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Mystic Merv Talks Waffle

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Inflation will fall back, once record energy prices work through the system, providing we don't get any more big price rises...

Although he did criticise the Fed for boxing themselves in.

No return to "trend growth" for at least 3 years.

More waffle to follow.

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http://www.bbc.co.uk/news/business-14472805

The Bank of England has cut its 2011 growth forecast for the UK to about 1.5%, from 1.8%, because the global economy facing "persistent headwinds".

Bank Governor Mervyn King said the economy had weakened, in large part due to the debt crisis in Europe.

However, he told a press conference that the near-term prospects for inflation remains the same.

Inflation would continue rising through the autumn before falling back next year, he told a press conference.

The consumer prices index will be "little below" 2% in the medium term, he said.

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Inflation will fall back, once record energy prices work through the system, providing we don't get any more big price rises...

Although he did criticise the Fed for boxing themselves in.

No return to "trend growth" for at least 3 years.

More waffle to follow.

Good summary, thanks

What he needs to say clearly is "inflation may or may not fall back, I can't be sure, despite my huge salary, and even if it does fall back we'll all still be stuck with the price rises thus far in all likelihood, keeping rates where they are is a risky business, do any of you remember inflation last time? No. Just as well, wouldn't want to scare you"

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King (I'm paraphrasing):

This was never a liquidity crisis – yes, there were liquidity problems to be addressed, but fundamentally we were faced with an insolvency crisis. There was simply too much debt.

That debt has now been shifted from the banking system to sovereign states, but it hasn't gone away. We still have to face the overhang of debt, and we're seeing now how the problems can manifest themselves as groups try to shift the debt elsewhere.

We therefore have several years of difficulty ahead of us as we try to overcome the burden that this debt has imposed.

--------

(I stress I'm paraphrasing, but that was the essence of what he said.)

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From citywire ,

Mervyn : "But there are limits to what monetary policy can do to alter inflation....."

... and the bit they didn't get to quote : " ... heaven's knows, for the sake of my gilt linkers I've tried, but demand is so damn weak!"

Edited by Sledgehead

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Hey, just realised I'm much better at predicting the future than Merv.

For instance when I read his words : "Inflation would continue rising through the autumn ..." I immediately said to myself that the next few words, 100% guaranteed, would be "... before falling back next year. "

Guess I'm just super intuitive. Well, that and having read his last 6 or so inflation reports.

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King (I'm paraphrasing):

That debt has now been shifted from the banking system to sovereign states, but it hasn't gone away. We still have to face the overhang of debt, and we're seeing now how the problems can manifest themselves as groups try to shift the debt elsewhere.

Where will it go next?

Because persoanlly I'm not interested despite the OBR predictions of increased private debt.

Edited by daiking

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Inflation will fall back, once record energy prices work through the system

In 18 months? That's the BoE's favourite magic number.

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King (I'm paraphrasing):

This was never a liquidity crisis – yes, there were liquidity problems to be addressed, but fundamentally we were faced with an insolvency crisis. There was simply too much debt.

That debt has now been shifted from the banking system to sovereign states, but it hasn't gone away. We still have to face the overhang of debt, and we're seeing now how the problems can manifest themselves as groups try to shift the debt elsewhere.

We therefore have several years of difficulty ahead of us as we try to overcome the burden that this debt has imposed.

--------

(I stress I'm paraphrasing, but that was the essence of what he said.)

did he see an end to it, specially by piling more debt onto the stricken Soveriegns as a cure?

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King (I'm paraphrasing):

This was never a liquidity crisis – yes, there were liquidity problems to be addressed, but fundamentally we were faced with an insolvency crisis. There was simply too much debt.

That debt has now been shifted from the banking system to sovereign states, but it hasn't gone away. We still have to face the overhang of debt, and we're seeing now how the problems can manifest themselves as groups try to shift the debt elsewhere.

We therefore have several years of difficulty ahead of us as we try to overcome the burden that this debt has imposed.

--------

(I stress I'm paraphrasing, but that was the essence of what he said.)

We have so much debt we are insolvent, so lets fix it with historically low interest rates that will encourage people to borrow more.

What could go wrong?

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Sounds like a report from the polit-bureau of the USSR and is about as realistic...

Inflation is always due to fall back. If it keeps falling back at the rate King has been claiming it will, we'll be at about -8% inflation next year. Of course, that would be a deflationary nightmare, he better do something!

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We have so much debt we are insolvent, so lets fix it with historically low interest rates that will encourage people to borrow more.

What could go wrong?

It is not to get people to borrow more - it is to keep about 1 million people in homes they would lose if IRs rose. Simple as that.

The BOE is doing everything it can to keep people in their homes and stop house prices plunging re rising IRs.

Wake up, smell the coffee.

Hate to say it, but no HPC is coming from rising IRs and the public sector job austerity cuts looks complete bull IMPO.

Wake up, smell the coffee.

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Just for completeness - full report is here:

http://www.bankofengland.co.uk/publications/inflationreport/ir11aug.pdf

Theres an interesting bit at the end where they compare what they predicted in May 2010, and what actually happened, and why they got it so wrong.

Indeed, pages 48 and 49 of the document make interesting reading. As much for the lack of insight into how these things are actually treated as much as anything.

On the face of it, the most reliable fan chart errors are to be found on the 2-year growth projections, although even on those they do show a bias towards overestimation of growth figures.

The inflation fan errors on the central value forcasts are atrocious. Their methodology is totally flawed regarding the uncertainties in the predictions of the inflation values. The fan chart errors as drawn seem broadly symmetric, but the graph shows they have consistently underestimated the 'upside' risk as more outliers have ended up in the '5th quintile' than is explainable by sampling errors etc.

The BoE spares some blushes by not spelling out exactly how far away from the predicted levels the outliers were (since the extreme quintiles are open-ended) but anyone who thinks the BoE is doing a good job, or even thinks that they don't know anything at all and are simply guessing needs to look at this stuff.

If they simply knew nothing, the errors would be expected to show a symmetric distribution in the quintiles consistent with an a priori probability distribution. The symmetry is more important than the quintile the outliers actually fall into, as the latter is dependent on where they choose to draw the fan errors. If the fans are too broad, the distribution should be in the 2nd, 3rd and 4th quintiles, if too narrow, the 1st and 5th quintiles. The key is the symmetry (or lack of, in this case, with a 45% to 10% split in the 1st and 5th quintiles respectively on the 1 year forcast, and a 30% to 5% comparison on the 2 year).

The bias towards overestimating growth and underestimating inflation is not one which is borne of statistical flaws/limitations but of political expediency. Merv and Co. have manufactured the argument to keep rates low, and that would have been harder if they had fessed up to the actual upside risks. Shameless in my opinion, but that's hardly a revelation.

Edited by cheeznbreed

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It is not to get people to borrow more - it is to keep about 1 million people in homes they would lose if IRs rose. Simple as that.

The BOE is doing everything it can to keep people in their homes and stop house prices plunging re rising IRs.

Wake up, smell the coffee.

Hate to say it, but no HPC is coming from rising IRs and the public sector job austerity cuts looks complete bull IMPO.

Wake up, smell the coffee.

You are right that that's their game. I don't have complete confidence they'll pull it off, it didn't work in the US after all, but at the very least they're certainly going to keep trying to put off and slow down the crash that is long over due, while shafting the prudent.

Are we all just suckers who should have leveraged up when we had the chance?

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BTW, here's the latest inflation fan:

inflation_fan_0811.gif

Can anyone stitch together the last few of those 'fan' charts so we can show just the fan bits for the last year or two versus the actual rate?

I'd do it myself but i'm uhm.. working, yeah thats it! ;)

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Can anyone stitch together the last few of those 'fan' charts so we can show just the fan bits for the last year or two versus the actual rate?

I'd do it myself but i'm uhm.. working, yeah thats it! ;)

It always comes back to 2%..as is their target, and the fan chart HAS to show that they are doing what is neccessary to achieve that...otherwise, what fracking use are they?

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It always comes back to 2%..as is their target, and the fan chart HAS to show that they are doing what is neccessary to achieve that...otherwise, what fracking use are they?

...none...he's just free sailing until he collects his pension..... :rolleyes:

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  • 337 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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