Wednesday, 28 July 2010

The Bank of England has abandoned the inflation target.

"I read a newspaper article the other day suggesting that a little more inflation might be a good idea because it would dissolve away mortgage debt. And a very senior executive said to me: 'Aren't we going back to the bad old days when we just devalued and inflated our way out of trouble?' We know the evils of inflation. We have to be incredibly vigilant."

I think it's sometimes a good idea to start a post with a joke.  So there is one above.  It has to be a joke, because the quote is from no less than The Bank of England's chief economist, Spencer Dale, in a recent interview in The Independent.

It is very clear, from my reading of the latest Bank Of England monetary policy minutes, that The Bank continues to conduct its monetary policy according to the following simple rule set:

1) Under no circumstances at present, can the Bank raise interest rates or reverse Quantitative Easing
2) Therefore, try and make the evidence fit premise 1) above.

If you read the minutes, the evidence they are looking at indicates that inflation will continue to remain above target for all of this year, and next.  And they have the unusual luxury of knowing with 100% certainty about one particular significant upward pressure on prices: the coalition governments planned increase in VAT to 20% in 2011.  But, presumably, the higher inflation as a result of the VAT rise next year will join the ever expanding list of "temporary" factors that have led to the 2% target being exceeded month after month after month.

"And a very senior executive said to me: 'Aren't we going back to the bad old days when we just devalued and inflated our way out of trouble?'"

The "very senior executive" quoted by Dale has concisely assessed in one sentence exactly what the Bank of England is doing! 

What action did the monetary policy committe decide on? Surprise surprise, continue to leave interest rates on the floor and in fact there's actually a hint there may be even more Quantitative Easing! Yes, a continuation of Wiemar Republic style money printing on the cards, in the face of an inflation rate that has and will continue to exceed the 2% target! Hence they are now cranking up the propaganda machinery: an increasing number of speeches and interviews like the one above from Bank Of England cronies telling us all just how "serious" they are about keeping inflation under control.


"We know the evils of inflation."

Yes you do, Mr Dale.  And you embrace them with gusto.  You and your grubby cohorts in the Bank, are a (and please don't be offended by this) bunch of robbing cunts.  I would like to counter-punch with this quote from Henry Hazlitt (THE INFLATION CRISIS, AND HOW TO RESOLVE IT, p32):

This is what "monetary management" really amounts to. In practice it is merely a high-sounding euphemism for continuous currency debasement.  It consists of constant lying in order to support constant swindling. Instead of automatic currencies based on gold, people are forced to take managed currencies based on guile. Instead of precious metals they hold paper promises whose value falls with every bureaucratic whim.

When did Hazlitt write that? Over thirty years ago, in the late 1970s.

plus ça change, plus c'est la même chose, eh Mr Dale?

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