Wednesday, 19 November 2008

BOE: Lost and without paddle, boat leaking


The notes from the last BOE meeting are out today. They make grim reading. In short as I see it, they say they had little idea of what was going to happen to Lehman's or post Lehman's.


great - they have no foresight, by admission. Historically interest rate adjustments have been use to control the economy over the next 2 years. So a lack of foresight is rather a problem.


Then they go on to note that rates will come down further as inflation falls below target. This is all well and good for the next 6 months. then what?

I fail to see how inflation can remain low when all the deleverage has occured. The £ will be low and imports will cause inflation, the closing of factories will mean less suppliers. less suppliers eqauls infaltion in time as demand picks up again.

Given that commodities et al are markets I fully expect them to over-shoot on the downside. Hence we will have inflation, especially if the dollar tanks too as is likely at some point next year. G20 Global fiscal stimulus is inflationary too in the medium term.

Yet the bank sees maybe 0% interest rates next year. maybe so, but I hope not for long. otherwise the doomsday scenario o f borrowers being killed by deflation and then savers by inflation will come to pass and we will all be immeasurably poorer for it.

11 comments:

Mark Wadsworth said...

As Philip Thomas points out (at some length), the main function of the BoE's MPS is to make things worse than they otherwise would be.

But like any government body that interferes in the markets, their secondary rôle is to create opportunities for speculators. The question remains; what do we bet on now?

Alice Cook said...

That is it exactly; they are clueless and have no idea what is going on. So in the absense of a better idea they cut their rates.

Great post.

Alice

Sackerson said...

Thnik you're right. Best to be a borrower who has sufficient equity not to get foreclosed - maybe don't pay off the mortgage, buy gold on the overshoot?

Blue Eyes said...

All I want is another asset-inflation bubble so that I can recover my position in time for the next crunch. If that means 0% rates and a resultant wage spiral then so be it...

Anonymous said...

otherwise the doomsday scenario o f borrowers being killed by deflation and then savers by inflation will come to pass and we will all be immeasurably poorer for it.

That is the plan

Dr Ed said...

Apologies for changing the subject, but I’ve been meaning to ask for ages.

I’m going to America in march for a considerable period of time (not on expenses), is it worth getting half my money now just in case the £ gets worse?

I meant to get dollars at Christmas but I was trying to open an American bank account (and failed). I should have just done the layman’s route and just bought it as cash money.

Guess how much I’m kicking myself now?

CityUnslicker said...

Dr Ed - by March the $ could have lost some of its current lustre. FX is so very hard to predict - but perhaps make a small hedge in cash now if you can?

James Higham said...

Difficult to foresee when one is snout high in the trough and lapping it up at the time.

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