Fears of deflation are not what they were

The scary thing about the figures recently has been how much of an impact cutting interest rates has made to RPI. This will have to reverse when rates increase (oh, and they *will* increase). Coupled with the inevitable need to make substantial cuts to public spending at some point and the lack of investment currently being made in fossil fuel production, is it impossible we are looking at a serious bout of stagflation in the medium term?

All the scare-mongering about deflation just looks sillier and sillier and designed to cover up short-termist boosts to the money supply as "necessary".

We seem to be in sight of stopping the shrinkage of our economies- deo volente and the balance sheets of Deutsche Bank and some others not turning out to be as shaky as we sometimes fear they are; but the gap between economic potential and actual growth can be expected to go on widening unless demand increases in the countries with long standing trading surpluses. Because we have to rebuild our balance sheets, the UK like the USA, can only pull itself up by its own bootstraps very, very, slowly. Unless, of course, we inflate and devalue our way out of debt. That siren song, and matching possible changes in the target for inflation given to the Bank, will be present in policy makers' minds for years to come.

The pound fell from 2.0 to 1.37 against the dollar; and from 1.47 to 1.02 against the euro. It fell because Britain was seen as having worse economic problems than the Eurozone. Its problems are similar to the USA's, but America has the trump card of possessing the world's reserve currency, and US treasuries are considered a destination in a flight to safety.

Today the pound is riding high at 1.55 against the dollar (still a 29% depreciation) and 1.14 against the euro (still a 29% depreciation).

So, any British importer is still facing a cost increase of 29% on the cost of goods purchased in dollars or euros.

Since QE began, sterling has indeed gone up from its lows of 44% depreciation to today's mere 29% depreciation. The reason is, it has now become clear that it's not just Britain and the USA facing a serious economic crisis but the whole world.....

Sterling's depreciation means it's now a good time for foreign investors to buy British assets, as Johnny Foreigner can buy a whole lot more sterling for his currency. But will foreign investors buy our gilts, or our companies, or our art treasures, or simply choose to invest their money away from Britain altogether?

(PS - Come October we will see last year's high oil prices fall out of the inflation calculation and begin pushing up the inflation index. This, and a continued weak sterling due to QE, will prove interesting. At what point will UK interest rates begin to rise?)

I am extremely concerned about QE. The merest hint of falling inflation/defaltion and the bank sprang into action. Then they announced more QE a few days ago. We havent even seen the full effects of the ludicrously low interest rates yet.

The measure the bank is supposed to be concerned with is still OVER TARGET yet people talk about more QE as being necessary. I can't help think this is all about keeping the silly property/debt bubble going. Until we get onto a sustainable footing (i.e. realistic prices) then people are always going to be heavily in debt. I fear these knee jerk reactions will come back to bite further down the line.

Well Steph,

I would happily make a contribution to this issue; but seeing as my post on the Goat blog got dumped - without any explanation as indicated - well that's all from me folks.

( the post indicated referred to QE, inflation prospects, FOI, MPC, budding actresses, MP expense rip-offs and a couple of other matters economical )

ps I note that a further 11 out of 52 posts were pulled - perhaps someone only wants to hear, what they want to hear.
Criticisms disallowed, party line only, politico/establishment status quo maintenance, ignore the Public, etc etc

Its been obvious from the start that the 'creation' of new money was not really that closly connected with preventing deflation and was always more about pumping new money into the economy in order to boost economic activity. The problem is that with the spectre of deflation receding with every day, the historical problems associated with printing money simply to get yourself out of a recession will move ever further to the forefront as the weeks and months pass by. In other words, now the risk of deflation has passed, what reason is there to go on with the Qeasing? What is the rational justification for a policy that may well lead to inflation in the medium term, long after the horse has bolted and all the money has been printed? Are they saying that if inflation was to take off in 18 months time that they would just as easily be able to remove some of this money from the system? What is their fall back position?

hi Stephanie; I think your post today just goes to prove that we might as well be reading tea leaves if we want to know about the future prospects of the UK economy (or for that matter anyone else's); inflation vs deflation, exchange rates, QE etc are all locked together in a complex matrix of countervailing tendencies like the global weather pattern; our govt policies and central banks have ABSOLUTELY NO INFLUENCE over any of this, except that by furiously pulling the tiller back and forth they do manage to get the ship to wallow a bit from side to side

everyone in Westminster and the Treasury could go home PERMANENTLY and it wouldn't make the slightest bit of difference to what happens

on the other hand, what an opinion-maker some insight could do is try to encourage some fundamental structural changes to how our economies are organised, to encourage some environmentally sustainable policies, fair trade, local supply chains etc; not that they would have much influence but could at least chuck some subsidy money at ordinary folks to insulate their houses instead of giving it to bankers to insulate them from reality!

sadly, there in the UK the govt and BoE are determined to try and re-inflate the mad and damaging house-price bubble and associated indebtedness of the average person; I guess they feel they are locked in and they clearly lack the courage to deviate from it. I'll be a beneficiary of a return of house price madness as I have a house in London I would dearly like to sell for a million ponzis (not including moat)

but I would humbly suggest that it can't be good for the UK in the long-term to continue down the road of inequality, where a growing number of people work in low-skilled low-paid jobs and even middle-class workers are seeing their real standard of living decline, but the average house price continues to disappear over the horizon. When enough people realise that they are LIVING A PONZI SCHEME there will be trouble!

Printing money means the pound that we have in our pocket is worth less that is where a lot of growth if you can call it that is coming from, or is that too simplistic ? The inflation on your charts dont match mine, on the news today, housing cheaper mortgages cheaper blah blah, petrol is up 8 pence a litre in the last two months, the price is getting closer to the price of derv, it used to be about 10ppl difference,as much as the shops claim to have sales on , my shopping is more expensive, again lauded in the news today cheaper energy due to cuts by British Gas, well im not seeing the drop yet and they have had 2 years of high prices when they were supposed to have pressure on them to drop it before by the government. My wages wont go up , but prices ARE increasing.

The public are paying for the printing of money and the banks increase in profits (retail) with the differential in base rate and what they charge,
I think Ill accidentally send in an expenses claim for a few things, If i get caught there will be no comeback, it was a mistake.........honest

strategycall (#5) It appears that (at present, in these 'dramatic' times at least) political satire is deemed not de rigueur. Still, it's the BBC's blog.

somali_pirate (#7) "everyone in Westminster and the Treasury could go home PERMANENTLY and it wouldn't make the slightest bit of difference to what happens"

Even though you've covered it well (and they themselves have used globalisation/market-forces/Lisbon to render themselves superfluous), many won't appreciate the truth of what you say in these devolved/anarchistic, and ever more theatrical, times.

The actions or inactions of the Bank of England have not been well founded in the last few years (and, I would argue in the last decade or so.) This has been due to several factors one of which is imported deflation from overseas (mainly China) and its impact on the (fundamentally flawed) inflation indices. Basically I do not think it at all reasonable to base policy on the inflation indices (either the CPI or RPI).

I have had a detailed and protracted correspondence with both this Governor and the previous Governor and have without exception I have been fobbed of with the 'everything we (the Bank) do is related to managing the CPI' (which itself is flawed in so many ways.)

This report is still fundamentally flawed as they do not take sufficient cognisance of Asset Price price movements (i.e they are trying to inflate house prices again to create an artificial 'recovery'). THIS MUST BE STOPPED!

The men MUST GO, like Speaker Martin, and we cannot hope to see a soundly based economy until they go. They should recognise this and take their (recently hugely inflated) pension pots and resign.

Can someone tell me whether house price inflation is now included in the BoE's thinking on interest rates?

#12. Wee-Scamp wrote:

"Can someone tell me whether house price inflation is now included in the BoE's thinking on interest rates?"

No, they are charged with managing the economy to meet the 2 percent CPI target and that alone.

Indeed, the Bank positively wants house prices to rise and to rise fast as this will allow equity release again and this in turn will boost consumption and create a (false) 'recovery'! (THIS IS COMPLETE LUNACY OF COURSE, BUT THESE 'WISE MEN' THINK LIKE THAT AND WILL CONTINUE TO DO SO UNTIL THEY ARE SACKED - WHICH CAN'T COME SOON ENOUGH.)

The quandary is fairly plain to see: The market and consumer prices were inflated by fake financing. Now that the house of cards has crumbled no one wants to adjust prices to reflect real values. Everyone thinks someone else should be lowering prices but not them and governments are addicted to inflated tax income. The bottom dropped out of the wave and everyone pretends they are still surfing. Is it just me or do others view these public announcements as something written by Monty Python. This is nothing peculiar to the UK it is everwhere, comic political incompetence pretending to have solutions after having the financial industry made fools of them.
The Parrot is dead.
No it's not.

Stephanie,
Stripping out energy / food volatile factors, the deflating factor is presumably reduced mortgage interest costs and housing depreciation - RPI is in negative territory. Both are affected by failing credit markets. The BoE point out that QE's effect could well be blunted by failng credit supply. The IMF say our banks need 125-250bn dollars of new capital. Building societies need to raise capital because of downgrades by credit agancies and more mutuals could fail. Banks cant raise long term funding,says the IMF and BoE. Where is the analysis on all of this in terms of how we crawl out of this?Isnt a big question for inflation : how will BoE unwind its QE purchases when spending does increase?

Why is it, by the way, that the 2009/9 BoE Financial Statement and Report does not incorporate the QE assets purchased by the BoE asset purchase vehicle because the BoE say it has no 'economic interest' as the Treasury indemnify the losses.How can that be when they are being purchased under BoE management with central bank money....where are the valuations?

INFLATION/DEFLATION is all relative to HOW MUCH MONEY you HAVE!

If you are in the market for a big house and a flash car then there are

bargains to be had.

If you are living on benefits then you are screwed!!

Sometimes I wish I understood economics; other times I'm glad that I don't; my own background is electronics where everything is far more predictable. However, that doesn't stop me worrying about where we may be going.

When all our present troubles started the cry seemed to be that we needed to get back to (for want of a better expression) the status quo ante. To a simple soul like me that seems madness; people buying things they don't need with money they haven't got and houses being bought with ridiculous multiples of salary and crazy loan:value ratios.

On the latter point it has always seemed to me that offering potential borrowers "too much" money will result in house prices increasing far more than any general price inflation; a sort of upwards death spiral that sooner or later must end in another crash.

So where, exactly, do we want to be? The answer seems to be "anywhere but where we are now", or "back where we started from". The former lacks direction and the latter seems to overlook the lessons of history.

If anyone can clarify this for me I'll sleep much better at night, but please use language a non - economist can understand.

RE my post 16?

Stef could always deflate it as OFF TOPIC? Like the GOAT blog.

18 ac

Goat, what goat, oh yeah, the scapegoat.

"So where, exactly, do we want to be? The answer seems to be "anywhere but where we are now", or "back where we started from". The former lacks direction and the latter seems to overlook the lessons of history."

Rest easy, you're an economist and didn't know it! The terminology may appear to be confusing, the relationships drawn and the theorising may be foreign but th reality is that your thoughts and observations are just as valid. More importantly, you too are asking the question "How do we get there" and the silence is deafening !

Again, the politicians, the mainstream media and economists plus the mass of ignorant people in his country seem to think that deflation equates to falling prices, and that inflation is the inverse i.e., rising prices. Is it any wonder - whilst these talking heads and so-called experts continue to get it wrong on such a simple economic issue - that things will get a whole lot worse before they get better?

Stop focusing so much on rising/falling prices. QE (printing more money or hitting the zero key on the keyboard) is inflationary - pure and simple! Eventually, the QE actions of the BoE WILL transmit into higher prices. Don't forget, there is a time lag involved here. Once inflation appears as higher prices, it is very difficult, if not impossible, to control. This is the road the government/BoE is taking us down. Why? Because they are incapable of doing anything else.

20 foredeckdave

Well I've said it once today but it still fits - 'If you dont know where you are going, any road will take you there'. George Harrison, sadly missed. Enjoy the ride. Roll up roll up, its the magical mystery bus, driver Mr Brown. Whoa, the satnav system is due to fail. Never mind there is always the submarine, its the peace dividend, aka scrap, we can paint it yellow. lol

21 Lib Kurt

But how do you measure inflation if not by price changes. Or to put it another way why bother collecting all the data for CPI or RPI, or should that be RIP, and then relate interest rates to RPI, which appears to happen at least in some quarters. Why be bothered if CPI or RPI move. And why leave out house prices as per Brownian economics.

headless chickens comes to mind.they dont have a clue what they are doing and, the future consequences could be truly devastating.

The reproduced chart (5.7) is highly suspicious. They have obviously assumed a Gaussian (Normal) distribution with certain parameters. Production of a chart makes it look scientific, but actually it's guesswork, assumptions and possibly wishful thinking disguised as something more rigorous.

In his book, "The Misbehaviour of Markets", the distinguished mathematician Benoit Mandelbrot argues that inappropriate statistical models based on guesswork are often used in economic and business analysis, and that this can lead to significant corporate failures in the finance industry.

In fact, abuse of statistics by those who don't understand it, or willful charlatans, is very common. There is much truth old adage There are lies, damned lies and statistics! (attributed to Mark Twain by Disraeli - or vice-versa depending upon the source.)

Actually, in my opinion, statistics don't lie, but those using them often do. See this review:
https://en.wikipedia.org/wiki/How_to_Lie_with_Statistics
for one exposition of this view.

glanafon # 23

Okay, inflation (and this is how it should be explained) is an expansion of the money supply. The question that should be asked when 'new' money is created is: Where does this new money get its 'value' from? Essentially, the new money 'steals' its value from the money already in existence.

Therefore, money (new and old) or the currency unit is devalued; it loses its purchasing power. We see the effects of this loss of purchasing power via the higher prices that we have to pay for goods and services. This effect (i.e., higher prices) is somewhat confusing to the layman because it is not so much that prices have increased but more that the currency has devalued.

RPI/CPI is the government/central bank's effort to try and measure the amount of inflation it has created: that is why the government sets a target rate, in percentage terms, of RPI/CPI. All they are trying to do is measure the effect of their monetary policy. Whether RPI/CPI is a true measure of how much inflation has been created is a moot point. Nevertheless, the real question is why does the government/BoE feel the need to inflate the money supply over and above what the free-markets, in exchanging goods and services, need? In other words, does the free-market require/demand an expanded supply of money or do the government/BoE's expansionary actions tend to explain their political ends?

Kurt,

"mass of ignorant people" - you are in danger of sounding like JJ :)

I'm still pondering upon your definition of inflation and the consequences of that.

I totally accept that QE, by its very nature is inflationary. This may be offset to some degree by its stimulous effect - though the degree is unknown. My big problem lies with he BoE and the Treasury (I know - one in the same to you). I really don't trust either to know how much to PUMP IN and then how much to SQUEEZE OUT

Morning Stephanie,
would you explain what part of the cause of the credit crunch has been solved/ addressed in the last year by this Government?
As I see it, the provision of more money to spend by the BOE will have to stop sometime. As the underlying causes of the crises have not been addressed, we will be no better off, indeed, some would argue that we are then much worse off.
The wanton destruction of the value of money (by QE)and of peoples savings by the low interest policies being persued will end in mysery for the many but business as usual for the few.

foredeckdave # 27

Dave

Apologies. I did not wish to sound disparaging when I described the masses as being ignorant. Perhaps I should have used the words unknowledgeable or uneducated in economic issues; which is, of course, as I'm sure you will agree, true.

#29 Kurt,

How can I do otherwise!

The picture is mixed and complex. Far more complex than a simple number like CPI or RPI can begin to explain. There are at least three more financial shoes that will likely fall. Collapse in the US Treasury bond market. Default on credit card debt. Default on East European debt to banks. As credit tightens, demand will push prices down. But the falling pound and rising prices for energy will push some prices back up, especially for some imported goods. Oil is back up to $60 a barrel when just a few months ago it was at $40. I wouldn't believe an economist's forecast if his tongue came notarized. A year ago, most economists forecast that there would be no recession, maybe just a slowdown in growth. You can almost take an economic forecast as a negative indicator, whatever it says, the exact opposite is more likely to happen...except when the head of the BOE tells you he's clueless. That's something you can take to the bank.

Let us assume that the Bank of England suddenly pulls a lever and achieves a gentle and constant 2% p.a. inflation from now on and holds interest rates at 0.5%.

What would we see in terms of future inflation figures?

May to September 2009 : annual RPI of between -2% and -2.4% rising steadily to +2% by December 2009. This is therefore their aim.

May to September 2009: annual CPI of about +1% rising to +2% by February 2009, after peaking at +3% in December 2009. Again this is their (implied) aim.

Further to 32 - this means that the historical data of the previous 12 months will introduce a huge spike upwards in the declared inflation figures between September 2009 and December 2009, just when any rise in oil prices will be magnified (again in the published figures, not in reality) by previous falls dropping out of the data. Remember this is a huge spike upwards even if actual inflation is spot on target and no attempt is being made to reverse QE. Or raise interest rates (affecting RPI only).

July/ August 2009 therefore looks a likely date for an election before it all goes horribly wrong. Oh I forgot, this was the case just after GB took over and that opportunity was lost as well. Surely it can't have been planned this way?

This comment was removed because the moderators found it broke the house rules. Explain.

A politician uses statistics as a drunk uses a lamppost - for support rather than illumination.

26 Lib Kurt

Thank you for your efforts. They are appreciated.

That is sort of how I saw it. Inflation is a cloud, you know it is there but you can't get hold of it for definate, and you cannot put it in a bottle so you use RPI and CPI because they are loosely related to inflation and relatively simple to collect. Without wanting to upset you I can understand how people refer to RPI and CPI as inflation rather than as inflationary associated indicators.

I also understand, again loosely, that QE is a dilutant, it is a way of making a pound less than a pound and still calling it a pound, like it is printed on wool and has shrunk in the wash in the spin cycle, that implicit it the QE approach is the desire to dilute the structured debt even if indirectly.

As inflation has got a loose association with interest rates then interest rates will have to kick in at some point.

That the entire principle of what is going on is to take a debt created by a few and spread it across the economy, to strip wealth from everyone to pay for the few. This is all about dilution and dispersal.

What is quite beyond me is how this mess was allowed to develope when it was perfectly obvious things where getting out of hand for years. I don't need a building full of data to know that it is difficult for everybody in the country to be a millionaire, that money is used to ration access to goods and services and that rationing had broken down. That people in very ordinary jobs where throwing money around like confetti. When somebody does the equivalent of using a five pound to light a roll-your-own fag something is wrong.

I cannot see much alternative to pushing longterm debt which has been brought to immediate account back into the future, nor can I see much alternative to wealth reduction to pay for it, or the burden being spread about. Further as the effect is coarse and unfocused it is inevitable people who had very little to do with creating the mess are going to be arbitarily fingered to pay for it. Mainly in the wealth creation sector, the private sector.

As everybody is clearly not using the same ecomonic model and Prof D Blanchflowers model has been right it is bizarre to me that he is the one who has left the BoE committee, not the rest. I would rather have a committee of one with Prof DB and sent the rest to a jungle tv reality show, 'ecomomists you like in the rainforest' or something like that. I think the guy wants a medal for bravery in the face of monolithic stupidity. The fact that different models abound with varying outcomes, all of which cannot be right tells me that economics is not a science, so just what is it. And just what is the point in being trained in it, if when you really need it, when things are going wrong, it is not possible to determine which is the right projected outcome, again without wanting to upset you. For when things are going right you don't need it do you. If the BoE is a treated as a black box, I can think of almost any number of ways of determining a wrong outcome 8 out of 9 times, including coloured marbles in a bag. And if dilution is the only way to deal with massive debt, again you hardly need a committee for that.

It seems to me that false belief that economics is a science is half the problem. So I agree with you that RPI and CPI should not be used. It would be far better if, in view of inflation being more like a cloud that cloud descriptions where used so people understood just how daft it all is. Today we have a culmulus economy, maybe tommorrow a mackrel sky economy, that would be nice. We are worried about the storm clouds, there is a 95 percent chance of heavy precipitation and a flood of debt. Seems quite ancient Greek oracle to me but then it all seems Greek to me.

But I am better for your efforts, more educated, which is always good.

I am still musing your response some time ago about inflation is a overall catchall and that deflating prices in one sector, eg China imports do not matter. To me this is just another problem, that inflation is possibly a false measurand, historically useful, but criteria change and the measurement doesnt. I think Chinese imports and the deflationary impact, ie an effective rise in disposable spend in terms of purchasing power had a profound impact on the consumers mindset and continues to have a profound effect on the UK manufacturing base.

I also do not understand how if you borrow boatloads of foreign money it has no change to the money supply, it is circulating as GBP currency so it has been added, in what way is it different to QE which is another addition. 6 or 7 hundred Billion has been added to the mix which wasnt there before and is less than this big deal latest QE influx so how can nothing have changed. It is difficult to miss, although it seemed to be missed. Or is this another false measurand.

Cheers ; )

It really doesn't say much for the science of economics that obviously nobody has a clue whether inflation will rise or fall over the next year.
To show a spread of outcomes ranging from -1 to + 3% is not very helpful.

No doubt if you had asked for their spread on GDP a couple of years ago you would find we are way outside their envelope of possible outcomes.

Like an earlier poster I am also very uncomfortable with QE. The government are using the pretext of worrying about deflation in order to print money to pay the public sector salary/pension bill. This will make things look good in the short-term but is effectively deferring a huge tax-burden until after the election.

Under quite a few scenarios this public sector debt can never be paid off, which means the country will default. Only under quite optimistic cases (recession over by Xmas) can you project the books being back in balance sometime around a decade hence.

If the market rally continues you will see the price of commodities, particularly oil, rise sharply. This will cause inflation to rise and increase costs to industry, effectively putting us back into recession. So I do not see how a growth in GDP can be sustained.

I don't think economics was ever a science. If anything it provides us with a set of statistical tools and theoretical models which give us a measure as to what is happening from which we can perceive possible outcomes and their consequences. It is no more a science than studying the entrails of said goat.

At the risk of being accused of sensationalism I am still trying to understand what on earth is happening currently within the economy. The deflation statistic is still built around the gradual and ongoing decline in house prices. Also, as other contributors have pointed out, there is a perception of deflation as previous increases in fuel drop from the statistics. I do not yet see deflation in the real economy other than where destocking is taking place, unless the recent brassiere promotion by M&S, which is pleasing ladies across the land, is included.

There continues to be expectations of inflation within the economy at large and I agree that this is the greater risk. I recall that following the devaluation of sterling in 1967 that the economy slowly but surely entered an inflationary cycle from a very low ebb which became institutionalised partly by the deficit financing of the very foolish Heath government.

Having listened this morning to the debate on Today about the future cost of the licence fee which funds the BBC, it is the expectation throughout the public sector that things can go on as much as before the banking crash wrecked the equilibrium of the economy that increases the possibility of institutionalised inflation taking off yet again regardless as to the condition of the real economy.

I remain uneasy as to the prevailing circumstances and the policies employed to deal with it. I am also convinced that everyone involved is trying to do their best but they need to be fleet of foot and precise in what is a guessing game. Rather them than me!

Thanks also from me to LibertarianKurt, for getting all Austrian on us. The failure of the mainstream media to address the contrary arguments to the "we must do something" panic has been shameful. (I *expect* politicians to take the easy path.)

In regards to the discussion about tracking inflation. There's always the M4 money supply data (and their siblings M0, M3 etc.). These indicate money supply changes rather than price changes. Note that for a number of years M4 has increased by about 10% or more, which has been significantly more than *nominal* GDP (more like 5 or 6%). I'm no economist, but I don't see how we need the amount of money in the UK to increase at a much faster rate than the amount of "stuff" of value in the country increases. Credit and asset price booms, anyone?

Has the pound risen, Stephanie, or has the dollar fallen?

And all this talk of creating demand, demand for what? Overpriced houses don't do us much good in the long run. Invading other countries isn't very useful to us, either. Building pyramids only paid off for the Egyptians centuries after, when tourist came with foreigh currencies to look at them; so I guess we will have a long wait for the Olympic games buildings to bring in the money

foredeckdave (#27) "Kurt, "mass of ignorant people" - you are in danger of sounding like JJ :)"

The masses are indeed ignorant, it shows up in the data - they are largely incorrigible too. What they get is theatrics.

Read [Unsuitable/Broken URL removed by Moderator]this UNESCO statement from 1950 carefully, and remember what I've said elsewhere about the role the post war 'Collective Guilt Campaign' in democratization and promotion of neo-liberalism. Review the ETS video again, and the Treasury's 2006 Leitch Review, if you don't see the connection to our economics.

Read these two reviews from the mid 90s, and decide for yourself. It may help to substitute canines for humans when considering te impact of the UNESCO statement on the last couple of generations.

Whilst doing this, just consider which group was disproportionately behind these politics, the evidence behind heir assertions, which group has been been the disproportionate beneficiary socio-economically, and lastly, the 'paradox' observed in the behaviour of Israel in the Middle East and the disproportionate salience it gets geo-politically.

The masses are not supposed to clearly grasp any of this, it's how effectve conditioning/propaganda works.

The Governor of the Bank of England was very impressive at his press conference. He answered questions convincingly and was articulate.

I wonder if he was less good at presentation whether we would be more challenging about the threat to future inflation from the rapid expansion of money supply?

This comment was removed because the moderators found it broke the house rules. Explain.

There is no way out - reason has been abandoned and the cult of the shaman QE is in the ascendency.

What is the problem with deflation? People postpone purchases in anticipation of further price falls. Oh yeah - just like no-one has ever bought a mobile phone because the price keeps coming down. What about the cost of phone calls themselves? Oh I remember there are some people I was going to phone in 1982, but it was too expensive, maybe I can make those calls now. Pity a lot of the people around in 82 are now dead - still maybe technology will improve to allow me to call up dead people.

If printing money is such a good idea - why not just allow anyone to print money? Why have any laws prohibiting counterfeiting? Think of all the problems it would solve - no need for pensions, social security, the payroll function, expense claims, nothing - just issue everyone with a personal printing press, and get the population to print what they need for themselves.

Why, in WW2 did both Germany and the UK, commit resources to counterfeiting each others currencies? Is it because they were 5th columnist national traitors or is because they calculated that by fraudently inflating the money supply of their enemy they could undermine the economic capacity of their enemy. Hmmm let me think...

The more money you print the more complete the destruction.

Where are the media? Take a look at the news. The Japanese economy has just shrunk by about 15% on an annualised basis. US housing starts for April declined by 46.1% and the US commercial real estate market is reeling. Against this sunny background oil rises to above $60/bbl in "anticipation of economic recovery."

They must really despise the intelligence of the general population.

Is there something wrong with my arithmetic?
The RPI itself was 211.3 in March and rose (yes rose) to 211.5 in April.
The inflation trend is therefore upwards (slightly)
Yes the year on year RPI fell to -1.2% but this was because of the greater rises in the index month on month last year.
The 12 month % RPI is historical and the actual index is liable to rise over the next months (although the 12 month % will continue to fall because of last year's rises)
The next few months may well indicate a rise in month on month inflation masked by the use in the headlines of the 'previous 12 months %'

No.44. armagediontimes

You're a cuddly old perma-bear
(baggy and a bit loose at the seams, as the saying goes).

Why can't you just accept that a slowing pace of decline is the same as an improvement? The stock market is always accurate you know, and it keeps going up.....

#26 LibertarianKurt. You doin it all wrong, have you not heard of the third way? Let Donald Trump instruct you.

This man goes to court to prove that he is seriously rich (a billionaire at least). He tells the court that a lot of his wealth is associated with the value of his own image. Therefore when he is in a good mood he is worth more money than when he is depressed or thinking negative thoughts.

It all makes sense to me. You can clearly transpose this idea onto an entire country - say the UK. Therefore if you can get the population all thinking negative thoughts - say about MP´s expenses, or rising unemployment, or inflation, or anything really, then you can safely print a shed load of money without there being any of the effects you describe. The new cash simply compensates for the decline in the aggregate wealth of the UK that is attributable to image.

It is easy when you understand the true meaning of the "third way"

The real advantage of the third way is not everyone will grasp its subtelties. This means that some people (perhaps you) will think it is rubbish and continue with your doom laden predictions. This will help to prevent the national psychology recovering too quickly and hence will keep a brake on inflation by preventing the re-emergence of image "wealth" coincident with the injection of newly printed cash.

Addendum (#41) - The link is available as a pdf at the end of the Wikipedia article on the UNESCO statement. As you read the original eleven page statement, make sure that you look into the common biographical details of all but the African American and the Indian authors. I'm just asking people to be reasonable.

35. At 08:45am on 20 May 2009, FrankSz wrote:
A politician uses statistics as a drunk uses a lamppost - for support rather than illumination

I view statistics as a dog views a lampost. Give them a precautionary sniff then treat suitably.

"long period of falling prices" - sounds great! Stop the QE and bring on the falling prices.

46 Mr T

Arm n Leg Times. Went to school with Marvin the Android out of Hitchhikers Guide to the Universe and it rubbed off a bit. Been a bit upbeat recently but there is a school reunion coming up so will bump into Marv again. Me, I think money was invented by economists to give them something to do, they popped around to King Midas and said this will make a good board game, look money can be whatever you want it to be and there is a community chest card, only he took them seriously because he was fed up with gold.

#46 MrTweedy. Are you a practicioner of alchemy with the written word? It won´t work you know, and it won´t work because it cannot work.

The "clever guys" think QE is a great wheeze because they have read all the books that lead them to think that it will all result in a gargantuan transfer of wealth from poor to rich. In reality it will result in a gargantuan meltdown - the survivors of which will be few and far between and largely unrecognisable as survivors.

Despite the certainty of outcome I remain dedicated to resistance until the end.

If you don´t like this prognosis try to think more like Donald Trump

Stephanie,

In the MPC minutes the BoE confirm their view that the prospect of inflation undershooting their target was greater than it overshooting - to be honest the whole tone seems to be one of fear of falling prices.Whether you call that "deflation" or reduced rate of inflation, I'm not sure?

No.51. glanafon

Faced with the choice of having to work for an engineering, science or medical degree, when it is somewhat easier to "learn" economics, all those endless theories about the money supply and aggregate demand do look appealing. The main benefit of studying economics as a "discipline" is that it has no right or wrong answers, unless you're the incumbent British government, in which case, you are more definitely wrong.....

Even when the economy is taking a dive we can still look forward to it bouncing back, because a bounce up always follows a dive down, because of the theory of opposites and chaos, as described in all the text books.

Then again, there are those commentators who have been forecasting a complete economic collapse since about 1701, when farming first became mechanised after Jethro Tull invented the seed drill and everyone took to gin.....

As Mervyn King says, we just don't know.....

glanafon (#51) That would make you of Golgafinchan ancestory then? ;-)

When standing at the edge of a cliff...watch out for that first step, it's a lulu.

Stephanie

The indices stand by themselves as a statistical measure.

I would argue that the function that economists may use to predict inflation/deflation has shifted radically (rendering predictions based on old functional models shaky at best) and not just because of qeasing. Qeasing may increase the money supply or the velocity of circulation suggesting we will eventually see an inflationary effect.

However, we are also seeing changed levels of saving which suggests that at least some of the effect of reflationary measures (improved money supply/velocity chasing goods + services via personal/corporate disposable income) is being dissipated. This is all before the effect of exchange rates and energy prices are mapped on. If there are any economists out there maintaining macro models of the economy it would be interesting to know where they are tweaking the functions and what policy measures are having most impact.

Jethro Tull was born in 1674 into a family of Berkshire gentry. He studied at Oxford University and Gray's Inn, in preparation for a legal political career, but ill health postponed these plans and, after his marriage in 1699, he began farming and studying economics.

In addition to the seed drill, Tull's other innovations included a plough with blades set in such a way that grass and roots were pulled up and left on the surface to dry, and a number of theories regarding the size and speed of circulation of the money supply within an economy and its affects on the price of food and grain within a market economy.

Eventually, as agricultural improvement became fashionable, more interest began to be taken in Tull's ideas. In 1731 he published his book, "The New Horse Hoeing Husbandry and the Quantitative Easibility of the Circulating General Money Supply", detailing his system and its machinery. It caused great controversy at the time, and arguments continued for another century before his eventual vindication. While several other mechanical money fabrication machines had also been invented, Tull's complete system was a major influence on the fiat quantitative easing revolution and its impact can still be seen in today's methods and machinery.......

Rather than being about DEflation QE is really all about INflation, its about pumping money into the economy untill growth starts to fit in with what the Treasury predicts its going to be. The whole economic stratagy towards this problem is to reinflate the bubble again. Take what the government is doing with part buy/part rent mortgages for instance, they say that they want to make it easier for first time buyers to get onto the property ladder, but in reality its all about providing the mortgages to match todays over inflated prices. Its all about re-enforcing the debt that people are already in, whilst making sure that prices for the things we all need, like housing, are kept at artificially high levels with taxpayers money!
It amazes me that even though all this is happening right under everyones noses, most people just do not seem to either notice or care that much about it, I wish the BBC with its small army of economics and business reporters would look more closely at what the Treasuries overall stratergy is to the economy and to economic recovery.

55 jj

Nope, 1066.

MrTweedy (#58) Are you sure you're not confusing Tull's book with one by Alexander Burnett who famously wrote along similar lines, namely:

"Tillage a substitute for manure : illustrated by the principles of modern agricultural science, and the precepts and practice of Jethro Tull : including an epitome of Tull's operative directions in successive unmanured corn culture, and the particulars of Lois Weedon husbandry, and other instances of Tull's method of farming" ?

52 Arm n Leg Times

If you just regarded QE as yet another tax you would be okay about it. It is just one more brill wheeze to remove money from all. You have to remember that there are buildings full of clever bods just sat there trying to dream up ways of taking money off everybody. If the opportunity arises then they have a go. Whether it works or not is secondary. Barter is increasing, interesting dont you think. Tax free last time I looked. Dont forget Lewes is floating its own currency, spent only in Lewes. All getting quite medeiveal.

muggwhump (#59) "I wish the BBC with its small army of economics and business reporters would look more closely at what the Treasuries overall stratergy is to the economy and to economic recovery."

Time to call in the Vogons?

Ah, I am being to understand - it is called QE because its Quite Easy to do and makes people who dont like Queasy.

The big problem as I see it with all of this lot is the feedback loop is at least a year long hence all this interest is what shape things are supposed to follow because the only other option is to wait for a year until after the event or look at tea leaves. But does it make any difference whatever is done, as there is nothing to compare it to so how do you know it makes any difference I ask. The off - piste slope at the start is only a year or so long. All that is left then is the piste bit at the bottom. Does it make any difference what shape the off - piste shape is, on the basis that a collapse is a collapse, in what way does doing anything change the collapse. I dont see how anybody can do anything other than guess at the effects a year in the future, other than Ali D in the House. I find it baffling that you can take buckets of fudge and mix them all up together and expect to get anything other than fudge.

58. MrTweedy

You really had me going there, I had to look up HHH to check the real subtitle!
I must be Thick as a Brick....

61 JadedJean

''book ... by Alexander Burnett who famously wrote -

operative directions in successive unmanured corn culture, and the particulars''

I missed that one, can't imagine why, it just jumps off the page.

Was the sequel manured corn culture. He's not that famous surely, he doesnt get quoted at the sort of parties I go to.

No.62. glanafon wrote:
"Dont forget Lewes is floating its own currency, spent only in Lewes. All getting quite medeiveal".

Indeed, this echoes what happened to Britain when it experienced bankruptcy immediately after World War II.

After the war, many British towns set themselves up as city-states along the lines of medieval Italy. The most famous of these was Pimlico. The film "Passport to Pimlico" is a documentary which details the setting up of the state of Pimlico in 1949. Each state printed its own currency, backed by bonds lodged with the Bank of England, secured upon each state's industrial and/or agricultural output.

A bare-back horse race is still held every year in the streets of Pimlico, to commemorate the district's time as a self-governing principality.

JadedJean (#63) Yeah why not? I'd give anything a try me, open to all sorts I am.

SMOKE, MIRRORS AND LOTS OF LEVERAGE

glanafon (#64) "I find it baffling that you can take buckets of fudge and mix them all up together and expect to get anything other than fudge."

Then let me remind you with the help of someone with a bit of 'the night' about him. What it counts on is enough people not being clever enough to take these 'Wizard of Oz theatrics' seriously.

69 jj

Yes and there is GWBushs quote about you can't fool all the people all of the time but you can fool some of the people some of the time and those are the ones you need to concentrate on. Many a true word said in jest but I dont think it was jest.

#26 LK "Okay, inflation (and this is how it should be explained) is an expansion of the money supply......."

Sorry - this is plain wrong. Inflation is an increase of the ratio of the rate at which money is being SPENT to the volume of goods and services available over a period of time. Thus it equates to a general increase in prices. Deflation is the opposite.

In fact, over parts of the 19th century, when there was a de-facto gold standard, there was deflation, because the rate of increase in gold, due to mining, did not keep pace with the increase in the population and the goods and services available.

Deflation is highly undesirable because it is usually the economically active part of a population which is debt financed, and deflation means that these debts increase in real terms, whereas the assets of the non-active rentier class are correspondingly increased. According to Keynes*, this was the reasoning behind Goschen's legislation to reduce the yield of Consols in 1888.

You could also get inflation if the amount of goods and services decrease, but the money supply does not. For example, if energy suddenly became scarce, this would be likely. It's part (but only a part) of the explanation for the problems of the 1970s.

In the modern world (last 200ish years), banks have had far more power to create money, often dwarfing the power of the state to do so. This is for several reasons, one of which is that banking enables several people to spend the same money at the same time. A promise to pay money, from a trusted institution, has become the same as money. In the end, it all seems like smoke and mirrors.

I could go on, but it just gets more complex.

The approximate purpose of a managed currency is to match the money supply to the available goods and services, and to make sure that the money is actually SPENT, so that economic activity takes place; (otherwise everyone starves). QE was necessary, in some form at least, because the banking crisis effectively destroyed a significant amount of money which was in circulation.

If you're interested in the history get hold of Galbraith's "Money - Whence It Came, Where It Went". It's sadly out of print, but still available second hand and in libraries.

*JM Keynes "Essays In Persuasion" in the section on "Inflation and Deflation". (This book is in print.)

65 ThorntonHeathen

Its the quiet ones you have to watch

67 Mr T

City states. I'm quite taken with this development. Providing there is no Black Death it suits me fine. A lot of places around here still have the walls. Sasha's place certainly does and it is a livewire community.

Like some other contributors I have a problem seeing economics as a science; there are just too many variables and any prediction must have a large measure of uncertainty about it. If this uncertainty remains (as is likely in a closed "economists - only" loop) then all well and good but I have this awful feeling that when economics meets politics all the uncertainties are thrown aside and the most optimistic projection becomes the basis of some policy or another.

Again if the predictive powers of economics were all that good then we should have been able to avoid the present predicament, because what has occurred would have been predictable in time and suitable corrective measures applied. Clearly that didn't happen.

Now some might argue that the financial jiggery - pokery that some institutions indulged in was outside of what could be seen by economists, but that would be to admit that economists have to base their analyses on an incomplete set of variables. Any "hard" scientist (not in the sense of "difficult") would be immediately discredited if a major discovery were announced where it was clear that significant influencing factors had been deliberately or accidentally omitted.

To me a major problem is that in any given country - why not let us use the UK as an example - there is a fracture line between the government and the governed. The former wants a steady income stream, and better still a growing one; hence the repeated assertions about growth and the benefits that stem from it. The governed want assured stability; to know that they will be able to afford the mortgage this year and again every year for some time into the future; to know that upon retirement they will have an income that they can rely on for a comfortable and financially stress - free life. I'm far from certain that both sets of ambitions are not somewhat mutually exclusive.

Giving "growth" a totemic status avoids having to worry about what is driving that growth; is that not perhaps how we got into this mess in the first place?

But as I stated earlier, I'm not an economist...

71 sashaclarkson

''In the modern world (last 200ish years), banks have had far more power to create money, often dwarfing the power of the state to do so. This is for several reasons, one of which is that banking enables several people to spend the same money at the same time. A promise to pay money, from a trusted institution, has become the same as money.''

Hmm, and with a multinational bank, by effectively photocopying the money in different countries who is going to know what is going on. But how does that tie in with the need to balance the books at the point of end of day reconciliation and the overnight trade which is where high interest rates are made by those with the necessary funds to plug the accounts hole. Because the funds would just not be available at some point.

glanafon # 36

The function of the Interest Rate:

What Hayek was arguing about in the 1930s was that interest rates actually play a role in the economy; they are not just arbitrary numbers; they play a coordinating function. When they are permitted to play this coordinating function in the free market, they coordinate production across time (inter-temporal). That is to say, when we save more and interest rates consequently decline, that is the very time that it makes sense for businesses to produce goods and to engage in projects that are going to bear fruit in the future. When we save more, we are basically saying I am going to consume this portion of my income in the future: That is the future that businesses are investing for. Why are they investing now? Because interest rates are low and the longer term their production project is the more interest rate sensitive it is. Therefore, it will give a disproportionate stimulus to longer term types of investment. This is the coordinating function of interest rates: the desire to consume in the present versus the future and businesses production processes oriented to the present versus the future. The very fact that savings occur; that money is earned and has not been returned back into the economy (i.e. to take that money and claim all the resources to which, in a sense, one is entitled to) provides investors with capital. Therefore, the deferral of consumption provides the material wherewithal to see all the new business ventures, undertaken by investors, through to completion.

Hayek said that when you tamper with interest rates as the free market sets them, you are introducing dis-coordination into this coordinating structure. Therefore, if a central bank like the BoE simply says that they are going to force interest rates down through open market operations, the problem arises, in this case, that the public/market has not indicated that they want to consume in the future, they want to consume now. However, businesses are still being encouraged to engage in long term investment. People are demanding more of existing goods now, but investors are being misled in to engaging in long-term product development for new products in the future: it is a time mismatch. Likewise, pushing down interest rates does not release any more real resources into the economy. Therefore, there is an unchanged resource pool to fund a whole lot of new investment projects. How can that be done? The simple answer is that it cannot be done: these projects cannot be completed! There is going to be a bust that comes.

My rejoinder to your last paragraph (i.e., "borrowing boatloads of foreign money") is that when a foreign exporter sells goods to a British importer, he is paid in GB pounds. This means that the OWNERSHIP of GB pounds has changed NOT the quantity. Therefore, when that foreigner subsequently buys UK debt (bonds, gilts etc.), no new money has been created.

And another thing: there is NO free market. There never was a free market under capitalism. I very much doubt that a free market is possible.

This is because large enterprises are far better placed to control their costs and protect their prices than small enterprises. In historical depressions/recessions, prices have fallen less in the industrial sector than in the agricultural sector for this reason. Hence the farm price/income support of recent decades.

Unless everyone is made to work for themselves in a workshop of one, there will always be advantages to organisation, and the market will be fixed in favour of the large players.

glanafon,

"I find it baffling that you can take buckets of fudge and mix them all up together and expect to get anything other than fudge."

Ah but you forget about the value of economic substitutes. All of that mixed-up fudge could then be used as an alternative for cement. Now as the relationship between the volume of cement produced and the health of the economy appears to be directly proportional to that of the production of sulphur then all of that mixed-up fudge coming on to the cement market will skewe the whole relationship. Ah but I hear you say "in post-industrial UK we are attempting to reduce the volume of sulphur produced" Therefore the sulphur/health relationship no longer holds good and therefore the cement relationship falls and hence the substitute effects of the mixed-up fudge can no longer effect a relationship that no longer holds good. Consequently, we can no longer trust any of the indicators of real-time economic activity. Hence, all of our forecasts and projections have no real validity. And all this happened because someone mixed-up the fuge!!!

Meanwhile, in the real world, we the unwilling, led by the unknowing just try and get on with it!

The moral of this little tale: don't let the scientists (mathematics is a science isn't it?) loose, they no so much about so little that they'll only cock things up!

C

#75 "Because the funds would just not be available at some point."

Quite right - this is why, QE or no QE, banks and governments have printed money - or changed the standard. There was a shortage of precious metal in the American colonies, so they invented a currency based upon tobacco certificates. Upon these certificates was printed "To counterfeit is DEATH"
:-)

sashaclarkson # 71

J M Keynes once proudly acknowledged that he belonged to the tradition of "underworld" economics (like mercantilism) and of economic cranks like S Gesell (Keynes: General Theory 1936). Keynes's new economics, like that "underworld" tradition, is nothing more than a tissue of logical falsehoods reached by means of obscure jargon, shifting definitions, and logical inconsistencies intended to establish a statist, anti-free market economic system.

What is the deal with people lambasting economics as not being a "proper" subject.

What is going on is that a small clique of people and institutions have placed themselves outside of the rule of law and are busy cooking the books, and then denying that they are cooking the books

Is chemistry a proper subject? What do you think the results of any chemical experiment would be if someone had stolen and then onsold all the chemicals and replaced them with "virtual" chemicals.

Get a grip - there is a reason why societies down the ages have outlawed theft.

glanafon (#73) "City states. I'm quite taken with this development. Providing there is no Black Death it suits me fine. A lot of places around here still have the walls. Sasha's place certainly does and it is a livewire community."

Be careful what you wish for. Commissar David Miliband will have you in a Soviet before you can say 'Worker's Democracy'

armagediontimes (#81) "Get a grip - there is a reason why societies down the ages have outlawed theft."

Read the links in #41 & #48 and recognise how vast numbers of people have been lied to for decades. Then look at the economics which has been peddled in much the same way.

#80 LK
You got your facts wrong, and then you replied to reasoned argument with insults.

I'm not one of your "ignorant masses"! I've read a considerable amount of what Keynes (and other economists) have written - have you?

In my view, the trouble with your kind of libertarian philosophy is that your view of the facts is constrained by your ideology; that is you see the world as you think it ought to be, rather than how it is.

Churchill, supported by the treasury and banks, was the same when he delivered his disastrous budget in 1925, going back onto the gold standard at the pre-war rate. The result was a fiasco and caused misery and poverty for millions. The result was deflation, wage cuts, unemployment and the General Strike of 1926. Effectively Britain entered the Great Depression four years early. It was all for nothing: in 1931 the Gold Standard had to be abandoned again. In 1925, Keynes correctly predicted the disaster in his essay "The Economic consequences of Mr Churchill". Churchill then appointed him as an economic advisor in WWII.

#75 glanafon

The following link gives a reasonable account of how central banks "manage" the money supply:

https://en.wikipedia.org/wiki/Open_market_operations

In the old days, either gold and silver were hoarded, or, more frequently, the currency was debased in some way. In 1923 Keynes wrote: "The power of taxation by currency depreciation is one that has been inherent in the state since Rome discovered it."

As for balancing the books, when banks make loans, so long as they're eventually paid off with enough interest to cover bad debts, this happens. Of course, money lending with compound interest at a "real" rate, requires an increasing money supply, if wealth is not to be concentrated. This in turn necessitates an expanding economy to enable the money to have purchasing power. This is one of the problems of the capitalist system in a world of finite resources.

LibertarianKurt (#80) "Keynes's new economics, like that "underworld" tradition, is nothing more than a tissue of logical falsehoods reached by means of obscure jargon, shifting definitions, and logical inconsistencies intended to establish a statist, anti-free market economic system."

Which is the antithesis of what we have had by design in both the UK and USA since 1980, and which has been peddled as neoliberalism elsewhere as a panacea. If anyone is prone to a tissue of logical falsehoods and is not facing reality, it's got to be you, surely?

Goodness gracious me what a lorra stuff. The mists are closing in, the economists that is.

fdd 78 - fudge does nay make a good bonding medium. There seems to be an oversupply of fudge.

arm n leg times 81, funny did not the BoE etc lead us here, with others I grant you, but the role of regulation failed and only 1 out of 8 on the BoE committed got it right based, I presume on ecomonics. The financial evaporation is another issue. Not forgotten.

jj 83 - There is always something or other being peddled, or people hoodwinked or controlled, it is nothing new. It is a constant.

77 sasha - I agree there is no free market. There are regulated markets and that is it. Businesses seeks to create monopoly and governments role is to stop monopoly, or should be, unless you ignore competition rules and allow Lloyds take over HBOS, which is a failure of duty. IMHO. You are not entirely correct to say small outfits are always less effective than large ones, there are ways and means of reducing overheads which the big boys cannot exploit which compensates. Further there is no need to be efficient if that is balanced by innovation. The issue for small buisinesses is not to compete head to head with big businesses on a like for like mode of operation and product or service base. But yes I understand what you are trying to say.

LibKurt 76 - I agree imbalances are apparently being generated, both by the recession and by the interventions but I would not be able to quantify them. However with respect to this constancy of currency. If longterm debt grows it makes you poorer in the future. So it is an imbalance if too much long term debt occurs because when you get to the future too many people will be poor so activity will reduce, and is likely to. Savers funding longterm loans which are spent immediately are not enabling deferred consumption, the consumption is occuring immediately. That is why the boom that wasnt a boom happened surely. The cars that were bought via 25 year funded equity release will be gone before the loan is paid off. You also say consumers want to consume now, well they dont do they, that is why there is a slump, but they may well want to consume quicker than new product delivery can occur. But it is very easy to flick the flywheel of output on a under utilised production facility, providing it still exists. It seems to me the important thing is what the percentages of the constant currency are doing. In particular when demand rises sharply the following occurs - In the face of the lead time in increasing manufacturing capacity or developing new products, the reflex is always to import because it is easier and immediate. Booms therefore can be nothing other than damaging because the main benefit is to the overseas manufacturer.

84 sasha

''This in turn necessitates an expanding economy to enable the money to have purchasing power. This is one of the problems of the capitalist system in a world of finite resources.''

This looks like the mayan 2012 to me. It is not the end of the world, just the end of expansion based on false values. And the near we get the more the acceleration occurs. The conventional expansion model is reaching the edge of the envelope of easily scavanged resource. This is why conventional growth is most unlikely. Apply corrective responses for repair to the environment and the whole easy ride grinds to a halt. Don't apply them and the environment becomes hostile. A 100 to 150 years from start to finish and the whole culture is in trouble. And the defensive response from the culture to try to survive has been to accelerate the adverse activity, not unusual. .Bit like a lettuce bolting in a drought

"I've read a considerable amount of what Keynes (and other economists) have written - have you?"

Oh, yes. I have studied Keynes's General Theory (1936): Very turgid! Rather like wading through Hitler's Mein Kampf! Afterwards, I read Henry Hazlitt's The Failure of the New Economics: An Analysis of the Keynesian Fallacies (1959), in which Hazlitt restates Keynes's General Theory and then proceeds, line by line, to demolish it. I thoroughly recommend you read Hazlitt!

I have also read, Dissent on Keynes (A Critical Appraisal of Keynesian Economics); a paper edited by Mark Skousen and first published in 1992. Again, I would urge you to cast your eyes over it.

Another informative book to acquaint yourself with is Murray Rothbard's America's Great Depression (1963). In Ch 5, Rothbard lucidly explains the grave economic problem that Great Britain faced in the aftermath of the Great War and how that country returned to the Gold Standard at (overvalued) pre-war par ($4.87). This chapter goes on to explain why and how the United States came to Britain's rescue. Once again, this is a book worth the effort of reading.

(I can supply you with pdf files of all the above publications if you so wish...please let me know.)

Finally, your statement about libertarian philosophy is self-defeating because I could equally apply the syllogism to your own ideology.

JadedJean # 85

I knew it! I knew the word 'statist' would attract a comment from you. Ha! Ha!

Love you JJ!

;)

glanafon (#86) "jj 83 - There is always something or other being peddled, or people hoodwinked or controlled, it is nothing new. It is a constant."

Of course, but as with Sir Alan Sugar and his 'lollies for kids' and cast of predators, the point is: it all needs to be better regulated nd you aren't going to get that in an ever more anarchistic liberal-democracy. The reason why equalitarianism has been peddled via political correctness, in case it hasn't sunk in yet, is not because of lofty and laudible philanthropy, but because if you can get people to believe that they have the choice to benefit from education throwugh hard work etc etc, all you have to ensure is that they have been read or 'explained' the fine-print once of legal age, and then the responsibility for the consequences of what they 'choose' is all on their own shoulders. Think predatory lending and sub-prime. Where was the targeted demographic, and why so much immigration? Read the UNESCO statement of 1950 and think.

#86 glanafon - The BoE is a political institution, and so their actions should be judged in that context - i.e the context of fiddling expenses, propogating illegal invasions, and, most relevantly, the ubiquitous fiddling of official statistics.

"It´s a conspiracy Jim, but not as we know it"

Post #87 is getting closer - the end of an era of expansion based on false values. This is obvious - but look at the reaction. The knee jerk desire is to reflate the bubble and deny the truth irrespective of cost. All the money, intellectual capital and fake ideology spent on promoting the "green" agenda is instantly dumped in favour of giant subsidies to giant criminal enterprises. They will not stop.

As their efforts fail new enemies will be identified. Scroungers, Afghans, communists, and aliens have had their day and all are too small to play the role of official enemy for much longer. Only the natural world remains as a big enough enemy and so total war will be waged against nature. Do you really need to be an educated person to understand the outcome?

Those with power will not surrender that power. Death before honour is their guiding maxim. They cannot adapt because adaptation would loosen their grip on power, and death before honour provides their corrupt intellectual justification for ever more of the same at an ever increasing pace.

Whilst the masses will be left with their flat screen TV´s, ipods, and other trinkets the powerful will be fondling their nuclear weapons, and thinking their thoughts of destruction...

Meltdown is coming - and maybe the Mayans knew far more than we are capable of understanding. Despite the certainty of outcome I remain cheerfully disposed and determined to resist until the end. The more I see the more likely it is that the Mayans advised as to the timeline we are following. But they didn´t have ipods or flat screen TV´s, or even the wheel apparently - so they can be safely ignored as they cannot assist in the great war against nature.

No.81. armagediontimes wrote:
"What is going on is that a small clique of people and institutions have placed themselves outside of the rule of law and are busy cooking the books, and then denying that they are cooking the books".

Those bally Celebrity Chefs get everywhere don't they; and all because they want to cook up enough money to buy a Maserati to race in the Mille Miglia.....

They think they can disguise their money creation activities by putting real gold leaf on their chocolate puddings, but we're on to them, eh?
They buy the gold leaf for cash, under the guise of pudding decoration, and then they stick all the leaf together to make bullion bars, which they sell on the open market for big money.....

Anyone knows you can't really make money from filming yourself cooking a bit of roasted asparagus with rosemary and anchovies wrapped in pancetta....

93 Mr T

And the last thing you want is a tourettes chef.

90 jj

Just when I thought you where entering remission and due to pick up your nefarious rhetoric lunchtime diploma, there you go and blow it again. I had hopes of you starting to wear you cap on backwards and pants hung low and gettin' down to it and communicatin' with the 'hood. So much work to do. And LK has worked out how to ring your bell. I hope you are not singing you can ring ma bell.

glanafon (#93) You need to look back further than 1066 ;-)

"Public borrowing hits new record" is the headline, and the pound immediately goes into reverse, losing one and a half euro cents in as many minutes.

The stock market is depreciating too, just when it looked as if the sun was going to come out.

Perma-bears will be on the prowl again....

91 arm n leg times

There is no war against nature, there is just delinquent behaviour. As pressures build then behaviour chnages, the only problem is will it occur in time because problems have to manifest before the pressures grow. It is one off experiment. The outcome depends on the east not the west, although the west has to take steps as well. 1.5 Billion Chinese and 1 Billion Indian would be westerners is the worse outcome, and at present the most likely, in fact lobby groups there are saying they have a right to be consumers. The west is broadly capitalist consumer and the east broadly appears to wish to be capitalist consumer. So what is to stop it. Only things getting markedly worse. The economic thing is not that important and may have some corrective impact as the outcome may be less capitalist consumer, ever shortening product life, orientated. If you can see risk of the environment cul de sac I am surprised you are that bothered about this so called meltdown, which is helping reduce consumerism. It is only a major incident if you are directly and significantly affected and the majority are largely unaffected in reality. They still have jobs, still have income, still have houses, and can still eat. It is likely far more people have to be adversely affected to really change behaviour, although one can hope. So what does that suggest as a situation. The problem is man thinks the earth is beneath him. Hilarious really.

94 jj

Can't go back any further. Sorry. Gotta go.

#95 MrTweedy - I have an overpowering urge to make your predictions come true.

The IMF advise that the UK may need to nationalise more banks, and ratings agencies have belatedly switched the UK outlook to negative - apparently something to do with large levels of sovereign debt. In the US the Fed has downgraded growth forecasts - or maybe they have upgraded US shrinkage forecasts. The Fed is now anticipating US unemployment of 10% -this compares to the 8.9% rate used in the fabled stress tests.

The officially orchestrated pump and dump operation has been either ended or suspended - who knows which.

Still the good news is that the GBP is rising against the US$ - now I wonder why that could be?

Hope this fulfills your expectations.

No.98. armagediontimes wrote:
"....apparently something to do with large levels of sovereign debt."

We won't have large levels of sovereign debt if foreign investors refuse to buy British gilts. If that happens, then it will be a case of high taxes and spending cuts now, rather than spreading the pain out over the next 10 to 20 years.

Now that is a potential bearish outcome....

99 Mr T, 98 Arm n leg times

The bear necessities of life.

Now we know why Ali D in da House pushed his Land Ho! statement out that things would be on the up at the end of 2009. If S&P can work it out then somebody here can work it out. Public service cuts and more means testing are inevitable. The circumstances mean policy scope is next to zero for some time, irrelevant of who is in charge, Canute or Noah. : )

But hey if you are johnny foreigner and youve got money youve got to put it somewhere and Blighty could still not be a bad deal, could just cost us more thats all.

Da da dah, da daa dah, da, dah da dda da dah da day.