Tag Archives: Inflation

FALLING INFLATION with Rising Prices?

When you are told that inflation is falling, you would naturally expect  prices to be falling . That ain’t necessarily so!

Many years ago, when I worked for a very large bank, I sent a team of people into town in order to find out whether the average British adult understood percentages. The answer was a resounding “No!”

MOST of the people we interviewed had NO IDEA about percentages!

Banks, supermarkets and even the government know very well that most people are either thick or at best borderline thick as far as simple arithmetic is concerned and they take full advantage.

Supermarkets “mix and match” their prices, so that you need to have the brain of a Stephen Hawking to decide whether it would be cheaper to buy three bags of crisps for the price of two or perhaps two at a different price with  one free  or maybe six bags with 10% extra. By the time you’ve made several purchases like this, you can leave a supermarket mentally exhausted.

Banks will be paying you interest at anything from 0 .01% p.a to  3.00% with maybe an introductory offer of three months with an additional 1.5%. Interest on credits is calculated from the day AFETR your deposit but debit interest on withdrawals is applied on the day of the debit. When a bank returns a wrongly applied charge, will it also re-credit the debit interest? If it does – then at what rate? You don’t know? You’re not alone.

The Government will throw statistics at you through the medium of television, delivered by double-first Oxbridge Economics  graduates who have absolutely NO idea how to explain economics concepts – except to other economists. Percentage increases in GDP, percentages out of work, percentage decreases in the annual inflation rate. Percentage, percentages and even more percentages!

Which is better? a 10% discount and then VAT added or would you prefer the VAT to be added first and THEN take the 10% discount? If your energy bill tells you that the discount on your Gas is 5% and the discount on the Electricity is 5%,  how many percent savings will you me making in total?  What is 12% of £60?

Today, we have been told that annual inflation is on the decrease BUT we all know that prices are on the increase. How is this possible?

I am going to try and explain but in very simple terms.

Assume you bought a radio in January 2013 and you paid £95.70.  If you then went to the same shop in January 2014  (a year later) and the price of the same radio had increased to £100, the price would have increased or INFLATED by £4.30. which is an increase of 4.5%.  

Let’s now go back to February 2013 when the price of the same radio was £100  and assume one year later, in February 2014, the price  increased yet again, this time to £104. That means that the radio would have increased in price or INFLATED by £4, which is  4.o%.

So, coming back to this year, between January and February 2014 (in one month), the radio’s price has INCREASED by £4 but at the same time, inflation has DECREASED from 4.5% to 4.0%!

Therefore, we have a rising price but simultaneously, we see falling inflation.

The media are already mumbling something about “falling food prices etc” having caused the present fall in inflation.

It is nothing of the sort : Yes, falling prices do contribute but the way that the calculations are made can be the major contributor to the figure because it is calculated  in discontinuous annual slices. Today’s inflation figure depends on what the inflation figure was a year ago.

Having said all that, on this occasion, the CPI has actually decreased in one month

Mind you, as usual,  whatever the basis of the inflation calculation, it will still not stop the politicians from claiming all the credit.

(Unless, of course, the inflation rate goes up too drastically, which is when those pesky “external factors out of our control” come into play!

Double Agent Kim Philby had the distinction of being tasked by MI6 to catch himself.

 

The Governor of the Bank of England, Mervyn King  appears to have managed the same trick.

His Quantitative Easing programme has created too much cash in the markets. That cash has been used by the speculators to zero-in on commodities.

Consequently, commodities have risen in price to ridiculous levels.

Governments appear to believe that it is mostly demand which is fuelling the commodity price rises – it is not – it is rampant speculation by City screen monkeys.

The rise in commodity prices has fuelled inflation which Mervyn King and his Monetary Policy Committee are supposed to control through the increasingly blunt and redundant instrument of the Bank Base Rate.

Create inflation and then be paid to control it. Nice work – if you can get it.

(Meanwhile in the USA, Ben Bernanke and the Federal Reserve continue the economic equivalent of pouring more petrol on a rapidly dying fire)

25 Predictions for 2011

The predictions for 2011 are in no particular order and are a mixture of both British and world events. For the last two years, governments all over the  world have been doing no more that playing a wait-and-hope game;  the political equivalent of whistling in the dark.

Here in the UK, the Coalition government has introduced its so-called “austerity measures”. The rhetoric may well be very impressive  to the IMF or the European Bank but what is really happening is that the day-of-reckoning is being postponed by being nudged along by successive disjointed government policies. Everyone is confused.

For instance, in spite of the very negative economic prognosis for the coming year, Stock Markets have been climbing. That  demonstrates is that there has been a final dislocation between economies and  world markets. Stock markets have become no more than a large sandpit in which speculators and bankers play their money games and continue to throw sand not-only in each others eyes but  have also somehow managed to blind whole governments.

Bankers have progressed from custodians  and redistributors of money to self-important untouchable deities who are feared by all.

The most bizarre aspect of Global Economics is the inconsistency with which politicians address  it. 

The blame for the collapse (yes!) of  Western economies is often ascribed to a “downturn in the world economy”. However, governments continue to tinker with their own economies without considering any global impact of their policies. In reality, there is no Global Economy. It is a nonsense phrase.  All that we really have is a large number of  increasingly interdependent local economies. It is a jigsaw of economies, the pieces of which can never fit together properly.  The only solution will be a world currency (that would stop the speculators!) and a real globally conceived, calculated and controlled economy. 

So what is holding us back? That’s an easy one – politics and man’s natural parochially tribal nature.

One of the most ignored aspects of modern economics has been the rise of the bureaucrat. In that group, I include not-only large slices of the public sector  but all non-productive professions such as accountancy, the legal profession, consultancy and those who “analyse”. They do not produce anything new or tradable and  there are too many of them. Large slices of the banking profession also fall into that group.

These groups are a massive a drain on an economy. They do not add value – on the contrary, they take. These “professions” are all due for rationalisation because their only contribution is to take and redistribute money which has been  earned by others.

It is highly probable that 2011 may be remembered as the year when the waiting and procrastination had to stop so here are the predictions:

1. The era of BIG Government is dying and all governments will be forced to cut public expenditure.

2. This will be a year of strikes, general public unrest and riots. Students and pensioners will stand together.

3. The Euro will finally stop twitching and die. Germany has already realised that it can no longer remain in the Eurozone when it it surrounded by so many lame-duck economies.

4. Most western countries will experience cuts in police, the fire service and rubbish collection. Paradoxically, times of austerity produce more crime and a substantial increase in the incidence of insurance-inspired fires.

5. China is beginning to experience inflation. This will result in an upward revaluation of the Yuan – which effectively will be a devaluation of the dollar.

6. Banks will be punished for holding too much cash and  for continuing to withhold funds from commerce and industry.

7. There will be a downward correction in world stock-markets. That is very likely to happen very early in the year.

8.  Gold and Silver prices will decrease early in 2011 but rally massively during the rest of the year.

9.  Commodity prices ( wheat, soyabeans etc) will rise very substantially during the year.

10. Oil will cross the $100 per barrel barrier.

11. In the United Kingdom, the Coalition government will collapse and there will be a general election in October 2011.

12. Nick Clegg will be challenged for the leadership of the Liberal Party and  is likely to “cross the floor”.

13.  The Labour anti-Ed Miliband movement will become more and more vocal as the year progresses and  as Labour realises that they elected the wrong man.

14. After the next government reshuffle, Vince Cable will become Minister-without-Portfolio and will quietly be put out to grass.

15. The concept of Man-Made Global Warming will be further eroded as a scientific theory.

16. We are overdue a nuclear or chemical accident. Look out for one in either China or India.

17. An earthquake in California is also overdue.

18. There has been some tittle-tattle about the state of the Beckhams’ marriage. Do not be surprised if there is a sudden announcement of an impending divorce.

19. As a result of fewer students, public sector redundancies and over-optimistic projections in the manufacturing industries, UK unemployment will officially breach the 3 million barrier.

20. The 279 Council elections in May 2011 will signal the beginning of the end of the Liberal Party. They are already an endangered species and will now  progress to near-extinction.

21. The referendum on the alternative vote will see the “first past the post” system retained. That will signal a long-overdue questioning of the Liberal leadership.

22. There will be an anti Coalition revolt with Labour and the Conservative right-wing standing shoulder-to-shoulder with disaffected Liberals.

23. The January visit to the United States by Chinese President Hu Jintao will not produce a cosy new relationship between the two superpowers. On the contrary, the visit may well produce  “sabre-rattling”  for the rest of the year.

24. Israel will carry-out a pre-emptive strike on Iran – as a result of the latter’s nuclear programme. Needless to say, the United States will wade-in with all guns blazing.

25. Sudan will implode. That will produce an ethnically-driven Yugoslavia-like civil war. Needless to say, the United States will wade in with all guns blazing -only this time they will be wearing United Nations hats.

The most difficult and surreal world political question – and potentially, the most explosive (literally) is whether the American nation has the appetite to elect Sarah Palin as the next President of the United States. Because, as sure as eggs is eggs, she will be a candidate. That all depends on how far to the right America is willing to lurch as a result of the inevitable failure of Obamanomics.

Send out the Clowns

Your Prime Minister

Gordon Brown and the New Labour inepts are very fond of statistics. Most of the time, their statistics are “weighted”, “massaged” or wrong. Their presentation is often designed to mislead. Here are some simple numbers which clearly show New Labour’s main “successes”.

They came to power in 1997 and that is probably the best starting point:

1. INFLATION.  1997 2.5% ,  2010  3.5%

2. UNEMPLOYMENT.1997 2million ,  2010 2.5million

3. NATIONAL DEBT. 1997 42% of GDP,   2010 53% of GDP

4. LITRE PETROL. 1997 50p , 2010 £1.20

5. BUDGET DEFICIT. 1997 ZERO, 2010 £170 BILLION

Needless to say, there are many other such comparisons. The only thing that can be said with certainty is that New Labour has destroyed the British Economy and that we have completed the journey from economic superpower to third-world economy.

Time is running out and we should waste no time in running this bunch of posturing clowns out of town with Gordo the Clown leading the way.

The Labour claims that they led us out of recession through their fiscal policies is a lie. They did it by printing money and postponing the inevitable collapse.

 

Where’s that paddle?

 

No Government  can ever act on the basis of certainty. It is  always forced to act on the basis of probability. In other words, there is no REAL idea as to when the current financial mess will end so decisions and actions are based on a “best-guess” basis.

Stock market prices lie in expectations for the future. It is a constant battle between optimism and pessimism. When there is optimism one expects:

  1. Confidence in the Banks and the Marketplace
  2. Consumers confident enough  to engage in long-lasting spending sprees
  3. Rising prices

 During a period of pessimism, the converse is  true.

Depending on whether you are an optimist or pessimist, you will be anticipating one of the following (most probable) outcomes:

  • Uncontrollable money-printing and excess spending on bailouts and stimulus , producing a new, super-inflationary environment with a falling Pound and rapidly accelerating  unemployment. (Option A)
  • A major change in capital flow  evidenced by shifting consumer and bank attitudes, thereby generating a period of deleveraging and deflation that will eventually produce a economic rebalance and a strengthening Pound. (Option B)

Needless to say, the Government is hoping for Option B but at the same time it is running up its (our) budget deficit to historic levels and will soon be printing money like confetti.

The fact that  unemployment is heading for a new record and consumers are spending far less means that the Government has painted itself into a corner and can only lead the country to Option A.

Our collective wealth in stocks and housing has been destroyed and  Sterling is at a 23-year low against the Dollar which, post-Obama, will gain strength, thus further eroding the Pound.

Yes, we are up dirty creek without a paddle.

Notwithstanding the odd Minister-induced  “virtual” green shoot and platitudinous attempts by government to tell us that  “We’ll get through this”, the current perception both within the banking system and the real world is  one of overwhelming pessimism.

The  low Bank Base Rate and lack of consumer confidence in (what are  still laughingly referred-to as)  “lending institutions”  will result in  more and more money being kept under the mattress. The banks are doing it so why shouldn’t we?

The government should set sail for Option B (above). Unfortunately, it appears that no-one has any idea of where to start and the rudder appears to be broken.

Mervyn’s Tea Party

sixmonkeys.jpg 

Monetary Policy Committee

David Blanchflower sits on the pointless Bank of England Monetary Policy Committee.

The MPC is supposed to be acting and thinking  independently but it always seems that whatever they say has been sanitised so as not to upset the neighbours.

David Blanchflower says that in his opinion,  two million people will be out of work by the end of the year.

That’s more like it! We need some realism. We need truth and not the platitudinous crap that  Merv and his chums keep dishing out.

Blanchflower goes on to say that the MPC seems misguided in sitting there and worrying about inflation when the whole economy is in imminent danger of collapse.

He also says, quite rightly that the BoE’s forecast of “broadly flat” economic growth has a great deal of wishful thinking attached to it.

He also thinks that there will be a fall in property prices in excess of 30%. Bravo! Tell it how it is and how it is going to be!

The very worst that could happen at the next MPC meeting is that Mervyn might splash soup on his silk tie but otherwise, whatever they decide will be irrelevant.

As we have said many times before, they should be making things happen but sadly it looks as if the are simply wondering what happened.

See what Spygun wrote on 15th May 2008