Tuesday, February 16, 2010

Whatever it takes

Inflation 'a good thing' says former MPC member

Blanchflower argues that we should try to generate inflation to protect people in negative equity - even while acknowledging that the nation will face a drop in living standards as a result. This is possibly one of the most blatant attempts to explicitly support homedebtors I have ever come across. Blanchflower repeatedly states that we should be shaping our monetary policy to help people in negative equity by letting inflation rip - whatever the consequences. Scary stuff.

Posted by quiet guy @ 09:10 AM (2550 views)
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35 thoughts on “Whatever it takes

  • As a debtor nation he is right – we just need stupid investors at the other side of the equation

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  • More lunacy from the ministry of silly walks.

    He is revealing his true socialist colours.

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  • Manorhouseowner says:

    To be fair he is saying house prices should be in the inflation figures, if this was the case 2005-2007 interest rates would have been higher avoiding a lot of the bubble. He then says he expects further falls in house prices to come and that to target inflation at 2% is a bit restrictive. All seems good HPC friendly stuff, and actually pretty switched on.

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  • Of course it is good, for those who print the money, because it has value when originally printed, but, as it filters through society, prices inflate, so when we get it, it is devalued, but, for those who print the money, yes, it is great. So, this person is not lying, you just don’t understand his perspective, because you never got taught this stuff at school and all the public libraries and corporate book stores don’t stock stuff on the subject, and, the BBC won’t touch this info. You have been brainwashed, so this comment confuses you. I come to set your mind right.

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  • watching with amusement says:

    Maybe I’m missing something here, but if saver’s rates are lower than inflation then no-one is going to save.

    No-one saving => no money for mortgages. Hence savers have to be offered a higher rate, which then has to be passed onto the borrower. We’ve seen how the mortgage rates at the moment are so much higher than BOE base rate at the moment – the rates bank’s charge customers will be indicative of inflation.

    Hence, inflation at 4% – mortgage rates at… oooo… 8%??? How does that sound?

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  • Maybe I’m missing something here, but if saver’s rates are lower than inflation then no-one is going to save.

    These people don’t want people saving – they want people spending. It’s the Keynesians conspiracy.

    Expect a complete economic collapse – the only thing to reset the system and clear the air.

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  • But before the economic collapse what will house prices do with all this printy printy and low interest rates.

    Just seen an identical house come to the market at £515k to one that sold in March’09 for £410k. Another similar sized and price house came to the market at the same time (late last week) and has already sold.

    I’m a little concerned that whilst the troubled predictions here (HPC) have been correct. Most contributors have failed to acknowledge and predict the reaction/change of policy by the International Authorities and have also failed to predict the consequences of these policy changes.

    For example, never mind the price of Gold etc. A 20% deposit on a house bought in March last year would now effectively be worth at least 50% more nearer a 100% more in the example above.
    Oh and that’s tax free and you can use the asset.

    Sorry to mix things up, but something that should be considered as we head into property season.

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  • Watching With Amusement says:

    Yeah, I realise that saving isn’t particularly high on the home-ownerists agenda, but they are going to need some funds to pay for the mortgages! I don’t think there are many other sources of funding available…

    And if there is no funding for the mortgages, then houses will have to be sold at a far lower price…

    And as for a Keynsian conspiracy – I didn’t think Keynes ever got involved in monetary policy?

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  • Inflation is the only tool left in the bag to keep these sky high house prices sky high. If they do not get this under control then Sterling will be revalued – downwards. The markets don’t appreciate nations who attempt to write off their debts via inflation.

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  • cynicalsoothsayer says:

    Even high inflation won’t stop a house price crash, in fact it would trigger it. High inflation would bring high interest rates, causing default, repossession and forced sale by our over-mortgaged home owners.

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  • {Inflation is the only tool left in the bag }

    Then this is what they will use.

    Don’t forget the phrase – at any cost.

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  • i remember the 90`s says:

    Thats just it ,what is the point of saving when your money is worth less in real terms ,for me i am spending (only money i have)as i already have a house .ps i am not a baby boomer.

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  • cynical

    Yes it would have done in the past.

    But I doubt it will this time.

    Even if ‘behind the scenes’ it is agreed internationally not to trash sterling while we get our debt reduced.

    I really think all the old arguements are starting to go out of the window as this is an ‘international’ crisis.

    The only way for all governments to reduce their debts is to let inflation rip.

    The ones with cash rely on the ones without cash to export to. You’d think with all the money they’d be in control but I’m beginning to think the reverse.

    The nations with all the debt are in control. Much like owing the bank £100k and you having a problem but if you owe them £100 million then they have the problem.

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  • The interest rates charged on credit cards have just hit a 12 year high (against a base rate of 0.5% – a historic low) – the reason for this is that in terms of pricing risk people are most likely to default on cards first – personal loans and mortgages next in the line. It is all just a deck of cards (house prices included) waiting to collapse – the Silver Bullet is interest rate rises.

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  • Inflation over a certain threshold wipes out private sector pensions (private sector outnumbers public sector 4 to 1) and savings. The prudent, careful wealth-creating people would be wiped out in a few years with high inflation. Tens of millions would face a future of penury and foraging in bins. Inward investment would dry up. We would not be able to borrow money on the foreign exchanges (25% of the public sector is funded by borrowing). The public sector would face even bigger cuts than they face already (the cuts that no party dare admit to).

    Let me use my psychic powers. Professor Blanchflower has at least a 6-figure salary, friends in high places, many houses (mortgages paid off), a fat, index-linked public sector pension – in short a multi-millionaire. Yet he is happy to consign the vast majority of ordinary people to poverty and abject misery to bail out the Kirsty Allsop brigate of BTLers, property speculators and those who follow the property porn TV programmes.

    Why should the decent hard-working majority bail out the idiots and the feckless?

    Rich socialists, who make sure they are financially bomb-proof are very good at spending (no thieving) other peoples money.

    Shame on you and the whole New Labour experiment!

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  • Hi Jack

    I agree interest rates are the ‘silver bullet’, however there is no sign of them increasing them yet (with inflation now 75% over target). If they do increase them what’s to say they won’t top out at 2.5% base rates, ie making money half the price it used to be to the banks.

    Mortgage rates have stayed at roughly 4%, so there would be a margin without banks putting up mortgage rates.

    If banks put mortgage rates upto 5% average or even 6%, this isn’t enough IMO to cripple the housing market, just make things tighter, perhaps 1 of the 3 holiday most seem to have each year (not me) will get cancelled to balance the books.

    I’m just starting to see asset value preservation and currency/saving destruction as the way things will move forward.

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  • “Inflating away the debt” works only if nominal wages rise (while nominal debt stays the same). What’s Danny’s evidence that nominal wages will rise without a loss of jobs to offshoring? For a start the public sector accounts for a high proportion of jobs and I can’t see public sector wages growing at an average of 3%+ in the near future.

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  • 4. watching with amusement – real interest rates are negative and people do save

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  • mark wadsworth says:

    Excellent comments all 🙂

    My tuppence, for what it’s worth, this is how desperate The Home-Owner-Ists are getting – that they are now selling inflation as A Good Thing – s0d the rest of the economy, they don’t care about that – we have to do everything we can to protect The Hallowed Homeowner.

    Don’t people realise that when you take out a mortgage you have to repay it? And that interest rates can go up as well as down? Oh no, of course not, that was in the olden days – nowadays the government will pay or inflate away your mortgage for you and interest rates will probably go negative. Where will the madness end?

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  • @str2007

    But the housing market in the Winchester / Romsey / Shawford area is a funny old spot. I know it well. I remember my first job working for an EA in 1982 for 6 months work experience. I remember the first 80’s crash pretty well – and my friends in their houses, all the age of Andrew and Paul, when they got well stiffed by the unemployment, cost-cutting etc…

    The lenders need the spreads they have now to repair their financial status and insure themselves against default. The SLS phasing out means that they’ll have to do something to attract new (higher priced) funds or this spread will be too thin. IF, big IF, international markets move away from low rates to higher ones because they don’t buy the Utopia of Keynes, funds destined for UK will find homes out of UK where rates are better. IF those investors also think Sterling will suffer inflation and effective devaluation, then I can also see booms in moveable assets in the UK – assets that can be bought cheap and sold outside of the UK. In the free capital-flowign markets of today – we’d all have to inflate together. Can’t see that happening.

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  • And what would significant inflation do to Treasury gilts? In the 70’s and 80’s debt was being “inflated away” but gilts buyers were receiving a yield that was lower than inflation (something like 12% vs 14%). So they “went on strike” an demanded higher yields. The yields they received were much higher than what average inflation turned out to be over the the next 20 years (inflation fell considerably during that time). This meant that the government had a very high real legacy cost of paying off its debt. When “inflating away the debt” flips over like this you are on the wrong side of the trade. Only in recent years have we fully digested that particular pig. (It was fully digested only around the millenium and that was one of the reasons Gordo thought he could go on a spending spree in the early 2000s.)

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  • War is Peace
    Freedom is Slavery
    Ignorance is Stregnth
    Debt is Wealth
    Saving is Profligacy

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  • Morning str 2007

    I cant see the BOE increasing rates either in the short term, however irrespective of bank base being at 0.5% the card companies, personal loan companies and mortgage lenders have all been quietly increasing rates in the background (to all but those with big deposit/equity) in recent months – this will impact upon affordability and eventually the house of cards will collapse.

    icarus makes a really good point at 14 and to follow on from this it is very difficult to get the inflation genie back in the bottle one its out.

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  • clockslinger 19 -……and the ‘invisible hand’ is invisible only because it’s in the till.

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  • Icarus @18 good point. As you say government is not free to inflate away debt without losing trust of gilt buyers. Rock and a hard place Dr Blanchflower, between a rock and a hard place.

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  • vacuouspolitician says:

    Maybe give the man a napkin…

    but folks …”I fail to see what Merv has done that is so wrong” …”no one should blame Merv”

    Jar Jar Spoon Spoon

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  • growler

    Any ideas on those movable assets you talk of ??

    Jack C
    It feels like a huge amount of people are employed by the Government and only last night I heard David Cameron discussing giving them some sort of bonus deal John Lewis Partnership like.
    I think this will be the method they use for pumping in more moeny.
    Afterall it’s easy to fuge targets if you want people to hit them.

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  • str 2007

    have a look at http://www.investmentweek.co.uk/ and click on digital edition – there are a couple of articles on the front page which I think you will find interesting

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  • cheers jack

    That’s quite a good read, wish I had time to read more of it.
    What I did glean from the front pages though was that interest rates are anticipated to peak at 4% and inflation stay low.

    Not a recipe IMO for a significant 2nd leg down. Afterall, homeowners have just had it reinforced to them that property prices will just bounce back. Meaning even fewer will gamble on selling in a second downwave.

    Moreover if there was another downwave, who wouldn’t be buying at 15% off having seen what’s just happened ?

    Things might all take a turn for the worse, but providing you’re in a house you can afford I’m beginning to think that’s the best bet.

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  • str 2007 – would a good quality property in Chandlers Ford tempt you?

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  • @STR2007 at post 30

    But mortgage costs are already decoupled from bank base rate. The effect of evaporating cheap government-backed finance (the close of the special liquidity scheme) and general “taking foot of the gas” will mean mortgage rates will rise as availability of cheap funds will fall. Savers will have to be attracted again –> that too will increase rates.

    In short: bank base rates are very loosely related to mortgage rates. And this trend will continue

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  • Hi Jack

    Yes it probably would, why have you got one falling through at the moment or do you know something I don’t ?

    Growler
    I here what you’re saying but even in Mervs letter to Alistair posted elsewhere there’s reference to re-starting ‘stimulation’ should it become necessary.
    And I’m not sure if the ‘system’ is still designed to use savers money to lend for mortgages, I don’t think it would stretch anywhere close to far enough.
    I think the mortgage market is still geared to the model that went wrong, only this time there won’t be as many fraudulent mortgages in the packaged securities they sell onto the investment market.

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  • str 2007 – I might be able to link you and a client of mine together if she continues to insist she’s selling up – I’ll contact you offline once I know for sure as this isnt an appropriate forum to discuss any further.

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  • Cheers Jack

    I sent you an email to your old address with mine which is the same as before. Many Thanks

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  • tenyearstogetmymoneyback says:

    Growler said “I can also see booms in moveable assets in the UK”

    It’s happening already. Did anyone else see the news about Drug (the types used by Doctors) shortages in the UK as
    the are all being sold abroad.

    news.bbc.co.uk/1/hi/health/8516080.stm

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