Tuesday, 19 January 2010

flood of weak pound equals inflation

telegraph: Bank of England's 'nerves' to be tested as inflation jumps most on record

The sharp rise in the annual rate of consumer price inflation from 1.9pc to 2.9pc was driven by exceptional events in December 2008, as the VAT cut and high street discounting at that point were not repeated last month.

Fine, but here are the two really significant reasons:

  • The weak Pound is automatically importing inflation as imports generally became more expensive; classic example: automobile and energy import prices;
  • bailing out the banks was flooding them with liquidity; € 1,5 trillion in 2009 Europe wide alone - passing those sums on into the economies has not happened at all - but the liquidity has helped to transform what had begun as a bank crunch into a credit crunch. That is per se bad enough, but the real damage is done by the fact that the banks, flooded with cash, had and have to find lucrative investments; so they did what they know best, had done before and what has proved most profitable to achieve ROI figures of 25% (> Josef Ackermann); they buy gold where they produce no jewels, they buy oil without producing energy and food not for feeding anyone; they gamble and speculate as before and very obviously can hardly get enough highly paid gamblers on board.

The Bank of England certainly is the expert; so what is the hidden agenda behind favouring a weak pound in order to boost an almost not existing and really diminishing export industry and of throwing cheap money at failed banks that then dry up the credit markets, chase commodity prices higher and higher and couldn't care less?

It can hardly make sense to get oneself into the either... or...

Carpe diem!


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