PowerSwitch

How can he be? Are we being lied to?

"He added that the Bank would "ensure" that inflation slowed to target levels."

http://newsvote.bbc.co.uk/1/hi/business/7474939.stm

He's talking rubbish - he's not at all confident. However, he has to appear confident as getting inflation back to 2% is he job! The only time he can say there's no chance of inflation returning to target is in his letter of resignation.

He is giving out the same line as the Morgan Stanley economist I heard at a talk about the credit crunch earlier in the week. I must say that I'm impressed at how synchronised these guys are: like client computers connected to a network server!

Is it actually possible to have inflation at 2-3% in the same year that oil, gas, iron ore, etc prices pretty much double.

Is inflation just a measure of increase in the money supply so can be restricted to low single figures when commodity prices are changing an order of magnitude faster?

snow hope wrote:How can he be? Are we being lied to?

yes.

snow hope wrote: "He added that the Bank would "ensure" that inflation slowed to target levels."
http://newsvote.bbc.co.uk/1/hi/business/7474939.stm

Only by totally destroying the UK economy. A mob will lynch him on a lamp post outside the Bank of England before that happens.

biffvernon wrote:Is it actually possible to have inflation at 2-3% in the same year that oil, gas, iron ore, etc prices pretty much double.

Is inflation just a measure of increase in the money supply so can be restricted to low single figures when commodity prices are changing an order of magnitude faster?

No, inflation is a measure of increase in prices. Prices can increase without money supply increasing when volume decreases.

clv101 wrote:

biffvernon wrote:Is it actually possible to have inflation at 2-3% in the same year that oil, gas, iron ore, etc prices pretty much double.

Is inflation just a measure of increase in the money supply so can be restricted to low single figures when commodity prices are changing an order of magnitude faster?

No, inflation is a measure of increase in prices. Prices can increase without money supply increasing when volume decreases.

Yes, but the volume of hard assets to be valued never decreases. Paper assets can, as at present, but this too is preceded by an expansion of money which causes the paper asset growth.

Inflation is too much money chasing too few assets, and is almost invariably caused by an expansion of money and credit. Prices can increase without money supply increasing, but ONLY if prices of other things go down to balance.

Muad'dib wrote:
Yes, but the volume of hard assets to be valued never decreases.

Oh yes it can. Its called depreciation. Iron rusts, wood rots. All food becomes inedible and valueless in time. Your house will fall apart if you don't maintain it. Just maintaining a constant volume of 'hard assets' requires a constant energy input. Then there's consumption... stuff gets used up, degraded. Even gold gets used, dispersed and lost.

Moadib wrote: Inflation is too much money chasing too few assets,

Inflation can also be a constant supply of money chasing a diminishing supply of assets due to a declining availability of energy to maintain the volume of those assets.

Its unfortunate that economists, due to their inadequate education think that money makes the world go round, and this widely prevalent view confuses so many people. In reality it doesn't, energy does. Money, at base, is simply a convenient way of keeping track of and controlling who is allowed to use what energy.

Even then, fiat currency is a somewhat dodgy mechanism, and open to all sorts of dangerous manipulations. Viz the current credit crunch, bought on by the absorption of the financial services sector by white collar criminals. Prudent money management abandoned via 'deregulation' in order to maximize the generation of commission from unintelligibly complex financial derivatives and 'liar loans'. A nice game so long as the music never stopped.

So is the massive increases in commodity prices being matched by a decrease in the price of, er, CDs, to give us a net low single digit inflation rate or is it just piling up the pipeline?

Or maybe it's not CDs but houses?

skeptik wrote:

Moadib wrote:
Yes, but the volume of hard assets to be valued never decreases.

Oh yes it can. Its called depreciation. Iron rusts, wood rots. All food becomes inedible and valueless in time. Your house will fall apart if you don't maintain it. Just maintaining a constant volume of 'hard assets' requires a constant energy input. Then there's consumption... stuff gets used up, degraded. Even gold gets used, dispersed and lost.

Moadib wrote: Inflation is too much money chasing too few assets,

Inflation can also be a constant supply of money chasing a diminishing supply of assets due to a declining availability of energy to maintain the volume of those assets.

Its unfortunate that economists, due to their inadequate education think that money makes the world go round, and this widely prevalent view confuses so many people. In reality it doesn't, energy does. Money, at base, is simply a convenient way of keeping track of who is allowed to use what energy. Even then, fiat currency is a somewhat dodgy mechanism, and open to all sorts of dangerous manipulations. Viz the current credit crunch, bought on by the absorption of the financial services sector by white collar criminals. Prudent money management abandoned via 'deregulation' in order to maximize the generation of commission from unintelligibly complex financial derivatives and 'liar loans'.

Spot on! I sign here:__________

Add that inflation by over-issuance of money is extremely easy to accomplish, and represent an almost unavoidable temptation for those who have the power to issue money:

- I will just issue this little extra money (in secret of course).

- Only this time. I will take care of the structural problems tomorrow. I promise!

- Well, it worked pretty well the last time and people hardly noticed. They take certain inflation for granted anyhow.

- Don't come talking about "long term" stuff! That's for historians. We have a problem NOW!

Superb post Skeptik. You got it spot on and I agree with what you have said so well.

clv101 wrote:He's talking rubbish - he's not at all confident. However, he has to appear confident as getting inflation back to 2% is he job! The only time he can say there's no chance of inflation returning to target is in his letter of resignation.

Well, if he gets desperate there's always the option of altering the items contributing to the CPI and/or their relative weightings

peaky2 wrote:

clv101 wrote:He's talking rubbish - he's not at all confident. However, he has to appear confident as getting inflation back to 2% is he job! The only time he can say there's no chance of inflation returning to target is in his letter of resignation.

Well, if he gets desperate there's always the option of altering the items contributing to the CPI and/or their relative weightings

The real reason for his confidence, maybe . . . ?

biffvernon wrote:Is it actually possible to have inflation at 2-3% in the same year that oil, gas, iron ore, etc prices pretty much double.

Course it is. The rate of inflation should always exclude food and fuel, otherwise you'd be in trouble, wouldn't you?

I'm King confident they'll get inflation back under control once interest rates hit 12% some time 2011.

That'll be King fun