Wednesday, July 28, 2010

Stagflation

Bank of England's Mervyn King warns over inflation

Bank of England Governor Mervyn King has warned that high inflation will continue to erode earnings power through next year as the economy faces the threat of 'stagflation'. However, addressing a committee of MPs, Mr King suggested that they will be reluctant to try to curb the problem by raising borrowing costs from 0.5 per cent any time soon because of the weakness of the economy. “We must be careful not to read too much into one number,” King said. “And the wider economic problems around the world underline the fact that we cannot be confident that the recovery in demand, output and employment here in the U.K. will be sustained.”

Posted by cat and canary @ 04:36 PM (4887 views)
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11 thoughts on “Stagflation

  • “Prices rises have consistently defied the Bank’s expectations of a slowdown”

    This is *all* you need to know -The economy isn’t doing what the BOE thunk.

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  • I wish that @rsehole King would just focus on keeping inflation low – like what he is supposed to – and not on a *fake* recovery.

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  • “Mervyn King has warned that high inflation will continue to erode earnings power through next year”

    This is open season on savers and gilts buyers. Short of blowing raspberries and giving the finger gesture, he couldn’t have made it clearer what he thinks of savings. I don’t understand why he is being so blatant about inflating away debt; does he want to scare savers into the stock and property markets?

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  • “Mervyn King has warned that high inflation will continue to erode earnings power through next year”
    Am I missing something, I thought the BOE CAUSED inflation by their zero interest rate policy?

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  • Ahhh, I get it.

    Slamming interest rates into the floor hasn’t freed up any cash, so he’s going to keep interest rates low in the hope that it somehow has a different outcome. In other words, the current monetary policy will work this time because this time is obviously different (if it wasn’t he would of course … try something different). Yeeeess. I can see that might just work …

    Insanity: doing the same thing over and over again and expecting different results.
    Albert Einstein, US (German-born) physicist (1879 – 1955)

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  • cat and canary says:

    none of what Mervin says makes a defensible argument anymore. His continued argument for keeping rates low was that we could slip back into deflation. Now he admits we´ll have inflation for a long time yet. Surely, this just proves his argument of deflation is a lie.

    Clearly BoE only care about the banks balance sheets, yet apparently British banks passed the stress tests with flying colours. So what are we to believe?

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  • fallingbuzzard says:

    What a bore. Both inflation measures are going to collapse and then add 1% or so from Jan 2011 and then fall further. All he’s thinking about is when to go on the QE2.

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  • @hpwatcher
    WTF are Mervyn King and his gang of cronies supposed to do _now_, other than raise BoE rates to market rates or disappear, to reduce inflation in this country over exposed to the globalised world economy, while all states compete to devalue their currencies to keep exported goods and services cheap enough? Really!

    The blame for this stagnant inflation falls on decades of financial abuse by the previous government, the FSA, the BoE, the banks, other corporations, the deluded public, and a range of inflationary factors, like differential currency devaluation, rising wages in emerging economies, many absurd derivatives, gradually more realistic credit ratings of countries etc. A major cause of our problems is the absurd “free trade” (actually Globalist) agreements, which are an absurd oxymoron, because trade is only free if you are free to choose what you want to trade freely, and not forced to by greedy transnational corporate externalisers, but persuaded by market share for imported, local, and exported goods.

    Unfortunately, because so many zombie creditors and zombie debtors have been allowed to survive here, and were/are even propped up, it will probably take a temporary period of painfully high inflation, higher financial reserve requirements, and/or maybe forced strict audits and forced bankruptcies, to kill off these zombies (incompetent management), before enough fresh growth can occur to boost confidence in the UK; maybe even worker takeovers of closed but viable businesses, like the many in Argentina, could help. Obviously the current economy choked by zombies does not inspire confidence abroad, this devalues the pound against other more sound currencies, which causes import prices to rise, thus stag(nant in)flation!

    We need less and leaner government, more good business in this country, more protection from foreign predators and scavengers, not higher energy prices, from abusive higher ‘Green’ energy taxes, and other incompetent Socialist and ‘Green’ poison.

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  • cat and canary says:

    > zero interest rates are supposed to help manufacturers
    > QE is supposed to get the banks lending to small businesses
    > manufacturing business are supposed to be leading us out of recession

    yet zero interest rates doesnt help all that much if you cant grow your business or employ staff, or manage your order book through a lack of bank funds

    Can someone tell me why, O’why, doesnt the government put the cash into regional development agencies????

    And why the TOTAL amount of money available sharded amongst these agencies is dropping

    2007/2008 — £2.297 billion
    2008/2009 — £2.193 billion
    2009/2010 — £2.260 billion
    2010/2011 — £1.760 billion

    yet they put 200Bn into the banks. Are you telling me the BoE hasnt thought of this option? Of course they have. IMO the BoE has vested interests.

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  • WTF are Mervyn King and his gang of cronies supposed to do _now_, other than raise BoE rates to market rates or disappear, to reduce inflation in this country over exposed to the globalised world economy, while all states compete to devalue their currencies to keep exported goods and services cheap enough? Really!

    Not sure what point you are trying to make. Your options seem quite binary to me, but why does it have to be either/or?

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  • @cat&canary
    State infrastructure projects offer limited benefits, can be very wasteful, and can take a long time to payoff; all the while business can be quickly going bust and making people redundant. It would probably do more good to reducing the taxation on people who live hand to mouth, and on some businesses, because the freed up money would get spread to lots of businesses, and may even slow the rise in unemployment.

    The problem as I see it is not too little money, but rather a drop in the velocity of money, due to unemployment, fear of debt and incentives to save, this makes it look like there is less money, especially if the savings are not in banks due to their frankly insulting interest rates.

    Too much money was thrown away on Zombie banks, and not enough was spent directly helping productive people and useful businesses. The banks are not helping matters by making debt relatively more expensive and harder to get, even by viable borrowers.

    @hpwatcher
    I listed some ideas, but I don’t know exactly what mix of them will work, even what is contractually, legally, and politically possible, but I doubt that keeping BoE rates at 0.5%, is the best policy, and expect it to drag out the stagnation longer than necessary, and may ironically make inflation worse!

    RC: javelin jawed. Your throw 🙂

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