Monday, December 20, 2010

What Bootle says: Inflation is high because the BoE guessed wrongly

High inflation is a cock-up not a conspiracy

Regular discussion in the comments here about inflating our way out of debt. I think it's less obvious: not only does our Government not really benefit if inflation is high (the interest they have to pay on Gilts is higher, and many of our countries expenses are index-linked) but the Bank of England has probably just decided that any action against inflation would more likely result in larger downside risks (big bust) than the small downside risk of (noticably, but not terribly) higher than intended inflation. nb. Hyperinflation is a completely different beast, indicating loss in confidence in money.

Posted by notyethomeless @ 02:58 PM (1459 views)
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10 thoughts on “What Bootle says: Inflation is high because the BoE guessed wrongly

  • “God works in mysterious way.” Government slashes base rate in hope of continuing the supply of cheap money and “do god’s job”. So mortgage repayment comes down while savings and pensions are destroyed. Everyone thought they just played Jesus and got away with murder. Then 2 years on, guess what? Inflation won’t go away! Borrowers realise the money they saved on mortgage payment ended up on higher essential goods price anyway. Doom!

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  • High inflation is caused by a c0ck-up. Not a recent one though. A fair while back John Major steered the country on to the interest rate rocks and he and the Tories have still not fully recovered from that disaster. The legacy that he left was that the use of higher interest rates became a no go, an election loser. Before him, Thatcher had done the same to income tax. At the end of the last Tory government two vital tools for managing the economy were all but denied to anyone who followed. The result of that lack of control coupled with Tory deregulation of the banking sector gave us a debt fuelled boom. Now there is so much debt that any worthwhile increase in interest rates would bring the whole house of cards crashing down. The previous bunch of Tories would have hiked up interest rates already. This lot don’t have that option because they have already placed all their eggs in the austerity cuts basket.

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  • I agree that BoE will not choose hyperinflation, but will pretend high (10-20% inflation) does not exist, exactly as it was in the 70s.
    Of course, if inflation goes to 100+% then will be forced to act but as mortgage price increase takes about 3 months to get into effect, most mortgage debt would be halfed/erased and a semi will cause £1m and a loaf of bread £10 and £1 will probably buy 1RMB.

    Government is inflating away the debt by publishing a pretend CPI which its debt tracks.

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  • general congreve says:

    @2 – Indeed, democracy is the problem, Turkey’s will never vote for Xmas!

    And thanks to that, things are shaping up nicely 🙂

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  • Sorry Roger, but I stopped listening to you a long time ago. I emailed you way back. to say that your deflation forcast was a joke and I

    was right.

    You can join the ranks of David Smith as far as I’m concerned. Adios!

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  • ‘Hyperinflation is a completely different beast, indicating loss in confidence in money.’

    Did you get that boys and girls? There is not enough money in circulation and there never will be.

    Hyperinflation followed by depression/deflation. Yes it’s going to be a strange one for some.

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  • 4. general congreve said…@2 – Indeed, democracy is the problem, Turkey’s will never vote for Xmas!

    ….Democracy is two wolves and a sheep voting on what’s for dinner, but in a Rebublic the sheep has a gun, lol

    No system is perfect, but a Republic has the edge over the rest of them for me.

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  • 1. peter_2008

    Two wrongs will never make a right. Simples.

    There are no accidence, everything is planned. Back to the history books and those repetitive patterns.

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  • @ gc

    The tyranny of the majority,

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  • Easybetman

    And how are you playing this ?

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