The true inflation rate in Britain is 20%

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This topic contains 3 replies, has 2 voices, and was last updated by Profile photo of Chopera Chopera 4 years ago.

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  • #57140
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    Anonymous
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    Many people think that inflation is the rise in prices of goods and services but the rise in prices is the effect rather than the cause of inflation. In actual fact inflation is the inflationary increase in the money supply which has the effect of reducing the purchasing power of money because there is too much money chasing after too few goods and it is this increase in the quantity of money rather than the rise in prices that is the cause of inflation.

    During the boom of the 1980’s in the UK the then Chancellor Nigel Lawson insisted that inflation was low which justified a lowering of interest rates and this helped to pour petrol onto the fire of the boom but with house prices soaring at 20% per year it was clear that all this capital appreciation was entering the economy which was causing the money supply in the economy to increase by 20% per year which meant that inflation was effectively running at 20% rather than the very low 5% figure that the Chancellor quoted at the time. The Lawson boom lasted five years in which house prices rose by 20% each year and in the last year of the boom house prices increased by 30%. When the bubble finally burst in 1989 all the inflationary excess of the boom had to be painfully squeezed out of the economy by reducing the money supply resulting in a devastating recession.

    Likewise during the Gordon Brown boom starting in 1997 house prices started rising by 20% per year which resulted in the money supply increasing by 20% and so inflation was in actual fact running at 20% but the official figures showed inflation to be alot lower than this and this made the Bank of England cut interest rates which further fueled the housing boom. What has made matters even worse is that in the face of the financial crisis of 2008 the Bank of England reduced interest rates to the historical low of half of one percent and they began a program of Quantitative Easing which is just printing money, creating money out if thin air, which is clearly inflationary because it added more money to the monetary base of the economy which helped to reduce the value of money that was already in circulation.

    The historical low interest rates, quantitative easing and housing boom that the Bank of England has presided over during the past forteen years has injected huge doses of inflationary pressure into the economy with the true inflationary increase in the money supply being more like 20% per annum which is an inflation rate of 20% as opposed to the official inflation figure of around 3%. Eventually in 2015 the Bank fo England will be caught dipping its hand into the till once too often and it will be punished for its lax monetary policy by the financial markets when they cause a run on the Pound resulting in a dramatic fall in the value of Sterling on the foreign exchange markets and this will finally burst the economic and housing bubble causing all the year on year 20% inflationary increase in the money supply that has occurred since 1997 to appear as inflation which will require a severe contraction of the money supply to reverse all the cummulative increases in the money supply that have occurred since 1997.

    The CPI and inflation figures exclude energy and travelling costs and are regularly fiddled to make them appear lower than they really are. Different people are affected by inflation in different ways. Elderly people spend more of their income on food and energy and these have rocketed in price in recent years. Rises in the prices of goods and services eventually drop out of the inflation statistics which only make the inflation rate look better than what it really is. The real life annual inflation rate is really running at 20% rather than the much fiddled 3%. This means that anyone having a million pounds will see that money lose £200,000 pounds in purchasing power in just one year because of the 20% inflation and likewise someone with £100,000 will lose £20,000 per year because of the 20% real life inflation.

  • #113331
    Profile photo of Chopera
    Chopera
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    First two paragraphs are along the right lines more or less. Inflation can be defined as either the increase in prices or the increase in the money supply. Generally if the money supply increases then prices go up, so the two are linked. However there are other factors such as imported inflation due to exchange rate fluctuations, and the supply of goods (if a crop fails then the price of it will tend to go up, irrespective of the money supply). Price rises due to these “external factors” (as the BoE likes to call them) actually go agaist monetary inflation – they suck money out of the economy. Many observers confuse this issue. You’ll read people say things like house prices have fallen 5% in “real terms” because inflation has been running at 5%. However if the inflation has not been due to an increase in the money supply then house pices have not fallen by 5% in “real terms” because they have not become more affordable (people don’t have 5% more money in their pockets).

    During the recent boom the increase in the money supply was in the form of credit – but it didn’t show up in the main index used to measure inflation because for some reason the government doesn’t like to include house prices in that index (they used to include mortgage repayments but they removed those as well).

    During the credit crunch the supply of credit (and therefore the money supply) decreased so QE was used as an attempt to compensate for this (you can’t have it both ways – if you want to mention the inflationary effects of the credit boom then you must also mention the deflationary effects of the ensuing bust). However most of the QE money has yet to find its way into circulation – what happened instead was it got the banks to start lending again and increase the amount of credit, but not to the previous levels. That’s why prices haven’t gone up by 20% since QE started and that’s why inflation hasn’t been running at 20%.

  • #113341
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    Anonymous
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    When the British Government finally decides to bring the economic boom to an end and brings down the economy and flattens it you know that they are doing it just to enable Gavin Greenway to get back onto the property ladder.

  • #113350
    Profile photo of Chopera
    Chopera
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    @jakesuper wrote:

    When the British Government finally decides to bring the economic boom to an end and brings down the economy and flattens it you know that they are doing it just to enable Gavin Greenway to get back onto the property ladder.

    Friend of yours is he?

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