Monday, October 6, 2008

Roger Bootle in favour of rate cuts too

The Bank of England risks taking interest rate caution to the point of recklessness

In short, the argument is that keeping rates up will mean deflation

Posted by letthemfall @ 10:38 AM (600 views)
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4 thoughts on “Roger Bootle in favour of rate cuts too

  • stillthinking says:

    Deflation coming ?

    Fancy that. What a surprise. Which hammers … what was it ?? oh yes, gold. Gold loses value during deflation.

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  • stillthinking – don’t get sucked in by the VIs. He wants a cut to cover his own ass, not – I would hope – because he thinks there is any chance of deflation.

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  • Bolton is hardly a VI, unless you consider anyone in financial circles a VI. Enormous debts that need paying off and destruction of wealth are the ingredients for deflation. It is a realistic possibility.

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  • If you consider that money supply is government-created money (new coins and notes) and bank-created debt (created by fractional-reserve banking), then any decrease in indebtedness reduces the money supply. Inflation is an increase in the money supply, deflation is a decrease. We’ve been deflating for a while now – banks writing off debt, etc. Therefore the central bank cutting rates should cause a reduction in people paying off debts and an increase in people taking on more debts, an increase in the money supply, hence inflation.

    Banks are only able to do this to us *because* we borrow. I’m looking to cause some deflation myself – I’m going to pay off my car loan (that I never should have taken out – I had the money but wanted to keep it back for a house deposit).

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