Wednesday, Sep 27, 2006
Higher Interest Rates needed - everyone now jumping on the bandwagon
Financial Times: Higher rate rises may be needed to contain inflation
"The purpose of this letter is twofold. First, it is to support recent statements made by Mervyn King, the governor of the Bank of England, that - unless reversed quite soon - rapid growth of money will lead to higher inflation. (Mr King was quoted in May as saying, "in the long run, if you have rapid growth of broad money, you are going to get inflation".) Second, it is to warn that the containment of such inflationary pressures may require increases in interest rates larger than either markets or most commentators seem yet to appreciate."
Posted by veritas @ 07:23 PM (167 views) Add Comment
7 Comments
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1. paul said...
The trouble is, Merv has already indicated his intention to bail on his remit anyway at some point.
I think he should be summarily fired when inflation overshoots 3%.
Seriously.
2. talking rot said...
The thing is, this is only a single letter. It describes a possible future situation. There are alternative situations. When the facts change, it is time to change one's mind.
This letter does not predict a coming storm.
3. Frizzers said...
For me this letter is excellent, a simple explanatioin of a major predicament. Too much money creation. Either they slow it dramatically via higher rates and we have a house price crash. Or they don't and we have inflation and a major collapse in the dollar or other fiat currency.
If you look up inflation in a dictionary the definition is rising prices. If you look it up in an older dictionary it means growth in the money supply, ie govt. printing money.
Easy money creation has been one of the main reasons for this house price boom. The easy money has found its way into housing.
4. paul said...
This is the FT though - they should know what they are talking about.
The remit of the BofE doesn't change either. And let's face it, its not a complicated one - keep inflation below 3%, at nearly all costs - including at the expense of the over-inflated housing market. There is no way that the bank can reverse the growth of M4 supply without have a serious slowing effect which could knock on to other areas of the economy.
Merv has already indicated that he might get cold feet on his one and only target, and just let inflation run away (to save the housing market from tumbling). And that's why he should be fired if inflation rises above 3%.
The housing market tail is already wagging the interest rate dog. The sooner the nonsense is brought to a short sharp end, the quicker the government can pursue sensible economic policy without the elephant in the living room issue of the overpriced housing market.
5. inbreda said...
Quite right Paul.
And they are not solving anything by worrying about the housing market - they are just making matters worse for the future.
It's almost as if the members of the MPC are seeing how long they can keep the plates spinning. At 150,000 a year I'm not surprised they want to maintain the illusion as long as possible.
6. Northernlad said...
but the FT is biased also!
7. the bald man said...
House price inflation has kept Tony and crash Gordan in office. Gordan will continue trying to feed us debt to as he has no other policies