Shameless

"The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term"

Mervyn King is shameless. Absolutely shameless. But only someone sure of his political backing could come out with such barefaced lies. He knows George "printing money is the last resort of desperate governments" Osborne is on board.

So the moral hazard of bailing out the banks - not once, but soon twice - is paralleled by the moral hazard of robbing the prudent and pensioners. It's a good job I had no illusions to lose about the Tories - and, as I feared, George Osborne's few sensible ideas before the election were soon forgotten after it.



Labour, 2008. QE1 announced. Mervyn King says there won’t be inflation because of the ‘output gap’ – all those factories running two shifts when they could be running three. BoE Pension Fund moves all its assets into inflation-proofed bonds.

Sterling devalues by getting on for 30% (and the printed money goes into share and commodity prices). This raises inflation dramatically, because most of what we consume, especially commodities, is imported – those factories were non-existent divisions on the BoE map board. Wages are static, because mass immigration means it’s a buyers market for labour*.

With prices rising and wages static, the only way to keep household consumption up is to send the wife out to work or spend on credit. But the wife’s been at work since 1989 – it was the only way you could afford the mortgage – and who’s going to increase their personal debts in this economic climate ?

So consumption falls. Working people are getting poorer at around 5% a year. There’s a small increase in manufacturing for export, but the balance of payments is still massively negative. Retailers suffer, the economy flat-lines.

OMG. The economy is not recovering ! Inexplicable !

Conservative, 2011. QE2 announced. King, abandoning reality completely, says it’s because his magic crystal ball says inflation is going to fall dramatically. Sterling devalues (it’s dropped 10c against the dollar in a couple of days). This raises inflation again, because most of what we consume, especially commodities, is imported.

Wages are still static, because mass immigration is still at near-record levels despite the crisis.

So consumption falls again, as it must.

OMG. The economy is not recovering ! Inexplicable ! Time for QE3 !

Rinse and repeat until UK real wages are at Chinese levels and pensioners are self-immolating in Parliament Square. Where's Fernand Bonnier de La Chapelle when we need him ?







* Marx - "The main purpose of the bourgeois in relation to the worker is, of course, to have the commodity labour as cheaply as possible, which is only possible when the supply of this commodity is as large as possible in relation to the demand for it"

Potemkin School

History teaching has moved on from all those Kings and Queens, battles and dates, rote learning* etc. Now, as somebody said, learning is skills-based, not facts-based - students are 'taught to learn' and become self-powered, self-motivated learners, 'accessing and evaluating a range of sources' etc etc.

One of the ways in which they play at being historians is the page of sources - where children are given half a dozen carefully selected paragraphs from half a dozen carefully selected sources, and invited on the basis of same to pronounce on whether the Tommies of World War One really were lions led by donkeys.

My daughter was presented last week with a photograph of a dingy nineteenth-century street in Liverpool (or London - I forget)** , and asked for homework to pronounce on what it told her about poverty in Victorian Britain. A long and hopefully not unfruitful debate followed - during which she suggested that the photographer may have been looking for the worst street, to make a political point, and Laban pointed out that it could also work the other way round. A Government photographer, for example, may be looking for the best working class housing and the rosiest children to snap. I mentioned the idea of the Potemkin village, where artifice may produce a misleading impression.

Now in my daughter's school, there's a special programme for the bad and the unfortunate - the disruptive and nasty kids as well as those with learning difficulties (I fail to see why the latter should be lumped with the former, but it seems to be the way in "special schools" as well). It's called something like the K2 Programme, and the kids are 'the K2 kids'.

Back to Potemkin.

"Just consider", I said, "when the OFSTED inspectors are in your class, whose workbooks are out on display, and who does the teacher ask questions of ? Your bunch, or one of the K2 kids?"

"They can't ask them. When the inspectors come, all the K2 kids get sent on coach trips !"










* (except it hasn't - because the exams are now marked by temporary staff, rather than by people who know the subject. These temps don't have the knowledge to review all-round competence in a subject - instead they look for the "key phrases" which earn the marks. A semi-literate answer with the key words or phrases will earn more marks than a great sentence or paragraph which doesn't include the key words. Now the children HAVE to rote-learn these key words, and we've got the worst of both worlds).


** it bore a remarkable resemblance to the street in The King's Speech which was supposedly the 1930s home of the Aussie speech therapist, but looked straight out of Dickens.

The Spirit of Prophecy

Commenter Ando at FT Alphaville, 20 months back, after QE1 :

Dodge | February 18 1:09pm |

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The BofE will surely have to come up with a better excuse for another dose of QE. They can't say "we're doing more QE because the Government has to borrow so much money", although perhaps that might be more honest...

Ando | February 18 1:18pm

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No, they'll say "the recovery is faltering and the economic situation worse than we thought, so more QE is required to safeguard recovery".

What they won't say is "we used QE to defer enormous amounts of economic pain and it also helpfully assisted the government in financing the deficit, but the trade-off is that all that deferred pain will descend like the wrath of god if we stop, because none of our structural problems, such as an unaffordable public sector and levels of household leverage, have been tackled, so we'll keep trying to defer the pain in the hope things get better on their own somehow. But they won't."

At least Japan had/has household savings to finance themselves, even if it is horrendously circular, and an export-led economy. We're stuffed.

The economy's been fuelled for the last 30 years by easy credit and the associated debt, plus the mass transfer of women into the labour force (as shown in this graphic - I have no doubt the US and British experiences are similar). We're running out of women to transfer (and those we import prefer raising children), and the debt expansion, shock horror, couldn't be sustained indefinitely. Sterling's devalued 30% and wages are static.

Yet apparently it's an absolute disaster that there's no growth. Why aren't we getting "back to normal" ?

Because the "normal" of the last 30 years = debt-fuelled ? And the only people interested in taking on more debt are those who can borrow at 0.5% from the BoE (i.e not me or thee ?).

The crunch could have been very deep, unpleasant, and short - as in Iceland. Instead, it's going to be drawn out over a decade or more, inflationary, and living standards will be continually squeezed.