Wednesday, May 13, 2009
Devaluation
Times Online: Farewell deflation: now inflation is the fear
This article is a meaningless ramble about inflation. My opinion is that the BoE is successfully suppressing gilt yields by inducing devaluation. By dictating the "return" price and maintaining legislation against (against as in hostile) pension funds and whomever else is legally obliged to hold gilts, they are providing a clean alley for foreign gilt holders to cash in and get out of sterling. To assuage the fear of default and the charade of a healthy appetite for government debt, global overproduction is being used to mask a continuing and deliberate fall in the value of sterling. I don't personally see that devaluation stops deflation, but the future economy of the UK doesn't look very rosy no matter how you do the accounts.
Posted by stillthinking @ 10:23 PM (392 views) Add Comment
4 Comments
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1. paul said...
Everyone keeps saying that interest rates will stay low for the foreseeable future, but I just can't see how that can be possible.
If inflation rises and keeps rising and interest rates don't go up, goodness knows what it does to gilts and the like but savers will just fly to gold and remove capital from the banking system. Both of those would be a disaster for the government first, the banking industry second and the housing market third.
So that's not going to happen. Interest rates will have to rise to avoid that scenario. I've not missed anything, surely?
2. honest valuer said...
I think interest rates will rise due to a shortage of capital and risk appetite and noy because of inflation. The UK's rates will be dictated by the international Bond market and inflation will only be one of secveral factors in the pricing equation.
3. Van Hoogstraten said...
Kaletsky hasnt written for a while - I thought he'd been fired.
Its been proved that 99.9% of the time its safe to assume that the exact opposite of what he says will occur.
4. stillthinking said...
But thats the point of the cunning plan. The BoE can suppress interest rates at the expense of sterling. Consider that the last buyback was way oversubscribed. Any private company would have lowered the price. If the BoE did that essentially it admits the yield on gilts (and borrowing costs) is higher. They did not do that, and sterling takes the fall instead.