Imagine yourself sitting on the monetary policy committee. Along comes one of your Bank of England flunkies and hands you this chart describing recent factory gate inflation.
What would think? Is there a trend emerging here? Is it time for another interest rate cut, perhaps?
If I was on the MPC right now, and would be crapping myself and voting for massive interest rate increases.
ReplyDeleteTo cut or not to cut,
ReplyDeletethat is the question....
CPI numbers out tomorrow. That should be interesting. If the number is above 2.5 percent, then the BoE will be in deep trouble.
ReplyDeleteAlice, really, if you continue posting top stuff like this I shall have to seriously consider promoting you to my Top Twelve Blogs. Keep up the good work.
ReplyDeleteI'd hike rates by 1% FWIW.
I want to see rates shoot up. But then again, everything I own is in cash, so that's self interest talking.
ReplyDeleteImagine what another 1% will do to house prices.
Nick
Mark and Nick
ReplyDelete1 percent - it will never happen. The housing market is crashing and it needs help now. The MPC will cut rates.
It is the right thing to do right now. A housing crash will bring the whole economy down. Worry about inflation later.
"Mark and Nick
ReplyDelete1 percent - it will never happen. The housing market is crashing and it needs help now. The MPC will cut rates.
It is the right thing to do right now. A housing crash will bring the whole economy down. Worry about inflation later."
The BoE has no business putting a floor under the housing market. It's not in it's mandate and it's deeply immoral. Why only support bad decisions in housing? Why not anything else?
If I buy a Wii for £500 on ebay because I'm a desperate fool should the BoE help me out with a rebate for the difference to the £170rrp?
If I gamble my life savings on black at the roulette table and the ball lands on red, should the BoE print me my money back?
Foolish, mate. Totally foolish. I don't suppose you are a homedebtor then?
"Worry about inflation later" is about the worst thing a central bank can do. That's like jumping off a cliff and worrying about the landing later.
Nick
asteve,
ReplyDeleteI don't think you are as alone in that line as thought as perhaps you think. Most of the deflationista stuff I'm reading is talking about the pricking of an unsustainable 30-year credit bubble now that the debt limit has been reached.
We've just entered into the Great Leverage Unwind. Good piece in the Torygraph about it recently.
Nick
When you say 'worry about inflation later' all you really mean is 'prop up the housing bubble as long as you can and then eventually pop it when you're forced to increase interests rates'.
ReplyDeleteIf I was the chancellor of the exchequer I'd be looking at serious spending cuts (starting with non-defensive military engagements) so I'd have room to cut taxes to compensate people for the increase in living costs they'd see from raised interest rates.
ReplyDeleteIts quite clear to me that rates need to rise. Decreasing rates will only help UK productivity internally while devaluing the pound. These means that everything we import will be more expensive and those things we export (if there is anything!) will be too expensive outside of the UK to buy. Given that we have no UK production to we are dependent on imports and a failure to raise rates will mean ever-increasing inflation. We are better off trying to keep the pound high against the dollar and euro, especially if you consider say the cost of oil when the pound is back at $1.60, if we want to be able to afford to eat travel etc.
ReplyDeleteI also fail to see a direct link between falling house prices and the downturn in the wider UK economy (i.e falling house prices hinder the economy, I get how it works the other way round :op). Yes there will be losers but surely that will be limited to those that took excessive risks? Perhaps the answer is to do with the fact the entire UK economy is built on credit and that when people can't borrow then they can't buy?
CPI inflation - 3 percent. No way the BoE can cut rates now.
ReplyDeleteNick, if I'm not alone in my hunch (above) about what is happening now, then I am extremely pleased (as opposed to miffed that I'm not first to break it!)
ReplyDeleteWhile I've read most of the elements of the above elsewhere, I think it is my interpretation of the macro-effect of securitisation (and why it was doomed to collapse from the outset) that distinguish what I said from the mainstream.
If you have specific references from credible sources, I'd sure like to see my view endorsed... having arrived at if from what I think are first-principles. ;)
asteve,
ReplyDeleteIt was precisely because you argued from first principles that it's interesting, and I'll agree you are coming at this from a slightly different angle (though arriving at the same place).
Here's some recent links I think might help you feel validated
http://www.eurointelligence.com/article.581+M56281b9bdf3.0.html
http://www.debtdeflation.com/blogs/2008/04/09/the-daily-telegraph-terrorises-the-rba/
Nick