Thursday, February 19, 2009

UK inflation rate rises to 17.5%

Dear Lord, it's worse than I thought. I had reckoned that Mervyn King would be very nervous about breaking through the 17% resistance ceiling, but it would appear that he possessed no such illusions. UK inflation is now at a whopping 17.5% and I predict that next month it will break through the 20% barrier once the effects of 'quantitative easing' kick in.

This now gives us an effective UK interest rate of -16.34% (with base rates at 1%).

Last month, the Bank of England also presided over the creation of £808 pounds per person, here in the UK, with a staggering growth in the money supply of £48.5 billion pounds. And the bugblatter beast mandarins over at HM Treasury say they wonder why the pound is collapsing!

Why don't they ask their employees over at the Bank of England?

Figures here: Provisional estimates of broad money (M4) and credit (M4 lending) January 2009

The next provisional release for February 2009 will appear here on the 19th of March, at 9:30am.

Link to December 2008 M4 Chart.


Richard Wellings said...

The Bank of England is increasing the money supply in part to counteract the decline in the velocity of money. The danger comes later on when the velocity of money recovers. The Bank may then have to slam the brakes on hard to mop up the excess liquidity and prevent a surge in inflation. This could mean raising interest rates dramatically at a time when the economy is just starting to recover from recession.

The big risk is that under such circumstances the politicians, for electoral and other reasons, will wrest control of monetary policy from the Bank.

Moreover, as Austrians know, it is naive to think that monetary policy can solve the economic problems caused by malinvestments during the boom period.

Jack Maturin said...

This hobgoblin of price deflation is a Keynesian sham. The only good thing about a recession is that prices go down. It is also wonderful that house prices are dropping to a point where people's children can actually afford to leave their parents and buy one (though the price drops still have some way to go).

I also don't think people in this country are going to tolerate large rises in interest rates, so the Bank of England are labouring under a delusion if they think they can kick in with 10%, 15%, or even 20% interest rates any time they choose, for as long as they want.

That could lead, literally, to some form of revolution.

The whole of this mess has been because the government were incapable of holding higher interest rates up after the Dot com crash, due to weak spines and the need of Gordon Brown to keep his 'feel-good' boom going, based upon nothing but vapour and inflaion.

The BoE even imagining for a moment that they will be strong enough to go for Volckerian interest rates later, is laughable - Gordon Brown already tells them what to do; his control will only grow as this crisis unfolds, which is where you are right.

The government will run scared of the people and stick with low rates.

At that point we will then face a choice.

No more taxation can be imposed, because we are at the upper limit. If any more is imposed then people will either leave en-masse, cut down their workload to stay under any higher thresholds, or just give up and throw themselves onto the benefit rolls completely.

No more interest rate hikes can be imposed because too many people in this country have massive mortgages and will be incapable of paying them, even if they were willing to do so. (Which they won't be.)

This leaves two 'solutions':

1). Hyperinflation

2). Massive (and I mean MASSIVE) government spending cuts

The tax consumer class and its leaders in government will try to go for hyperinflation. The tax paying class will try to go for massive government spending cuts.

This conflict will be interesting. (In the same way that the rise to power of Napoleon, Hitler, Reagan, and Thatcher, were all interesting, all of them following high inflation periods.)

We shall then see what we shall see.

The first crunch comes at this upcoming G20 conference, which I predict will produce nothing but hot air, because trying to fix fiat paper with more paper is a no-brainer dead end.

The second crunch will be the delayed budget, which I predict will be predicated on massive government borrowing and government forcing their nationalised and semi-nationalised banks to lend out all of this M4 growth.

Then we will hit the third crunch when this outpouring of monopoly money hits the streets.

At that point it will get interesting.

In the meantime, it could be a good precaution to get your mortgage moved to a long-term fixed rate. Missing out on the low rates now will be the gamble here, but if the British people really are spineless enough to suffer huge interest rate hikes, then being on a low fixed rate will be the way to go.

The other precaution is to buy as much gold as you can get your hands on, to hang onto until we eventually come out of this slump. (Whenever the heck THAT is! :-)

With this shower in control, that could be more than 10 years away, if the Japanese experience is anything to go by.

And they MAKE THINGS, and THEY SAVE, and they only borrow FROM THEMSELVES.

We make nothing, we save nothing, and we borrow from everyone. The rest we tax and regulate into the ground.

The route is therefore clear. Massive government taxation and regulation cuts to enable entrepreneurs to create world-competitive factories here to MAKE STUFF to SELL. All of this to be built upon a solid gold 100% reserve currency.

There you go. One paragraph and the problem is solved. Chance of it happening? I'll let you make up your own mind! ;-)