Thursday, Feb 12, 2015

Carney: I will start printing if negative inflation gives way to "bad" deflation.

Sky: Bad inflation = asset prices falling, Negative inflation = CPI falling

The governor of the Bank of England has said interest rates could be cut further and asset purchases expanded if negative inflation gives way to "bad" deflation.
Outlining the Bank's quarterly Inflation Report, Mark Carney said it was "more likely than not" that the core consumer prices index (CPI) measure of inflation would turn negative in the spring.
Mr Carney welcomed weak inflation in the short term, saying that falling commodity costs, particularly oil, provided a boost in spending power to UK households and most businesses.
He reiterated that the next change in monetary policy was likely to be a rise in interest rates - something libby is not forecasting.

Posted by khards @ 12:42 PM (4291 views)
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10 Comments

1. hpwatcher said...

Seems that the financial crisis isn't actually over then.

Thursday, February 12, 2015 04:22PM Report Comment
 

2. taffee said...

The problem with the current situation and why it has been avoided like the plague by petrified
Governments around the world is that once you are in it it sems impossible to get out of it

To get out of it would crucify the economy and the people would turn nasty!

Japan is still stuck 23 years after its credit bubble burst and its still printing money

Over the 23 years though asset prices like property fell dramatically and barely recovered

Thursday, February 12, 2015 04:40PM Report Comment
 

3. khards said...

I have a way out using printing, here it is:

1, Magic up some large number with lots of 000,000,000,000's on Carney's PC.
2, Use the funds to give a 6 month tax break to PAYE earners.

Sit back and watch the recovery.

This will work, but the problem remains that unless the system is fundamentally reformed the country will rapidly end up back in the same position. Same effect as cutting interest rates really.

Thursday, February 12, 2015 05:15PM Report Comment
 

4. libertas said...

Rising interest rates and deflation. Yes, Libby is not forecasting that. He forecasts falling costs of mortgages and homeownership, noting that last time interest rates fell, prices fell. There will be panic buying once rates appear to bottom and folk think that a good fixed rate must be snapped up tomorrow.

What BOE are doing is trying to talk down demand in housing because they fear an unsustainable housing boom WHEN interest rates go negative. That is what MMR was preparing for.

Rates WILL go negative, and can be net positive whilst being nominally negative so long as inflation is lower than rates.

Notice, BOE's mandate for 2% inflation HAS NOT DIED. They can only ATTEMPT towards it by slashing rates and boosting QE. Also, boosting immigration.

Thursday, February 12, 2015 06:23PM Report Comment
 

5. libertas said...

Taffee, deflation is easy to get out of. Let it run its course. If prices are too high, trying to boost them will only increase the disparities that market led deflation "attempt" to balance.

Simply abolish BOE and allow the market determine rates, using GILT rates.

Let the market self-regulate and drop your egos.

Thursday, February 12, 2015 06:25PM Report Comment
 

6. Thecountofnowhere said...

What will it take for these people to let house prices fall. Civil unrest ?

Thursday, February 12, 2015 06:51PM Report Comment
 

7. This comment has been removed as it was found to be in breach of our Blog Policies.

 

8. icarus said...

What's Carney's evidence that falling oil prices boost spending of households and businesses? What about oil businesses, their supply chains and capex, with their higher paying jobs, and the energy-related corporate bonds that companies cannot service or roll over debts, with consequences for bank balance sheets? According to one estimate a third of the 126 quoted oil and gas companies on AIM and the rest of the LSE are generating no revenues.

Thursday, February 12, 2015 07:06PM Report Comment
 

9. stillthinking said...

Falling interest rates don't mean lower real interest rates. You -could- have rates at zero. For sure though, the government is going to inflate their debt away so as ever it will be the difference between real and nominal interest rates, which is presumably the point Libertas makes about getting a mortgage. You get on the same debt forgiveness train as the government.

Thursday, February 12, 2015 10:02PM Report Comment
 

10. mister ed said...

@4
"There will be panic buying once rates appear to bottom and folk think that a good fixed rate must be snapped up tomorrow."

Sure, all those "folk" who all think the same way at the same time and do exactly the same thing.

They must all be waiting for interest rates to bottom and then they can save a few quid a month on their mortgage instead of buying now.

I suppose that explains why in the well-heeled part of Hertfordshire where I live there are scores of decent properties that have been on the market since last summer, and some have been on the market since last March. Some have even dropped prices by 10%. They haven't sold either.

Still, once the "folk" realise what a bargain they are with another 0.5% off interest rates, they'll be buying 'em like crazy.

Thursday, February 12, 2015 10:24PM Report Comment
 

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