Thursday, 11 January 2007

Stagflation, anyone?

The Bank of England have raised interest rates to 5.25% today. Although the MSM will say this is a shock; it is nothing of the sort.

(A small digression here, most of the predictions you read in the papers come from Nationwide, Halifax and so on. As big mortgage lenders they always say interest rates have peaked, they want more customers after all. Trust only statements from independent economists or institutions that don't have some skin in the game.)

Indeed, my many posts and others on "Labour Inflation Lie's", show that real inflation is much higher; to curb this we need higher interest rates.

However, growth the past 2 years has been financed by cheap debt. The government has expanded spending by printing more money and the consumers have borrowed on credit cards and mortgages.

So a rise in interest rates will hit us all hard (Slicker included!). More rises are on the way and this will cause a general slowdown. However, the government spending goes on printing money (see here) and there is no other growth in the economy. So we have a low growth economy with high inflation. if House prices crash, a possibility, though not a likelihood.

This is known as Stagflation.

Well done Gordon, you have matched my expectations of dragging the economy back to the 1970's. Shame that nice Tory economy you inherited meant you got 5 years extra to achieve your dream, but he-ho.

Now, where's my passport?

Seriously though, make your job secure. The government will be forced to cut the money supply and so reduce demand. Unemployment has already been creeping up and will be forced up further by the cut in supply.

19 comments:

Anonymous said...

Does this mean higher petrol prices?

Anonymous said...

As my husband drives 3 hours a day, petrol prices is always his main concern. We need those lorry drivers to arrange a few more blockades.

I've just heard on the news how many homeowners could be pushed over the edge by this latest rise as it is the third rise in six months, and just after Christmas too with those added expenses.

Rigger Mortice said...

CU the link to the money supply graph-i presume that's what it is isn't there.

I for one have been bearish on the UK economy for a while.levels of debt are way beyond common sense on both a govt and personal level.it will unwind and could well be helped by a run on sterling which is nearly as exposed as the dollar.

iof only we could rely on lowering oil to bail us out but I fear they've been undercalculating inflation for way way too long.

James Higham said...

Now, where's my passport?


There are those of us, Cityunslicker, who did this.

Stan Bull said...

There are those of us, Cityunslicker, who did this.

Join the club, sir.

Anonymous said...

I have had a sort of animal instinct that things were starting to go badly wrong .Interesting Mr. CU I must look in more often.

(I will look at the inflation lie now because I`ve been certain that this was the case for ages )

Croydonian said...

The TUC doesn't approve: Today's decision smacks of panic rather than considered judgement. The MPC itself has said that it expects inflation to fall in 2007 as the effects of higher energy prices fade. There is not enough evidence to justify an increase in rates, which will be damaging for industry."

Fair to say they have an agenda....

CityUnslicker said...

Ellee - no, petrol should be on the way down overall. However the average price is still $55 which is very high by historical standards.

As for homeowners, yes it is not great is ut?

Rigger - Absoluteld right. Fixed the link too. Can't see Oil coming down too much. Attack iran anyone?

JH/IT - Too right. however I would be interested to understand the infltaion-interest rate ratio's in your residencies...

Croydonian - thanks for the link. If the TUC reckon it is wrong then the Bank must surely be right to raise the rate!

Rigger Mortice said...

Fair to say they have an agenda....

not half adn their statement does beg the question what the '''/ do they know

Tony said...

Excellent analysis CU. By the way, please could you email me at your leisure, kind sir? Thanks.

Unknown said...

Quite a good litmus test, isn't it?

Anonymous said...

CU Do you ever Blog about the supply side of the economy. It is ths that is suffering and the core problem.

Whats happened to the BOP ?

IMHO

Anonymous said...

Will CityUnslicker be joining James in the Russian Fed??

Anonymous said...

Or Istanbul Turkey if he prefers a warmer climate? Or PragueTory?

I will believe lower petrol prices when I see it, btw.

CityUnslicker said...

Newmania- I shall put it on my wish list. Have several ideas there now so may see an increase in posting!

Ellee- May be going to Russia very soon, but only for work. Never been to Turkey.

Petrol prices should drop a little more, given where the oil price is now should settle around 83-85ppl.

Praguetory said...

Good post - I note your silence on the Prague connection. *grins*

CityUnslicker said...

PT - lost me with that one!

Newmania - see here this aricle and comments at Wat Tyler's place. We have a nice discussion re suplly side and Wat has good links too.

http://burningourmoney.blogspot.com/2007/01/moneys-not-for-burning.html

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