Artemis' Foster: Mervyn King 'losing the plot'

Whinge

So in short: "Man who runs bond fund being reduced in value by inflation, lashes out at Bank chief after latest figures prove he's made the right decision" Right up there with the headline "unemployed man complains about unemployment rates".

Posted by: MarkG

stagflation

Or "Man who is worried about currency debasement and run away inflation lashes out at man who is supposed to control inflation at 2% but refuses to do so despite it being double the target" Seriously the MPC's remit is to control inflation, we have the highest inflation of any developed country except Greece yet they refuse to do anything. Unless something is done in the next 3 months we can expect 5 years of above target inflation.

Posted by: Richard

@whinge

Rising interest rates will reduce the price of bonds. Look up 'modified duration' and try thinking about what you're posting.

Posted by: Adam

double inflation

Well done Richard and Adam for setting the records straight for Whinge - the MPC's remit is to control inflation - not to constantly give us excuses as to their constant failure to do so.

Posted by: simon

Where is the evidence?

Where is the evidence that people are "clammering for higher wages". With all the government cuts, no one is in a position to clammer for anything. In this scenario - increased commodity prices are paradoxically deflationary as we all have less discretionary spending power - hence weak retail sales. Mervyn King has it spot on. This other guy - well - we are all entitled to our opinion.

Posted by: John

Really?

Thanks Simon. @ John, firstly we are all entitled to our opinion; your good self included. The evidence that people are clambering for higher wages may be scarce at present, but this is not owing to public sector cuts. Public sector employees are different to private sector employees and while public sector employees may find wage bargaining difficult the private sector has cut out the deadwood (generally less there than the public sector) and now seeks to retain those they have left; the fact they are employed is a proxy for the value the company places upon them. Once wage bargaining is engrained it is notoriously difficult to reign in. One may argue further that very low interest rates are deflationary since it encourages over investment in productive capacity. Higher output means lower prices (assuming markets clear of course). For evidence of this check out Japan, low interest rates for two decades has led to zombie firms producing too much of the wrong stuff which means prices need to fall and keep falling in order for them to sell it (I concede they do also produce some good stuff too!). The sooner interest rates rise the sooner we can enjoy reasonably valued asset markets, good returns and system that rewards prudence over profligacy. The real issue is INFLATION and the evidence is published by the very BoE most of us have lost confidence in. Personal inflation is running even higher than CPI or RPI. It strikes me that the elephant in the room is overvalued assets, in particular the housing market where many a cash poor citizen has ploughed everything. If interest rates rose the price of most things would fall, petrol, food etc, but so too would housing and this would lay to waste the belief that you can't loose with houses. If we're now in an environment where profits are kept private and losses are socialised I don't want children since it is they who will pay the price for this ridiculous, misguided and naive paradigm.

Posted by: Adam

Inflation is inflation

The position is simple but yet complex. We have inflation due to Devalued sterling, Inflation, QE monies leaking into far east and other markets stoking commodity and other real asset inflation all of which UK imports in spades and priced in US $. China it self now has inflation as a part consequence of QE monies and so we are now importing finished goods inflation instead of importing deflation as we the UK had been for past ten years or so. the UK has it's own structural inflation running around 1.4% p.a. that the deputy governor of the bank of England admitted last month the UK has not brought under control; (it did not need to when importing deflation and sterling was $1.85 US or so. I do agree however that interest rates must rise gently very gently and slowly over the next 5 years to around 5%. Has kindly uncle King lost the plot? Not sure he has but he is just hanging on as long as he can we await the GDP figures. In the meantime inflation is devaluing the debt and low interest rates are in theory meant to be boosting the economy - not actually sure that they are though as on the street 0.5% seems a long way down.

Posted by: John Whipple