Grim News: BoE Inflation Report to show CPI hitting targets

MacMickster

homelessskilledworker wrote: »

This is said far too often, that the bank will just go off and keep printing loads of dosh everytime there is a headache in the UK economy.
I do not see that happening, how many times did you read in the history books about Micky Mouse economists and leaders looking like complete tools trying to print their way out of trouble, money printing the sign of a out an control economy led by muppets.

Yeah we are bad, but not that bad are we??

Part of the problem is that with Fractional Reserve Banking, the banks themselves increase the UK money supply whenever they make a loan.

The level of lending in the years leading up to the current crisis dramatically increased that money supply leading to significant inflation of asset prices (particularly housing) rather than inflation in the prices of consumer goods.

Since the beginning of this crisis there have been significant reductions in the levels of debt with people making efforts to repay their loans, whilst the banks have been reticent to make new loans. With FRB, the money created when a loan is made is extinguished as that debt is repaid.

If the money supply decreases then we are faced with the prospect of deflation rather than inflation. QE effectively just replaces the money disappearing from the supply as debt is repaid, preventing deflation which would be disastrous for our economy given the magnitude of the national debt.

HAMISH_MCTAVISH

oldvicar wrote: »

the more they do it, then I believe the greater the potential for hyper inflation in future, which makes me uncomfortable.

"hyper-inflation" can only happen if the money supply increases rapidly.

The money supply is falling.

Where does hyper-inflation come from when there are less pounds in existence today than there were a year ago, despite QE?

oldvicar

HAMISH_MCTAVISH wrote: »

"hyper-inflation" can only happen if the money supply increases rapidly.

The money supply is falling.

Where does hyper-inflation come from when there are less pounds in existence today than there were a year ago, despite QE?

When things return to 'normal', as hopefully they will, what will happen to the Bank's QE?

Will the gilts they've bought be sold back to the market, reducing money supply, or be left sloshing around in the system? My guess is the latter, unless government balances its fiscal books and maybe even starts repaying a little of its debt it won't want its cost of borrowing put back up.

So QE is for now oiling the wheels and indirectly helping rebuild capital reserves in the banking system. But when we return to boom times government will be tempted to acccept inflation rather than repay it. In fact I believe this to be part of the cunning plan (conspiracy theory).


I'll admit I am no economist (by now that must be obvious) and I probably understand less than you Hamish. But perhaps you can comment on the Bank's latest wheeze of £80bn Funding for Lending. Is this increasing the money supply? [In which case I'll continue to be on my guard re inflation prospects].

CLAPTON

homelessskilledworker wrote: »

The best thing that could happen to those heavily mortgaged or even anyone in too much debt would have been a few years high inflation. I was convinced they would go down this road in order to save a sizable minority that could do untold damage to our economy.

Back in the 70's when homeowning baby boomers were at their working peak they all had their lovely big mortgages inflated away to peanuts. The way things are going now with low inflation(and it has been a success story over last 15 years) there are many who might as well just say goodbye to a property ladder and say hello to the slow boiling frog scenario.

in the mid 70s baby boomers were aged between about 10 years old and 30 years old;
but life was harder then and they were all probably at their working peak.. there were still mines to send them down then.

A._Badger

homelessskilledworker wrote: »

say hello to the slow boiling frog scenario.

Which is another urban myth.

Thrugelmir

MacMickster wrote: »

Part of the problem is that with Fractional Reserve Banking, the banks themselves increase the UK money supply whenever they make a loan.

Been decreasing for a while as higher capital requirements have been imposed. Still some way to go yet.

HAMISH_MCTAVISH

oldvicar wrote: »

When things return to 'normal', as hopefully they will, what will happen to the Bank's QE?

Will the gilts they've bought be sold back to the market, reducing money supply, or be left sloshing around in the system?

What we know so far is that despite QE, the money supply has fallen.

Credit money is being repaid and ceasing to exist as new lending does not happen fast enough to replace it.

If in the future lending, and thus the money supply, increase to the point of causing inflation then the BOE will have a range of policy responses available to it to tackle that issue.

At the moment though, the threat is from a decreasing money supply, not an increasing one, and the response of the BOE to date has if anything been too little "money printing" rather than too much.

I'll admit I am no economist (by now that must be obvious) and I probably understand less than you Hamish. But perhaps you can comment on the Bank's latest wheeze of £80bn Funding for Lending. Is this increasing the money supply? [In which case I'll continue to be on my guard re inflation prospects].

The money supply isn't increasing, it's falling.

With any luck funding for lending may be able to reverse, or at least slow down, some of that decline. Which is needed. So if it does increase the money supply then it will be a good thing.

DiggerUK

homelessskilledworker wrote: »

......Yeah we are bad, but not that bad are we??

I think if you listen to what Mervyn King has said today, especially the bit about more stimulus being left on the table for consideration, then the answer to your question has to be yes.

As plan 'A' is down the pan, it seems that plan 'IMF' is the way they are going to go. Look at how abruptly they aligned themselves with the IMF plan at July's meeting.
..._