Now let me see, we had this thing called printing money ... what was it called ... rendition, or summat? And now they've got inflation. Would they just possibly be connected?

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They're caught between a rock and a hard place.
They can't let interest rates rise because they and the economy couldn't afford it.
They are conning themselves about real inflation rates, especially if they think the only inflation in Sterling is fuel and food price spikes working through.
Unfortunately we are currently selling 10yr+ debt to pay today's obligations, and how much a 10yr+ government promise raises depends crucially on overall inflation over the next 10 years.
With inflation so low a tiny rise is a large ratio change and it is the change that reduces the govt. take for a given promise (secured by our taxes).

One of these days some half-way intelligent,conservative politician is going to figure out he(or she) is going to get killed by the MSM anyway,so why not make ACTUAL cuts in spending,as opposed to reducing the rate of spending increases.
Of course the shock of it would probably give me a heart attack

Dr. North...

Myrtle?

Is the name of our Judas goat, Dan Hannan. See past articles.

http://en.wikipedia.org/wiki/Judas_goat

As you well know, Northy, it's called Quantitative Easing. The trouble with that phrase is that it sounds at best like a remedy for constipation. I dread to think what it sounds like at worst...

Whatever it is, it is a rhetorical term intended to conceal the facts about it, namely that it amounts to printing money, and it is unavoidably inflationary. Despite its obfuscatory vocabulary, it is blatantly designed to pretend that there is more money than there actually is. Money is a commodity, like oil. The more five pound notes you have sloshing around, the less they are worth. It is equivalent to ending poverty by giving everyone £1,000,000. Weimar/Zimbabwe, here we come.

As Enoch Powell succinctly put it, "If governments want to stop inflation, they should stop inflating."

(You'll be relieved to note that I approve of the modifications to the comment system. Commenting on this blog is far easier and more pleasurable than on any other I have experienced. Congratulations to tbe Backroom Boys. )

Bagguette in my local supermarket went up 8% at the end of January.

OT... how many times is David Cameron going to relaunch "Big Society" aka replacing altruistic volunteering with financially incentivised community activism (controlled by millionaires and retired baby boomers - those with the time and money to spend on their locale)?

Well put.

How do we nominate Obama for a Nobel Prize for Economics ? Surely one Nobel Prize is too meagre a measure for this genius.

Alan Duncan on 'Have I got News for You' April 2009 predicted Zimbabwe levels of inflation under the Cameron led government !!

They want inflation, as they think it is the only way to pay down the debt, by devalueing it via inflation......The major problem with that is that rarely do Gu'mints get what they want, once they start the printing presses.

They also suffer under the fond illusion that inflation can be contained, it may well runaway.

That's how I see it as well.

There is more to come.
Western banks pushing out hawks
http://www.zerohedge.com/article/guest- ... -out-hawks

And another inflation engine:
http://www.zerohedge.com/article/euro-p ... nts-westlb

In the mean time really bad news is coming in from the USA.
Please read "A tipping point is coming".
http://www.americanthinker.com/2011/02/ ... aring.html

With all the zealous budget cuts we are currently facing while maintaining the useless Green Power Scam on track we are doomed.

The Middle East seems to be exploding with protests now in Bahrain, Iran, Saudi Arabia, Algeria etc. In fact it's easier to mention the countries that are not hit with protests, matter can run out of control at short notice and this will effect our energy supplies.

With the current Green Power push we're not going to make it.

That said, we will lose our ability to pay back our debt and that will bring us down.
http://www.debtbombshell.com/

As I see it inflation is only the least of our problems.

Now I'm just wittering here from a position of almost total ignorance of economics. I have no shares, no savings accounts (it occurs to me that the returns are zero at best now anyway) I don't own property but am cash rich (until hyperinflation hits) ..

Anyhow, the point.....It occurs to me that every single crisis/fu*ck up that's ever hit historically has been preceded by the most soothing of sounds by the equivalent of King and other snake-oil salesmen et-al.

'Don't worry, all under control, underlying funderrrmentals, soond as a poond, I hold in my hand a piece of paper' and such like.........

Move along.


I try to maintain a distant bemused observance.....

Am I mad?

Sandy, a rather minor point but it niggles me.

The variable to look at here is not so much the rate of inflation, r say, or the ratio of changes in it, but 1+r, or rather it's inverse 1/(1+r) and the ratio of change in that. This, and its relatives, are the elemental factors in any discounting calculation, not r itself.

Here's an example. Take a 100 nominal of 10-year bond with an annual coupon of 3%. Let's say the current inflation rate, and its expection over the 10-year period, is zero, and also that the price of money over that term is, coincidentally, 3% per annum. Then the market price of the bond is 100.

Next assume the expectation for inflation suddenly jumps to 1% per annum over the term and the yield jumps accordingly to 4% (strictly it should be 1.03*1.01-1 = 4.03%, but let's not get hung up on second order effects). The price of the bond is now 91.89 (or 91.66 if 4.03% is used). So, the effect of an addition of 1% to the inflation rate is a reduction in the bond value/price to 91.89% of its former value. The ratio of the two inflation rates ('after' v 'before'), however, is infinite (or undefined if one picks nits).

By way of contrast, or rather not, now assume a similar scenario to the above for the same 10-year bond but with the yields before and after the inlationary jump of 1% being 9% pa and 10% pa respectively. (The price of money and rate inflation before the jump are such that the yield is 9%. Since we are ignoring effects of the second and higher orders the actual mix of these two doesn't matter.) The values/prices of the bonds are 61.49 and 56.99, respectively, representing a reduction in value to 56.99/61.49 = 92.67%.

This is not too dissimilar to the comparable figure of 91.89% in the first scenario.

The upshot is that it's not δr/r you should look at but (1+r+δr)/(1+r) ≈ 1+δr, or, for convenience just δr if you really want to whip out the constant.


ADDED:
I think I didn't make my point above very clearly. It's this. If bonds are weathering inflation of 6% p.a. and it increases by 1% to 7% then, other things being equal, that increase has the same effect (reduction) on bond wealth as it does when inflation jumps similarly by 1% from zero, or from any other starting point. Roughly.