Tuesday, April 1, 2008

It’s time, I think, to ask some really fundamental questions about the conduct of economic policy.

Stephen King: Low inflation isn't everything: just ask a Twenties flapper

"To my mind, the problem lies partly with the blind devotion to inflation targeting. Admittedly, this is a sacrilegious view which won't find favour with the high priests of the central banking community. Nevertheless, inflation targeting is not, and never was, the cure for all our economic ills. To understand why, we need to go back in time..." Remember that King is Economic Director of HSBC. He is a banker and he is calling for an end to inflation targeting. Well. I thought we were already there!! I almost believed he was on our side, until he completely failed to mention control of M3 money growth. With HSBC offering 1yr bonds to its customers at 8% and bleating like this, I'd say that its time to short HSBC. p.s. I forwarded this message to King's e-mail.

Posted by planning4acrash @ 12:58 AM (766 views)
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7 thoughts on “It’s time, I think, to ask some really fundamental questions about the conduct of economic policy.

  • gone-to-colombia says:

    Every age seems to have its own vogue in economic indicators that are the tell tales of ill omen.
    I recall the time when a consideration of the balance of payments was the foundation of government policy, then there was the concern over exchange rates.
    Presently, its inflation that drives the imagination of worried bankers. (do they have an imagination?)

    The reason why these fashions for indicators change is expediency, it now serves these bankers better to allow inflation to run on a little or a lot. Inflation will reduce the real value of all that debt and by doing so reduce the problem.

    But what for us, the prudent and the wise, we who have saved against the trend, we who keep afloat those promiscuous?
    We are left to watch our savings be eaten away by a falling pound and the acid drip of inflation.

    Many thanks for our reward.

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  • European-bear says:

    The message I get is that on consumer prices have been targeted for inflation. Asett prices have not. If asset prices had also been targetted we would have had higher interest rates for the last few years, higher house prices (but not as high as they are now) but lower prices for most of the basket that makes up the CPI. People would not be in so much debt etc etc…..

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  • Well said King, the narrow inflation remit has indeed caused the problems you mention. However, to change that remit now the correction is opon us would be a sign of failure!

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  • At this point I stopped reading:

    “The stock market is booming and land prices are soaring. And yet there is no inflation.”

    If the price of land is soaring, there is inflation. That’s economics GCSE level.

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  • P.S. Enough horror stories, please Mr Stephen King.

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  • The whole article campaigns for interest rate cuts. King’s an over-exposed HSBC banker, so what do you expect – His bank’s going down. The rest of the article, the stuff about targeting the wrong thing, inflation, was just a massive red herring. He’s desperate, he just wants the base rate cut now!

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  • HERE, HERE, Game over. This is another example of a VI bleating for change that will suit him and his, but will penalise the prudent and the not so prudent in the end. As has been proven today, banks and lenders are not dropping rates, even raising rates on the variable to borrowers at the same time reducing artes on the variable for savers. They are repairing their balance sheets, not only for survival, but to show their share holders a profit at the end of 2008. This is the only reason the BoE will drop rates. For everyone, but the bankers, hedgies etc. this year will be disastrous: massive inflation, in real terms, caused by a shorted sterling (shorted by the very people who should be keeping it strong), leading to high import duties and subsequently higher utility, retail, manufacturing prices passed onto the consumer. It is incredible and disgusting to read articles written to inform and guide, but are in fact poorly disguised VI tat. INDEPENDENT my @rse, as INDEPENDENT as the BoE.

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