Inflation is Up

Told you so.

Curiously, the Bank of England and other economists are surprised. Should they be? I don’t think so. On this blog, back in 2008, I predicted that the necessary measures being taken would be inflationary, and I also expected the inflation to come about now – midway between 2010. Now I’m not a professional economist; I don’t even have a degree in economics. Nor can I point to any mathematical models to justify my prediction. But it’s a result of putting money into the system.

Have you ever tried to play Monopoly with two sets of Monopoly money?  It’s a common, though unofficial variation on the rules. As well as two sets of money,  any fines from the Chance or Community Chest cards go into the middle, not back to the bank; and anyone who lands on Free Parking gets the lot. Also, if you land on Go!, rather than just passing it, you get £400 instead of £200 salary. The result of all this extra money is that in the final stages of the game, prices of everything are much higher – the side-deals and bargains people make to stay in the game are for much more.

Well, that’s what’s happened now. QE, quantitative easing, or printing money, without increasing the productivity in the economy by the same amount, is inevitably going to be inflationary.  There are other factors at play: the harsh winter has reduced food and fuel supplies; the ash cloud too has had its impact.

More worrying is that unemployment is also rising. Rising inflation and rising unemployment are the symptoms of a very sick economy. We last had them back in the 70s, when it was called stagflation; and I rather fear we are in for a dose of it now. Back then, the problem was a bloated, overprotected and unproductive industrial sector; now, it’s a bloated over-protected and unproductive financial sector.   The parallels aren’t exact; in the 70s, it was the labour force that was bleeding the industrial sector dry with outdated working practices. The result – low or non-existent profitability – meant that industrial shareholders lost out. Today, it’s financial insiders – including the upper echelons of the workforce – who are doing the same thing, but the big institutions appear profitable. It’s a fiddle. The ultimate stakeholders in the financial sector are ordinary people, you and me. And we are still being bled dry.

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