We don’t want too much inflation

1Sometimes a picture replaces a thousand words. This German 2 million mark stamp  from 1923 in Germany reminds us that even in an advanced western country less than a hundred years ago people lived through a dreadful hyperinflation.  By the peak of the price rises in November 1923 the authorities decided to remove 12 zeros from their currency, creating a new or Rentenmark.  In August 1924 the new Reichsmark replaced 1 trillion of the old marks.

                  The fear of inflation has haunted Germany ever since. It lies behind German current reluctance to print too many Euros to deal with the probpems of state and bank debts in parts of the Eurozone.  Germany knows from bitter experience that if you print too many to get round the problem of managing your debts and deficit you can trigger a collapse of confidence in your currency, a rapid move in to goods, and eventually a hyperinflation.

               Creating a new currency that might be more stable and which people trust is the easy bit of recovering from such a situation. The hard bit is the deep recession or deflation that can follow the bursting of the bubble and the creation of the new stronger currency.

              The Euro area does not today stand on the edge of too rapid an inflation – far from it. The main safeguard against printing too many  Euros  to try to stave off the day when state and bank debts have to be paid is the attitude of Germany herself. That image of the overprinted postage stamp is a timely reminder to Germany and the architects of the Euro that there is no easy way out of excessive state and bank debts or large deficits. If you try too hard to inflate your way out of your debts, you can end up with a worse crisis.

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93 Comments

  1. lifelogic
    Posted March 6, 2013 at 6:23 am | Permalink

    Indeed and that is largely Osborne’s only plan it seems. Nothing to help growth, lower taxes, deregulate or provide any real return on capital.

    Radio 4 had some more absurd “BBC think” propaganda yesterday with – In Defence of Bureaucracy with Gus O’Donnell, John Major and Tony Blair all saying how wonderful the UK bureaucracy is.

    Perhaps if you are at the top of the civil service you might get that misleading impression. If these people went incognito at the coal face they would see how absurd regulation and dreadful incompetence in the state sector causes so much harm to the economy. This despite they fact that they are 50% over paid and spend nearly 50% of GDP on these second rate “public services”.

    • lifelogic
      Posted March 6, 2013 at 9:00 am | Permalink

      Still we would not want to be a Greater Switzerland with a strong currency and little borrowing would we?

      • Posted March 6, 2013 at 9:45 am | Permalink

        I hope you are being ironic because I think the Swiss situation is enviable. I already keep some of my savings in CHFs since I no longer trust Sterling. There is no point saving UKPs – you inevitably lose out because inflation exceeds the after-tax return.

        For those who wish to join me in abandoning the Sterling ship, you can get a CHF deposit account at various UK High Street banks at no charge subject to keeping a certain minimum balance. (Others do charge – shop around!)

        • JimF
          Posted March 6, 2013 at 12:45 pm | Permalink

          Remember even the Swiss have pegged themselves to the Euro, although that is subject to change. There is a feeling in Switzerland now that even their government is full of socialists and EU quislings…, but at least they understand money a lot better than Osborne and Co.

          • Posted March 6, 2013 at 1:42 pm | Permalink

            I lived in Switzerland as a child 40 years ago and I am always impressed when I visit that the prices I knew back then still apply – my childhood favorite one franc chocolate bar still costs 1 franc decades later!

            Back then one pound was more than ten francs, now one pound is CHF1.50 ish – and parity beckons. Fortunately I have been saving in CHFs since long before the rather annoying Euro peg, which as you suggest may break. (Big payday for me if that happens!)

            So other governments manage to control inflation for decade after decade. Why can’t ours? There seems to be a fundamental lack of governmental competence across the political spectrum. The current Tory-led government has not had inflation at or under target at anytime during its tenure in office.

            Since today’s inflation is a function of economic policy from two years ago, today’s inflation cannot be blamed on the previous government. It is very much the current government’s fault. Other countries keep inflation under control – our government has no excuse.

        • lifelogic
          Posted March 6, 2013 at 2:26 pm | Permalink

          Still Osborne will demand still 28% CGT tax on any currency “capital gain” (actually the lack of a government organised sterling loss”.

          Taxing people who have not even made a profit seems to be a speciality of this UK government.

          • Posted March 7, 2013 at 8:30 am | Permalink

            HMRC says that capital gains on currency transactions for “personal use” is CGT exempt. (Probably because they don’t want to allow people the capital loss they normally incur on currency transactions.) Since all my money is for my personal use, I use this exemption to the max.

          • lifelogic
            Posted March 8, 2013 at 6:12 pm | Permalink

            Currency transaction like holiday money but currency investments I think they tax?

        • Denis Cooper
          Posted March 6, 2013 at 3:01 pm | Permalink

          As I don’t foresee the need to pay any bills in Swiss francs I don’t really want to have my savings in Swiss francs.

          In my circumstances that would just be currency speculation, and I’ve never wanted to venture into that area.

      • uanime5
        Posted March 6, 2013 at 4:55 pm | Permalink

        You forgot about Switzerland’s high average wage, high taxes, and new laws that prevent employers from paying themselves huge amounts of money. I suspect that these are why the Government doesn’t want to be a Greater Switzerland.

        • lifelogic
          Posted March 6, 2013 at 6:14 pm | Permalink

          Well no CGT, vat at 8%, income taxes at perhaps 30% average depends on Canton, low company taxes too.

          We have 28% CGT income taxes up to 45%, vat at 20% and higher company taxes.

          Which do you prefer? They have little debt, deficit and a state sector that actually works fairly well too.

        • Edward2
          Posted March 6, 2013 at 6:25 pm | Permalink

          Strange post Uni,
          Switzerland does have very high average earnings but low taxes on incomes, capital gains and vat.
          And there isnt yet a law on maximium income nor bonus paymments its just being discussed after a referendum by the Swiss.

          Otherwise spot on as usual

        • Richard1
          Posted March 6, 2013 at 7:44 pm | Permalink

          What are you talking about? Switzerland has some of the lowest taxes in the developed world as well as a low tax/GDP ratio. The new law does not cap remuneration, it makes a shareholder vote mandatory. It is completely different from the ludicrous EU incomes policy for banks.

          Reply Indeed it is – I am all in favour of shareholders having the power to fix remuneration of the top people in their company.

          • lifelogic
            Posted March 8, 2013 at 6:15 pm | Permalink

            Indeed lack of shareholder power lets directors get away with murder, helping themselves to shareholders assets while often running the company into the ground.

            There is a parallel with MPs and voters lack of power.
            More voter power in Switzerland thus a far better performance.

    • zorro
      Posted March 6, 2013 at 9:19 am | Permalink

      LL, bureaucracy is great when you are at the top of the Civil Service tree with a £250,000 pa salary and if you retire a £125,000 pension pa and a lump sum of £375,000……..yes, I am sure that they think that bureaucracy keeps the UK on the straight and narrow, and them in self perpetuating non productive jobs ‘managing change’ or ‘promoting diversity’…….or ‘boiling the frog’ or ‘improving processes’. By the way, have you heard if Sir David Nicholson has resigned yet or does he still have the PM’s full confidence?

      zorro

      • JimF
        Posted March 6, 2013 at 12:46 pm | Permalink

        An alumnus in History and Politics from Bristol Poly, I see. Not quite PPE, but on the right track…

        • A different Simon
          Posted March 6, 2013 at 1:24 pm | Permalink

          JimF ,

          What is perhaps an even greater indictment of the UK’s obsession with letters and humanities is that History and Politics are being taught in a “Polytechnic” .

          For the life of me I can’t see what is technical about either subject .

          What future would their have been for Angela Merkel in British politics have been a quantum chemist ?

          Instead we get a couple of dunces with rich daddies who could afford to send them to the right schools .

          PPE is a 20th century subject and the world has moved on .

          • Nina Andreeva
            Posted March 6, 2013 at 8:14 pm | Permalink

            Polys or “new” universities as they now call themselves are for teenagers who (find A levels difficult or who do not study enough-ed). The government would do well to starve them of money and let them see if they can survive on the Chinese student trade instead. The money saved would be better spent on proper universities offering courses in proper subjects, not in “Spa Management” FFS. I do not see why talented kids should be paying 9 k p.a. to cross subsidise these joke establishments

            Reply I do not see how someone at an elite university is cross subsidising – they are paying for their course. Spa management may or may n ot exist as a course, but I can imagine ways of creating an interesting and worthwhile course if it included economics, accounting, forecasting etc.

          • stred
            Posted March 7, 2013 at 9:02 am | Permalink

            The old polytechnics provided training in technical and arts subjects that was often more practical than the top universities. Their students were more employable and left with a grasp of what was required in the job. Lecturers were frequently part time or heading their own professional practices.

            The Germans chose not to alter their technical schools and they are still excellent.The UK decided to turn them into universities, in order to make large numbers of students ‘equal’. This is why they are producing useless easy degrees in silly subjects. Another reason was to reduce the unemployment rate for young people. This also affected the quality of older universities.

          • lifelogic
            Posted March 8, 2013 at 6:21 pm | Permalink

            Polytechnics needed to stick to practical work skills, building, hair dressing, fitters, roofers, accounting, gardening and the like. Nothing wrong with polytechnics if run well at all. Nor are some such skills any less skilled than many academic subjects.

            Mind you changing their name did let the government make silly claims about increasing the number of “University” students by 100% or something.

        • lifelogic
          Posted March 6, 2013 at 2:54 pm | Permalink

          He sounded very unimpressive to me – then again who would want the job of trying to manage an NHS with 1.4M employees and with the current absurd employment laws. Thus you cannot even sack the useless ones and with the absurd politics surrounding it.

          Cameron said it in three letters N. H. S. as I recall, in one of his usual slow, theatrical, but low on content speeches. Yet he has not even started to make the right moves to make it remotely functional.

          Stafford Hospital is far from alone.

        • lifelogic
          Posted March 6, 2013 at 6:16 pm | Permalink

          Probably better than Oxford PPE – judging by the high profile Oxford PPE graduates. But perhaps is it the type of people that Oxford PPE attracts that is the problem – not the actual course?

      • REPay
        Posted March 6, 2013 at 10:54 pm | Permalink

        And of course, the people who make policy are hedged against inflation because their pensions are index-linked. They have no skin in the game. Inflation is the politician’s friend. There should be more JR’s.

  2. Peter van Leeuwen
    Posted March 6, 2013 at 6:36 am | Permalink

    The euro problems are a complex mix: democratic resistance against austerity and reform, and the need to pay of debts but also invest and create jobs. If there hadn’t been a euro, I fear that there would have been quite a few “competitive” devaluations on the continent, currency speculations, more inflation, and more avoiding of necessary reforms.

    • forthurst
      Posted March 6, 2013 at 10:07 am | Permalink

      “The euro problems are a complex mix”

      A tale of two halves: the Germanic speaking North and the Romance South. In the bad old days, when the Germans donated their hard earned cash to the profligate South, they got a cheap holiday in return, instead of insults and brickbats.

      • Peter van Leeuwen
        Posted March 6, 2013 at 11:48 am | Permalink

        @forthurst: but even the North still has its problems. E.g. mortgage bubble in the Netherlands, lowering house prices, lowering pensions, increasing unemployment en debt ratio above the 3% alowed in the eurozone.

        • stred
          Posted March 7, 2013 at 9:19 am | Permalink

          We are in Italy for a week, where their media is on all the time about their shrinking economy and Grillo leading the world. The idea of no coalitions and MPs having to be individually responsible is appealing. Imagine Ed Balls having to be responsible for voting for more spending and higher taxes, instead of blaming the coalition and walking into power later.

          We were met by a German lady who spent the evening moaning about their taxes, the cost of unification, the EU and some strange levy they have to pay to the churches, which is deducted from pay. She was amazed to hear that UK police could retire at 45 and said that theirs are not paid high pensions and have to work the usual period before retiring. Another good idea from the vaterland.

          • Peter van Leeuwen
            Posted March 7, 2013 at 1:01 pm | Permalink

            @stred: At least, the German lady apparently could still afford a holiday in Italy, which puts her complaining into perspective.

          • stred
            Posted March 7, 2013 at 5:02 pm | Permalink

            To Peter. She lives here in Italy.

    • A different Simon
      Posted March 6, 2013 at 11:10 am | Permalink

      Peter ,

      I think you could summarise “resistance against austerity and reform” as being in denial of reality .

      The UK is no different from Euroland in that respect .

      All the money which was collected by National Insurance which should have been put aside in a fund to buy local assets which provide both a real return to the fund to pay pensions and a return to the community have been spent .

      People are going to be begging to be put on the Liverpool Care Pathway when faced with a old age of poverty . I believe this has always been the plan .

      The politicians and civil servants thoughtfully arranged their own pension schemes to insulate themselves from the consequences of their reckless spending .

      People have been deliberately institutionalised from an early age and taught that risk is bad .

      How are they going to react when ultimately the politicians have to come clean and tell them the state cannot deliver ?

      Will apathy prevail as it usually does or will they get angry ?

      • Peter van Leeuwen
        Posted March 6, 2013 at 12:44 pm | Permalink

        @A different Simon:
        I’d agree that the UK is not so different from the eurozone. A difference may be that people in the North are more flegmatic about change. See how Greece and Portugal grabbed the headlines while in the meantime Latvia went through a huge recession and didn’t devalue its currency, but took measures like cutting public sector pay by 40% ! Imagine trying such structural reforms in the South. Still, slowly but surely they will be made.

        • A different Simon
          Posted March 6, 2013 at 1:33 pm | Permalink

          The country I worry for most is Spain .

          Thanks to decades of political correctness and relativism everyone in he UK has been lead to believe that their view is relevent , valid and counts . In combination with very weak political leadership this is leading to chaos .

          At the end of the day we might find ourselves voting for the hardliners who we think will control the mob best .

          That really would represent failure . Do you think it will be averted ?

        • sjb
          Posted March 6, 2013 at 3:51 pm | Permalink

          Some readers may not know that Latvia intends to become the 18th member of the eurozone in nine months.

    • Denis Cooper
      Posted March 6, 2013 at 3:05 pm | Permalink

      Sometimes the cure is worse than the disease, and it may even kill.

      Basically you want the Greeks to become like the Germans; well, maybe they will learn to be more like the Germans, eventually, given a few generations.

      • Peter van Leeuwen
        Posted March 6, 2013 at 7:18 pm | Permalink

        @Denis: I also wouldn’t mind the Germans becoming a bit less German (more flexible).
        Much is made of the cultural differences between various EU countries, but change (TV, internet, cheap transport) has been so vast and the wolrd has become so much “smaller”, that especially among the younger generations there is much more in common. No people have yet voted in a majority to come out of the euro, in spite of pretty tough hardship.

        Reply The best of German industry is flexible and develops good new products. If you mean you want the German government to lend and send more of their money to the poorer parts of their currency union, there are arguments b oth ways on that issue.

        • lifelogic
          Posted March 8, 2013 at 6:25 pm | Permalink

          Best to keep the money where it will be invested best I would have thought.

  3. Nina Andreeva
    Posted March 6, 2013 at 6:38 am | Permalink

    Yes but what about the Anglo-American model of continual QE and competitive devaluations to try and import inflation to keep the deflation away? I hope Carney (47 years old so draw your own conclusions) does not believe central banks can control inflation once they have lit the blue touch paper. This is because none of the economic history text books I have read have said they can. Its not ridiculous to predict, that like our fellow debtoholic Argentina, that we too should see some very high rates of inflation, after all up until the ’60’s they were a far more wealthy country than we were.

    • Gary
      Posted March 6, 2013 at 8:56 am | Permalink

      The anglo-american model is mercantilism. A form of usury, where money is printed, large armies are built, and public-private companies are created. Foreign wars of plunder are embarked upon to lay claim to assets to offset the inflation caused by money printing. The public-private companies are the commerce arm of the occupation.

      This model is now bust, because the wars no longer make the returns to cover the inflation costs. But still we persist, hoping to regain the glory days.

  4. robin.sharp
    Posted March 6, 2013 at 7:15 am | Permalink

    It looks like the Euro as it stands may actually be a good thing – but only in the sense that there are no easy ways out other than Euro wide fiscal self restraint.

  5. colliemum
    Posted March 6, 2013 at 7:16 am | Permalink

    There is one other reason why Germans and German Banks are so concerned about inflation, about printing money. It is something our economists and politicians should also keep in mind.
    That is the fact that the hyperinflation destroyed the middle classes, by literally depossessing them. This levelling down, if you want to call it so, provided the fertile ground for the growth of radical parties. Ten years later Hitler was dictator of Germany, with the results we all know.
    It is folly to think that such things couldn’t happen here. History shows that democracy needs a big, solid middle class to work, that it needs the security of a middle class which knows that what they strive and work for is secure and theirs to do with as they want.
    Switzerland is the prime example.
    A society where savings and earnings are suddenly worthless, where a top level of that society seems not just unscathed but profiting from such perilous economic times, will become radicalised and will fall to tyranny.
    Therefore we would be wise to do what Germany has been doing since 1948: guard against inflation, don’t treat it as some good economic instrument to get the finances of a country ‘out of jail’.
    I for one do not want to repeat history just because our oh-so-brilliant economists in the BoE and Downing Street and in the MSM think that a bit of inflation is nothing to worry about.

    • A different Simon
      Posted March 6, 2013 at 11:19 am | Permalink

      The middle class in the UK are a large part of the problem .

      – They are anti-entrepreneurial ; prefer their children to work for big companies than start their own businesses .

      – They incorrectly blame the poor for welfare payments rather than their beloved skewed “proberdy market” which transfers money from the middle class to the bank and landowning classes via mortgages , rents and housing benefit . – this is how they are being dispossessed if they could only see it !

      – The vote LibLabCon

      – They are unpatriotic . They started the trend of buying foreign imported cars etc in the late sixties and early 70’s .

      – They think skilled trademan should work on their house and garden for next to nothing

      – They revel in house price rises and grumble when their children can’t leave home

      I’ve had the good fortune of working for short spells in many countries of the World and the middle class in the UK are nothing special .

      • A different Simon
        Posted March 6, 2013 at 11:22 am | Permalink

        Oh yes ,

        They are unbelievable nimby’s too .

        – oppose all house building on principle

        – oppose any sort of industrialisation , eg factories

        – oppose onshore oil and gas exploration

        – prefer to import everything than have any sort of industrialisation in the UK .

        Who was it who said all professions were a conspiracy against the masses ?

        Come to think of it the middle classes deserve pretty much all the consequences of their actions for bringing it on themselves .

        • Deborah
          Posted March 6, 2013 at 6:23 pm | Permalink

          Sadly it is just like being back at school.

          Those well-behaved members of the middle class who have resisted temptation and done the right thing will be made to suffer the punishment along with the disruptive idiots who caused the trouble.

      • APL
        Posted March 6, 2013 at 11:02 pm | Permalink

        ADS: “They are unpatriotic . They started the trend of buying foreign imported cars etc in the late sixties and early 70′s ”

        That would have been the time when the British car manufacturers BL etc were offering you a tin can that would rust away within three years, no radio no air conditioning. The japs by the way offered most of those thing (except the rusting away ) as standard.

        Further the British car plants were plagued with wild cat unofficial strikes. God help you if you bought a car built on a friday.

        So when the foreign manufacturers started to import quality, the reputation of the british manufacturers was already badly damaged, along with their product.

    • uanime5
      Posted March 6, 2013 at 5:03 pm | Permalink

      Hyperinflation happened in the early 1920’s and had been fixed by the late 1920’s. As a result the Nazi party was barely able to get any votes. Hitler was able to come to power because of the effects of the 1929 Stock market crash, which cause a long depression and made people more willing to vote for extremist politicians who provided them with scapegoats.

      Also Hitler’s support came mainly from the working class who were suffering because of high unemployment and the lack of state welfare, and the wealthy who gave money to anyone who opposed the Communists.

      • Edward2
        Posted March 6, 2013 at 6:29 pm | Permalink

        Interesting rewriting of history again Uni,
        The rise to power of Hilter had nothing to do with the effects of harsh first world war reparations imposed by the League of Nations obviously.

        • zorro
          Posted March 7, 2013 at 8:04 am | Permalink

          It’s worth looking at the actual payments made by Germany under the war reparations agreed at the Treaty of Versailles under the ‘war guilt’ clause. They paid a lot less that they were supposed to do. It was a bit of theatre to placate the French. The payments were suspended anyway in 1931

          In 1921, the Inter-Allied Reparations Commission set the payments at 132 billion gold marks. However, the actual amount of reparations that Germany was obliged to pay out was not the 132 billion marks cited in 1921 but rather the 50 billion marks stipulated in the A and B Bonds. The historian Sally Marks stated the 112 billion marks in “C bonds” were entirely chimerical—a device to fool the public into thinking Germany would pay much more. The actual total payout from 1920 to 1931 (when payments were suspended indefinitely) was 20 billion German gold marks, worth about $5 billion US dollars or £1 billion British pounds. Of this amount, 12.5 billion was cash that came mostly from loans from New York bankers. The rest was goods like coal and chemicals, or from assets like railway equipment. The total amount of reparations was fixed in 1921 on the basis of an German capacity to pay, not on the basis of Allied claims…..(from Wikipedia)

          zorro

          • Edward2
            Posted March 7, 2013 at 10:19 am | Permalink

            Thank you Zorro interesting information.
            Perhaps these reparations were felt as more of an national humiliation by the German people, than a real economic burden and that feeling was one of the factors that helped in the rise to power.
            Its a complex subject, which history Professors argue about endlessly!

      • zorro
        Posted March 6, 2013 at 9:31 pm | Permalink

        Yes, indeed, the hyper-inflation was a result of the poor economic circumstances in Germany after the War and the very onerous war debt repayments forced upon them (French were mainly to blame for that)….

        zorro

  6. Mike Stallard
    Posted March 6, 2013 at 7:23 am | Permalink

    The hyperinflation of Germany is now history. It has actually been brushed over by us because, of course, it could never happen here.

    The result of hyperinflation was that the decent Germans turned round and looked for someone to blame. What had gone wrong? They had just won the 1914-18 war in Russia and they had been cheated in the West only by a revolution at home. They (sought to blame people for the big divide between rich and poor and for the economic woes-ed) The rest is history.

    It could never happen here. We are not really seriously in debt. America will step in if there ever was a financial crisis. The Banks are secure and prosperous and the Jews today are seen by everyone as victims.

    So that’s all right then.

  7. alan jutson
    Posted March 6, 2013 at 7:26 am | Permalink

    Not a lot more to add, other than to ask:

    Does our Chancellor think the same………………If so he has a funny way of showing it !

  8. outsider
    Posted March 6, 2013 at 7:37 am | Permalink

    Yes Mr Redwood, printing money is highly addictive and painful to give up.

    At the moment, as has been pointed out elsewhere, the ensuing inflation has predominantly boosted financial assets so that many of the rich have got richer while those on ordinary incomes have suffered through the dollar exchange rate, unless they have large mortgages.

    It is hard to see how UK output can grow at all strongly without this liquidity leaking into prices in the rest of the economy and hard to see how it can be unwound without serious consequences.

    In reality, UK output seems unlikely to grow strongly for any sustained period unless dragged along by a boom in the world economy, in which UK money printing will pay no part.

    • margaret brandreth-j
      Posted March 6, 2013 at 5:05 pm | Permalink

      A very good film to watch at weekend was’ Bad Money’. Diane Keaton was great.

  9. Leslie Singleton
    Posted March 6, 2013 at 7:44 am | Permalink

    No inflation at all is how it should be, let alone too much

  10. JimF
    Posted March 6, 2013 at 7:54 am | Permalink

    I don’t think you need to remind Germany about this so much as your colleague Mr Osborne. The fact that after 3 years in government he is still racking up debt is extremely disappointing, not to say incompetent. The fact that his colleague Mr IDS admits that he can’t see a way out of spending even more on Romanian and Bulgarian families is frankly terrifying. They really need to call a certain Mr Farage for the obvious answer to their problems.

    • lifelogic
      Posted March 6, 2013 at 8:56 am | Permalink

      The do not even want to estimate the numbers let alone the costs. “I have seen number but do not trust them so will not make them public” seems to be the government line. It will all come as a surprise to them.

      I see that Sir David Nicholson is now against gagging orders, when did he change his mind exactly as the NHS under his command has been doing this for years as everyone (even he) much have known? Surely the whole dis-functional service only survives by gagging the staff from revealing what actually goes on.

      How many staff are there just to cover up, issue propaganda, try to get out of valid compensation claims or “massage” the statistics for political purposes. Is it more that actually provide any useful treatments I wonder.

      • zorro
        Posted March 6, 2013 at 9:22 am | Permalink

        That will be the ‘Communications Directorate’……..

        zorro

        • Deborah
          Posted March 6, 2013 at 6:28 pm | Permalink

          …keeping chocolate rations up…

      • Nina Andreeva
        Posted March 6, 2013 at 9:38 am | Permalink

        No need for estimates Frank Field says they are arriving at a rate of 25,000 per month http://www.bbc.co.uk/news/uk-politics-21668670

    • Leslie Singleton
      Posted March 6, 2013 at 6:03 pm | Permalink

      JimF–Amen to that

  11. Peter Davies
    Posted March 6, 2013 at 8:05 am | Permalink

    So why have our own BoE and treasury people not taken that on board and just got to grips with the deficit instead of talking about it?

  12. margaret brandreth-j
    Posted March 6, 2013 at 8:30 am | Permalink

    We need to have a small amount of inflation for the sake of investment in certain durables. Investment has to pay.Whilst our currency over the years has been devalued to fall in line with the Euro , we have lost our own strength.The overall perception that money is simply there to buy products and trade with is a view that is way out of line with reality. The stock markets understand this, but the man on the street seems to understand only in a subconscious way. It is related to his power seeking and status symbol self. To some cultures children represent power, others cows, some land, and to many in this country the bigger and shinier 4 wheel drive means power.
    During a very heavy snow fall , I had to tramp 4 miles in the snow to walk home, having abandoned my car at the bottom of the hill. A 4wheel driver , beeped loudly at me as I could find the only tracks to walk in where a car had been earlier ,and sprayed me with snow as I fell to the ground, then gave me a V sign to demonstrate his aggressive power. This is the way the world works . To fall in with the Euro and become more grey we risk more than our own identity , we will lose our power.

  13. Gary
    Posted March 6, 2013 at 8:43 am | Permalink

    Inflation, the cancer that kills the economy.

    The euro is now seen as a relatively hard currency, because they are more resistant to inflating. They also have 10, 000 tons of gold backing it. We have 300 tons, more debt and less manufacturing pro rata.

    Inflation is a form of default that comes with costs. Our choice has become default by not paying or default by paying less by devaluing the currency. Default, no matter what.

  14. Brian Tomkinson
    Posted March 6, 2013 at 8:57 am | Permalink

    JR: “If you try too hard to inflate your way out of your debts, you can end up with a worse crisis.”
    Although they were not mentioned in your comments I presume that this remark was directed specifically at Osborne and the Governor of the BoE for it is they who seem to be following that path.

    Reply I was writing about the Euro

    • Brian Tomkinson
      Posted March 6, 2013 at 9:04 am | Permalink

      Reply to reply,
      I feared that was the case but may I suggest that there is a more and pressing danger of inflation right here in the UK just now.

  15. Posted March 6, 2013 at 9:28 am | Permalink

    You picture of a German postage stamp reminds me of the inflated cost of postage in Britain
    From the start of the penny post in 1840 to the late 1940’s postage costs rose by 250% to 2½d. In the following 60 years it rose 4800% to the present 50p (or 10s in real money). And it takes loner to deliver! This is not untypical of the inflation applicable to most goods and services over the same period.
    The Victorian and Edwardian politicians keep inflation down, yet modern politicians seem content to let it run riot presumably because they don’t seem to have the moral imperative of the Victorians to maintain good money.
    Having just been told by my bank that the interest on my ISA will be revised downwards to 0.25%, I wonder why I saved for my old age and didn’t spend and enjoy my money when I could.

    • matthu
      Posted March 6, 2013 at 5:43 pm | Permalink

      Whereas I have just been informed that the charge for transferring electronically held share certificates is to double.

      Isn’t it odd how financial services become MORE EXPENSIVE just when the returns on investments get vanishingly small?

      At the same time, pension companies have been told they can no longer “gender discriminate” against women (thanks to the EU) so annuties become MORE EXPENSIVE.

      And car insurances can no longer discriminate against men (thanks to the EU) so car insurances become MORE EXPENSIVE.

      Meanwhile car owners are already obliged to buy car insurance and must fork out ever increasing amounts to indemnify the insurance companies who are only to keen to connive with lawyers to fleece consumers for supposed whiplash injuries. So car insurance is already MORE EXPENSIVE.

      While the government is no doubt favourably considering whether everybody should be obliged to take out climate insurance – even though there is NO demonstrable link between global warming and extremes of climate and even though recent unusual weather has not been shown to be extreme in any statistical sense on a historical perspective of more than a few dozen years. You’ve guessed it: this will impose additional cost on the average householder so insurances will become MORE EXPENSIVE.

      Are we beginning to see a common thread here?

      For those who haven’t made the connection, it is the ever increasing EU and government meddling that keeps being imposed supposedly to ensure that everybody is treated fairly but always with the same result. MORE EXPENSE.

      It’s about time we reduced government involvement in absolutely everything, vastly simplified our taxation, completely cut ourselves off from EU regulation particularly in areas in which there is really no call for it – and saved ourselves a few billion pounds in the process. Every year.

      That would cut inflation.

      • Nina Andreeva
        Posted March 6, 2013 at 8:26 pm | Permalink

        I will be writing Van Rumpuy demanding that he ends the discrimination too against old people having to pay more for their life insurance than young people

  16. Richard1
    Posted March 6, 2013 at 9:59 am | Permalink

    Its worrying that the UK Govt, the BoE, the ECB and many European govts think QE and manipulated interest rates is a substitute for proper economic reform to improve competitiveness and economic incentives. It seems Mr Carney is in this group also. A rather absurd circular argument is being advanced by many on the ‘Keynesian’ side – ‘lets have more QE to keep interest rates so low’, and then ‘since interest rates are so low lets spend lots of money on ‘infrastructure”. (In fact, as we know from the Brown experience, most public spending splurges go in wage inflation.)

  17. Man of Kent
    Posted March 6, 2013 at 10:30 am | Permalink

    The case of Zimbabwe is interesting.

    Many white [and some black] Zimbabweans are now virtually destitute having had their savings destroyed by hyper inflation .
    The Zim $ has gone to be replaced by the USD
    Land has been stolen as well as money by the ZANU PF insiders,which include some white
    Zimbabweans.
    The Mugabe racist land grab is currently being skilfully contested by the Mike Campbell Foundation to get some recompense.
    But there are some people who always seem to come out on top whatever divisions and misery are inflicted.
    We will see it here if policies are applied to inflate us out of our debt.

    Meanwhile Mugabe is threatening to send observers to our 2015 election to ensure they are ‘free and fair’ !

    • A different Simon
      Posted March 6, 2013 at 11:42 am | Permalink

      That is a pretty grand assumption that our elections are fair and I’m not just talking about postal votes .

      Do you think the LibLabCon establishment would make way for UKIP if they polled the most seats ?

      The result is whatever is announced on BBC .

      The establishment would find some way to alter it or declare the result null and void and hold it again when they would fix aid and abet the results .

      • Nina Andreeva
        Posted March 6, 2013 at 2:22 pm | Permalink

        Sorry but I do not think the establishment will need to resort such tactics. The reason being is I think the threat is not there. Just like the SDP, UKIP believe themselves to have history on their side and that they will “break the mould” of British politics. Well if they have such a groundswell of support where are the SDP like mass defections of councillors and MPs? Why is Farrage (and to be quite honest with you I cannot think of anybody of note associated with it apart from Neil Hamilton) not desperate to get into the Commons and fight difficult by elections like Hillhead and Crosby as Jenkins and Williams did? Also their ability to keep coming up with such off putting candidates does not help,(etc ed)

      • matthu
        Posted March 6, 2013 at 5:51 pm | Permalink

        It is entirely likely that political parties in the UK will eventually be financed by the electorate (as they are already in the EU) and if so that they will look for some pretext to deny UKIP any financing. Just as they are keen to deny UKIP a place on any TV debating platform.

        Just as the BBC are keen to deny any meaningful debate on Europe, or immigration, or meaningful debate on global warming, or the appropriate policy response to it.

  18. Denis Cooper
    Posted March 6, 2013 at 11:24 am | Permalink

    Yesterday the sterling trade weighted index stood at 79.1276, compared to 78.6783 on March 5th 2009.

    http://www.bankofengland.co.uk/boeapps/iadb/fromshowcolumns.asp?Travel=NIxIRxSUx&FromSeries=1&ToSeries=50&DAT=RNG&FD=1&FM=Jan&FY=1963&TD=6&TM=Mar&TY=2013&VFD=Y&CSVF=TT&C=IIN&Filter=N&html.x=17&html.y=23

    It has been oscillating up and down around the 80’sh level for more than four years now, despite the creation of £375 billion on new money between March 2009 and November 2012, and so far it shows no obvious sign of breaking downwards out of that range.

    The big drops in the average value of sterling against other currencies occurred during 2007 and 2008.

    Its over-valued all time high of 106.8045 was on January 23rd 2007, and by March 5th 2007 it was down to 103.1441; on March 5th 2008 it was down further to 95.1307 and heading towards the under-valued all time low of 73.7560 on December 30th 2008.

    That was a substantial, 31%, drop over two years from the all-time high of 106.8045 to the all-time low of 73.7560, but the inflationary effects of that drop during 2007 and 2008 will have long ago worked their way through the system and there has been no change of comparable magnitude over the past four years.

    For those who may conclude that sterling is a terribly unstable currency and we’d be better off with the rock-sold euro, here is the ECB chart for the analogous trade-weighted euro index:

    http://www.ecb.int/stats/exchange/effective/html/index.en.html

    As the all-time low of 81.1584 on October 26th 2000 was 29% lower than the all-time high of 114.3456 on December 18th 2008 there isn’t really much to choose between the euro and sterling when it comes to variablity of external value.

    However while there are quite long periods when the two currencies move in parallel there are also periods when they diverge, and that has been the case for the past four years when the pound has been relatively stable while the euro has been undergoing a gradual but significant devaluation, with a downwards trend of about 3% a year which to my eye is still continuing.

    Yet while sterling has not been devaluing over the past four years the UK has been experiencing excess inflation, while taken as a whole the eurozone has had lower inflation even though the euro has been depreciating.

    I bring forward these tedious facts because for some inexplicable reason the UK media seem to relish feeding a popular misconception that the pound is collapsing, when it hasn’t been collapsing for more than four years now and shows no sign that it is about to collapse.

    I can’t say whether there are political motivations behind these alarmist reports, or it’s just a case that a fictitious collapse of the pound makes for more interesting headlines and even provides an excuse to run live blogs to follow the latest minor fluctuations minute by minute.

    Reply: The sterling;dollar rate is important as many items we buy are priced in dollars. There has been a sharp sell off in the pound versus the dollar in the last three months which is worthy of comment and will have an impact on our inflation rate, as you can see at the petrol pumps.

    • Denis Cooper
      Posted March 6, 2013 at 3:20 pm | Permalink

      Obviously the sterling:dollar rate is given its appropriate weighting in the sterling trade weighted index, as closely as may be practicable.

      And obviously if the price of oil goes up in dollars then it will go up in pounds in direct proportion if the sterling:dollar rate remains unchanged.

      It is arguable that the price of petrol is not being given its correct weighting in the calculation of the CPI, but it’s also possible that it is given the correct weighting but drivers particularly notice any increase in its price and over-estimate its effect on the overall consumer price inflation they are experiencing.

      But it is definitely not arguable that inflation is being driven by a falling pound, when the pound has not actually been falling for the past four years.

    • margaret brandreth-j
      Posted March 6, 2013 at 5:02 pm | Permalink

      Dennis.. so you are saying that our pound has been worth more or very similar to the Euro in the last 4 years .As far as i can understand and it is very apparent that your knowledge is far superior to mine, that value is relative to those who you trade with?

      • Denis Cooper
        Posted March 6, 2013 at 6:54 pm | Permalink

        These are trade weighted indices, both representing the average value of the currency against other currencies for the purposes of trade.

        As the ECB explains here:

        http://www.ecb.int/stats/exchange/effective/html/index.en.html

        “The nominal effective exchange rates of the euro are calculated by the European Central Bank (ECB).

        They are based on weighted averages of bilateral euro exchange rates against 20 trading partners of the euro area (see the section “Background”).

        If this index rate goes up, more foreign currency can be obtained, on average, for €1. It therefore becomes more expensive, on average, for those who want to exchange foreign currency for euro. Likewise, if this index rate goes down, less foreign currency can be obtained, on average, for €1 and, in turn, it becomes less expensive to exchange foreign currency into euro.”

        If you look at the chart on that page and click on “All” you can see how the euro index has moved up and down since June 1993.

        (Of course initially it was the ECU rather than the euro, which only came into being on January 1st 1999 at the rate of €1 = 1 ECU.)

        And you can see how the euro index has been trending downwards over the past four years, meaning that “less foreign currency can be obtained, on average, for €1”.

        About 12% less today than at its peak on December 18th 2008, as 100.3054 divided by 114.3456 = 0.88.

        Meanwhile the sterling index, having taken a massive tumble during 2007 and 2008, has been holding remarkably steady over those four years.

        The euro index declining while the sterling index remained stable would not necessarily mean that the pound had risen against the euro, but in fact it has been trending upwards as shown in this chart:

        http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-gbp.en.html

        It took a massive hit during 2007 and 2008, dropping from around €1.52 in late January 2007 to an all-time low of €1.02 on December 29th 2008, but since then the overall trend has been upwards.

        Reply The pound rallied, but has been trending down in recent months, as highlighted here.

        • Denis Cooper
          Posted March 7, 2013 at 3:23 pm | Permalink

          What has happened in recent months still looks to me like another shorter term fluctuation. It has not yet broken the overall longer term trend, which has been flat for four years now. There have been several small cycles up and down during that four year period, and we are close to the bottom of the latest cycle. Anyway that’s how it looks to me, so far.

  19. Roy Grainger
    Posted March 6, 2013 at 11:30 am | Permalink

    There is an optimum target for inflation, as there is for unemployment, and neither are zero. The current Japanese PM has set an explicit goal to double inflation. Let’s see what happens because to be honest what Japan shows us is that a decade of near unlimited QE has no effect at all. Handing out the printed money directly to citizens would have a bigger effect, as would handing out bits of paper with “RBS Shares £500” on them to everyone would too, which is apparently something that is under consideration.

  20. con
    Posted March 6, 2013 at 1:54 pm | Permalink

    When I saw the headline I thought the ‘we’ you were referring to was the Uk.

    Nobody that lived though UK inflation wants a return to that either.

    I used to think that the best reason for the UK to join the euro was to be part of a bigger and hopefully more stable currency.

    The main UK arguments against it seemed to be that it took away freedom to set interest rates, aka, free to debaunch the pound.

    I am coming back to the view that we would be better off in the euro. I suspect we will be forced in within ten years when the pound is below €1. We will then probably get the same kind of terrible terms we got when we joined ‘the common market’.

    • Denis Cooper
      Posted March 6, 2013 at 7:05 pm | Permalink

      In terms of its external value the euro is no more stable than the pound.

      As can easily been seen by clicking on “All” for the ECB chart here:

      http://www.ecb.int/stats/exchange/effective/html/index.en.html

      the euro index has been all over the shop.

      • stred
        Posted March 7, 2013 at 10:51 am | Permalink

        Could it be that the banks have agreed to withdraw loans from the private sector to equal approx.95% of the value of QE, and deposit some with the BOE, thus keeping the amount of money in circulation the same less inflation. The money is spent but by government employees and beneficiaries instead of the privately employed or savers, while real earnings and savings slowly reduce, again keeping inflation down.

  21. Posted March 6, 2013 at 4:38 pm | Permalink

    John all you say is right.

    However there are too many extremists in the eu and even in our own civil service and parliament. There is talk of the US creating more dollars and gold is recovering again.

    We continue to debase our own currency and the Euro cannot possible hold such diverse currencies together.

    Time to buy commodities.

  22. David Langley
    Posted March 6, 2013 at 5:17 pm | Permalink

    The facts is that we are bankrupt, nothing the chancellor can do will help. Our debt is increasing almost exponentially. We have no chance of ever getting the debts repaid or the trade deficit becoming a surplus. GB is dead in the water and all the government is doing is putting off the inevitable disaster. All our current governments have added to the debts and all the fiddles and taxes and bad ideas they come up with have only one result, more debt more borrowing its relentless. If our interest rates go up by a few percentage points the collapse will come quicker. Our deficits and debts can only be remitted by either a miracle such as finding trillions of gallons of oil under the Isle of Wight, or writing all of it off and starting with a clean sheet and being shunned by all who are holding our paper. My pathetic savings will never give me an income relied on for my present old age, a decent interest rate would break the country in hours.

  23. Monty
    Posted March 6, 2013 at 6:11 pm | Permalink

    Apologies for posting off-topic, but Bloomberg have reported a severe shortfall in our reserves of natural gas. We run out completely in two weeks, unless we get a spell of mild balmy weather. The forecasters are all saying we have another cold snap, with strong north-easterlies in store. Have you heard anything in parliament about emergency plans with regard to this situation?

    http://www.bloomberg.com/news/2013-03-05/u-k-natural-gas-stores-may-empty-in-two-weeks-chart-of-the-day.html

    Reply You are very much on today’s topic. The report is alarmist. However the UK does have much less resilience than other advanced countries because it has less storage capacity for gas. This government is working with the gas industry to expand the reserve capacity, as well it needs to. My comments yesterday in Committee were all directed to the issue of keeping the lights on and the heating working. More needs to be done for the post coal power station era, as the EU is inisisting we close our coal stations soon.

  24. JimF
    Posted March 6, 2013 at 6:37 pm | Permalink

    Interesting to see that more and more people are coming to the conclusion that you and most contributors here came to years ago – nationalise RBS and break it up. The BOE Governor has now broken cover, and Lord Lawson is sensible enough to have wanted it all along. How much time has been lost, how much money has been spent on this pile of stagnant waste by LibLabCon in order to hold the bank and its bonus structure together?
    We all know it holds back on good lending, having frittered billions away previously. We all know that bonuses come above risk, and the simple way to avoid risk is to borrow at base and lend only at high rates to property and loans already covered by borrowers’ or HMG collateral.

    We badly need fresh thinking from intelligent and independent people in a new government to move this bank forward from its malaise into a new competitive situation. Like Labour and Lib Con Coalition, this bank is stale.

  25. Electro-Kevin
    Posted March 6, 2013 at 9:58 pm | Permalink

    Even before QE I felt that inflation was being down played. Nu Labour’s greatest con trick.

    I took a shirt back to M&S a few years ago with a fault, only to be handed one packaged the same way but of far inferior quality. I queried it.

    “That is the same shirt, Sir.”

    “No it isn’t.”

    “It has the same bar code.” and on it went.

    It turned out that the manufacturer had substituted the product that week and kept the price the same.

    I’m I the only one to notice that appliances have got cheaper but that they don’t last ?

    I’m sure that Wagon Wheels are much smaller than they were when I was a child. Indeed I remember them being ‘Bigger than both of us !’

    So too with Big Macs.

    I had one for the first time in years last week. It was tiny. They would never have gotten away with calling it a ‘Big’ Mac if they were that size when they first came over.

    The horse meat scandal is another form of inflation. This wasn’t quality horse meat but nags that weren’t fit for dog food and glue.

    Then there are house prices.

    The square footage my parents had was far in excess of that which we could afford in better jobs.

    In many ways we are richer – better technologies available to all.

    In others we have definitely been getting poorer by inflation and the only way to maintain the standard of living and the illusion of wealth has been through loans and product substitution.

  26. sm
    Posted March 6, 2013 at 11:08 pm | Permalink

    I read somewhere, that it was perhaps it was using ‘printed’ money to pursue unproductive enterprize ( state directed re-arming etc) which caused prices to rise , given their were less goods/food around to buy.

    Currently we need to be careful not to depress demand austerity in favour of supporting our asset bubble, bad banks.

    Give the public money to pay down debt if they have any. Only problem will be less profit for the banks. Would that be a problem?

  27. Pleb
    Posted March 6, 2013 at 11:55 pm | Permalink

    2 years till the next election

  28. Pleb
    Posted March 7, 2013 at 12:17 am | Permalink

    So the only solution to the debt is to dump the UK economy into Europe. Sold to the forth richt by a fifth column of millionaires.
    My beloved England is destroyed by fools.

  29. Pleb
    Posted March 7, 2013 at 12:29 am | Permalink

    Men of England, wherefore plough
    For the lords who lay ye low?
    Wherefore weave with toil and care
    The rich robes your tyrants wear?

    The seed ye sow another reaps;
    The wealth ye find another keeps;
    The robes ye weave another wears;
    The arms ye forge another bears.

    Sow seed, — but let no tyrant reap;
    Find wealth, — let no imposter heap;
    Weave robes, — let not the idle wear;
    Forge arms, in your defence to bear.

    Rebel and (cast aside-ed) these fools that pretend to lead us, men of England.

  30. rd
    Posted March 7, 2013 at 4:33 am | Permalink

    No good practicing Austrian economics on an artificial currency peg.

  31. Lindsay McDougall
    Posted March 10, 2013 at 2:46 am | Permalink

    If a lot of inflation is bad for us, how is it that some inflation is good for us? Inflation often disguises real reductions in wages and salaries. Many people reach their full potential by about 45 and their real remuneration does not increase much after that. Should they not be made to confront that reality?

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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