Guido was more than sceptical when politicians and Labour luvvie economists like Gavyn Davies started talking up the bogeyman of deflation at the same time as the government was running up massive fiscal deficits. It seemed too handy a coincidence that they would print money on a scale never seen before at the same time as issuing debt on a scale never seen before. They subsequently, coincidentally, bought the debt using the money they had just printed.
This we were told was to stave off deflation which it was emphasised was very bad. Goods becoming less expensive was somehow worse than goods becoming more expensive. If we got deflation it would be the end of the good times for ever according to even monetarist economists. Guido was sceptical that deflation was necessarily bad, history shows that there have been times of increasing prosperity that coincided with deflation. Deflation happened several times in the nineteenth century. During that era of rapid economic development there were no central banks and money was calculated as a certain quantity of gold or silver.
Deflation was not necessarily a threat to our prosperity, in a situation where the money supply is stable it is the manifestation of prosperity and pensioners know that their standard of living would have improved. With inflation now upticking this experiment in Mugabenomics* has to be reversed without setting off hyper-inflation or collapsing the government debt market. The policy authorities have figured out how to prop up the gilt market – they are changing the regulations to force banks to buy government debt to the tune of hundreds of billions. It remains to be seen if they can avoid an inflationary catastrophe, surging record gold prices suggest the markets suspect not…
*©Vince Cable, who was against QE before he was in favour of it. God knows what he thinks now.