Kaletsky Comes Clean, 22/8/2005

[RichM]

Inflation rate is now slave to oil prices

The key paragraph for us:

The economy could cope with all these problems without too much disruption, provided that the growth of consumer demand speeds up in the year ahead. That, in turn, will probably require at least a stabilisation in the housing market and ideally the resumption of a gentle increase in property prices. But without further monetary easing, such an improvement in housing and consumption seems unlikely, especially if oil prices remain at their present stratospheric levels.

The British economy and the world economic cycle is now in a difficult period. To steer the economy through these troubled waters, the Bank of England will require maximum flexibility, not an overly legalistic focus on CPI inflation — an economic compass that is seriously misleading and flawed.

Basically the whole economy depends on lowering IRs, as the CPI exaggerates inflation! You couldn't make it up!

[the don]

this bloke is crackers

what he is saying and has said in other recent articles, is that the only way to have a succesful economy is for IRs to be kept low so that consumer activity can keep the economy afloat.

this must be on the basis that we are incapable of growing the economy by productive means.

ie investment in industry and commerce, and othe wealth creating areas.

this is the formula in the usa and many think that the pain when it comes will be unbelievable.

i dont know whether this man is an idiot or a Brown stooge -or both

[Rapid Descent]

He describes the world economies (particularly, I would guess, those in the west) as being in trouble. But he isn't thinking about the underlying causes: the reason we are in trouble is because of excessive debt.

His solution? Lower IRs and increase that debt further.

If someone dug a twenty foot hole in the ground, and threw him in it, I suspect his solution would be "keep digging, we will escape eventually"

[RRP]

The economy could cope with all these problems without too much disruption, provided that the growth of consumer demand speeds up in the year ahead.

Que smoke and enter the fairies. Hey presto ; debt now gone.

"Boing"- back into the magic Chinese cave full of laptops and plasma screens.

There we are - sorted.

[Van]

Yes. Sometimes economists think they have the tools to dig themselves out of a hole painlessly. I'm sorry, but it's just not that simple. We've overspent, and now we're going to have to pay it back or inflate it away. Either will have repurcussions, and things cannot just "carry on as they are". There's no painless solution.

[Last Hun Standing]

I agree with Kaletsky's that CPI is a flawed inflation measure. The position that lower interest rates will of themselves solve anything is clearly wrong.

Give the kids matches, they burn themselves.

Was there any media coverage when the BOE switched to CPI targetting? I must have missed it.

The scary prospect for anyone who may need a job rather than relying on taxhandouts is that there seems to be no investment in future productive capacity.

But then why invest in Britain when you can acheive higher returns elsewhere?

[BuyingBear]

I agree with Kaletsky's that CPI is a flawed inflation measure. The position that lower interest rates will of themselves solve anything is clearly wrong.

Give the kids matches, they burn themselves.

Was there any media coverage when the BOE switched to CPI targetting? I must have missed it.

<{POST_SNAPBACK}>

It was around Dec 2003, I can remember Evan Davies doing superficial coverage of the 'basket of goods' thing, the report went something like this "the things Britons buy are chaning, so out goes potatoes and incomes avocados and melons, blah, blah. Out goes mortgage and housing costs and in comes DVD players!"

Whilst me should of said "the ONS have become Brown's bitch"

[Casual Observer]

It was around Dec 2003, I can remember Evan Davies doing superficial coverage of the 'basket of goods' thing, the report went something like this "the things Britons buy are chaning, so out goes potatoes and incomes avocados and melons, blah, blah. Out goes mortgage and housing costs and in comes DVD players!"

Whilst me should of said "the ONS have become Brown's bitch" 

<{POST_SNAPBACK}>

I remember an article at the time in one of the Sunday's (either the Times or Telegraph, can't remember which) basically predicting exacty what has happened i.e. people feeling a greater impact than the measured inflation would indicate, and the real effect this would have on consumer confidence and spending.

I remember emphasising with it at the time.