Wikinvest Wire

The good news is there's in-flation

Thursday, April 09, 2009

As expected, earlier today, the Bank of England decided to leave short-term interest rates unchanged at the freakishly low level of 0.5 percent in an effort to help revive the economy. Robert Miller of the Telegraph's Business Bullet joins rank and file economists in lauding the continued presence of inflation, rather than its evil alter ego - de-flation.

Official, government reported in inflation in the U.K is currently running at +3.2%. They'd give their eye-teeth for that kind of a number in some other parts of the world as warnings of a deflation "death spiral" continue - apparently any number with a minus sign, no matter how small, is cause for alarm.

More details of the BOE decision come in this story at The Telegraph - the central bank is now working diligently, trying to figure out how best to spend that £75 billion of newly created money, also aimed at reviving the economy.
Under the scheme, the Bank is creating money and using it to buy £75bn worth of bonds – mainly government debt – in its first three months of operation.

When it was first unveiled, the Bank indicated that it was prepared to spend a further £75bn if deemed necessary.

The Bank's decision to turn to ammunition beyond the conventional tool of interest rates comes amid expectations that the UK economy contracted at a similar pace in the first three months of the year as the final quarter of 2008.

In a Reuters poll published on Thursday, more than 40 economists forecast that the UK economy would shrink by 3.6pc this year.

The median estimate was much worse than the 3pc drop they expected just a month ago, although better than the 3.8pc contraction forecast by the International Monetary Fund.
A growth rate of almost -4 percent with inflation at more than +3 percent is not a healthy combination. Of course, not much about the global economy is very healthy these days.


SPECTRE of Deflation said...

Continue to follow the M1 Money Multipier for a clue on the velocity of money. It fell off a cliff and can't get back up. This is with us spending, lending or using a guarantee in the trillions of dollars. What do you think a 65%debt to income for individuals in 1994 is when it jumps to 135% today? You had your inflation, and you didn't even recognize it.

Dan said...

Reminds me of Dr. Nick from The SImpsons, "Don't worry, it's in-flamable!"

Aaron Krowne said...

Money velocity is a bunk concept. What matters is whether the money is being usefully deployed -- which it is not, and was not before the crash, so there has been no change in that.

Second, what matters is confidence in the currency, both foreign and domestic. That has obviously plummeted, though few have acted on that change. But they will.

The Chinese are not going to say "oh, gosh, the money velocity is low now, so guess we can't dump our dollars!"

Adam said...

According to Steve Keen, the 3.2 inflation rate in UK is because of imported inflation.

The Pound has been depreciating relative to the Euro and Dollar.

SPECTRE of Deflation said...

Aaron, you are wrong. Is money and/or credit contracting or expanding when netted out. It's the only thing you need to know.

What they have thrown at the debacle doesn't begin to come close to what has been vaporized, and what still must be vaporized.

Unless you can point to figures above 50 Trillion being added to the global system, we are contracting and will continue to do so. 45% of the world's wealth has been vaporized so far.

Anonymous said...

A good portion of the wealth that was "vaporized" is immaterial. If you own your home outright (as one-third of Americans do) and it went from $200K up to $400K and back to $200K, what difference does it make?

Do the math - that's about $10 trillion right there.

SPECTRE of Deflation said...

Anon, you are kidding right? Outright homeownership makes the figures they provide us look better than they really are. When I pull out those figures, we are really screwed. Even if I agreed with your 10 Trillion dollar figure, which I don't, where in the heck is your other 40 Trillion and counting?

Again, for you slow learners, we went from 65% debt to income in 1994 to today's 135%. The consumer, who comprises 2/3 of our economy is toast. Does anyone really believe we go higher from here? Until the consumer straightens out his/her very shitty balance sheet, we are going down, and it ain't inflation you should worry about. You already had your inflation.

Tim said...

SOD - I'd be curious to hear you explain what Anon called the "immaterial" wealth that has gone bye-bye.

You can start with explaining, "Outright homeownership makes the figures they provide us look better than they really are" and then move on to just how much of the $50 trillion really is important and what's not.

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