Thursday, May 03, 2007
series of studies to analyse the situation
The Telegraph: Money supply jump sparks Governor's warning of higher interest rates
Mr King said that the Bank was now preparing a series of studies to analyse the situation.
Horses, bolts, gates and stables.....I think
Posted by sold 2 rent 1 @ 09:01 AM (128 views) Add Comment
16 Comments
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1. sold 2 rent 1 said...
Double digit money supply growth for several years has done and will lead to an increase in inflation.
One thing that strikes me is how come RPI is still under 5%. The reason IMHO is there are still massive deflationary forces in the world economy despite the huge rise in money supply and commodity prices.
A rise in interest rates of 0.5 - 1.0% over the next 9 months should be enough to see off these inflationary pressures by tipping the economy into recession in 2008. After mid 2008 we should start to see deflation setting in as we head for a depression in 2010.
2. paul said...
Oh dear oh dear.
You do have to wonder how sheltered an existence the MPC members have when a bunch of amateur economists like ourselves can predict this sort of thing six months before the governor of the Bank of England.
Yet another thing that David Smith has got utterly wrong.
Oh, and errr ... 0.5% rise next Thursday ....
3. uncle tom said...
Which ever way you look at it, money supply growth of 12.8% against inflation of less than 5% is a runaway train. Worse is the fact that there is no 'war chest' in the economy to soften the consequences when that train hits the buffers - the balance of payments deficit is dire - the government is still borrowing despite boom driven record tax receipts, and consumer debt growth remains out of control.
In many ways, the economy has a 'New York 1929' feel about it, or more recently 'London 1987'
As for Mr King, he seems to be taking advantage of the imminent change at No.11 to signal a change of direction, and we have never seen such broad hints about rate rises before. King knows that the market is pricing in 5.75% by the summer, so why is he dropping further hints?
6% and more is on the horizon now..
4. Scott said...
Uncle Tom is right. I was in a swingers club last night in central london and one of the hostesses was talking about it. It was suprising but apparently the place is very popular with rising stars in the finance industry so they are very clued up on these things. That makes 2 reasons for going there!
5. harold said...
Scott, I hope you left the lights on when you went out last night, because there clearly isn't any one at home.
6. speculatorone said...
I just hope things start going wrong soon as I am starting to believe all the hype that everything is fine with the economy. I have just moved to a new rented house in order to carry on waiting and it's hard work. Plus trying to assure my better half we are doing the right thing.
Imagine if they don't raise interest rates next week what then?
7. nearly30 said...
Well from this article - I am pretty convinced of a 0.5% rise.
However, am I being a bit thick - money supply [excessive] can both indicate inflation as well as be a catalyst for inflation. And what with HPI being so rampant over the last 10 years - the money supply and easy credit [recycled] into the economy has [and should have been] of major concern and worry to the MPC.
Where does Merv live?
Those who have had a system of earn, save and then [possibly] spend have had a really bad time of it of late - the credit culture has been fully formed - credit = living. The MPC cannot get away from their responsibilities - oh they can - they are unelected!!!!
8. Biggie_halls said...
Speculatorone - if interest rates dont rise next week then I am off to live in Timbucktoo!!
9. paul said...
"I was in a swingers club last night in central london"
This provokes a seasoned response from me "Yes, and isn't your missus a go-er!" (I could have said something much more lewd and unsavoury there too).
Anyway. I am astonished that even hostesses know this stuff but Mervyn has only just started his distressed squealing.
10. Scott said...
This is probably how this Mervyn guy found out about it! Dirty old man.
11. Whiteknight said...
He needs studies to tell him what is going on at the moment? worrying.
12. tony marshall said...
My letter e-mail to the bank last month read:-
"Sirs
Eddie George recently said that rising asset prices (principally property) were a bi-product of his policy of keeping interest rates suppressed during the early part of this decade – he said that it was his legacy to his successor to ‘Sort it out’ - can you tell me what steps the Bank is taking to sort it out?
Today’s decision to keep rates on hold just sends another signal to the market that all is well and buyers have nothing to fear. Property prices are widely accepted to be wildly over-valued, but as most people with influence have a considerable investment in property, few will countenance a crash and plan accordingly. But a crash will happen when everyone is spent out and there is no one left willing to move up or buy-to let. The higher prices are allowed to rise in the meantime, the higher the over-stretched borrowing, the more the economy becomes reliant on property based borrowing and the more catastrophic will be the crash when it comes.
With the money supply increasing at double-digit rate for several years, higher inflation is inevitable unless stronger action is taken to forestall it – failure to take the necessary action at this stage in the economic cycle is a classic mistake that generations of economic regulators have made – when they were politicians influenced by the need to keep their electorate sweet this was perhaps understandable, but we are told that the Bank of England MPC is independent. For how much longer, I wonder.
Another small rise this month would have followed the pattern of recent small rises and sent a subtle message that the Bank meant business, but would not have caused panic. The longer you leave it to get the property market under control, the larger the impact of its collapse will be. The Bank often says its policy is to keep inflation within range of the target and not to control the housing market, but, like Eddie George said, you have to ‘Sort it out’ – otherwise its collapse will swamp the efforts of all of us to maintain financial control."
I received an acknowledgement, but nothing more - maybe they are taking notice of us after all, but like others, I wonder if it's all too late...
13. sold 2 rent 1 said...
Most of the money created in the last few years has gone into asset prices, company profits and consumer debts.
With real disposable income falling and no sign of a wage price spiral I cannot see a 1970’s style inflation ahead.
I don’t think it is going to be hard to break the consumer this time. 6.5% IR should do the trick. You have to remember a large part of consumer spending is through MEWing and once this rug is pulled away, the debt-laden consumer is left in a heap.
I remember in 1987 a business closing because the owner just couldn’t find any employees for the wages that made it viable. This situation does not exist today. We have plenty of labour coming from around the world.
If the pound plummets then there is a chance of imported inflation. But if the consumer’s pocket is empty then higher import prices may be met with slowing sales and economic downturn.
My 6.5% peak IR prediction relies also on the stock market crash later this year delivering a hammer blow to confidence too.
14. The Capitalist said...
Well said STR1...at a family lunch on Sunday my cousin's husband, who is a fund manager said "fifty basis points rise next week, and all assets are fully priced - I'm almost entirely in cash assets, expecting a crash in weeks...debts are suddenely going to be very real for the ordinary consumer.
15. mrmickey said...
Back in the 70's there was less stuff in the shops to buy and if you couldn't afford it you didn't buy it, consequently people were more likely to save and have few debts and were in a better position to cope with high interest rates. Now there's so much more stuff to blow your money on, at the end of the month people have nothing left in the bank and not having the cash is no handicap to buying you can always borrow. So were in the situation of having no savings and lots of debt you don't have to be a genius to see even a small increase in interest rates could wipe a lot of people out.
16. holding out said...
If the currency dives that will affect inflation. There are plenty of essentials which are imported such as Oil & Food.
We may cut down on DVD players and the like - but they will still affect inflation until they drop out the basket even if they are not being bought.