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Timm

That Bit In The Budget About Inflation

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There will be no return to the inflation rates of the early 1990s.

<snip>

To provide certainty, and to build on this foundation of stability, I am today writing to the Governor of the Bank of England to re-confirm that the inflation target for the Monetary Policy Committee remains 2 per cent on a CPI basis - entrenching our commitment to low inflation.

This has been niggling away at me since he said it.

It's a weird thing to say; drawing attention to the inflation rates in the 90's is not going to help Mervyn with his attempts to anchor expectations in the low single digits. And why does the target need confirming? Is the wriggle room of 1% over or above target going to be squeezed?

I'm starting to wonder (and I need some help with this), is he trying to take an alternative route to the US? As BB and the Fed appear to shower cash liquidity on the banking system, and everywhere you look seems overvalued, there must be a lot of people looking for an alternative store of value. Now if that money could be attracted to sterling, on the basis that the UK was not going to inflate, that really could put us in a stronger position. If that sterling was held in british banks, it could help them re-capitalise. Of course, there is the expectation that the UK is going to get some fall out from the deflation of its own housing market and dodgy loans, which means the risk of default has to be considered.

Is there anything in the full budget to provide additional security in the UK banking system for large or foreign investors?

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This has been niggling away at me since he said it.

It's a weird thing to say; drawing attention to the inflation rates in the 90's is not going to help Mervyn with his attempts to anchor expectations in the low single digits. And why does the target need confirming? Is the wriggle room of 1% over or above target going to be squeezed?

I'm starting to wonder (and I need some help with this), is he trying to take an alternative route to the US? As BB and the Fed appear to shower cash liquidity on the banking system, and everywhere you look seems overvalued, there must be a lot of people looking for an alternative store of value. Now if that money could be attracted to sterling, on the basis that the UK was not going to inflate, that really could put us in a stronger position. If that sterling was held in british banks, it could help them re-capitalise. Of course, there is the expectation that the UK is going to get some fall out from the deflation of its own housing market and dodgy loans, which means the risk of default has to be considered.

Is there anything in the full budget to provide additional security in the UK banking system for large or foreign investors?

he really is just blowing sunshine.

while what you say is true, and there is a need for a currency with a more solid store of value, it's the Euro at this point in time, or one of the smaller countries like the swiss frank, CHF, norwegian crown etc.

Britian at this moment has nothing to base a strong currency on.

the two main industries (finance and housing and it's related markets) are heading straight for the toilet, and it is drowning in debt, with debt expectations for the future rising by the hour.

deficit spending can be a rough guide to the future value of your currency, as it's a guide to the future debt levels you will have to carry.

Since tax revenues are likely to tank with a recession/depression brewing, but costs still expected to rise, you can expect the pound to be freefalling right next to the dollar in the future.

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The whole thing makes no sense (how ununsual). It is not for Darling to determine interest rates they are set by independant BoE. He then says he will REMIND BoE that CPI must stay at 2%. Given oil and other commodity prices feeding through to consumer prices interest rates will surely have to go up dramatically to curb inflation, like in the 90s?

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Maybe it's a notional thing and the govnr of the BoE has to be officially notified every year what the target is in case he's forgottten.

Another interesting thing AD mentioned was mortgages fixed for life like the Dutch (he said) have, and the Americans used to have until they discovered the joys of ARMs. GB tried to make this work some years ago but failed. You need big institutions like Freddie Mac and Fanny Mae in the US to make the translation from variable rates to long term fixed rates - and they work the magic by adding a couple of percent to the interest rate (less in the US, but it's a bigger market.)

Which budget was it where GB mentioned fixed rate mortgages? 2003? If he'd pulled that one out of the hat we wouldn't be in such a pickle now; currently we're being ground between a rock and a hard place - inflation is soaring and needs higher IRs to cure, but the variable rate debt burden is such that raising IRs by a sufficient amount would bankrupt half the nation.

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The whole thing makes no sense (how ununsual). It is not for Darling to determine interest rates they are set by independant BoE. He then says he will REMIND BoE that CPI must stay at 2%. Given oil and other commodity prices feeding through to consumer prices interest rates will surely have to go up dramatically to curb inflation, like in the 90s?

I agree. I also note that he specifically talked about inflation not returning to the 90's. He didn't say interest rates were not going to rise.

Of course, the expectation of a half decent return would also make sterling more attractive.

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I agree. I also note that he specifically talked about inflation not returning to the 90's. He didn't say interest rates were not going to rise.

Of course, the expectation of a half decent return would also make sterling more attractive.

maybe he was implting that rates wouldn't rise to 90s levels, but to 70s levels. ;)

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The whole thing makes no sense (how ununsual). It is not for Darling to determine interest rates they are set by independant BoE. He then says he will REMIND BoE that CPI must stay at 2%. Given oil and other commodity prices feeding through to consumer prices interest rates will surely have to go up dramatically to curb inflation, like in the 90s?

It makes good sense to me in the light of the Feds policy a bit of reassurance is needed.Remember also that there was a certain clown on the committe pressing for cuts in August 2006,well he has now seen the medium term outcome inflation heading for 3% and not below 1% as he had expected.Somebody needs to remind the whole bunch of retards that it is target 2%.2005 over-target,2006 over-target,2007 over-target,2008 over-target(projected),2009 over-target(projected).So much for a central target.

Edited by crashmonitor

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he really is just blowing sunshine.

while what you say is true, and there is a need for a currency with a more solid store of value, it's the Euro at this point in time, or one of the smaller countries like the swiss frank, CHF, norwegian crown etc.

Britian at this moment has nothing to base a strong currency on.

the two main industries (finance and housing and it's related markets) are heading straight for the toilet, and it is drowning in debt, with debt expectations for the future rising by the hour.

deficit spending can be a rough guide to the future value of your currency, as it's a guide to the future debt levels you will have to carry.

Since tax revenues are likely to tank with a recession/depression brewing, but costs still expected to rise, you can expect the pound to be freefalling right next to the dollar in the future.

Thanks for replying, I agree with the above! I was also guilty of describing Darling as an idiot earlier today...

However, do you think this is what he is trying to do?

I take your point about stronger alternatives being available, but I do wonder if there is more dirt in the Euro-zone than current wisdom sees. Some members - I'm thinking Ireland and maybe Spain in particular - are screaming in pain. In fact, Ireland would probably be looking for the exit right now if it could. As to smaller states, there is a limit to the levels to which they can be bought, surely?

maybe he was implting that rates wouldn't rise to 90s levels, but to 70s levels. ;)

Indeed! :ph34r:

Edited by Timm

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By keeping down inflationary expectations, government hopes to get away with negotiating low wage deals over the next three years. Once Joe Bloggs wakes up and realises that the true inflation rate is nearer 10% than 2% the genie is well and truly out of the bottle and won't be put back. Wage inflation will surely follow - as indeed it should. There is one thing more immoral than causing inflation and devaluing the currency and robbing savers, and that is falsifying inflation figures and thus robbing workers of a fair wage.

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I take your point about stronger alternatives being available, but I do wonder if there is more dirt in the Euro-zone than current wisdom sees. Some members - I'm thinking Ireland and maybe Spain in particular - are screaming in pain. In fact, Ireland would probably be looking for the exit right now if it could. As to smaller states, there is a limit to the levels to which they can be bought, surely?

Indeed! :ph34r:

I definitely think there are many more problems to come to light in the EU over the near future, and I wouldn't be surprised to see a few plunges in the Euro as different sets of news come out.

Ireland and Spain are going to be like disaster zones within a year or two imo, and even the bigger countries like france are going to be taking hits.

all that said, the UK looks to be in a much worse position I think.

the only real choice for Britain right now with it's two big industries down, is to ramp up exports as fast as it can to bring in some much needed money, and a strong pound would stop that from happening.

the only thing stopping them from totally letting the pound drop is the inflationary pain that further drops would cause, and the hits that the housing market would take as a knock on effect.

the nail in the coffin against a stronger pound though is that it would require them RAISING rates most likely, and I just can't see them doing that until the housing market has bottomed out much more than it has.

Edited by Mr Nice

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I definitely think there are many more problems to come to light in the EU over the near future, and I wouldn't be surprised to see a few plunges in the Euro as different sets of news come out.

Ireland and Spain are going to be like disaster zones within a year or two imo, and even the bigger countries like france are going to be taking hits.

Yup. Commerzbank (second biggest German bank) are taking a kicking again today - 6.5% down on the day. Something up in the Fatherland?

http://newsvote.bbc.co.uk/1/shared/fds/hi/...367/default.stm

all that said, the UK looks to be in a much worse position I think.

the only real choice for Britain right now with it's two big industries down, is to ramp up exports as fast as it can to bring in some much needed money, and a strong pound would stop that from happening.

the only thing stopping them from totally letting the pound drop is the inflationary pain that further drops would cause, and the hits that the housing market would take as a knock on effect.

the nail in the coffin against a stronger pound though is that it would require them RAISING rates most likely, and I just can't see them doing that until the housing market has bottomed out much more than it has.

Yeah, I can't argue with that.

Unless of course the banks are in such a state that they require additional funding to operate survive. But they wouldn't have been allowed to get into such a position. Would they?...

edit: add r to commerzbank

Edited by Timm

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  • 292 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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