Comments on: The UK and the US - different responses to stagflation http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/ Conservative Party Member of Parliament for Wokingham Mon, 13 Oct 2008 17:51:32 +0000 http://wordpress.org/?v=2.6.2 By: Tears for Tier 1 http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20538 Tears for Tier 1 Thu, 15 May 2008 20:04:55 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20538 Neil Craig said “Inflation is merely a discontinuity in the way we count wealth (ie money) whereas recession is a cut in real wealth” That just plain wrong. Inflation is a highly inefficient “tax” that transfers wealth from savers to borrowers (frankly its more like a legalised process of theft). Its inefficient because its both highly insidious and it discourages almost all forms of beneficial economic activity. Inflation is the worst form of moral hazard and is strongly associated with the ending of most of the great civilizations in history. Policies that may encourage inflation are always well-meaning in the short term but they should be opposed by all conservative minded thinkers. Neil Craig said
“Inflation is merely a discontinuity in the way we count wealth (ie money) whereas recession is a cut in real wealth”

That just plain wrong.
Inflation is a highly inefficient “tax” that transfers wealth from savers to borrowers (frankly its more like a legalised process of theft).
Its inefficient because its both highly insidious and it discourages almost all forms of beneficial economic activity.

Inflation is the worst form of moral hazard and is strongly associated with the ending of most of the great civilizations in history.
Policies that may encourage inflation are always well-meaning in the short term but they should be opposed by all conservative minded thinkers.

]]> By: Tears for Tier 1 http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20537 Tears for Tier 1 Thu, 15 May 2008 20:02:57 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20537 Neil Craig said "Inflation is merely a discontinuity in the way we count wealth (ie money) whereas recession is a cut in real wealth" That just plane wrong. Inflation is a highly inefficient "tax" that transfers wealth from savers to borrowers (frankly its more like a legalised process of theft). Its inefficient because its both highly insidious and it discourages almost all forms of beneficial economic activity. Inflation is the worst form of moral hazard and is strongly associated with the ending of most of the great civilizations in history. It should be oposed by all conservative minded thinkers. Neil Craig said
“Inflation is merely a discontinuity in the way we count wealth (ie money) whereas recession is a cut in real wealth”

That just plane wrong.
Inflation is a highly inefficient “tax” that transfers wealth from savers to borrowers (frankly its more like a legalised process of theft).
Its inefficient because its both highly insidious and it discourages almost all forms of beneficial economic activity.

Inflation is the worst form of moral hazard and is strongly associated with the ending of most of the great civilizations in history.
It should be oposed by all conservative minded thinkers.

]]> By: Neil Craig http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20527 Neil Craig Thu, 15 May 2008 17:45:24 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20527 Given the options of recession or inflation I would go for more inflation. Inflation is merely a discontinuity in the way we count wealth (ie money) whereas recession is a cut in real wealth. However neither is either necessary or useful in solving the problem. What is needed is a cut in government spending/waste, regulation & the % of GNP spent by the state. A recession which does not cut the state sector or inflation which merely hides the extent of government borrowing would be counterproductive. We atre beyond the stage at which merely sharing the fruits of growth, when it comes, with those who produce it will do. Given the options of recession or inflation I would go for more inflation. Inflation is merely a discontinuity in the way we count wealth (ie money) whereas recession is a cut in real wealth.

However neither is either necessary or useful in solving the problem. What is needed is a cut in government spending/waste, regulation & the % of GNP spent by the state. A recession which does not cut the state sector or inflation which merely hides the extent of government borrowing would be counterproductive. We atre beyond the stage at which merely sharing the fruits of growth, when it comes, with those who produce it will do.

]]> By: Robert http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20521 Robert Thu, 15 May 2008 12:35:31 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20521 John, sadly I feel that Anthony has a point as I have argued before. Bottom-line there is no easy way out - we have to take the pain and yes, it could get alot worse than one would like if you believe Ambrose Evans-Pritchard, not that I agree with him. We have to make sure that inflation does not get into the system, and Mervyn King I believe is on the right track. We need a period of sensible and 'conservative' monetary policy. Stagflation, a term I used over 9 months ago is becoming more of an accepted potential outcome, though I know not by you. I disagree with you and Roger Bootle as I believe that this period of inflationary pressure will last longer than you both think. I feel that more economists, usuallly poor forecasters mind you, are coming around to the idea that stagflation may well be a potential outcome now, amusing to a number of us who were ridiculed for this view at the end of last year. As always time will tell, but as the previous post stated we need to purge the system and bring financial discipline back. House prices falling will be good for first time buyers, they will have to save for smaller absolute deposits (I assume 15%, => 85% LTV)and potentially borrow less and have a much better risk reward. If they fall by 30% over the next two years that would I believe, on 3.5x av. incomes and 5% wage inflation, reconnect the market to be based on fundamentals again. Reply: I agree that we will approach stag, especially if the Bank means what it says this time and keeps rates up (Remember their pledge not to bail out banks?). Inflation will spike soon, and then the Credit Crunch effect will be seen infalling inflation. John, sadly I feel that Anthony has a point as I have argued before. Bottom-line there is no easy way out - we have to take the pain and yes, it could get alot worse than one would like if you believe Ambrose Evans-Pritchard, not that I agree with him. We have to make sure that inflation does not get into the system, and Mervyn King I believe is on the right track. We need a period of sensible and ‘conservative’ monetary policy. Stagflation, a term I used over 9 months ago is becoming more of an accepted potential outcome, though I know not by you. I disagree with you and Roger Bootle as I believe that this period of inflationary pressure will last longer than you both think. I feel that more economists, usuallly poor forecasters mind you, are coming around to the idea that stagflation may well be a potential outcome now, amusing to a number of us who were ridiculed for this view at the end of last year. As always time will tell, but as the previous post stated we need to purge the system and bring financial discipline back. House prices falling will be good for first time buyers, they will have to save for smaller absolute deposits (I assume 15%, => 85% LTV)and potentially borrow less and have a much better risk reward. If they fall by 30% over the next two years that would I believe, on 3.5x av. incomes and 5% wage inflation, reconnect the market to be based on fundamentals again.

Reply: I agree that we will approach stag, especially if the Bank means what it says this time and keeps rates up (Remember their pledge not to bail out banks?). Inflation will spike soon, and then the Credit Crunch effect will be seen infalling inflation.

]]> By: Tears for Tier 1 http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20513 Tears for Tier 1 Thu, 15 May 2008 09:35:29 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20513 The worst thing about the "leaked"/ telephoto cabinet briefing document was that: 1. The government believes that house prices will drop by 5% to 10% this year alone. 2. The government believes that first time buyers should be encouraged to buy now. I can't imagine what would be said of any investment company advocating such a policy. The worst thing about the “leaked”/ telephoto cabinet briefing document was that:
1. The government believes that house prices will drop by 5% to 10% this year alone.
2. The government believes that first time buyers should be encouraged to buy now.

I can’t imagine what would be said of any investment company advocating such a policy.

]]> By: anthony scholefield -Futurus http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20504 anthony scholefield -Futurus Wed, 14 May 2008 23:11:00 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20504 I dont understand thgis post which reads as though any recession is bad and should be dealt with by 'recession busting'. Worse the current recessions in the US and the UK have been caused by slack monetary policies. The idea that the solution to problems caused by slack monetary policies is... more slack monetary policy ..is quite wrong. The system needs to be purged.factors reallocated to more profitable activities not the smoke and mirrors of profit increases and asset writedowns of the city institutions Reply: Yes, the problem was caused by slack money policies. The danger now, however, is different - the credit tightening will go too far unless the authorities take action. In the UK a lot of the problem has been caused by wasteful and excessive state spending, which needs tackling in the ways described on this website. I dont understand thgis post which reads as though any recession is bad and should be dealt with by ‘recession busting’.
Worse the current recessions in the US and the UK have been caused by slack monetary policies.
The idea that the solution to problems caused by slack monetary policies is… more slack monetary policy ..is quite wrong.
The system needs to be purged.factors reallocated to more profitable activities not the smoke and mirrors of profit increases and asset writedowns of the city institutions

Reply: Yes, the problem was caused by slack money policies. The danger now, however, is different - the credit tightening will go too far unless the authorities take action. In the UK a lot of the problem has been caused by wasteful and excessive state spending, which needs tackling in the ways described on this website.

]]> By: Jonathan Robson http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20493 Jonathan Robson Wed, 14 May 2008 18:46:18 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20493 It is obvious to any thinking person that New Labour are now so desperate to cling on that they will promise anything - but are the promises what they seem? "Critics say Mr Brown's decision to preview the government's programme diminishes the role of the monarch and the relevance of the State Opening of Parliament in November. But the government says it is appropriate to announce proposed measures earlier to allow consultation over the summer, resulting in a more concrete Queen's Speech. " http://news.bbc.co.uk/1/hi/uk_politics/7399340.stm Skipping over the obvious "republican" tendancies of Labour - notice that these are not policies but "consultaions" - and we know what consultations are in the hands of labour - just ask a few friends what they think and hey presto consulation done. New Labour have had thousands of consultations - but guess what - no one has ever asked for my opinion, strange. One other thing on another but related topic - Why is the BBCs website all about Labour? Do the BBc never ask for comments from the most popular party in England? (49% at the last opinion poll). I can imagine if the Conservatives had just pulled out a 2.7 billion pound tax cut, it would be wall to wall criticsm and sneering from the BBC. It is obvious to any thinking person that New Labour are now so desperate to cling on that they will promise anything - but are the promises what they seem?

“Critics say Mr Brown’s decision to preview the government’s programme diminishes the role of the monarch and the relevance of the State Opening of Parliament in November.

But the government says it is appropriate to announce proposed measures earlier to allow consultation over the summer, resulting in a more concrete Queen’s Speech. ”
http://news.bbc.co.uk/1/hi/uk_politics/7399340.stm

Skipping over the obvious “republican” tendancies of Labour - notice that these are not policies but “consultaions” - and we know what consultations are in the hands of labour - just ask a few friends what they think and hey presto consulation done.

New Labour have had thousands of consultations - but guess what - no one has ever asked for my opinion, strange.

One other thing on another but related topic - Why is the BBCs website all about Labour? Do the BBc never ask for comments from the most popular party in England? (49% at the last opinion poll).

I can imagine if the Conservatives had just pulled out a 2.7 billion pound tax cut, it would be wall to wall criticsm and sneering from the BBC.

]]> By: Matthew Reynolds http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20488 Matthew Reynolds Wed, 14 May 2008 17:48:38 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20488 I think that all QUANGO's brought in since 1997 should via a single Act of Parliament have a sunsetting clause meaning that without being renewed by a Parliamentry vote a QUANGO would cease to function in four years time . All government red tape introduced since 1997 should as with QUANGO's be subject to a sunsetting clause via a single Act of Parliament meaning that if not renewed via Parliamentry statute it expires after two years. So within two years of a Tory general election victory Labour's red tape madness could be ended. Conservative ministers would not want to go before Parliament trying to revive Labour QUANGO's & regulation so thanks to two simple pieces of Parliamentry Legislation government can be made much smaller very soon. All new regulations & QUANGO's should be subject to a sunsetting clause meaning that they too will expire within a four years without being renewed via a vote in Parliament. As with Eire the UK can secure lower levels of public expenditure as a share of GDP & a lighter regulatory burden and Parliament can be used to force the next Conservative government to move powers away from QUANGO's towards either elected Ministers or local government. This means cuts in the public debt paving the way for tax cuts ! This plan is good for the economy & democracy . Excess red tape & a bloated state sector have got us into this malaise - time for the opposite policies to get the UK en-route to prosperity. I think that all QUANGO’s brought in since 1997 should via a single Act of Parliament have a sunsetting clause meaning that without being renewed by a Parliamentry vote a QUANGO would cease to function in four years time .

All government red tape introduced since 1997 should as with QUANGO’s be subject to a sunsetting clause via a single Act of Parliament meaning that if not renewed via Parliamentry statute it expires after two years. So within two years of a Tory general election victory Labour’s red tape madness could be ended.

Conservative ministers would not want to go before Parliament trying to revive Labour QUANGO’s & regulation so thanks to two simple pieces of Parliamentry Legislation government can be made much smaller very soon. All new regulations & QUANGO’s should be subject to a sunsetting clause meaning that they too will expire within a four years without being renewed via a vote in Parliament.

As with Eire the UK can secure lower levels of public expenditure as a share of GDP & a lighter regulatory burden and Parliament can be used to force the next Conservative government to move powers away from QUANGO’s towards either elected Ministers or local government. This means cuts in the public debt paving the way for tax cuts !

This plan is good for the economy & democracy . Excess red tape & a bloated state sector have got us into this malaise - time for the opposite policies to get the UK en-route to prosperity.

]]> By: Tony Makara http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20479 Tony Makara Wed, 14 May 2008 10:24:51 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20479 Faced with a recession or inflation I would prefer to see a recession, because I know that will be easier to resolve in the long-run. That may seem Lamontesque but inflation devalues everything, including our nations status. The US will have to deal with inflation eventually, agressively cutting rates at a time when the dollar is falling and while energy and food prices are soaring is a recipe for disaster. Price stability provides a measure of value and must be maintained, all else must be built around that. In the UK consumers and government have lived on credit for the last decade, its now time for a painful correction and people have to accept that. We need to cut rates but we can't, because if we do we will be opening the door to currency devaluation and inflation, which will be made all the worse because of our dependence on imports. Stability is the key. I don't want to see a recession but putting off a correction today will only mean having to face a more torturous economic realignment tomorrow. Faced with a recession or inflation I would prefer to see a recession, because I know that will be easier to resolve in the long-run. That may seem Lamontesque but inflation devalues everything, including our nations status. The US will have to deal with inflation eventually, agressively cutting rates at a time when the dollar is falling and while energy and food prices are soaring is a recipe for disaster. Price stability provides a measure of value and must be maintained, all else must be built around that. In the UK consumers and government have lived on credit for the last decade, its now time for a painful correction and people have to accept that. We need to cut rates but we can’t, because if we do we will be opening the door to currency devaluation and inflation, which will be made all the worse because of our dependence on imports. Stability is the key. I don’t want to see a recession but putting off a correction today will only mean having to face a more torturous economic realignment tomorrow.

]]> By: mikestallard http://www.johnredwoodsdiary.com/2008/05/14/the-uk-and-the-us-different-responses-to-stagflation/#comment-20473 mikestallard Wed, 14 May 2008 06:58:53 +0000 http://www.johnredwoodsdiary.com/?p=1072#comment-20473 The chickens are coming home to roost even if the horse cannot get back into the stable! The chickens are coming home to roost even if the horse cannot get back into the stable!

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