Monday, Feb 16, 2009
Fair enough, but when things deteriorate futher, will they 'print' even more?
FT: Bean defends Bank’s quantitative easing
''Charlie Bean, the Bank of England’s deputy governor, mounted a robust defence of its preparations to create money to buy government bonds on Monday, insisting the proposals were nothing like the ruinous policies of corrupt governments that have led to hyper-inflation. ''
Posted by hpwatcher @ 05:19 PM (1471 views) Add Comment
28 Comments
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1. hpwatcher said...
It's the worst of all words and simply cannot be defended - unless of course in the interests of winning a general election.
Gordon Brown will try to win next years election at absolutely any cost........
2. Cynicalsoothsayer said...
by even mentioning the phrase "ruinous policies of corrupt governments that have led to hyper-inflation" he associates the gvmnt with it
3. bellwether said...
The notion that we will see hyper inflation out of the govts policies thus far is the issue I have most trouble with on this site.
Prices of everything are falling because our credit based money supply across has imploded.
This will continue unless govt start pursuing genuiely inflationary policies - eg as a stater printing say 10 trillion and paying off a big chunk of everyones debt.
Anything short of this is like hoping to raise the temparature of the sea by p!ssing in it.
4. Cynicalsoothsayer said...
B of E will be denouncing Gordo openly by next week. "You want us to print money like some tinpot african state!"
5. Cynicalsoothsayer said...
bellwether @ 2
...but that's how hyper-inflation starts. It's not so much the actual degrading of the currency but the public confidence in it. If the public sector get paid with magic money, everybody else will wants some too.
6. cyril said...
@ Bellweather - I don't see prices falling much, I think because suppliers are taking the opportunity to increase their margins. Also the exchange rate should make imports more expensive.
It depends what you call hyper inflation. 25-30% for a couple of years will be enough to wipe out peoples' savings. That is hyper enough for me.
7. paul said...
No, I don't think it is fair enough though hpwatcher.
The problem (which Mr Bean did not address) is the transmission mechanism. If you print money and offer it to people to buy houses, how many will actually take it? Enough people to make a difference? And if the take-up is not as much as the Bank of England wants (as is expected), will the government then become the borrower of last resort to assist in transmitting the freshly printed money into the economy?
The answer is - most likely.
And this will be functionally no different to Zimbabwean fiscal policy of printing money to finance government spending.
8. hpwatcher said...
Prices of everything are falling because our credit based money supply across has imploded.
This is simply not true. Everything is going up in price, my grocery bill is going nuts....especially fruit and veg. Petrol has started going up again too and now my council tax.
The deflation case is simply not born out, through my experience. I don't believe the CPI figures either, as they are rather crude distortions.
9. bellwether said...
You are joking Cyril?
Property, the most expensive thing you could buy, is falling in price. Most here have a 50% pencilled in.
Rents are dropping on oversupply.
Companies (or shares in them) are down about 50% on average and likely have a long way to good.
Corn, soy, wheat same story. Metals and Minerals ditto.
Labour is cheaper and will get a lot cheaper as unemployment rises.
I'm actually struggling to think of anything that is going up in price apart from other currencies (although that story is close to done) and gold and recently silver.
10. bellwether said...
HP Watcher - I'm not that interested in the price of fruit and veg because any increase in price is neglible relative to the things I've mentioned and because of the things i've mentioned should drop in price. Global demand for food will drop.
Tax is a potential kicker I guess but that looks like a weaker force especially in an environment where the govt is trying to "stimulate" the economy.
11. Mrperegrination said...
Deflation for the rich. Inflation for the poor.
12. hpwatcher said...
Property, the most expensive thing you could buy, is falling in price. Most here have a 50% pencilled in.
It isn't appropriate to include it, as it wasn't counted in CPI before
Rents are dropping on oversupply.
This is a generalisation. I have actually been looking to move and am not finding this at all.
Companies (or shares in them) are down about 50% on average and likely have a long way to good.
This isn't going to affect my grocery bill.
Corn, soy, wheat same story. Metals and Minerals ditto.
Possibly.
Labour is cheaper and will get a lot cheaper as unemployment rises.
Possibly.
13. bellwether said...
Paul, you can have hyper inflation, the govt can create it. I agree. Not however with these policies. To suggest otherwise is not to understand the volume/if you prefer velocity of money created by credit over the past decade. The amount is vast in comparsion to what the Govt is presently looking to do. My p!ssing in the sea is really not far away. Look into comparisons between base money supply and credit money if you don't believe me.
14. amjidk said...
i'm not sure about the other items but we import computer parts, and believe me prices must go up, else we go bust!!
15. bellwether said...
hpwatcher, we have different perspective, as someone with savings I currently see a world of falling prices and amongst that once this is done real opportunity.
16. bellwether said...
amjidk agree that imports are a question mark, although how much of what is essential do we import, and how much of that could be produced locally. Part of the solution to this has to be our importing and consuming less and producing more.
17. tudorian said...
Right guys...I'm really confused...
I can concede that Corn, soy, wheat .... Metals and Minerals may well be dropping in price, and this drop has an overall deceleratory impact on inflation...(certainly the inflation that we started to see 8 month ago), but....
"Prices of everything are falling " said bellwether.
Sorry, not that I've noticed. My groceries and fuel bill are not noticeably cheaper. My rent has not reduced and the asking price for new rental agreements has not tempted me to move yet. The prices in the estate agent on the corner of the Bristol High Street that I live on are still fantasy.
I'm bracing myself for an inflation / deflation busting rise in my council tax, my business has dropped to an effective standstill I don't have any interest on my meagre savings.
So now printing money is a forgone conclusion.
I'm starting to find it all very scary
18. tudorian said...
sorry hpwatcher @8, you have raised most of the observations that I did...I didn't read you post prior to my posting..
19. quiet guy said...
"Right guys...I'm really confused..."
Ha! You're not the only one, Tudorian.
I find Bellwether's comments quite interesting and worth serious consideration. What do I think about theinflation/deflation argument? I don't know and have given up trying to work it out! Instead of melting my puny brain, I am hedging by buying a bit of gold (about 20%, which is arguably too much) and tightening my belt to save as much cash as I can. Hopefully, I will not be too badly stung whatever fiscal nightmare is just around the corner.
So that's my advice - hedge your bets and stop worrying about it.
If you are smart enough to divine the financial future then good luck with your wealth preservation strategy but I suggest it makes sense to have some sort of plan for the worst.
P.S. It's obvious that I am not competent to give financial advice. Consider the usual disclaimers to have been uttered ...
20. goweresque said...
The reason prices of food are still high/rising despite some lower commodity prices (as a farmer I know the price of wheat is now nearly half of its peak at £180/tonne, milk is down too) is because a) Supermarkets/food processors rack up retail prices when commodity prices rise, but 'forget' to reduce them much if they fall, and b) due to the lower pound anything imported is now 25% dearer. Thanks to the govts policy of not worrying about being self sufficient in foodstuffs, a large % of food is imported. That now goes up in price, and crucially, drags the UK market price up with it. So now that imported bacon from Holland or Denmark is more expensive, the price for UK producers has risen too. Same goes for lamb and beef. Both have risen because import penetration is so large that the import price now sets the UK price.
21. titaniccaptain said...
@Goweresque
Have you found that the price of farm land is still going up where you are?
22. inflation is eating my savings said...
The "used to be nice man" at the cafe where I get my haggis and smoked cheese panini is no longer giving me my valued reliable customer quid off. He's started trying the old change for a tenner when you give twenty thing. I don't think haggis is suffering any import inflation, as they generally run around here in the wild. Paninis might have gone up. In addition, I'm getting dirty looks these days when I query my change. Watch the ones who chat to you as you reach for your wallet. Winker.
Agreed, this QE is probably a drop in the ocean.
Diesel has dropped over 30p a litre.
Houses, food and other essentials have not. Again, rents haven't dropped here either. Although I will be fighting any increase.
23. Jackassjoiner said...
forgive me i am not an economic guru but it appeared to me that last years inflation worries were mainly oil led in cause. To me the oil market suffered a pump an dump curve that caused this, speculators dramatically increased the price in a very short time. Now i am of the opinion that this is not deflation we are experiencing rather liquidation, which means as people are not earning money in there saving accounts or the stock market it will be where this money ends up that will be the problem. although it may well be that the government may as well piss in the sea but there isnt going to be much turning back once this has started. combine that with a few stray dollars chasing oil price rises and there you have it, rampant inflation.
dunno, just a hunch
24. shipbuilder said...
Haggis and smoked cheese panini? Sounds so wrong and yet so right....
25. Alphabetzoo said...
Links to Steve Keen's blog have been posted here before - he has the most convincing case either way for what's gonna happen - it's deflation. People simply don't realise how much money will have to be created to offset the huge collapse in credit in this economy. The forex and bond markets will take fright EONS before the BoE gets anywhere near enough to stabilise things. We aren't going Zimbabwe's way.
26. Crunchy said...
Here I go again- HYPER-INFLATION DEPRESSION.
No wage rises and no interest rate rises. DANGEROUS BROWN.
27. sneaker said...
OK, here's the test: if the BoE is sure its policies will not create hyperinflation, then will they kindly guarantee, now, to the public that there is no chance of a gold bullion confiscation? If not, why not?
28. goweresque said...
As far as I know farmland hasn't dropped much. But then there's probably not much on the market at the moment. Farms tend to only come up for sale relatively infrequently, and there aren't the number of forced sales the way there are in housing. Most sellers are outright owners, so if the prices drop too much they will just sit tight and hope to ride it out. Occasionally you get forced sales from divorces, but thats about it. If push comes to shove you can usually find a tenant to take the land on, and go on living in the house.