Inflation wouldn't " Run", unless the entire Arabian peninsula is consumed by war. Inflation will fall, once the one-off effects of the Ukraine war have reached a one year anniversary. By May 2023, we will be comparing prices with May 2022, and the inflation rate would fall, maybe even become a deflation. Interest rate rises are, quite likely, to increase the deflationary aspect of this economic crisis. And if you think inflation is bad, you wanna meet Mr Deflation.Inflation kills economies and nations. It is critical that it is controlled. If a manufactured recession is what is required to control it then it's a small price to pay.
Murphy, who in 2015 wanted even more QE.I think this article explains it quite well.
'The Bank of England's 'incompetent' interest rates hike is dangerous for Brits'
Professor Richard Murphy, political economist and chartered accountant, says increasing interest costs will force hundreds of thousands (if not millions) of UK households into povertywww.mirror.co.uk
Indeed, QE saved the world. There is a lot of nonsense talked about the " magic money tree", but the economic collapse which would have occurred in 2008 would have been much, much worse, without massive Central Bank intervention. Its a lesson which the bankers seem to have forgotten, as they, launch us into an avoidable depression.Murphy, who in 2015 wanted even more QE.
The man behind Corbynomics: an accountant from leafy Norfolk
A Jeremy Corbyn win could take Richard Murphy from the rural town of Downham Market to No 11 Downing Streetwww.theguardian.com
Your argument is almost a parody of itself. Of course expansion of the money supply sooner or later causes inflation.Indeed, QE saved the world. There is a lot of nonsense talked about the " magic money tree", but the economic collapse which would have occurred in 2008 would have been much, much worse, without massive Central Bank intervention. Its a lesson which the bankers seem to have forgotten, as they, launch us into an avoidable depression.
My guess, is that by this time next year, they will be slashing interest rates and running the printing press at full speed.
Though, maybe, address the point he makes about the nature of the inflation we are dealing with. Its not demand lead inflation.
At the heart of Murphy’s project to reinvent Labour economic policy is what he calls “people’s QE”, a policy of using money created by the Bank of England to invest in public infrastructure projects, at the same time as boosting employment and economic growth.
Murphy regards it as a natural extension of the £375bn quantitative easing programme already undertaken by the Bank, starting in 2009, to unblock the credit markets in the depths of recession, almost all of which was spent on buying government bonds, known as gilts.
But opponents of the idea, including Corbyn’s leadership rival Yvette Cooper, claim that it would undermine the independence of the Bank and unleash inflation and financial market turbulence.
There are many many sectors which saw 100%+ increases in demand, and they would likely have been higher if the supply side could have kept up. There was a ton of extra money injected into the system which has to work its way out somewhere.Left alone, inflation would fall anyway. Because there is not a huge increase in demand, there is just a higher price for the essential stuff being purchased. If the supply side continues to cause inflation pressures, then interest rates won't make a bit of difference.
Well, QE started in 2008 and it was unprecedented in its scale. The result was an inflation rate that hovered around 0% and interest rates that went below 0.Your argument is almost a parody of itself. Of course expansion of the money supply sooner or later causes inflation.
This is from the Guardian 2015 piece linked above.
Yeah right. All those predictions of an eventual inflation disaster were of course totally unfounded.Well, QE started in 2008 and it was unprecedented in its scale. The result was an inflation rate that hovered around 0% and interest rates that went below 0.
The inflation has only come when the supply side seized up. Its nothing to do with QE
That's the other crucial factor supply was constrained during covid with the lockdowns but demand wasn't, it was simply stored up and released at the end of the lockdowns. Supply is still constrained because production of goods and services is still not back at pre Covid levels, hence inflationThere are many many sectors which saw 100%+ increases in demand, and they would likely have been higher if the supply side could have kept up. There was a ton of extra money injected into the system which has to work its way out somewhere.
Thankfully we have one of the best funded healthcare systems in the world, have spend a fortune on new schools over the last 20 years and have amongst the lowest rates of house repossessions in the developed world.Of course, its a small price to pay if you're not the guy being turfed out of his home, or sacked, or left with a collapsing school, or an underfunded health service.
Yes, it was caused by excessive capital in the economy, as was the current housing shortage.Was inflation caused by huge demand? By rapid wage rises? Was it caused by an excess of capital in the economy?
Nope.The answer to each of these questions is " No" It wasn't caused by any of these things, which raising interest rates is supposed to control
It was, almost exclusively, caused by external factors on the supply side.
Left alone it will cause a much bigger recession later.Left alone, inflation would fall anyway. Because there is not a huge increase in demand, there is just a higher price for the essential stuff being purchased. If the supply side continues to cause inflation pressures, then interest rates won't make a bit of difference.
But what it will do , is increase poverty, increase mortgage defaults, increase business bankruptcy, reduce consumption, reduce investment, reduce purchasing power and deflate the economy.
QE has massively increased global debt levels, up 30% in the last 5 years. It was 100% of global GDP in 1973. Now it's 350%. That's not a good thing. Increasing money supply causes inflation.Well, QE started in 2008 and it was unprecedented in its scale. The result was an inflation rate that hovered around 0% and interest rates that went below 0.
The inflation has only come when the supply side seized up. Its nothing to do with QE
Yes, they were, as proved by the inflation rate over the last 14 years and, as will be proved, by the inflation rate over the next 14 years.Yeah right. All those predictions of an eventual inflation disaster were of course totally unfounded.
One blip, caused by war, supply side shocks and a global pandemic does not mean QE caused massive inflation. Because, those things ( war, supply side shocks and a global pandemic) are what caused this temporary inflation
QE was introduced during a period in which the global economy was deflationary anyway. Most of the money went into financial institutions and was used to fix their balance sheets and offset the cost of toxic assets. It was not given out in loans. In effect it was used to prevent major economies going into a deflationary nosedive. If the Financial crash hadn't happened QE would have been inflationary but since most of the money didn't make it into the market it didn't cause consumer price inflation because the Banks kept it rather than lending it out. Therefore the impact of fractional reserve banking on money supply didn't happen. In fact because it caused asset price inflation while artificially depressing interest rates it resulted in the gap between the rich and poor (or average) increasing.When we're sitting here, next year with deflation and QE is pumping like mad, will you still believe QE is the cause of inflation?
That's a great point. I hadn't thought about zero interest rates being a direct consequence of the banks hoarding the QE funds!....In fact because it caused asset price inflation while artificially depressing interest rates it resulted in the gap between the rich and poor (or average) increasing.
You are right that QE was designed to create inflation, but as you say the method was faulty.QE was introduced during a period in which the global economy was deflationary anyway. Most of the money went into financial institutions and was used to fix their balance sheets and offset the cost of toxic assets. It was not given out in loans. In effect it was used to prevent major economies going into a deflationary nosedive. If the Financial crash hadn't happened QE would have been inflationary but since most of the money didn't make it into the market it didn't cause consumer price inflation because the Banks kept it rather than lending it out. Therefore the impact of fractional reserve banking on money supply didn't happen. In fact because it caused asset price inflation while artificially depressing interest rates it resulted in the gap between the rich and poor (or average) increasing.
Increasing money supply in the broader economy at a faster rate than economies are growing is inflationary. So QE worked but now global debt levels are massive and Banks are lending again and all that extra capital is chasing the same assets and products.
Think about it; if QE was the answer to the potential deflationary spiral which was a real possibility after the Crash then it must be inherently inflationary. Since it's a new phenomenon it's hard to know just how inflationary it will turn out to be.
Edit: The above is just my semi-educated opinion. I'm happy to be shown to be wrong.
Okay, so increasing money supply is inherently inflationary.You are right that QE was designed to create inflation, but as you say the method was faulty.
It worked to some extent and prevented economies falling into deflationary spirals.
There was massive Capital price inflation. Those who owned property or had pension funds post 2008 were the real winners.However, as most of the capital went to banks, it was hoarded or used to pay down debt. As such there was, virtually, no inflation over the last 14 years.
It's just inflation, not a crisis. We need to stop catastrophising everything. It's easy to have inflation when there is excess money supply if that money is not in the consumer economy.The current inflation is not related to the money supply ( How can you have excess money supply and a cost of living crisis?).
I agree with that, though the cohort that benefitted most from that capital inflation are pensioners.People are simply paying more for the same essential things, like heating, transport, food and shelter. whilst their income has, largely, stagnated.
It was further exacerbated by austerity, a deliberate choice to make things worse. If private investment stalls or disappears, then the state, through public investment should step in and start investing/spending public infrastructure, services. We saw this during Covid when private business ceased, almost completely. Without massive state spending the economy would have collapsed, catastrophically.
There is a massive disconnect between the capital value of stuff like property or shares and the real economy. By the real economy I mean the productive wages of workers, or the saved wages of pensioners, the actual amount of money that most people have access to. Those people are now spending a larger portion of their income on that essential stuff.
As far as I can see there are only two outcomes. Either lots of inflation, including wage inflation, or deflation. The gap between the real economy and the fantasy economy ( stock markets, property prices, commodity investments) is too high, dysfunctionally high.
I agree.Something has to break to bring ordinary people's purchasing power back to normal.
Run away inflation will lead to a much bigger recession/depression.For the ordinary Joe, inflation is much more manageable than deflation. A deflationary depression brings mass unemployment, increasing debt burdens and the destruction of public services.
The bank's didn't "hoard" the money they were given in exchange for loans, because the capital put in just cancelled out the value of the loans that were exchanged. The banks were then compelled by regulations to maintain a high proportion of their capital in "safe assets" such as government bonds.However, as most of the capital went to banks, it was hoarded or used to pay down debt. As such there was, virtually, no inflation over the last 14 years. The current inflation is not related to the money supply ( H
Inflation hurts lower earners by more.
I went back to Tesco to buy a pack of posh nuts, was 300c.
Now its 375c, so I walked away.
You might say, big deal, you are a tightwad.
My point is.. you fight inflation at a personal level.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?