David Miles of the BoE confirms what we’ve been saying – Higher inflation is now policy at the BoE, and they WILL print more money
David Miles, the new ‘ginger-in-chief’ (GIC) at the Bank of England is the chap who for the last two meetings has voted for an increase in money printing (interestingly whilst the outgoing GIC Posen, has not), gave a talk this week and it’s quite illuminating in understanding the current thinking at the BoE – and more importantly confirming what we’ve been saying for over a year. Namely that the BoE is actively trying to keep CPI inflation above their government mandated target of 2% “at all times”.
For those who wish to wade through the the entire speech you can read it here, but be warned, it’s full of economic fallacies and laden with self-confirming excuses as to why missing their target for an expected 4 years is not their fault, and in point-of-fact is something we should now view as a good thing.
As a quick reminder here’s what we’ve been saying about this unannounced change in policy by the BoE:
However, we already know that the BoE’s King has already said that he will not let inflation be under target in order to get back to where the BoE should’ve been all along. Or to put it another way, the BoE will keep its deliberate policy of above target CPI inflation for at least another year, completely breaking its government mandate legal target of 2% at all times.
Sadly as we’ve being saying since our very first post the money printing will not stop – in fact it hasn’t just re-started it is now accelerating. This is very slippery path we’re now on and there is absolutely no desire to by the government of the BoE to change direction – instead they’ve just put their foot on the gas…
…How can we be so sure? Because the BoE has ditched the 2% target and is actively seeking CPI in the 4-7% range (that’s what the money printing is telling you loud and clear). This is how all governments pay off debt – with funny money – when the grand debt cycle comes to an end.
We’re going to make a bold prediction that you can come back and check in 9 months time. CPI inflation will be running much higher than 2% by then – how can we be so sure? Because there is no 2% target – its a myth. The BoE and the UK government positively want higher than 2% inflation – that’s what money printing (QE) is all about. Nice of them to let you know about such a dramatic policy shift wasn’t it?
Yep, that’s now 28 months of epic failure by the BoE to even come close to its government mandated target of 2%. Repeat after us “above target inflation is deliberate governmental and BoE policy”.
It now looks like the BoE totally agrees with our above assessment – not only on the part that the CPI will be much higher at the start of 2013 than originally thought, but more importantly they admit that higher than 2% inflation is a deliberate policy by the BoE.
So with our previous comments on the BoE and higher than 2% inflation in mind, here’s what David Miles had to say this week:
As a result, the optimal path of monetary policy is likely to entail a slower return to the inflation target. It may even be optimal to make policy more expansionary even as one’s estimate of spare capacity is lowered. I discuss this more formally in Annex A2 within the framework of a standard model of monetary policy.
Incidentally he’s basing this finding on some economic models that he’s put together – you know, those really amazing economic models that have served JP Morgan so well of late, but we digress.
Note that he’s implying that a slower return to their 2% CPI target is the ‘optimal’ path for monetary policy – never mind that his legal target from the Chancellor is 2% “at all times”.
It also confirms what we’ve been saying for a long time now (see above)- namely that the 2% target is a complete charade, the BoE are actively seeking higher than target inflation and the above snip pretty much is telling you that. The main problem with this is that there has never been an official announcement that this is the actual policy – instead they maintain that they want to achieve 2%… just not anytime soon.
Miles goes on
None of this is certain. The existence of substantial slack, of a flatter Phillips curve and of a high degree of dependence of productive potential upon demand (hysteresis) are all uncertain. But I believe they are consistent with the evidence and that they make an exceptionally expansionary monetary policy appropriate.
He’s pretty much setting people up for more money printing to come in the not too distant future, and the entire speech was pretty much a justification for this inflationary action.
And in case you were in any doubt that the BoE is actively targeting higher inflation he finishes with this:
But that does not mean bringing inflation back to target very rapidly is the best thing to do. In a situation where weak demand is likely to be having a negative impact upon productive capacity the cost of having a tighter monetary policy to bring inflation back to target fast will be some long lasting damage to incomes.
So there you have it, this is about an overt an admission as you will get from the BoE that higher than target CPI inflation is officially the policy of the BoE, and de-fact the government.
Get ready, because after this speech you should be in no doubt what-so-ever that the BoE stands by ready willing AND able to steal more of your wealth by printing much more money – and you can’t say they didn’t warn you… sort of.
- David Blanchflower says the Bank of England will print more money before November
- Adam Posen of the BoE re-defines insanity as it gets set to print more money
- The deliberate policy of high inflation roars on as the CPI comes in at 4.8%
- Bank of England out of ideas – getting monetary policy advise from school children?
- More government spending + Increasing debt + massive deficit financing + higher taxes + enormous money printing = double-dip recession… who knew?
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