Saturday, May 24, 2008
Out of sync. Rates will rise as borrowing dries up.
Bloomberg: IMF raises growth forecast. Warns on rates.
IMF warns that the UK must be on alert to raise rates as soon as further signs of an inflationary spiral appear, such as wage inflation. In my view, the government cannot hold rates down long enough for the effects of reduced borrowing to lower inflation. So the final inflationary flare off a la Japan will be accompanied by being forced to raise rates although borrowing will have collapsed.
-> deflationary recession
Posted by stillthinking @ 06:37 PM (1045 views) Add Comment
14 Comments
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1. hpwatcher said...
Good. The sooner the better.
2. stillthinking said...
It is becoming clear that one way or another, through below inflation wage rises, increased cost of living, rate increases, that there are going to be a huge number of mortgage holders, amongst others, -who cannot ever repay their debts-. This is where all of this is going.
3. planning4acrash said...
How would gold respond to a deflationary recession? Tho, i'm sure that negative CPI could be engineered alongside double digit money supply growth.
4. enuii said...
P4C, gold is only worth what someone is prepared to pay for it!
5. bilko said...
I just can't see the Government 'allowing' the BOE to increase rates (independent my a**e!). We currently have the worst kind of Government i.e. one that will chase the populist vote irrespective of whether it's best for the country or not. Hence there is absolutely no way that rates will be reduced; far more likely to be reduced further.
6. uncle tom said...
Recession, certainly, but deflation doesn't stack up IMO
There's an horrendous mess on the horizon, which bears no serious comparison with the problems faced by Japan a couple of decades ago.
The consequences of the twin budget and trade deficits points very strongly towards runaway inflation, and we also have millions of public sector workers who will riot before they accept a pay cut, but might just suffer a raise that fell a little short of the inflation rate. With such an immense mountain of personal debt to address, allowing inflation to erode it will eventually be seen as prudent.
Yes we will have recession, depression even, and yes people will find themselves less well off. Overall, wages might tip slightly south, but consumer prices will continue to forge ahead.
7. harold said...
In relation to the IMF, who gives a to*s what a bunch of unelected, unaccountable 'bankers' pronounce about the UK economy? These guys are part of the problem, not the solution. Personally I don't trust what they say - I mean, do you believe the FED? No - then why listen to the IMF?
8. landofconfusion said...
> 7. harold said...
>
> n relation to the IMF [...] Personally I don't trust what they say - I mean, do you believe the FED?
The IMF seems to be the only large banking organisation which doesn't have a vested interest to push (unlike the FED). Also their previous warnings have turned out to be accurate.
9. Hard Cheese said...
We all know that this government will fudge/spin and do what ever they like to save the HPC.
Don't hold your breath.
You will see a shake up at the BOE soon and Gordon Brown will plant more of his buddys in there like BlanchFlower, to start slashing rates
10. harold said...
"The IMF seems to be the only large banking organisation which doesn't have a vested interest". landofconfusion
WHAT!!!???
landofconfusion, back to school:
http://www.house.gov/jec/imf/corrupt.htm
11. a saver said...
And how much notice did the goverment/FSA/MPC take of the IMF/Economist/various others when they warned for years about house prices being way of synch with wages and the need for banks to stress-test, allowing for a 40% crash in house prices? Bu**er all!!
We could do a much better job ourselves.
12. Root said...
" ...who gives a to*s what a bunch of unelected, unaccountable 'bankers' pronounce about the UK economy? These guys are part of the problem, not the solution. Personally I don't trust what they say... "
Er, Gordon or the IMF sorry?! ;^)
13. Bangybongo said...
the time when small central banks and small governments like ours could spin their way out of trouble are gone. you get punished for lax monetary and fiscal policy. uncle tom is spot on. the things causing inflation are coming from the booming economies of asia and their growing internal markets. whichever measure the boe chooses, its future decisions will be shaped BY the world. it will not SHAPE the world. choose whatever measures and targets you like. it's meaningless. stagflation or stag-hyperinflation are my calls and i'm sh1tting bricks about it.
14. landofconfusion said...
> 10. harold said...
>
> WHAT!!!???
With regards to house prices I stand by my comments. I realise that a lot of people believe that the IMF is corrupt but at the end of the day it gets it's funding from the rich/developed countries and so would be unlikely to just sit by while their economies (it's funding sources) deteriorates.
It also has access to a large group of economists as well as top-level data and so should be in a position to comment with quite some authority.
> landofconfusion, back to school:
Why? It would just waste more of my time, especially now Liebour are in power.
> http://www.house.gov/jec/imf/corrupt.htm
A report into IMF corruption involving developing world countries (?). While I agree that Liebour are damaging our standard of living (as alluded to by the IMF), I wouldn't go so far as to say that we are now classifiable as a 'developing nation'. You'll need another term with Liebour for that...