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Merv: Let's Inflate Our Troubles Away

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http://www.bloomberg.com/news/2010-08-04/king-shelves-u-k-inflation-goal-as-cameron-s-spending-ax-threatens-growth.html

King May Shelve U.K. Inflation Concerns to Nurture Expansion
By Svenja O’Donnell - Aug 5, 2010 10:08 AM GMT
Mervyn King, governor of the Bank of England. Photographer: Chris Ratcliffe/Bloomberg
Aug. 4 (Bloomberg) -- Bloomberg's Elliot Gotkine reports on business loans in the U.K. as Prime Minister David Cameron meets with Bank of England Governor Mervyn King to discuss how Britain’s banks can be encouraged to lend more to small and medium-sized firms. (Source: Bloomberg)
Bank of England Governor Mervyn King is setting aside his inflation target to protect the economy from the biggest budget cuts since World War II.
As a split widens on the Monetary Policy Committee on the danger posed by rising prices, King insists it may be a “considerable” time before the benchmark interest rate of 0.5 percent returns to “normal.” The nine-member panel will announce its monthly decision, which uses new economic forecasts, at 12 p.m. today in London.
King is tolerating faster inflation as Prime Minister David Cameron’s push to slash the Group of 20’s largest budget deficit threatens to hurt the economic recovery. Policy maker Andrew Sentance, for now the only advocate of higher rates, counters that growth is solid enough for the bank to withdraw emergency stimulus. Inflation has exceeded the bank’s 2 percent target since December.
“King is willing to take risks with inflation,” Steven Bell, chief economist at London-based hedge fund GLC Ltd. and a former U.K. Treasury official, said in a telephone interview. “He has become the man most determined to get a decent recovery.”
The pound was down

Well well well. The inevitable kow-towing to the easy way out. These fools will never learn--the market CANNOT be beaten.

Goodbye Pound.

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Buy gold, eh RB?

I am moving toward being slightly Bearish on Gold at the moment.

If Merv puts his plan into action he will lay our economy to waste as Sterling will tank, our bond ratings will suffer and IR will go skyward. He will kill the recovery in its yet to be formed tracks.

That said, a move to inflation will devastate all markets including houses as wages will lag big time and job losses are only just starting in the public sector.

Best investment? Sell Sterling.

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I am moving toward being slightly Bearish on Gold at the moment.

If Merv puts his plan into action he will lay our economy to waste as Sterling will tank, our bond ratings will suffer and IR will go skyward. He will kill the recovery in its yet to be formed tracks.

That said, a move to inflation will devastate all markets including houses as wages will lag big time and job losses are only just starting in the public sector.

Best investment? Sell Sterling.

Is that like your advice for the best investment in 2007 was to sell to rent, because "Great Crash 2" was well underway.

Great, think I'll pass on the advice this time though thanks RB.

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“King is willing to take risks with inflation,” Steven Bell, chief economist at London-based hedge fund GLC Ltd. and a former U.K. Treasury official, said in a telephone interview. “He has become the man most determined to get a decent recovery.”

I don't know if the latter is out of context, compared to the former, but it is a dubious claim. I'm sure everyone wants a decent recovery, but whether it can be achieved by letting inflation rip is another question entirely.

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I would be very surprised if the chancellor got rid of the 2% Target. Osbourne is trying to be responsible and this would represent a significant blow to credibility. King has got policy completely wrong for the entire crisis. BOE forcasting has been a complete joke, we are meant to have 0.7% inflation now...

Rates were to high in 08 and were only lowered after the Lehman crash. Now they are far to low and we will be risking more excessive speculation with rates so low.

I am convinced Q3 Growth will come in above forcast again and we will see at least one rate rise by the end of the year.

The real risk to the recovery is Southern Europe. These economies are in a strait jacket and things could get real ugly in the next few years if they can't find a way to grow and reduce unemployment over the next few years.

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I would be very surprised if the chancellor got rid of the 2% Target. Osbourne is trying to be responsible and this would represent a significant blow to credibility. King has got policy completely wrong for the entire crisis. BOE forcasting has been a complete joke, we are meant to have 0.7% inflation now...

Rates were to high in 08 and were only lowered after the Lehman crash. Now they are far to low and we will be risking more excessive speculation with rates so low.

I am convinced Q3 Growth will come in above forcast again and we will see at least one rate rise by the end of the year.

The real risk to the recovery is Southern Europe. These economies are in a strait jacket and things could get real ugly in the next few years if they can't find a way to grow and reduce unemployment over the next few years.

The 2% target is flawed, within the current monetary framework* - an fact any target other than 0% is flawed. Therefore it should be scrapped, but not for the reasons outlined in the OP.

Without regular, outright printing of money (not this QE, promise - honest - to repay stuff), the only way a 2% target can be achieved is through credit expansion. As credit can't expand forever, this target is impossible to reach indefinitely. Eventually, the debt burden will get too large, there will be a liquidity crisis/credit crunch, and the system will start to collapse (and indeed has, as of late 2008).

(* The Maarstricht Treaty does not allow money printing. The only way to increase the money supply, in a sustainable way, is to print. Whether it is good to have a 2% target or not is debatable - IMO, a neutral 0% target would be more balanced anyway, despite the pressure on wages in recessionary times.)

EDIT: P.S. Not that I think targeting CPI/RPI is good either way. It would surely be better to target either the population size and/or GDP or some such.

Edited by Traktion

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“King is willing to take risks with inflation,” Steven Bell, chief economist at London-based hedge fund GLC Ltd. and a former U.K. Treasury official, said in a telephone interview.

And don't we know it... When interest rates are 15% I'm sure someone will look back and laugh... It won't be home owners though...

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Is that like your advice for the best investment in 2007 was to sell to rent, because "Great Crash 2" was well underway.

Great, think I'll pass on the advice this time though thanks RB.

suggest you think for yourself and stop attacking posters willing to post an opinion.

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The 2% target is flawed, within the current monetary framework* - an fact any target other than 0% is flawed. Therefore it should be scrapped, but not for the reasons outlined in the OP.

Without regular, outright printing of money (not this QE, promise - honest - to repay stuff), the only way a 2% target can be achieved is through credit expansion. As credit can't expand forever, this target is impossible to reach indefinitely. Eventually, the debt burden will get too large, there will be a liquidity crisis/credit crunch, and the system will start to collapse (and indeed has, as of late 2008).

(* The Maarstricht Treaty does not allow money printing. The only way to increase the money supply, in a sustainable way, is to print. Whether it is good to have a 2% target or not is debatable - IMO, a neutral 0% target would be more balanced anyway, despite the pressure on wages in recessionary times.)

EDIT: P.S. Not that I think targeting CPI/RPI is good either way. It would surely be better to target either the population size and/or GDP or some such.

odd that normal city margins are 2%.

course, if the city is skimming 2% every trade, then 2% needs to be put back to cover...year in, year out.

And guess what the BoE is setup to protect!

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I am moving toward being slightly Bearish on Gold at the moment.

Understatement of the decade, there, RB.

In other news, Pope admits to mild adherence to Catholic dogma.

Bear admits that "he was caught short" and it was a few miles to the next public convenience.

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suggest you think for yourself and stop attacking posters willing to post an opinion.

Agreed. You do your own research at the end of the day, so I'd rather read posts from people willing to put their head above the parapet and offering reasoned opinions, than snipers taking hindsight pot shots.

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I personally think a 3% target is a better choice in the world of 2010. The Chinese official target is 3%. Investors and savers know this ahead of time and can make decisions accordingly.

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Guest absolutezero

And don't we know it... When interest rates are 15% I'm sure someone will look back and laugh... It won't be home owners though...

You assume interest rates will rise with inflation....

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Guest absolutezero

Mervyn King, you're FIRED.

Seriously though, this feckwit needs sacking - just penning a letter to my MP suggesting he's given the heave-ho!

I'll save you the bother. Here's your reply.

"Bank of England ... blah blah ... independent ... blah blah ... King ... blah blah ... doing a good job ... blah blah ... exceptional circumstances ... blah blah ... nobody saw this crisis coming...."

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I personally think a 3% target is a better choice in the world of 2010. The Chinese official target is 3%. Investors and savers know this ahead of time and can make decisions accordingly.

why?

money doesnt repay debt...wealth creation does...if you just increase money supply all you do is make wealth more expensive.

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deflation my ****...............anybody betting on this outcome becomes more and more ridiculous by the day. Look at how ridiculous Realist Bear looks, for gods sake he posts on almost a daily basis that the deflationary holocaust is just round the corner, its rubbish total and utter b0llocks.

The news was interesting yesterday, Next announces clothes up by 8% and wheat prices are set to rocket. First there is the price rises then the wage increases, the sheeple are being fed soon they will make the connection.

Protect yourselves whilst you still have a chance.

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Guest sillybear2

They abandoned it ages ago, they haven't hit the target for countless consecutive months for years now.

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  • 149 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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