Thursday, March 05, 2009

The inflation panic button about to be pressed

We will know today at 12:00pm GMT whether the Bank of England has dropped its interest rate to 0.5% or even the 'magic' 0.0%!

With M4 at 17.5% it hardly makes much difference, I suppose, but it will further underline just how desperate the government is becoming in trying to re-inflate this bubble.

So what's the prediction from Maturin Towers?

=> Stick at 1%; 4/1 shot
=> Drop to 0.5%; 2/1 shot
=> Drop to 0.1%; 8/1 shot
=> To heck with it, let's get this charade over with and drop to 0%; 8/1 shot

There is one other really extreme outsider:

=> Stop printing money to prop up these artificial government-induced interest rates and let the free market work out a sustainable interest rate which will more properly coordinate the capital structure of markets over time, punish the imprudent, reward the prudent, encourage the appropriate level of saving commensurate with the overall desired balance between production and consumption, and efficiently and effortlessly manage the market in the same way that the principle of 'survival of the fittest' auto-manages the process of evolution; 1 million to one shot


Anonymous said...

Now come on Jack, you really must learn how to become a team player.

Gordon has a vision and he will persue it no matter what the cost to the public purse.

Jump on board and be seen as one of the team. It is only a matter of time before Messers Rothbard, Gary North and Mish are there alongside you.

This is a matter of National importance and those on the waggon will be saved whilst those insolent enough to object will not only be ignored but will also be impoverished into the bargain.

In fifteen months time Gordon will impose a National Emergency in order to let his measures take effect and the entire opposition front bench will be held under the 42 day detention provisions to ensure an orderly passage of the emergency bill.

OK Jack, this may be a spoof posting but what the hell would we do if it happened?

not an economist said...

This is probably where my knowledge of monetary theory falls apart but what I don't understand is that there is no consideration of any lag between monetary injesctions and changes in output in all this talk of monetary easing.

Forget Austrian economics for a moment. Even monetarists Iand I thogyht Keynesians) have always argued that the output impact of a monetary injection is not instantaneous. There is a lag - at one time Friedman used to wsy it was about 18 months. Yet in this crisis Obama/Brown inject a load of cash, give it a week and then demand another injection.

This may sound academic but surely it means that even on the criteria of mainstream economics the first few trillion they have so far injected could already being have inflationary consequences but rather than wait to see what the impact of thier first actions were they decide to stuff more cash into the systemn, thereby possibly making the inflationary situation even worse.

Yes I know they are worried about deflation but where is the feedback in all this? Surely you act, you check the result and then act further, but only after checking that the effect of what you did at step 01.

This is another reason why I think this will all end in an inflationary nightmare which will be quickly followed by a massive increase in state control over the economy (price controls, exchange controls, capital controls, further nationalisations). I did a post along these lines on the tenth planet forum and I was just told I was being paranoid and irrational. Fair enough I s'ppose.

Jack Maturin said...

Now come on Jack, you really must learn how to become a team player.

Sorry, Anonymous. I'll try harder next time.

It's all that Ayn Rand's fault. She turned me from a proper socialist into a selfish enemy of the people! :-)

OK Jack, this may be a spoof posting but what the hell would we do if it happened?

The situation is now out of control, so it is hard to know what will happen. In my hazy crystal ball I do see martial law coming into play, as you suggest.

Great Inflations, a course the idiots in Whitehall seem hell bent upon because of faulty economic thinking and the need to preserve their powers and privileges, always end in unforeseen horrors. But each Great Inflation is slightly different from the last, so although we know the rough end game, we do not know the exact moves.

I've been suggesting for some time now that we seem deliberately headed into the abyss of military dictatorship, as you suggest. The government has been quietly building up all the powers it needs to hold the people hostage in their own country, and we have been stupid enough to go along with it.

What will happen when we get there, into the socialist nirvana of a formal police state? I just don't know. The great British spirit of 'sang froid' has been massively diluted since the end of WWII, with huge amounts of immigration plus the self-induced infantilization process of the welfare state.

However (and here I'm out on a limb), I think our traditions will help us out here. I do not know how it will happen, but the worm will turn. We will EVENTUALLY throw these parasites off our backs and get back to a free country, or at least one as free as it was pre-1914.

How long will this take? No idea.

In the meantime, get as many of your liquid assets as you can into hard assets, hopefully held offshore and out of the clutches of the tax man. You are going to need these assets.

Start also getting ready to have a bolt hole to go to. The ideal, is being able to step onto a plane with no regrets, with a one-way ticket, and with no plans to return.

Destinations? Australia, Canada, New Zealand. And not just because they are English-speaking, but because they are more 'British' than Britain, in that they retain more of our old traditions than we do here in the Europeanized/Napoleonized 'Mother Country'.

Avoid the US. It's going to be worse there than here, as their Empire collapses.

So what's my betting on what will happen? I don't think Gordon Brown will want to go down as the most hated man in British history. I think he will stop short of the full dictatorship solution (though he will be sorely tempted). An election will be held and the Tories will win it.

They will then have to impose draconian financial impositions and finally let this recession take hold to clean out all of the malinvestments of the last 20 years.

It will be hell, with massive interest rates, huge unemployment, and civil strife, but within five years we will be through the worst. The advantage they will have here is that they are not in power now, and that all people in this country recognize that we are in a perilous position due to the insanities of Gordon Brown and the Labour party.

Therefore, if they get the mood right, people will be prepared to roll their sleeves up and get on with it. But only if the 'public sector' takes their share of the pain too. This happy 'la-la' land that many public sector people seem to inhabit, will have to be shattered.

Will this be possible? Again, who knows? We are in for some interesting times.

Where will our freedoms be at the end of this period? God alone knows.

Good luck.

Jack Maturin said...

I think all bets are off here, not an economist.

This is an unprecedented situation, with no clear end game.

Only the Austrians have a way through here, because they base their economics on axioms rather than on experimental results.

But if we keep the way we are going, we are headed towards more chaotic socialism, as you suggest.

Something, however, will give, because the more socialism you have, the more economic chaos you have, and the less wealth you have, and the more crime you have, and the greater the level of disorder.

I do not think people will tolerate this for long. Politicians, and all of their armies of hangers-on, only survive because we tolerate them.

When we have decided that we have had enough, we will throw them off, in the same way that the Americans threw off the British King.

So in the short-term, I am dreadfully pessimistic. In the long-run, I am eternally optimistic.

People want better lives for themselves and their children. This basic human force will eventually see us through.

Thankfully, here in this country, we do have a thousand years of history to fall back on, to provide us with the cultural ammunition not to be overawed by the power of government.

This power springs from us. And we will take this power back and eject these idiots who think they are in control of our lives.

Let us hope the process is entirely bloodless and that they are not stupid enough to try to stop us.

In the meantime, batten down the hatches.

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