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By Pete Moore On October 6th, 2011

If I were to print counterfeit £20 notes and buy goods with them, I’d be perpetrating a fraud: I’d be buying something of real value with something I had magicked out of thin air. Yet when a central bank does the same thing, the half-educated economists who dominate our universities and television stations nod approvingly and mumble cliches about ‘boosting demand’.

You can’t keep boosting demand without producing anything, for Heaven’s sake. That’s what got us into this mess.

So says Hannan on the news that the Bank of England’s economic central planners have observed the direction of bird flight, examined the entrails, read the runes and decided that you, dear readers, are not destitute enough.

It’s a long time since the BoE was anything better than hopelessly innaccurate in its estimates. Yet even as the BoE admits that official price inflation is nudging 5% (reality is twice that), price inflation is likely to undershoot the target rate of 2% in the medium term. Even if they’re right, just look at what they are saying; deflation, which is all of us becoming wealthier because of falling prices, is a bad thing apparently. Well not in my pocket.

Instead, official economic policy remains to steal your wealth via inflation and, today, the BoE has decided to steal it faster.


  1. Pete – have you seen the film ‘The A Team’? It’s actually rather good but there was a moment of pure hilarity although I was the only one in the cinema who got the joke. The ‘team’ were having the baddies’ plot explained to them and it ran like this:
    a squad of very bad people had got hold of the ink plates used to print dollars so they were using these plates to print “unbacked” dollars i.e. the dollars printed by these baddies were created out of nothing whereas…. and the result is that people leave the cinema with the absurd idea that counterfeit dollars are somehow different to ‘real’ dollars.

    The counterfeiters control media, univsersities, economists and the politicians themselves.

  2. Of course, we must understand that this Bank of England Monetary Committee was charged with controlling inflation by the Government. Haven’t they done well?

  3. Allan@Aberdeen –

    I’ve not seen the film but can’t imagine the scene had any chance getting passed the censor!

    You see it when you ask someone why £5 is “worth” £5, whatever £5 equates to. Usually a blank expression follows. Then you explain that it’s literally worthless, not even worth the paper and ink, that you could once exchange it for the gold which backed it and you see the pieces fall into line behind the eyes like a mental Connect 4.

    Strangely (not really) it’s the politically uncommitted who get it. Every defence of fiat money I’ve encountered has been made by someone with a political agenda to protect.

  4. £5 is “worth” £5 because you can receive goods and services in return for giving it to someone.

  5. Yes, and in 12 months time those goods and services will cost £5.50. Expand the supply of money and the same quantum of goods and services will cost more.

    But this is more about maintaining “a competitive exchange rate”. Sterling has fallen against the Dollar and the Euro today, as intended. Of course the Fed and the ECB will soon retaliate with their own QE. We are already well into a trade war, but instead of tarriffs we have “managed exchanged rates”. And because China pegs to the Dollar, it will be hit with an “exchange tarriff adjustment” by Uncle Sam. And where Uncle Sam leads, the EU will soon follow.

    Be afraid.

  6. And here is why a tarriff exchange rate penalty against China will probably cost US jobs:

    “The clowns at the Economic Policy Institute think tariffs will create 2 million jobs and reduce the trade deficit by $120 billion. I suggest tariffs will cost jobs. Manufacturing will not return to the US, nor will manufacturing of any sort, on account of tariffs. Wage differentials are too great and trade channels will simply shift (at great expense) to another country.

    However, prices will rise, sales will slow, and the squeeze on consumers will accelerate. Here is a simple example: Let’s assume a 35% tariff on underwear. How many jobs will return to the US ? 50? 100? Any? Let’s be generous and assume 500 (although the answer is most likely zero). In return for those 500 jobs, everyone in the United States has to pay 35% more for underwear? Is that a good trade-off?

    Clearly the answer is no, but it is much worse than that. We also need to address the question “how many jobs would be lost because underwear is 35% higher?” Whatever additional money is spent on underwear by 300 million Americans will come at the expense of those consumers spending less on something else, perhaps eating out, perhaps buying toys, or perhaps buying shirts.

    To save 500 or whatever manufacturing jobs, everyone buying underwear will cut back on something else. Those cutbacks will have a real effect on shipment of goods (trucking), eating out, recreation, etc., just to benefit underwear manufacturers.”

    Link here

  7. Peter –

    “But this is more about maintaining “a competitive exchange rate”. Sterling has fallen against the Dollar and the Euro today, as intended.”

    There is that. It won’t have escaped the BoE that Bernanke has been printing money aggressively since June. It’s now around 10% annualised.

    This is why I think predictions of a double-dip in the US this year were off. The real economy is crumbling, of course, but late this year and going into next year I expect an inflationary boom to come through. They’ll pay for it later next year.

  8. Invest in wheelbarrows.