Monday, April 30, 2007

Slowly, finally, the dots are being connected

Bank caused inflation rise with rate cut in 2005, says think tank

The Bank of England's embarrassingly public failure to keep inflation at 3 per cent or lower can be traced back to its own decision to cut interest rates two and a half years ago, a leading economics think tank claims today. The widely respected National Institute of Economic and Social Research (NIESR) says the Bank's decision to cut interest rates in August 2005 was a costly mistake that inevitably led to it missing its inflation targets.

There is no more money!

Posted by lvmreader @ 02:01 AM (579 views)
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2 thoughts on “Slowly, finally, the dots are being connected

  • Whiteknight says:

    It is great that people are catching up but lets look at some reality.

    REAL inflation is not at anything like 3%.

    Central Bankers globally reduced interest rates to their lows for record lengths of time. Although commodity price rises were blamed on just about anything else… if you make your money cheap then people will jump into things that retain value … i.e. commodites. Gold, oil, metals, anything.

    We had a Chancellor spending on the credit card and benefiting from a false sense of wealth this environment created and who therefore thought he was half decent. He wasn’t and isn’t.
    Some people who think the situation is not dire argue that the fact that this inflation figure tipped 3% is irrelevant. They are right but for the wrong reasons. It is irrelevant because it is such an arbitrary target. Things are much, much worse.

    So the real damage was starting to be done a lot earlier than this. An inadvisable reduction in rates 2 1/2 years ago was just another bad decision that led to a bit of a pop above this arbitrary rate.

    Again we must repeat that inflation is not an acceptable route out of the problem in preference to “stopping” the economy; the reason is that you must eliminate inefficient and bad behaviour and investment. Preference for inflation just means more and more inflation. People who think they have the property investment midas touch for example will not realise the error of their ways and start doing productive things with their time.

    This is the next argument to be won as the Bankers struggle for clear and rational thought. It is in their interest so that they will not be lynched by the mob (read the professional Middle Classes).

    The preference must be for brakes on. Eliminate this fat and waste and then work on solutions that eliminate (or mostly eliminate) the temptation to spend the future in the present. It is possible.
    It does not involve Central Bankers and certainly not Central Bankers and rate setting committees of the standard we have at the moment.

    The case for removing these idiots is getting stronger.

    People who are more worried about losing face than admitting they were incorrect and remedying the situation are a menace.

    There have been some good posts on articles that show the wealth (shown well in a video on the US Federal Reserve – The Fiat Empire) is being dragged out of people this will shortly become highly problematic.

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  • While I agree that there’s evidence of VI behaviour in central bank policy, I think that arguments such as those presented in the Fiat Empire video are overly simplistic.

    For example; the argument about inflation being an effect of moving away from the gold standard is untrue since, according to Adam Smith, the devaluation of currency is something that’s happened regularly ever since people started using lumps of metals as currency. I don’t have my copy of Wealth of Nations to hand, but the relevent chapter explained how governments reduce the “standard” size of an ingot (in Britain by a factor of 3 between the creation of the Pound Sterling and the time of writing, and much more in other currency systems, eg. France)

    That still leaves the argument about governments deliberately devaluing currency, but that act does not prove conspiracy or corruption unless you can show that the act was not made necessary by the effect of inflation from other causes in the economy at the time.

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