Thursday, 5 July 2007
UK Interest rates up again; but US hold?
Well the expected rise has happened today. From the reaction of the bank it seems likely that 6% will be hit, as I predicted and many poo-pooed (Law of averages is catching up with me, I have to be right sometimes...)
But will it stop at 6%; I am not so sure now. The price of oil is rising fast again and the stock markets never caught their cold. Prices of key raw materials like copper are going up sharply too.
But the main factor as ever remains the money supply, which is simply not being restricted, banks are creating money through debt issuance, as is the government through the high PSBR. More money in circulation means higher inflation and there is no escaping it (yes I am a monetarist).
See Fabian Tassano for an excellent pair of graphs on the difficult US position re money supply too.
This is true for the US too, yet the Fed is holding rates as their housing markets slumps in a way that is much harder to 'achieve' in the UK.
Unfortunately, all is set for a huge overshoot, with rates going up further than needed and a recession to follow that will be deeper than 'necessary.' It can be avoided with a sharp reduction in money supply and careful interest rate management, but hard hats required is the likely scenario.
If I knew when this should happen I would be off spending my millions, that is the big trick, the pattern is clear but the timing is opaque.
Posted by CityUnslicker