BoE hands QE income to Treasury

George_Michael

cloud_dog wrote: »

Feel free to validate where we have suffered sustained inflation.

We haven't really suffered significant inflation since the early 80's.

Really?

Food prices in Britain have risen by 32 per cent since 2007, double the EU average, according to figures released by the Department for Environment, Food and Rural Affairs (DEFRA).

Average petrol prices in the UK.
2007 - 98p for a litre of unleaded petrol
2008 - 103p for a litre of unleaded petrol
2009 - 98p for a litre of unleaded petrol
2010 - 118p for a litre of unleaded petrol
2011 - 133p for a litre of unleaded petrol

And as for gas and electricity, I don't know which link to post.
This one maybe
http://www.guardian.co.uk/money/2011/jul/08/british-gas-raises-gas-electricity-prices

British Gas has stunned households across the UK by announcing a rise in gas and electricity prices of 18% and 16%, just eight months after it raised its prices by 7%.

So food has risen way above the average wages rises, as has petrol, heating oil, gas and electricity.

As these are the main outgoings for the majority of households, how can you honestly claim that there hasn't been significant inflation since the 80's.

grey_gym_sock

gadgetmind wrote: »

HMG have effectively borrowed money from future generations.

not if there is no need to reverse QE.

or rather: they have still borrowed from future generations by running a structural public sector deficit, but excluding the part of the deficit which has been cancelled out by QE.

short version: it's bad, but it's not that bad.

cloud_dog

George_Michael wrote: »

Really?





And as for gas and electricity, I don't know which link to post.
This one maybe
http://www.guardian.co.uk/money/2011/jul/08/british-gas-raises-gas-electricity-prices



So food has risen way above the average wages rises, as has petrol, heating oil, gas and electricity.

As these are the main outgoings for the majority of households, how can you honestly claim that there hasn't been significant inflation since the 80's.

No one is denying prices haven't gone up, as I have stated in my posts but, there is a differences between inflation and the price rising due to demand, or supply issues.

Recently potato prices increased significantly, this wasn't due to inflation merely low production because of the wrong type of weather for potatoes.

grey_gym_sock

in the last 5 years, clearly a lot of ppl have been suffering from sub-inflation pay increases. that is a different problem from excessively high inflation. 3% isn't excessively high.

cloud_dog

grey_gym_sock wrote: »

not if there is no need to reverse QE.

or rather: they have still borrowed from future generations by running a structural public sector deficit, but excluding the part of the deficit which has been cancelled out by QE.

short version: it's bad, but it's not that bad.

It all depends what they do in the future to 'reset' what they have undertaken to prevent depression / deflation.

What ans when is going to be critical (in my opinion).

cloud_dog

Sorry....... another example of price increase which is not directly related to inflation....... Diesel fuel. This has risen significantly in the past, in excess of petrol, due to refining capacity.

Linton

George_Michael wrote: »

....

As these are the main outgoings for the majority of households, how can you honestly claim that there hasn't been significant inflation since the 80's.

I am not an economist, but my understanding is....

Inflation isnt simply an increase in prices. It is a decrease in the value of money caused by more money being in peoples' pockets than there are goods to buy with it. So the prices increase as people effectively outbid each other to get the limited number of goods. A key indicator of inflation is not rising prices but rather wages rising ahead of production. Prices then rise as a result of the rising wages.

The problem at the moment isnt people having more money than there are things to buy with it - wages are static. Instead global commodity prices have increased due to increasing demand, money is being spent on raw materials rather than the manufacture of goods and services causing a recession in the developed world. So reducing the amount of money in circulation just makes things worse.

Unfortunately at the same time we have the need to recapitalise the banks. The banks are lending less than they receive in deposits. Plus loans are being paid off - so money is being passed back to the lenders who then put it in a bank. So there is even less money circulating. That is deflation.

posh*spice

The Bank of England has just crossed the line into straight government financing

http://blogs.telegraph.co.uk/finance/jeremywarner/100021222/the-bank-of-england-has-just-crossed-the-line-into-straight-government-financing/

I do like this bit

It's as if Osborne has died and been reborn as Gordon Brown

:rotfl::rotfl:

cloud_dog

posh*spice wrote: »

cloud-dog doesn't go food shopping nor pay the utility bills....

Oh dear....... you know what they say, you can lead a horse to water.....

GeorgeHowell

Linton wrote: »

I am not an economist, but my understanding is....

Inflation isnt simply an increase in prices. It is a decrease in the value of money caused by more money being in peoples' pockets than there are goods to buy with it. So the prices increase as people effectively outbid each other to get the limited number of goods. A key indicator of inflation is not rising prices but rather wages rising ahead of production. Prices then rise as a result of the rising wages.

The problem at the moment isnt people having more money than there are things to buy with it - wages are static. Instead global commodity prices have increased due to increasing demand, money is being spent on raw materials rather than the manufacture of goods and services causing a recession in the developed world. So reducing the amount of money in circulation just makes things worse.

Unfortunately at the same time we have the need to recapitalise the banks. The banks are lending less than they receive in deposits. Plus loans are being paid off - so money is being passed back to the lenders who then put it in a bank. So there is even less money circulating. That is deflation.

Deflation is actually the opposite of inflation, ie price levels falling. It is considered very dangerous because it can cause people to postpone spending in anticipation of lower prices tomorrow thus causing a depression to spiral out of control. One of the justifications for QE in the early days was to head off the perceived risk of deflation.

Inflation is simply an increase in prices, that's what it means. A consequence of it is depreciation in the spending power of funds held. It can be caused by 'demand-pull' ie too much money chasing too few goods. It can also be caused by cost push, as for example in the case of utilities where demand flex opportunity is fairly limited and a cartel can use cost increases on its raw materials (gas and oil) as an alibi to price almost as it chooses.

The present extended recessionary situation probably now has most to do with psychology and expectations, both in the business and consumer arenas. Consumers don't feel very well off (especially with house prices flat which always seem to have an irrational effect on consumer confidence) so they tend to hold back on discretionary expenditure and avoid increasing their debt. Consumer industries hold back on investment until increased demand is evident and demand for capital goods is therefore also lower. Eventually these things tend to ease away as consumers get fed up with austerity and start awarding themselves some retail therapy whether they think they can afford it or not.

The money supply tends to adapt to circumstances unless HMG is specifically trying to manipulate it -- it's very flexible and there are a lot of fingers in the pie.