19th February 2009

Updates to this blog have been sparse recently because while there has been a lot of activity, there has been very little real news.

I will only post when I have a message that suggest some change in direction or some material confirmation that things are moving as forecast.

The world's economy has been going in much the same direction. Governments are now printing money in wholesale quantities.

Here in the UK we are entering a bizarre period of 'spin'. I'm not sure that it is 'spin' in the accepted sense. It is blatant lying. So blatant one wonders how anyone will fall for it. We have the Bank of England telling us that it is acting to prevent deflation, while reporting increasing inflation! Press surveys suggest that retail price inflation is higher than it has been for decades and anecdotal evidence confirms that everyone sees rising prices and falling income as the biggest problem today.

While crude oil has fallen from $140 per barrel last summer to $34 today, domestic fuel and road fuel prices are still at very high levels, and are starting to edge back UP again, while the oil spot market is trending down. Who is creaming off this profit? It is hardly likely that Government would sit back and allow this to happen unless it was in Goverment's interests. Government is grossly underfunded as a result of falling income tax, capital gains tax, property taxes, fall in VAT due to falling consumer spending and massive increases in expenditure on bailing out lame duck banks, and other industries, as well as massive increases in social security and Jobseekers' allowances.

I suggest that the only plausible explanation is that Government has colluded with the oil industry to share the 'bonanza' between them. No other explanation fits the facts.

The paste below has come from the Bank of England website....

http://www.bankofengland.co.uk/publications/inflationreport/ir09feb.pdf


INFLATION REPORT PRESS CONFERENCE
Wednesday 11 February 2009
Opening Remarks by the Governor
The UK economy is in a deep recession. Monetary, fiscal and financial policy have all
responded vigorously to that prospect. But the length and depth of the recession will
depend to a significant extent on developments in the rest of the world, where a severe
economic downturn has taken hold. Growth in the advanced and emerging market
economies fell sharply towards the end of last year. And world trade is contracting rapidly.
As in the UK, the scale and synchronised nature of the downturn around the world has
been driven by two factors – a further tightening of credit conditions following failures in
the international banking system, which means that lending, especially to companies, is
still slowing, and a collapse of confidence, or “animal spirits” in Keynes’ description, that
is leading to falls in spending and production. Restoring both lending and confidence
will not be easy and will take time.
In many countries, governments have now taken significant measures to improve
conditions in financial markets and support lending. Three weeks ago, the UK
Government announced a five-point plan to restore the flow of lending. One of the five
points is the creation of an asset purchase facility operated by the Bank of England and
aimed at increasing the availability of corporate credit. The Bank of England will open
its facility to make purchases later this week. In due course, the plan should help to
alleviate credit conditions for corporate and personal borrowers. But even when all of the
measures are in place, it will take time for banking and credit market conditions to
improve and longer still before they begin to have a noticeable impact on activity.
To cushion the downturn in spending, policymakers around the world have cut interest
rates and loosened fiscal policy. At home, the MPC has cut Bank Rate from 5% to just
1% in the space of five months. To some degree, the effect of those reductions has been
blunted by the problems in the banking sector. But monetary policy is by no means
2
ineffective and, when combined with the sharp fall in sterling of more than a quarter
since the summer of 2007, the fall back in commodity prices, and the easing of fiscal
policy, will provide a significant boost to demand.
The Committee’s latest projection for GDP growth is shown in Chart 1 (GREEN
CHART) on page 7 of today’s Report. The projection is based on the assumption that
Bank Rate moves in line with market expectations, which when the Report was finalised
were for Bank Rate to fall to around ¾% in the middle of this year, before rising back to
around 3% by the end of the forecast period. The central projection is for output to
decline in the first half of this year, so that four-quarter growth falls further in the near
term. It is markedly lower than the projection in November, as a deteriorating labour
market and increased uncertainty weigh on consumption, companies run down their
stocks and scale back investment spending, and the weakness in world demand restrains
export growth. Further ahead, output growth increasingly responds to the substantial
policy stimulus, an improvement in the availability of credit, and a reduction in the trade
deficit as expenditure switches towards home-produced output.
At present, CPI inflation remains well above the 2% target. The Committee’s latest
projection for future inflation is shown in Chart 2 (RED CHART) on page 8 of the
Report, again on the assumption that Bank Rate follows the path implied by market
yields. The near-term path of inflation is uneven, reflecting changes in energy prices and
the temporary cut in VAT. But in the medium term, inflation falls well below the 2%
target, as a substantial margin of spare capacity more than outweighs the waning impact
on import and consumer prices from the lower level of sterling.
The prospects for economic growth and inflation remain unusually uncertain, not least
because of the extraordinary events of the past few months. The Committee judges that
the balance of risks to the path for GDP is very much to the downside, reflecting in large
part uncertainty about when lending and confidence will recover. But the risks to
inflation are more broadly balanced, reflecting the possibility that the sharp depreciation
of sterling may push up on inflation by more than the Committee expects.
3
At its February meeting the Committee judged that an immediate reduction in Bank Rate
of 0.5 percentage points to 1% was warranted. Given its remit to keep inflation on track
to meet the 2% target in the medium term, the projections published by the Committee
today imply that further easing in monetary policy may well be required. That is likely to
include actions aimed at increasing the supply of money in order to stimulate nominal
spending. So let me assure you that, with the full range of instruments at its disposal, the
Monetary Policy Committee can and will take action to return inflation to the target and
so ensure that economic growth will again match its potential.

So, we will "take action to return inflation to the target and so ensure that economic growth will again match its potential?"

Welcome to part of reality. They try to persuade you that price rises = economic growth. Actually, price rises = theft. Theft from those who hold cash of any kind. Inflation robs the saver and rewards the debtor. The UK is a nation of debtors and hyper-inflation is the tool that they are using to write off those debts.

So, maybe you are not 'wealthy' in the accepted sense? Why should you care?

If you have a pension fund of any kind, an endowment policy on your mortgage or any 'insurance' policy that you expect to mature then you should assume that it will be valueless when you expect to collect.

This will happen the way policy is going today. Those who have invested and saved are going to lose everything. The only hope is for people to make their views clear to Government and stand up for themselves. Today, this hard-working, honest, backbone of society, is standing in a field waiting to be shorn.