So the Bank of England’s monetary policy committee, (currently about as relevant as condoms in a Nunnery) has decided that keeping interest rates at 0.5% is not stimulus enough for the sluggish economy. Nor apparently was the £325,000,000,000 they have counterfeited thus far. No siree bob, what this economy needs apparently is another £50,000,000,000. Just to put the overall figure of £375B into some sort of perspective, if you assume there are about 30 million net taxpayers in the private sector who pay tax meaningfully, then that works out to an absolutely staggering twelve and a half grand each.
Now Pravda or as some people still insist on calling it, the BBC tell us that this money will be used to “stimulate the economy” but of course it will do no such thing. This will simply be used to buy government bonds (which are simply loan instruments); this holds down the interest rate artificially because bond prices are inversely proportional to interest rates. This simply allows the criminally inept government to keep on spending money it has just conjured up out of thin air whilst loading further interest payments onto an already over-burdened exchequer. It will need to be repaid at some point so it’s really just deferred taxation. Remember, this is the government that is apparently going to get the deficit under control and if their aspirations are met (and they won’t be), the one Trillion national debt in 2010 will be 1.4 Trillion if the plan works. This incidentally is what the odious Mr Balls claims is cutting “too far too fast”
UK sovereign bonds are becoming more and more a devalued, hideously asymmetric bet and when the light-bulb of recognition goes on in the markets, watch interest rates climb, far and fast.
At that point borrowing will either be wholly unaffordable or simply not available and with interest rates still at 0.5% (and no-one sane keeping money in any of the bust banks) the only play left in the book will be more QE or a voluntary abandonment of the fiat money experiment.
Now I do not expect politicians to give up on absolute power (i.e. the ability to create money from nothing) ever, and only when reality is smacking them in the face will they be forced to stop QE and stop spending. Consequently, contrary to some serious Austrian economists, I do not expect deflation. It is true that in a depression, prices should fall, malinvestments should be liquidated and more realistic values should be ascribed by the market to previously inflated goods. The very fact this is not happening (recession and inflation? Something very, very wrong) shows that the politicos are wedded to artificial credit creation and thus endemic inflation. When this dragon really gets out of the bottle I suspect we will see an inflationary apocalypse quite the equal of the 1970s and possibly far, far worse.
So let’s be honest. The government and the opposition (no hope with any of these clueless cunts) are not Monetarists, or Keynesians (you had to repay debt in good times according to JMK) and they certainly aren’t Austrians, mores the pity. They are Mugabe-ists. They fund their own government with money they print. Total, total madness and the path to utter ruin.