Have very little time these days for much of anything with all the jobbing for enough money to keep the bailiffs at bay, so I will leave you loyal readers with the following thought.
Mervyn, the Goblin kings banker, has printed ~£200Bn worth of beer vouchers in a bid to ruin our lives that little bit more before finally being ousted from No.10/first against the wall into the sluice of productive money we call our economy*; give or take a few billion this is roughly £1750Bn BVs.
Now I'm no economic expert but I can comfortably predict that once people stop listening to tinfoil hat wearing, LSE- educated economists and realise that their is more money chasing the same number of resources the producers of said resources will be able to take more BVs for their product. I would go further and predict this figure will rest around a cumulative value of 11%, you know, because that is what the increase in supply is an all (not taking into account the obvious pitfalls of UK sterling depreciation, so likely to be much higher and more painful).
Ultimately that is what inflation is; you increase the size of something beyond what it was before.
State directed inflation is not your friend; putting more BVs into existence when their is more stuff to buy maybe a reasonable time to do this (though not always) but not when it is ultimately a means of bailing out the failed policies of a cretin.
Am I the only one who sees this? Seriously?
*can anyone give me an accurate value for the total amount of sterling in existence? I always thought this would be easy to come by, you know, with money being an important regulator of trade between commodities and all. Ho hum - for anyone who wants a bit more meat on the bone check out the remarkably comprehensive and complex fiscal and monetary policy of the LPUK here. Good stuff.
Just a guess here but if the pound has devalued by 30% in a year and QE was £200Bn in that time then it means that there must be about £700Bn sloshing about in the system.
ReplyDeleteie print £200Bn of beer tokens and the pound loses a 3rd of it's value.
If another £200Bn was printed then it would lose another 30% and so on.
Just a guess like.
Your crude analysis is entirely accurate. Once the dogs of war have been unleashed i.e. post election, the motorway of inflation will inevitably pick up speed.
ReplyDeleteQED
paulo
Ahem, I'd like to pour a little cold water on what on the surface looks like a jolly good wheeze.
ReplyDeleteContrary to public and the failed economists opinion the total quantity of money in circulation is not just the amount which we call 'money'. It also includes the quantity of what we call 'credit' (or debt). the two are completely fungible. You cannot tell the difference between a printed or digital money pound from a digitally created credit (debt) pound. The ratio of 'credit' to 'money' is in the order of at least 50:1, or was. In the course of the collapse of the global Ponzi scheme we call debt-based fiat currency the 'credit' part of the money supply has plummeted. This has happened for two reasons.
1) the amount of new credit being extended is much lower because the lenders know that when the Ponzi scheme blows up there are no credit-worthy borrowers to lend to and
2) the loans made to people or organisations who could not pay it back has the effect of wiping out that credit.
Governments absolutely love inflation. However inflation is not the rise in prices. Inflation truly refers to the increase in money AND credit. Increases in prices and wages, which is referred to as inflation are a result of inflation and not inflation itself. They love inflation because it robs anyone with ANY wealth whatsoever (not just the rich, in fact more so for the poorest) and bails out those who borrow more than they can ever pay back i.e. the government itself with its client state, non-job creations, quangos and warmongering. Therefore, in order to avoid the contraction on the credit side of the equation they have tried to make up for it by expanding the bit they are in control of i.e. the money supply. And yes they have increased the money supply by £200b (with its attendant interest liability) but that is only a drop in the ocean compared to the reduction on the credit side of the equation. The overall result is still a contraction.
Alistair Darling and Merv King would only be too happy if they could inflate the money supply but they can't, no matter how hard they try. That is the problem. You won't get inflation (the rise in prices and wages) whilst the overall money and credit supply are contracting.
There may be some localised CPI inflation due to specific events e.g. VAT, Oil price etc but overall a contraction in the money and credit supply cannot result in inflation.
Don't take this as any kind of defence of these financially illiterate fuckwits. They created the credit monster. The monster is now in charge and their puny attempts at printing money are having no effect.
Hope that sheds some light on your question.
Diplodocus Rex,
ReplyDeleteIn your shrinking credit economy have you taken into account the fractional reserve nature of banking? I would surmise you have as you have indicated that the total amount of "credit" available in the system is "reduced"; banks have been able to loan a multiple of their total savings out for the last 2-300 years which is intrinsic to this problem.
However my feelings are that this phenomena is felt elsewhere, namely in business generation and innovation.
But the buying of govt. bonds from the market with newly printed money while temporarily relieving a contraction on credit, a fluctuating part of the economy due to FRB, will have to be reversed sooner or later; as I recall it is illegal to destroy govt. bonds no?
Course your explanation sounds good and sadly shows that Gordo is leaving a lasting legacy of the worst of both worlds; higher commodity prices and desiccation of the jobs market.
Tomrat,
ReplyDeleteI cut my 'economists' teeth on the "Money as Debt" videos (I'm an engineer by profession). In those videos it explains how money is fabricated out of thin air and how the money multiplier works.
I dont want to malign the Money as Debt videos for this as they have been invaluable in encouraging me to look deeper into the monetary system. Therefore they have served their purpose well.
Compared to thinking that a bank is a shop with a vault at the back stuffed with pound notes of which you get some when you take out a loan then learning about debt-based money and its magical creation was an enormous step forward for me. However, since then I have discovered both 'Mish' Shedlock and Steve Keen both of whom can prove that even the money multiplier or Fractional Reserve Banking model does not actually exist. The truth, as always, is even worse. The money multiplier at least started with a 'real' base from which a 'fractional' amount was lent out. In reality the 'fractional' part is illusory and doesn't exist. They simply lent out an amount which their risk calculations allowed them. They never had any intention of being paid back.
See here:
and here
"temporarily relieving a contraction on credit"
This is still to misunderstand the enormous difference between the amount of money the fiscally illiterate Keynsians are printing and the rate at which credit is contracting. They are two orders of magnitude apart. No amount of printing can fill the gap. But still they try, causing a bigger wreckage in the process.