18 August 2010

Bank of England Gov Wars of Higher Inflation, Longer

Less than a week after a Federal Reserve Governor warned of a boom bust cycle outlook for the USA, the Bank of England's Governor has issued a letter to the UK Treasury to state that inflation is running higher than the central bank's target.

It seems that, according to the Telegraph article, the Bank of England's Governor doesn't foresee a return to the country's 2% inflation target until 2011 at the earliest.  Now I'm sure the dear readers out there are wondering how can England's central bank admit to inflationary policies, yet the Federal Reserve can't see the same problem? 

Obviously, the Fed is more worried about the deflationary problem since the USA is saddled with exorbitant debt.  As prices deflate, wages stagnate or regress, and we get stuck in a downward cycle (great depression).  Deflationary pressures when there is a mountain of debt usually means default, which for the political establishment usually means an ouster.  Inflationary policies, as I am finding out in When Money Dies, allows the rulers to 1) buy time, and 2) those who wish to inflict radical changes to a country's structure then have a chaos within which to operate as the people are consumed with outright survival.  Where debt deflation is a market's ordered "survival of the fittest" solution to those who are over extended on their credit and have reaped the benefits of a cracker-jack economy, the US Fed wants to resist these pressures at all costs because it means a loss of power, as credibility has long since gone out the window.

So what is implied by the warning from the BOE's chief?  Nothing good, that's for sure.  Loose monetary policies have been the societal norm for the last 20~30 years.  As we are seeing detailed in the mainstream headlines lately, the consensus is starting to shift towards a dire outlook.  Hello second-half of the non-existent double dipper.  I don't like to offer a completely gloomy projection, but if we repeat the complete historical inflationary burn of 1920s Germany, the next decade will be ugly. 

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