Inflation: Printing Error

On the Today programme this morning George Osborne dismissed the inflation threat “Actually the problem at the moment is too little money… That’s why the independent monetary policy committee came to its judgement” Is that really true?

The MPC has failed for 60 months in a row to meet its inflation target of 2%, inflation will probably come in at 5% next month. That clearly isn’t a deflation problem, it is an inflation problem which gives savers and pensioners on fixed incomes negative real interest rates, deliberately halving the real value of their pensions in little over a decade. That isn’t an unfortunate consequence of government policy, it is a deliberate policy aim because it also halves the government’s debts in real terms as well.

Those dangerous radicals at SAGA, the retirees organisation, are describing QE as aTitanic Disaster,

“QE2 will damage pensions, impoverish pensioners and ultimately risk another crash. Inflation depletes spending power. It does not create growth. This inflation has undermined confidence and caused consumers to retrench, which has actually weakened the economy. The authorities must take heed of these dangers before it’s too late.”

The Monetary Policy Committee is simply no longer even trying to contain inflation, the Federal Reserve in Washington and the Bank of England in London are, in concert with their respective treasuries, deliberately letting inflation go to solve the government debt crisis on the backs of pensioners and prudent savers. The only reason they don’t say it explicitly is because if inflation expectations were to be higher it would feed, reflexively, into even still higher inflation. That is why Mervyn King has disingenuously claimed for 5 years that inflation is “a blip”. Some blip…

This from the party of sound money will hit a key voter demographic hardest, the demographic that is most loyal in voting for the Conservative Party, affluent retirees. David Cameron’s conference speech last week was nowhere near as good as his 2008 speech:

I believe that government’s main economic duty is to ensure sound money and low taxes. Sound money means controlling inflation, keeping spending under control and getting debt down. So we will rein in private borrowing by correcting that big mistake made by Gordon Brown, and restoring the Bank of England’s power to limit debt in the economy.

In government and at the Chancellor’s behest we are seeing the printing of money on a scale never seen before, inflation is uncontrolled, spending is rising, debt is being encouraged to rise. The Chancellor plans to facilitate more private borrowing from the Treasury by poor corporate credit risks and the Bank of England now holds on its books a third of all the government debt outstanding with no credible plan to unwind the hundreds of billions in QE driven government gilt purchases. Sound money? What a joke.




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