Today’s blog is brought to you by the number 7 and the word “Stagflation”
Posted by markharrison on May 21, 2008
OK, readers of a certain age will have been expecting the letter S, rather than the whole word, but Stagflation is one of those things that seems to have hit us hard.
7 is, of course, the number of members of the Bank of England’s MPC who voted to keep interest rates at 5.0% this month. The eight member (David Branchflower) voted for a small cut in the rate.
The problem is, of course, that if you put rates UP, then everyone gets hit in the pocket when their mortgages come due each month…
… but if you put rates DOWN, then that tends to increase inflation (which, at almost 3% is well above the 2% target), so we’ll all end up paying more for things… and proportionately more again for imported things since cutting interest rates means that fewer people want to buy pounds… so it takes more pounds to buy a set number of Yuan.)
As far as I can make out, imported goods make up about 100% of my non-food purchases this week (and the food purchases are only lower because I’m in the fortunate position where I can afford to support local farmers rather than overseas batteries.)
The big problem for most people with mortgages (investors or not) is that the gap between the BoE base rate and the rate that lenders actually charge is still a lot higher than it was. The base rates are looking less and less like a good tool to manage consumer housing finance – and, while I’m not normally a fan of government intervention in these things, more liquidity would help.
Of course, the overall lesson, and one I’ve been writing about since 2004, is that NO GOVERNMENT CAN BREAK BOOM AND BUST.
We’re going through a global slump – realistically, there’s little the government can do to help. Of course, the flip side was that they can’t take credit for the last 10 years of boom either, since that was also a global thing… but, of course, they DID take the credit, so it’s only fair that they take the blame on the same basis 🙂