is uncharted territory. It’s a nuclear option; a highly experimental and untested method of dealing with a crisis the nature of which is most likely not completely understood. It is also a one-shot deal. If, as increasingly seems to be the case, Brown and Darling have, in fact, completely failed to plan for rapidly rising prices (or, rather, a rapidly deteriorating purchasing power parity), then whatever stimulated (fake) recovery they were hoping for will be choked off in short order. The danger of a double dip recession, that little old I (for one) starting talking about last May for heaven’s sake, is now not so much a danger as a certainty. But while it’s a familiar story so far as Labour is concerned, what is unfamiliar this time, as we roll our eyes muttering ‘here we go again,’ is that we will be entering the second recession with literally less than nothing left in the kitty. What must follow, regardless of Labour’s lies, and thanks to their terrible economic mismanagement across the board, is a rapid fall in the overall standard of living. The rest of the world will not prop us up for much longer – and we have no more bullets in the gun.

Third, Brown’s plan to inflate away Britain’s debt won’t work for the simplest reasons of all – the real-world economic ones. Let us say that by some satanic twist of fate Brown won the election, thus enabling him to continue to get away with QE for a bit longer (and that can be measured in weeks now rather than months), what are the eonomic realities that will hunt him down and expose him for the utter fraud and socialist economic illiterate that he is?

The simplest point is about levels of public spending. (I know you know this but writing it down helps me to get it clear in my own noodle!) As inflation continues to rise and money is worth less (expressed as price and wage hikes), people can buy less, economic activity is hampered because businesses are starved of cash and crippled by ever-increasing pay demands, and, of course, rising interest rates (as the BofE tries desperately to control the collapse) and, following on from that, the social security bill increases as a result of rising unemployment, an increase in income support costs (as more and more people fall into the poverty trap) and, as the spiral gathers pace, the subsequent increase in debt further devaluing the currency – leading to more inflation and even higher interest rates. Nothing personal, you see. It’s just how the world works – no matter what your politics!

Point is, do not believe any of the propaganda from any of the politicians, but especially the socialists (many of whom quietly wish this calamity upon the nation for their own, peverse political reasons), because the signs are that these economic realities are already here.

There is nowhere for Brown (fortunately) or us (sadly) to hide any more.

A massive, unprecented, 1% inflation spike in one month is just the start of it. Batten down your financial hatches folks. This is going to be one hell of a storm.

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I heard some quietly chilling news on the radio while driving into work this morning and have just got in to find that Guido has already written an excellent post on the subject of deflation or, to be more precise, inflation. Yup, as predicted on the more sensible financial blogs for months now, the latter’s on the rise again. Be warned, however, this is just the beginning.

As Scottie would say on the Starship Enterprise to a captain screaming for Warp 12, “I canna’ break the laws of physics, Cap’ain!” In this case, the chief engineer of the Starship Britain is Mervyn King (Alistair Darling is just the helmsman); its utterly reckless captain, who managed to navigate the ship straight into an economic black hole, is Brown (naturally); and the laws of physics are, unsurprisingly, the laws of economics which, by the same token, “canna’ be broken.”

You print money, you devalue it. You print bucketloads of it and, well, you are courting calamity. You go into massive debt, with a huge structural deficit bolted on, and you compound that potential devaluation and turn a calamity into a catastrophe. Simple as. They will tell you that it’s the oil prices, that the money is still sound. They aren’t just being dishonest, I’m beginning to wonder if they (these economics ‘experts’) actually know what the hell they are talking about. The temptation is to trust them – they’re the boffins, after all – but the economic forces at work here are so powerful that, you know what, they might not have a clue. Either way, it will be very hard for the next (I hope sensible) captain to pull us out of the gravity vortex Brown has steered us into without stripping the vessel of all its masses of dead weight first, and then by reigniting the engines with the fresh plasma that is tax cuts and other incentives for wealth creation.

Fortunately, David Cameron wrote an excellent piece for the Times this morning which outlined those very things. If only he’d reconsider the 50% tax, too. It wouldn’t signal a warp speed recovery, but it might send a vital message to wealth creators and investors that they won’t be punished just for being successful and simply for doing what they do best: making money and then spending it.

Here’s Guido’s thoughts just in case you can’t be bothered to click through:

Guido was more than sceptical when politicians and Labour luvvie economists like Gavyn Davis started talking up the bogeyman of deflation at the same time as the government was running up massive fiscal deficits. It seemed too handy a coincidence that they would print money on a scale never seen before at the same time as issuing debt on a scale never seen before. They subsequently, coincidentally, bought the debt using the money they had just printed.

This we were told was to stave off deflation which it was emphasised was very bad. Goods becoming less expensive was somehow worse than goods becoming more expensive. If we got deflation it would be the end of the good times for ever according to even monetarist economists. Guido was sceptical that deflation was necessarily bad, history shows that there have been times of increasing prosperity that coincided with deflation. Deflation happened several times in the nineteenth century. During that era of rapid economic development there were no central banks and money was calculated as a certain quantity of gold or silver.

Deflation was not necessarily a threat to our prosperity, in a situation where the money supply is stable it is the manifestation of prosperity and pensioners know that their standard of living would have improved. With inflation now upticking this experiment in Mugabenomics* has to be reversed without setting off hyper-inflation or collapsing the government debt market. The policy authorities have figured out how to prop up the gilt market – they are changing the regulations to force banks to buy government debt to the tune of hundreds of billions. It remains to be seen if they can avoid an inflationary catastrophe, surging record gold prices suggest the markets suspect not…

*©Vince Cable, who was against QE before he was in favour of it. God knows what he thinks now.

I have an idea: let’s make Guido chancellor. At least he seems to know what he’s talking about.

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As a new report from the Bank of England is released, predicting a slow and painful return to growth for Britain starting in January 2010, and, bizarrely, enduring low inflation, one is left wondering if any of them can have any credibility left at all. I say this cautiously; the real villain of this piece is, always was and ever shall remain Gordon Brown whose mixed signals (orders?) to the Bank for so many years have been leading it up the garden path ever since it was given its so-called independence. This was Brown’s bust, following inexorably on from Brown’s mega housing boom. But he could not have done it without a fairly tame governor and Monetary Policy Committee so they are not exactly blameless themselves.

However, bad though that is, it’s not really the thing which annoys the most. No, what really gets to me is the total, ongoing arrogance of this bunch of overblown economists (soothsayers and pseudo-scientific charlatans, in other words) whose every prediction thus far about the state and direction of the economic condition of Britain since Brown’s uber-bust began (which they did not see coming incidentally, an epic failure surely on a par with the CIA failure to spot the fall of the Soviet Union and the end of Cold War: exactly what they were there for!) have been wrong – and not just wrong, mind you, but massively, wildly wrong.

The question is, therefore, when Mervyn King says that growth is around the corner and inflation is “dovish”, why on earth should anyone believe him? Sure, if you look at the graphs, what you see is a very long, drawn out version of the Darling “trampoline” V-shaped recovery (the trampoline’s springs were a bit loose, eh Darling?). In fact, for most of 2010 and early 2011 all you really have is stagnation. If you look at the lower tolerances of said graphs (which betray the scale of the B of E’s hedging), I suspect you are looking at something that more closely resembles what will emerge as reality: zero or weak growth for up to three years with the distinct possibility of a double dip recession by 2011/12. Factor in the inevitability of currency devaluation thanks to the deficit, the debt crisis and subsequent inflationary pressures, and yes, you have the old Labour disease back with a vengeance: stagflation. It’s the word economists dare not utter. It is That Which Must Not Be Named – the Lord Voldemort of economics, whispered only by the brave or the foolish: “stagflation”. Well, I must be Harry Potter, then, because I’ll bloody well shout it from the rooftops: S T A G F L A T I O N!!

Point is, I wonder why this or, at least, something like this, isn’t really being talked about, especially in the mainstream media. It is almost certainly the most likely outcome of the current, parlous economic state Britain finds itself in, with huge amounts of slack in the economy, no credit and virtually no demand, but with ever-active unions and wage inflation, a fragile currency and a world that’s losing faith in Britain’s ability to pay for its debts. So the question must be, just how much political pressure is being put on King and the MPC by Brown and Darling and Balls and Mandelson (what a bunch that is)? I would have to say a hell of a lot and it has helped to destroy their reputation.

Answer? Well, in the short term at least Osborne should bring the Bank back under his control, at least until a genuine, less tarnished, contaminated kind of independence can be designed. At the moment, the Bank simply doesn’t deserve its independence, even if it is only independent only in name. A shake-up is definitely required, and a complete change in policy direction, if we are to have any hope of avoiding that which must not be named – urgently. Why not start with the Bank of England?

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No, not with the ridiculous panic measure that is the £16Bn (plus or minus £13Bn) fire sale of a few assets, but by being forced to pay back 13 large of taxpayer readies that he, the Prime Minister no less, has troughed.

Meanwhile, as the pound begins to plummet, the penny begins to drop.

A Big Day after all, then!

PS: I have one response to Brown’s expenses misfortune as the police move in on his fellow Labourist fraudsters, currently whining away and trying to wriggle out of repaying their ill-gotten gains. It goes like this…

*sides splitting* Oh dear, Brown. Do stop. By resigning.

We’re all laughing policemen now. One more time!

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Cred: Gigits

So Brown has announced a £16Bn fire sale of a few assets because, as he so very convincingly put it, “we need a deficit reduction plan that supports growth and jobs not one that snuffs out recovery before it has started.”

It’s quite difficult to get one’s head around the bare-faced gall of this man. It was only a few weeks ago that he was claiming that the gargantuan public debt he’s stoked up, spiralling out of control, was not a problem (“best placed to weather the storm” – remember that?). Mind you, it was only a few years ago that this idiot was still boasting that he’d abolished boom and bust (see video). Whatever the dishonesty – or lunacy – of his economic narrative (I think everyone now knows who really caused this crisis by wrecking banking regulation, deficit spending in a boom-bubble, 60%+ public sector debt and soaring, and racking up what will soon be a 12.5%+ structural deficit – which has nothing to do with the recession), this is particularly desperate stuff even for him.

As Iain Dale points out, the fire sale just about covers August (borrowing: a staggering £16.1Bn), but what about September? It’s hardly going to be any better and there is precious little left to sell. What is more, and why this is so desperate, is that these sales for that very reason are going to be a disaster. The market will know the kind of pressure the Treasury is under to raise capital and so potential buyers will beat down the values massively. The idea that these assets (the Dartford tunnel, for Pete’s sake) will raise anything like £16Bn is highly debatable.

Whatever the ins and outs of the economic technicalities of this new policy-on-the-hoof, there are a few other points to make. One is that we all know why Brown is really doing this, it’s so he and his perennial henchmen Balls and Byrne can somehow outmaneuvre the hated Tories. This isn’t about managing the deficit – the only way to do that is to slash public spending (CUTS, Gordon!) – it’s about looking tough and giving the impression that this government – but Brown in particular – have actually got a clue and a grip. That’s why I think it’s significant that Brown made these announcements and not Darling. I very much doubt that Darling had much to do with them: there’s little evidence as yet that he did. I wonder how he feels about that…

The second point to make is that, of course, this won’t work. When the next round of government bond sales are due and yet another dollop of BofE printed money is required, the pound is going to go into freefall (again). We could be in for a credit downgrade, too (which means higher interest rates for everyone). Then the real pain begins as prices rise and the standard of living falls for everyone. Inflation is inevitable at this point and with manufacturing output collapsing again by a further 2.5% last quarter, there is little sign that any recovery is likely any time soon, no matter how much more “stimulus” is injected into the system and whatever the “rebound” idiots in this government would have us believe. Inflation makes this kind of activity pointless anyway because all you do is crush any potential growth under the dead weight of a devalued currency. At some point the balance tips and pump priming becomes ineffective. That time is now.

But that’s basically Brown’s narrative – all the way up to the election. He couldn’t care less. He’s trying to buy the popular vote – and he’ll borrow anything, say anything and sell anything to that end. Simply, the man is mad and all those journalist-cum-economists with (some version of) Keynes on their brains do this country a terrible disservice by continuing to support him just because they don’t much like the Tories. But they should know by now (well, everyone of them apart from Will Hutton who is as hatstand as Brown himself) that this is nothing to do with economics any more. This is all about Labour; this is all about Brown.

Brown will still lose the election. But so what? The damage will have been done. Not only will this generation be left with the smouldering ruins of an economy once again destroyed by an arrogant, incompetent and basically wicked Labour government, future generations will be too.

Brown’s legacy indeed.

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Deflation, as demon, is a myth. At the very worst, it is a natural but potentially very painful bursting of a bubble, itself a metaphor for that desperately dangerous illusion that is fake growth. But the real danger is inflation, as this truly great economist reminds us.

I wonder if Brown, the man who really has put Britain on the road to serfdom after that terrible decade of his Chancellorship, which saw him deliberately overheat the economy, itself enabled by his precipitate deregulation of the banking industry, while he also indulged in politically motivated deficit-spending, has ever even bothered to read him. I very much doubt it. And if he has, it’s clear Brown had no interest in comprehending him, even if he could.

It’s certainly the case that St John of Deficit (Keynes), darling of the Left but totally misunderstood by them, would agree with Hayek, not Brown, on how to deal with the current slump which Brown, an economic illiterate, helped enormously to create. Printing money, route one to the creation of an inflationary timebomb, is not the answer. Facing reality and cutting back intelligently is.

I hate to think what Hayek himself would have to say about Brown’s current, suicidal expansionism. It would be polite, but it would not be kind!

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