Inflation

 

              Inflation is well set around the world. At least most commentators now recognise this, and have stepped away from telling us the main  threat was deflation. The large increases in food prices which lax money policy has triggered have had one unexpected result – it has helped fuel the anger of the crowds taking to the streets in a succession of dictatorships. Inflation in India and Brazil has led to much higher interest rates in an effort to cool things down.

              This week China has reported her inflation up to 4.9%. The Chinese authorities who allowed a big monetary expansion to ward off the effects of the western Credit Crash have been taking strong action to curb the price rises. Interest rates are over 6% and the banks are required to lodge a lot of money with the Central Bank to restrict their lending.  

               Today the Uk is likely to report that our RPI inflation is now higher than China’s published figure. Our official interest rates remain at 0.5%, almost 5% below the RPI inflation rate. The UK authorities will take no action to tackle it.

              There are some important differences between China and the UK. The UK is heavily in debt, whilst China has record levels of reserves and investments in overseas bonds and Treasury instruments. China is growing quickly, whilst last quarter the UK did not grow at all. Chinese banks are still  lending plenty of money despite all the efforts of the Chinese authorities to rein them in, whilst UK banks are unable to lend much owing to the new regulations and the aftermath of  the crash.

              The Uk authorities are banking on China succeeding in slowing things down, and taking some of the heat out of commodity markets. Meanwhile the US keeps printing dollars. Some of those will continue to find their way into  commodity speculation. The more the US presses the monetary accelerator, the more China, Brazil and India have to put on the monetary brakes. It’s not a great system.

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40 Comments

  1. APL
    Posted February 15, 2011 at 8:07 am | Permalink

    JR: “and have stepped away from telling us the main threat was deflation.”

    Cause and effect in an economy the size of the US or UK takes a while to feed through. The American banking sector is not ‘out of the woods’ yet. They have a lot of litigation about fraudulent securities. The US housing market is still falling in value. Deflation in assets is still running apace.

    Inflation in commodities is, it is true still increasing too. That is a direct result of the sticking plaster that is QE in the US and the UK.

    It is the inflation in commodities that has triggered the unrest in the Magreb.

  2. Steve Cox
    Posted February 15, 2011 at 8:19 am | Permalink

    So what’s the solution if you don’t want to see your savings decimated by Mervyn King’s coming Great Inflation? If China succeeds in slowing its boom down, then the Aussie Dollar will take a hit, so it wouldn’t be wise to move into that currency now. Maybe if the Chinese succeed, though?

    How about Swiss Francs? In spite of importing even more than the UK does, and so being more exposed to global commodity price shocks, inflation there remains very low. This, of course, also shows the Bank Of England’s argument that “inflation’s out of our hands due to all those nasty international commodity speculators” to be completely fatuous. Over most of my half century of following currencies, betting on the Swiss Franc against the pound has always been a long term winner. Mr. King and his cronies on the MPC seem intent on continuing that trend.

    Any better ideas out there?

  3. Stuart Fairney
    Posted February 15, 2011 at 9:10 am | Permalink

    There is no more eloquent argument for the abolition of the central bank (and along with it the MPC) and abandonment of our fiat currency and a return to commodity backed money than the behaviour of the banking authorities over the last decade.

    As usual, you won’t find a single politician even talking about it, preferring instead to whine about tweaks in interest rates one way or the other and just how much counterfeiting the bank should do.

    So just in case anyone doesn’t see the wood for the trees, capital is created by saving and deferred consumption, not by printing pieces of paper which simply force up the price level and create mal-investment as entrepreneurs chase scarce/unavailable resources. This has the effect of bidding up the prices and eventually causes a cluster of business failures which we call a recession as if it were a simple fact of nature, not an obvious, predictable and widely predicted crash.

    • A.Sedgwick
      Posted February 15, 2011 at 11:03 am | Permalink

      By coincidence I was wondering the other day what is the point of the BOE and dismissed the thought as I was probably missing their key roles. The nonsense continued by Osborne of the Governor writing an inflation sick note regularly makes one wonder.

    • waramess
      Posted February 15, 2011 at 1:51 pm | Permalink

      Spot on, interest rates should be a matter between borrowers and lenders (savers and inestors) with the equalibrium between supply and demand setting the rate.
      There is no need for a Central Bank to set rates and they will always guess wrong

    • Gary
      Posted February 16, 2011 at 10:58 am | Permalink

      It is heartening to see so much eloquence and common sense such as this in the comments. Eloquence and common sense that has yet to filter up into the ivory towers. We live in hope that they may see the light before they destroy our country.

  4. Brian Tomkinson
    Posted February 15, 2011 at 9:11 am | Permalink

    I see your colleague Vince Cable is quoted by the Daily Telegraph as saying the following on Bloomberg Television: “As an outsider looking in, I take the view of the doves. Although you have inflation, it’s almost entirely imported. There’s not very much evidence of British inflation taking place. It’s virtually deflation”. Just how will our “independent” MPC treat such comments from non other than the Business Secretary? This is yet more evidence, I fear, that this government is promoting high inflation. It is with regret that I sense from the tone of your comments today that you seem to be softening your view regarding inflation and interest rates. You haven’t been leaned on have you?

    Reply: NO, certainly not. Nor have I changed my view. I called for higher interest rates more than a year ago to avoid this inflation.

    • Michael McGrath
      Posted February 15, 2011 at 2:24 pm | Permalink

      Surely if interest rates rise, the pound will strengthen and import prices will fall. In terms of St. Vince’s comments, this will nicely add to the” in house deflation” to bring UK inflation under total control

      I hear voices calling about the effect that increased interest rates will have on the
      recovery but I do not subscribe to these fears. The banks are already profiting enormously from the ultra low base rate having widened their margins. Absorbing a 1/4 or1/2% increase in base rate would hardly cause them terminal damage but would earn them brownie points as “we are all in this together”

      At the same time, increases in returns for savers will liberate cash to be spent in the invigorated low inflation economy

  5. Paul H
    Posted February 15, 2011 at 9:22 am | Permalink

    “It’s not a great system.”
    Indeed not. A system in which the Western World has washed its hands of the slavery required to support its lifestyle by delegating it to Third World countries has never been great. However, it has probably been an unavoidable evil in the “development” of the latter.
    Whilst I suspect everyone fully realised that the US debt, in particular, would never be repaid, the big mistake is for the Western World to imagine that the system can continue in perpetuity. Unfortunately short-term politicians with an eye to the next election are unlikely ever to grasp this nettle, so it will continue to grow until it can no longer be ignored and the pain of managing it is immeasurably greater.
    Ditto the procrastination, indeed reckless irresponsibility, over UK inflation.

  6. Acorn
    Posted February 15, 2011 at 9:33 am | Permalink

    Well said JR. With the US Dollar currently remaining the world’s reserve currency, printing more of them gives you world inflation. Commodities traded in US Dollars will rise in price as the Dollar devalues against other currencies. Keynesian stimulus of a reserve currency, will make us all paupers, by inflation. Any bets on a switch to another world reserve currency, possibly and eastern one? Or, will we go back to the gold standard?

    Meanwhile, I am thinking of setting up a private equity fund to buy Ireland. We could get it for a few cents on the Euro, after its next general election. Any takers? Naturally, we would leave its bankrupt banks with the Liquidator.

  7. Rodney Dawkins
    Posted February 15, 2011 at 9:33 am | Permalink

    I cynically suspect that the main problem alluded to with the threat of deflation was house prices. Every asset bubble in history has popped. An independent Bank of England and an MPC seems designed to direct Britains’ concerns and annoyance at falls in the value of their home away from government. The last negative equity misery of the early 90s reflected very badly on the conservative party. It seems crazy to keep on blaming the banking sector for the lack of lending when there is so little incentive to save. Are the two not related?

  8. Sally C.
    Posted February 15, 2011 at 10:25 am | Permalink

    The Riksbank in Sweden today raised their key short term interest rate from 1.25% to 1.5% because they are worried about the level of household indebtedness and constantly increasing house prices (this in a country with endless amounts of land and a relatively small population). They have noticed that during this recent period of extra low interest rates, personal indebtedness has increased. I doubt that a .25% increase in short term rates is going to change that behaviour, but at least they have noticed that there is a problem.
    In the meantime, we continue on our inflationary path and Ben Bernanke continues, as you point out, to flood the world with Dollars.
    There is an oriental idiom, Business is war. Unbeknown to the rest of the world, America, via the Federal Reserve, is fighting that war. They are determined to make America the cheapest place in the world to do business, and they don’t care who they impoverish to achieve this aim.
    A lot of people blame the Plaza Accord for the problems Japan has faced over the last twenty five years. Somehow, the American government managed to get Japan to sign this agreement which quickly led to a 50% depreciation of the Dollar against the Yen. The Japanese reacted by loosening monetary policy, lowering interest rates, which in turn led to the Tokyo property bubble and took the Nikkei to 39,000, but eventually led to the bankruptcy of the Japanese banks.
    This time the devaluation of the Dollar is being done covertly, but just as effectively. The flood of Dollars is inflating stockmarkets around the world and of course commodity markets. (The Bank of England and the ECB are adding to the problem by supplying endless amounts of cheap liquidity to their banking systems.)
    It is poorer countries and their populations that will suffer the most, especially as a result of rising food prices. Ben Bernanke denies that he has any responsibility for the food riots cropping up around the world. How he and President Obama sleep at night is beyond me.

  9. oldtimer
    Posted February 15, 2011 at 10:27 am | Permalink

    “It`s not a great system.”

    No. So far as the UK authorities are concerned it is a totally cynical system, one calculated to fund government spending on the cheap at the expense of the savers and those on fixed incomes and to provide easy, and taxable, profits to the banks.

    So far as the US is concerned I suspect it is also a response to China`s perceived failure to revalue its currency. US QE in effect devalues China`s holdings of US securities. No doubt the Law of Unintended Consequences will come into play as China decides to trade more and more in currencies other than the US dollar – as recently announced with respect the Chinese-Russian trade.

    The system has become a lot more complicated and a lot less clear.

  10. Euan
    Posted February 15, 2011 at 10:47 am | Permalink

    The bank of England have failed in their stated aim of controlling inflation, in fact they have never succeeded since their “independence”. However they are being extremely effective in their unstated aim of inflating government debt away. Lets face it, they can’t do both.

  11. sm
    Posted February 15, 2011 at 10:59 am | Permalink

    QE the easiest way to raise money, no tax collectors,no rules and its easy to avoid and has no downsides for many insiders if you get in early enough. Inflation is in my view a direct consequence of QE and probably fully intended. This is linked to ‘unproductive capital’ tied up in housing. This is then directly linked to our banks now being subsidy dependent.

    All public pensions should be capped at a capital value, after that its a money purchase scheme or we all join the same public scheme. Then we may all be in it together a little more.

    If interest rates rise slowly, it may effect asset prices only, banks will take further hits and may attempt to increase margins further. In this case the answer is more competition. Insist on new business/retail banks with seperate capital. Only when assets reach levels supported by earnings will a solid base be found.

    What dont we know? In China its fairly obvious who is in control.

    Some scary links from the telegraph blogs.

    http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144w254.htm

    Are we less than 90%?

  12. John Ward
    Posted February 15, 2011 at 12:00 pm | Permalink

    Interest rate rises kill phantom recoveries, but hyperinflation kills whole civilisations.

    The latest MIT data in the US show their headline rate at 17.3%. Most American friends and contacts believe this rather than the Fed’s CPI.

    We should raise rates and take the hit. Better that than ruination of the old and middle classes….nasty things lie down that road.

    http://hat4uk.wordpress.com/2011/02/15/inflation-us-mit-data-shows-inflation-at-17-3-pa/

    • APL
      Posted February 15, 2011 at 9:53 pm | Permalink

      John Ward: “We should raise rates and take the hit.”

      Yes.

  13. Glenn Vaughan
    Posted February 15, 2011 at 1:19 pm | Permalink

    In view of today’s inflation data, it is clear that further debate/analysis is futile and that action is required. The MPC should raise our interest rate by 0.5% at its next monthly meeting.

  14. Glenn Vaughan
    Posted February 15, 2011 at 1:44 pm | Permalink

    In view of today’s inflation data, further analysis/dithering is futile. The MPC should raise the official BoE rate by 0.5% at its next monthly meeting.

  15. Simon
    Posted February 15, 2011 at 2:07 pm | Permalink

    It now seems very clear to me that the coalition is comfortable with a high rate of inflation, it reduces the value of debt drastically. However the impact on savings is decimating. No mention in your note on the 2.5% VAT increase which is feeding through in higher prices. The RPI rate is even worse, I suspect the treasury is concerned that an interest rate rise will throttle demand even further, potentially pushing us back toward that “double dip” and “stagflation”. The short term outlook is not good when the Bank of England in the shape of Mr King forecasts CPI as potentially going over 5% in the near future.

    Please call again on your colleagues at the treasury to get interest rates up.

  16. BobE
    Posted February 15, 2011 at 4:32 pm | Permalink

    Governments only have tax as a source of income.
    When they borrow it can only be against future taxation.
    Why don’t they stop borrowing?
    BobE,
    Region6,
    EUSSR

    • norman
      Posted February 15, 2011 at 8:38 pm | Permalink

      That’s like asking a heroin addict why he doesn’t stop taking heroin rather than ruining his and his family’s lives – politicians are addicted to spending our money. Sadly, a large chunk of the population are addicted to having it spent for them, so without a passionate and committed defender of liberty at the helm it’s an uphill struggle for conservatives.

  17. Bernard Otway
    Posted February 15, 2011 at 5:40 pm | Permalink

    Apropos Paul H,we actually need a dictatorship that does not think short term like all these politicians to get elected,BUT with the caveat that it must be a NON LEFT dictatorship otherwise we are xxxxed,actually I would apply to become a province of China,as it certainly
    has created more prosperity in the last twenty years than our lot here,ours has just been created by a house price bubble since the end of negative equity in about 1996,my parents house in Cheam bought in 1957 for £2800 when my father earned £1100 pa recently sold for £345000,a 313 fold increase that means the same job today would pay £344300 and it would only pay at the most £75000,so our housing market is still hugely overvalued,never mind the mechanics of supply and demand supposedly driving prices,I think anyone paying asking price today is in need of clinical Psychiatric evaluation ,the prices should come down at least 25%.Other comments say house prices are still decreasing in the USA
    and that is the way it should be,I have friends living in Louisville Kentucky who have invited my wife and I to move there,I looked at real estate sites for the area,there are lots of houses [DETATCHED] about 150sq metres starting at $12500 the cheapest but lots of others at an average of $50,000,the mortgage repayment on the cheapest was stated as
    $58 per month,my pension in dollars comes to over $2500 per month nett ,what would you lot do,my rent here is £550 per month [$870].This country that I left in 1981 and returned to in 2008 from South Africa is truly a xxxx up and the voters caused it by voting in the most incompetent politicians in the whole Planet especially in 1997,the biggest (word left out) snake oil salesman of all and everyone believed they were getting richer when house prices
    more than doubled from 1997 till 2007 while salaries went up at the most 30%,where did you all think the extra came from? smoke and mirrors!!!

  18. Javelin
    Posted February 15, 2011 at 6:21 pm | Permalink

    Can you spot the CATCH 22 ???

    China and India are dependent on the West. If the West does not slow down then neither will China and India.

    Your analysis is correct but the conclusion MUST be that inflation will only fall in China if we stop demanding goods.

  19. lola
    Posted February 15, 2011 at 6:45 pm | Permalink

    And the Gold Medal for understatement of the year, goes to………….drum roll………….Mr John Redwood! For his unforgetable line when describing the international central bank and politically manipulated monopoly fiat currency arrangements as follows:-

    “It’s not a great system.”

    Next we have the wooden spoon award for …………….drum roll………………Mervyn King for saying, well, pretty well everything he’s said, ever.

    Oh! Hang on. There is are joint winners here. Also receiving wooden spoons are:-

    Gordon Brown
    Ed Balls
    Barak Obama
    The American Fed (Collectively)
    Alan Greenspan
    The Tories in opposition
    The EU bureaucracy (Collectively)
    Sir John Maynard Keynes (Posthumously)…
    ….. the bankers…

    ..and in fact all the other tossers who keep on mucking up OUR money.

    • Conrad Jones (Cheam)
      Posted February 17, 2011 at 12:17 pm | Permalink

      There’s only one way to force a System change and that is for every saver (who is not relying on monthly income) to remove their money – NOW! from their savings account.

      This will help Pensioners also as the money supply will reduce drastically – given the 10:1 fractional reserve ratio. (it’s probably more like 30:1 Loans to Depositors Cash).

      Banks will either raise interest rates or be forced out of business. Unfortunately – they will then go to their safety net – The Bank of England – who will willingly create more funny money which will further dilute the existing money in savers accounts.

      Moral Hazzard is the enemy of the Tax payer. Remove Moral Hazzard and stability will return.

  20. Tapestry
    Posted February 15, 2011 at 6:57 pm | Permalink

    QE is the determination of Wall St not to share in the misfortunes of Main Street. This they are doing by steamrolling commodity prices and other financial prices higher, using the futures markets, and pump-priming any world market that is willing to be pumped, keeping interest rates on the floor.

    The attempt will work while it works, but it hides another problem, besides inflation of a sizeable though minority proportion of the inflation ‘basket”. Inflation in Britain is not too much money chasing too few goods. It is nothing other than cartelised inflation, with government and corporations determined not to suffer any decline in profits and asset values, while ordinary folk increasingly struggle to make ends meet. They are ramping up prices, in the face of falling demand.

    The battle to control the world’s energy resources is another reason demand for assets is so high. It is not consumption.

    The real economy is gradually easing down, with real estate, employment and real job-creating investment falling away. The surging of commodity prices is increasing the effects of the downturn, and is not a symptom of a consumer boom.

    Once the financial game of pumping money around the world runs into resistance, and prices naturally turn down, things such as oil which might have already peeked, then the facts of life from Main Street will take over.

    The turn could be swift when it comes. British cartelised energy and banking markets will ensure our economy is unable to adapt to such a change of direction. The economy is in the final stages of a game of monopoly where one or two people become amazingly rich while the majority, the public, crawl away from the board. Raising interest rates will merely ensure the endgame of the commodity wars comes a little earlier than otherwise. Interest rates like commodity prices are set by the big players as part of the game, who know when they want prices to fall, not to protect the public from inflation.

    We are watching a financial bar room brawl between the super-heroes. The chaff are just sent scattering, waiting for the smashing up of the scenery to stop.

  21. Gary
    Posted February 15, 2011 at 7:37 pm | Permalink

    This is not a great system. This is a seriously defective system. When fresh money is created out of thin air to fund non-productive houses, then the money supply will always grow faster than the GDP, because houses in themselves contribute nothing to GDP. When money is created out of thin air to fund enterprise , the money supply grows regardless if the enterprise is successful or not, and regardless if that enterprise grows the GDP or not. Since most new enterprises fail, inflation is the norm in this system, and only when the credit and loans collapse in default do we get sharp deflations. Deflations bankrupt the banking system because the yield curve inverts , by definition. So, the central bank refuses to allow deflation , at any cost, and that cost will be our currency. We will end up with papier mache currency and the middle and lower class will be decimated.

  22. Mr J Leslie Smith
    Posted February 15, 2011 at 8:50 pm | Permalink

    Global Inflation appears to be on an inevitable upwards trend, led by Oil and Wheat prices, plus a few other key commodities. With a Bank Rate at 0.5% and Banks lending at 5-7/8% or more, their margins are vast and unreasonable. Many, Many Mortgage Payers will either lose their jobs, or be unable to pay monthly mortgages over the next twenty four months, or so. Many more will go bankrupt. Savers are being hammered already, as are all those retired on fixed incomes. The Barn is burning whilst our Politicians are praying for rain, not bringing out the hoses. A coordinated attack on the Coalition is most likely in 2011, from the Public Sector Unions, the Executives of our Councils ( those run by Labour without doubt) and the Labour Party supported by the BBC. Ed Balls is already lining himself up to throw the hand grenades and to bring about a “Political (big explosion -ed)”..

    John, unless your Conservative colleagues pull their collective finger out, you are all in for a very rough ride, very soon now.. I do not think our PM Cameron, knows or even feels, ( or understands) the venom building up to attack him and force an early Election. The Public are in no mood for warm words and platitudes from Government Ministers, they know bad things are about to happen financially in their lives. If House Prices fall another ten percent, which is highly likely, we shall see panic in many parts of the UK.

    What are you thinking John? Is Government deliberately forcing debt down by using the crude inflation weapon to destroy my savings and their own debts?

    • Conrad Jones (Cheam)
      Posted February 17, 2011 at 12:30 pm | Permalink

      Inflation is the only way to get rid (sorry – reduce) this debt. We will ALWAYS be in debt with a debt backed money supply. We will always owe our time and effort to a Bank somewhere. That’s the nature of the beast.

      I think that where House Prices do fall by 10%, then it will not be such a problem as most home owners tend to move up or down the property ladder and the losses are only on paper, the House someone moves to will also drop in price. If it is – then the Government should consider some kind of compensation scheme funded by Banks. Unfortunately, as they can just create money out of nothing, the money supply will expand even more, so they’ve got us all ways.

      If you are a property investor – then; I’m sorry but you’d have a big smile on your face if House Prices were still going up.

      Negative equity is a big problem for those who do face foreclosure through no fault of their own. These are the people who will be unfairly hurt by the Bankers.

      House Prices do need to come down and the Banks – along with the BOE and Gordon Brown’s kamikaze economics; are to Blame.

      Do not disregard First Time Buyers – there is also even more venom building up in that camp too.

  23. JimF
    Posted February 15, 2011 at 8:53 pm | Permalink

    King now accepting that inflation will be high for at least three years.
    The credibility that has been built up around the Bank targetting inflation with real interest rates over the past 30 years has all but been lost.
    We are back to the seventies with Camallaghan.
    Please bring on somebody Thatcherite to rid us of this disease of inflation and savings/pension rip-off.

  24. Gary
    Posted February 15, 2011 at 10:18 pm | Permalink

    More evidence that the banks are probably (weaker than thought?ed). The banks are naked short selling of govt bonds.

    http://www.guardian.co.uk/commentisfree/2011/feb/15/condemns-naked-short-selling-not-treasury

    This is what is now happening to artificially supply liquidity to the banks. Effectively repos for bonds that don’t exist. They are selling bonds that don’t exist and would not have to do this if their primary business was producing revenue. This is an ominous sign. The banks are not lending these proceeds, so we must presume that they are attempting to recapitalise their balance sheets.

  25. Lindsay McDougall
    Posted February 16, 2011 at 2:04 am | Permalink

    In such a crazy world, we should do what suits us. That is to push up base rate to about 3% PDQ. So what if the dollar and the euro then fall through the floor? It’s not our problem.

    • Conrad Jones (Cheam)
      Posted February 17, 2011 at 10:32 am | Permalink

      I think the base rate should go to 3%. I agree with you.

      But… here’s my theory on why that could be dangerous:

      As the Pound is Fiat, They would retaliate by dumping Pounds on the World currency exchanges – similar to the Asian Crisis of the 1990s.

      The other Central Banks would gang up on our Central Bank.

      If the Pound was backed by Gold – it would be more difficult to do this.

      It would be a buying opportunity for the Pound for investors, when the Pound recovers – after nearly destroying the economy; then the Pound would be sold for Profit.

      Just my theory.

  26. Conrad Jones (Cheam)
    Posted February 16, 2011 at 2:38 pm | Permalink

    Mr Redwood,

    What do you think savers will do now – given that some of them do not rely on their savings for income and the effective net interest rates are negative?

    The RPI inflation rate is 5.1% – Best medium term Savings Rate: 3.25%

    Stocks and Bonds? The FTSE 100? DOW Jones?

    Patience is at an end.

  27. grahams
    Posted February 16, 2011 at 4:43 pm | Permalink

    Please return to this issue wherever you can. It is an entirely false argument that imported inflation is, by definition, bound to be temporary. As soon as the latest Inflation Report was published, sterling fell further. When Mr King made his complacent remarks, the pound fell further still. That means that imported inflation will continue, as a direct result of UK monetary policy.
    The Bank is still operating on a defunct model that is centred on UK pay growth or, failing that, the entirely theoretical concept of the UK output gap. It has no idea what to do in the world you portray in your post, where the behaviour of the US Federal Reserve and events in China are creating the inflation climate.

    • grahams
      Posted February 16, 2011 at 5:03 pm | Permalink

      Likewise, the general case is that currency depreciation stimulates domestic output, at least in the short term. The trade figures do not yet back this up, maybe because our business structure has moved far from “the general case”. It seems quite likely that higher costs will destroy more jobs than devaluation creates.

  28. Javelin
    Posted February 16, 2011 at 10:06 pm | Permalink

    When will John Osborne tell Merv King he is unhappy with the inflation figures. It’s clear both King and Osborne have let inflation rip. No body on the biggest trading floor in the UK where I work believes King is a credible figure anymore.

  29. Conrad Jones (Cheam)
    Posted February 17, 2011 at 1:03 am | Permalink

    Mr Redwood,

    I totally agree with you, China is in a stronger position than the UK. China is also encouraging it’s population to buy Gold.

    As RPI inflation is now running at 5.1%, I believe it is probably about time the Bank of England raised interest rates.

    I could be wrong of course. Perhaps they think that the severe austerity measures will pull the economy back and reduce inflation through lack of borrowing, thereby reducing the money supply.

    Labour’s wreck less spending (I have no doubt) caused this mess and the Conservatives and Liberal Democrats have inherited this problem. Let’s not forget the Conservative Party’s role in Labour’s mis-management of the economy. Why wasn’t the Conservative Party fighting against the Labour Party’s wreckless spending programmes?

    No doubt that you are aware that Russia has started an aggressive Gold buying spree in order to protect themselves from the possible lowering of the value of the Dollar. I hope that you have suggested a similar tactic to George Osborne (who no doubt) is a much better chancellor than the incompetent Labour alternative.

    If there’s one person we don’t want running the economy – it’s Gordon Brown. I hesitate to add that the jury is still out on George Osborne.

  30. Conrad Jones (Cheam)
    Posted February 19, 2011 at 1:41 am | Permalink

    As this topic is INFLATION, I feel compelled to “Labour” a point about Gordon Brown’s toxic notion that Gold was – sonehow -after 5000 years; not going to be perceived as being valuable anymore. So he sold nearly 400 tonnes of the UK’s reserve.

    I cannot think of any sound economic reason as to why he would do this.

    Granted – he didn’t know that 9/11 was going to create world economic instability. He didn’t know that when he announced the sale – which he was forced to do through agreement with other nations, that this was going to reduce the selling price lower than, the already low price.

    And what was he going to get in exchange for this solid gold bullion?

    Fiat currency that was destined to decline in value over time. This was the man who was hailed as the saviour of the 2008 collapse – the man that pointed the way to stability. How did he do it – by bailing out wreckless Banks – which in my books; is blatent market manipulation and favouritism. And what is worse is that he did it with savers and pensioners savings, as their purchasing power and interest payments were to be sacrificed in order to allow Banks to pay themselves enormous salaries and bonuses.

    Before 2008 I would never have realised that the Bankers are the biggest welfare bums in the UK.

    They are the absolute envy of the benefit fraudsters – and to coin a phrase – the “Suicide Bankers” who threaten to blow themsleves up (financially speaking) taking all of us with them if they don’t get what they want.

    What is even worse about this is that the BBC and other News Media, along with many Politicians argue their case and do not argue for the very people who they are alledgedy supposed to represent. I do not count John Redwood as amongst the Banking Fraternity apologists which is why I prefer John Redwood’s site to my local MPs.

    We are Taxed, but we are not represented.

    Although Mervyn King is commended for his fine speeches and criticisms about the Private Banks – I believe it is a huge mistake to trust our economy’s finances in an independent institution that is completely unelected – despite claims that the Governor is appointed by our so called elected representatives. Saying that Politicians cannot be trusted with the economy is like saying that voters cannot be trusted to vote for the right Politicians. If we cannot vote for Politicians who have sufficient competence to run the econmony then our democracy has severe issues which must be addressed.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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