Wednesday 25 March 2009

Deflation talk is a cover for the Government to rob you

In the final stages of a Ponzi scheme things get stressfull for those in charge. Money ceases to come in at a rate fast enough to cover the interest payments to those already on board. The system starts to unravel and it is time to flee or hand yourself into the Police.

In the UK, we face an economic disaster and the Labour Government are determined to make it worse. They will have the Socialist redistribution of wealth by making us all much, much poorer. They will end their Ponzi scheme by laying waste to everything.

The Labour Government spent too much money from 1997 -2009 and allowed the property bubble to go too far. We now have a bust, the likes of which have not been seen in a century.

The response to this is more Government spending and a fingers-in-the-ears approach to all criticism. Worse, there IS a new plan. The Government and the banks know that they cannot repay the debt they have saddled the future British taxpayers with. So the only solution is to ignite inflation which will quickly whittle away the value of the debt, and it will quickly whittle away the value of everything you own too.
No more holidays, no more restaurants, no more new cards, no more imports at all (think virtually everything you buy). It is quite possible, even likely, that the absolute level of devaluation will mean that UK living standards are reduced to the levels of Portugal or Greece in short order.

The Government know that no one would willingly want to inflate away all of their own wealth and so the deceptive cover they are using is the threat of deflation. As yesterday's and the previous months inflation data show; there is not going to be major deflation post the pound' rapid devalution; and yet still we have record low interest rates and quantitative easing. High inflation is the desired outcome of current policy.

As I happen to think Gordon Brown only cares about his precious party; there is also an upside for the Labour party too. Inflation will not start to spike until early next year, this will be spun as a sign of successinstead of abject failure and will allow Labour to lose the next UK election by a smallish margin. The incoming Government will then be faced with an utterly wrecked economy that will take hard, unpopular decisions to sort out. If you want to know how hard, read this on the fall of the Czech Government yesterday.

Labour will then be primed to return in 2015. All that is good for the Labour party is good for the country.
UPDATE: UK Gilts auction failed today, this has happened in the past decade by 1% or so. This time it was by 7%. Institutions are wary of the Government clearly falling out with the Bank of England, especially when the Bank is in the right and the Government the wrong.


not an economist said...

Crikey. And I thought I was a miserable bugger with my postings on this sort of thing. Unfortunately I find myself in general agreement. Although I think Labour may win the next election.

Richard Elliot said...

no more new cards... not even birthday or mothers day?

On a seriuos note, do you think the BofE are complicit in the desire for high inflation? Or don't they have the power to stop Brown / Darling?

Old BE said...

I assumed all this was common knowledge! It has been obvious to me for a while. But I see the reduction in living standards as entirely necessary because the level we reached thanks to our debt-inflation boom was not based on real productivity and was therefore an illusion based on other countries' willingness to sell us stuff that we couldn't afford.

That doesn't make it any easier of course.

Although moral hazard is all over the shop, I can't help wondering if inflation is the lesser of the two evils. Would 5 million unemployed be better? I think people who hold their life savings in cash are probably foolish to do so and anyone who experienced the 70s would be mad to!

Richard Elliot said...

@ BE I think people who hold their life savings in cash are probably foolish to do so and anyone who experienced the 70s would be mad to!

Aren't people approaching retirement age told to move into cash to avoid short term fluctuations in share prices?

For the rest of us, everything else seems to be falling rather sharply in value!

Where should we put our life savings?

Roger Thornhill said...

You are not wrong. The Libertarian Party called the lie of QE already.

It is theft, pure and simple.

We need sound money NOW. Free banking, a stable fiat and a gold-backed safe haven.

Old BE said...

Richard - youngsters like us should invest in things which hold their value in the long-term: property and pension funds. People coming up to retirement don't have many options but property is still a good one. With high inflation the stock market will pick back up again nicely so maybe now is the time to buy shares!

Anonymous said...

We already have high structural unemployment. We just pretend they are off sick.

Personally I believe we are in for 5-10 years of really bad times for the UK; but at least with no money for imports we might at last begin to shift for ourselves & make things again.

CityUnslicker said...

SW - Much as I agree, it is not all about making things. this seems to obsesses people. japan and germany make a lot of things and they are suffering more than us in this downturn.

It is though about real economic activity, not that created out of taxed funds.

Write About Property said...

Great post, I think you could be right, although i disagree with just how deliberate it all is. I mean, what else can they do. Undoubtedly the government spent too much, especially trying to match the US in their war on terror, but that was Blair's doing.

I'll be adding you to my techno faves. Check out my latest blog on the UK property market:

Please don't think I'm spamming. Just love Technorati and want to get some more authority (my last blog had 13 before I found out what technorati was).

Anonymous said...

Shrinking GDP.

Increasing debt.

When interest rates rise on increased Debt, as they will........

Falling pound, increased import costs. EU engineered imported food dependence.
Fishing, milk, set aside,......

Less disposable income from both higher taxes and increased cost of living, disguised to keep pensioners starving.

Stupid green agenda, understating costs of such, overstating outputs....

Hidden carbon taxes everywhere to feed EU.

Welcome to 1910.

BUT US is going same way.

At last, somebody gets it.

Anonymous said...

I'm with the Austrian School on this one - deflation is actually a good thing as it purges the system of the malinvestments caused by the ponzi scheme inflation.

Anonymous said...

Conservatives would be mad to want to follow-on after Liebour bankrupts Britain. The Scottish monster must be left to win the next election so that he and his fellow travellers immolate in the financial firestorm they have ignited.
It will take decades to rebuild the UK but first annihilate Liebour, they must pay the full price for financial high treason..

Wolfie said...

You seemed to have changed your tune a bit lately, sounds a bit more like my analysis now.

Time to stop reading that Common Purpose tool Peston then.

I think we are soon going to find out what all that strange "New World Order" waffle that Gordon keeps blathering was about. One with Britain at the bottom.

Jim Baxter said...

Chilling, i.e. entirely credible, analysis. Brown cares only about the Labour Party, true, but that's because he thinks he is the Labour party.

CityUnslicker said...

Wolfie - At every junction the wrong decisions have been made. My thoughts go with them as there are alternative solutions to what we have ended up with.

At the moment it is all flashing red.

loveandtheplanet said...

Deflation talk is just the current way for this Government to rob us.

This Government has been robbing us for 11 years. They have been robbing us to make the rich richer, and to lift the poor into the more unproductive, wasteful, and decadent habits that can be copied from rich celebrities.

They hid under the guise of Socialism, and the fools who voted them in the second and then the third time couldn't even be bothered to lift the mask.

Let's face it.. Gordon Brown is almost as hated as was Margaret Thatcher. It just hasn't been fashionable to admit it, because traditional sexism hasn't disappeared yet. It was easier to openly hate a Woman leader than a Man leader, simply beause a Woman is perceived to be weaker than a Man.

Just thin, when people wake up to how traditionally sexist they are about their politicians, they will feel perfectly comfortable with hating Gordon Brown, because they will understand that he is not more of a Man, nor less of a Woman, than was Margaret Thatcher!

Electro-Kevin said...

CU - I disagree.

With such an enormous population it IS about making things.

The vast majority cannot - despite what Labour tell us - be highly skilled and highly educated.

Without low skilled manual work what else are the average majority to do ?

Or is the real issue that we have had too many people on an unjustifiably high a standard of living ? In which case are we looking at this through the wrong end of the telescope ?

Was the credit boom really about delaying the innevitable ? That the only way to support a population of mediocrities and illiterates (as well as importing more) was to borrow large amounts, spend spend spend and hope for the best ?

CityUnslicker said...

EK - things can be made with the mind and the hand. There are plenty of things we can do, if we have the energy and confidence to go forward.

Building factories is not the only answer, that to me is backwards looking, as if we wish to return to a victorian age.
e.g some good british exporters an worldbeaters that do not require hard manual labour; Vodafone, Tesco, 19, WPP, big 4 Accountancy firms, Clifford Chance & the magic circle law fims...

Electro-Kevin said...

Then we don't require people and that is my point.

Our greatest 'industry' has been population growth and housing it. A massive fraud and excercise in delusion.

Anonymous said...

e.g some good british exporters an worldbeaters that do not require hard manual labour; Vodafone, Tesco, 19, WPP, big 4 Accountancy firms, Clifford Chance & the magic circle law fims...

But nowadays johnny foreigner isn't the uneducated little native dependant on the highly educated people of Britain.

They've spent twenty years playing catch up and are now better educated, better motivated and better organised than we are. Though we could undoubtedly beat them hands down at meeja studies, sociology and sports science.

We no longer have a divine right to lead the world in anything, that was an accident of history and it's fading fast. Our overpriced IPR based industries are in for one hell of a shock, and it's coming soon.

So we really do need to save and nurture what vestiges of manufacturing we have left.

Judy said...

CU says:

e.g some good british exporters an worldbeaters that do not require hard manual labour; Vodafone, Tesco, 19, WPP, big 4 Accountancy firms, Clifford Chance & the magic circle law fims...

Most of the professions above are bottom-feeders...and the bottom-fedders, know their tax laws.

Education and Engineering, surprised you missed that., bravo EK.

Anonymous said...

Its odd that we have the idea that manufacturing more and more stuff is a good idea. Whats it all for and why would anybody want any more things? Maybe people should spend their time doing more important and useful things than manufacturing useless items...

Anonymous said...

In the end the strength of an economy is dependant on the ambition, skill and work ethic of the populace. The UK has few natural resources and instead we are dependant on the quality of our human resource.

When looked at from that angle, we
are in bad shape compared to alot of other countries. Compared to the hard work and intelligence of some of the Asian countries, there is no way we can stay at the same level of wealth as them long term. We've had a few years of trying - by borrowing our way to temporary prosperity - but now we are finding out just how bankrupt we are.

The creative economy of Vodafone, WPP, sitting around eating Ben and Jerry's*, etc can only take us so far if it has to carry everybody else.

* See Peep Show

Electro-Kevin said...

Mutley - it's not about manufacturing more and more stuff but about capturing market share.

When Brown talks of a New World Order he means making other countries richer by diluting our market share and spreading it around.

Redistribution is a subject on which personal ideological differences cannot be reconciled - this is why ballot boxes exist and why sometimes wars are fought. I don't expect to convert anyone when I say:

My personal belief is that government is elected for the sole purpose of representing the interests of the people who put them there. To protect their people from the cold harsh world.

Others believe that the world is a benign place and that wealth and democracy can be spread around like margarine lite with little consequence for the people sharing it.

It seems that Brown is going to get his New World Order - it's such a pity that it will be done unilaterally. Britain will be slipping from the G7 and I detect from your blog that you're already starting to feel the unpleasant effects of it, Mutley.

Anonymous said...

With a population of about 60 million, we cannot support ourselves selling cappucino to each other over the internet. Making things does matter; we need a diversified economy which does not overly depend on one factor such as (say) banking.

Mfg business have been absolutely screwed to the wall over the last 20 years. Ultimately, if we don't make anything, we also won't have all those exciting high-end jobs such as R&D & design and so on - because these DO follow the manufacturing. Eventually the services will go too, because Johnny Foreigner unfortunately is better at maths & science these days & usually even speaks English better.

CityUnslicker said...

EK - that last comment is very good and well written.

SW - I am not anti-manufacturing by the way. Not at all, it is just that the road (Government sponsored) last tried down that route gave us british leyland. We need a better balance than now for sure though.

There are more creative ways AS WELL as manufacturing. I just want imagination applied.

Your point re education is the key underlying issue for the longer term.

Bill Quango MP said...

There's a weekend debate post for you CU.
What direction should the UK be heading in ?

Eckersalld said...

Large scale manufacturing is no longer on the cards in the UK.

A combination of technology, the modern work ethic, minimum wages and modern snobbery towards manual work means the UK simply is getting less and less desirable to manufacture in. And thats not going to reverse for the foreseeable future.

It's like with the cotton mills, once industry could emulate the climate of the north of England, they moved to where the cotton was harvested and labour was cheaper thus reducing overall costs.

As a society becomes more bourgeois and less proletarian, manufacturing dies off, left to other, less advanced nations to do and be imported.

Although perhaps thats part of a cycle, the lack of manufacturing driving the nation to eventually fall, only to rise through the same cycle again.

Electro-Kevin said...

Thanks for the vote of confidence, CU.


All it takes is a lowering of personal expectation for manufacturing to become desirable in the UK once more.

The coming depression should see to that.

Man in a Shed said...

This is why I brought forward the purchase of a new car by two years and put much of my family's savings in gold.

Just wondering if there is anything else I should buy whilst the main use of Stirling is as currency rather than as fuel to heat your house with.

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