Reality of Inflation's Outcome?
By Staff News & Analysis - February 13, 2014

Bank of England Inflation Report: no rate hike while recovery remains 'unsustainable and unbalanced' … Bank severs link between unemployment rate and an interest rate hike, and caveats bullish growth assessment with concerns that the recovery is currently unsustainable. Interest rates are unlikely to rise before 2015, the Bank of England signalled on Wednesday, as it warned the recovery was still too unbalanced to support a rate hike. A bullish growth assessment on Wednesday was caveated by concerns that the recovery was currently unsustainable and unbalanced. – Telegraph

Dominant Social Theme: We're almost there and we just have to print a little more to be sure …

Free-Market Analysis: Print, print, print. Miles of newsprint have been wasted writing about "tapering" and "tightening" when, in fact, there is none.

Yesterday, new Federal Reserve chair Janet Yellen made it clear in what Bloomberg called "interminable" testimony that the Fed intended to remain "accommodative." What this means is that the central bank will use many of the tools at its disposal to keep the money flowing.

Chief among the tools the Fed has is interest rates. By keeping rates below the "natural rate" (whatever that may be) central bankers can eventually turn a bust into a boom via credit expansion. When rates are virtually nonexistent it is significantly easier to boost money circulation than when rates are sky high. And they haven't been high for decades.

In any event, on the heels of Janet Yellen comes the smoothest used-car dealer of them all, the man who has been called "the best central banker of his era," whatever that means. Of course, Carney has apparently left behind a god-awful real-estate bubble in his native Canada due to excessive money printing, and presumably that is why he was flown to England – to create the same kind of asset inflation.

And now, Carney has struck. Jettisoning the happy talk of predecessors and economic "experts," he has announced that rates will not rise for the foreseeable future because the much-vaunted British recovery is actually nil. Here's more from the article:

Interest rates are unlikely to rise before 2015, the Bank of England signaled on Wednesday, as it warned the economy was still too weak to support an increase. The Bank revised up its 2014 growth forecast to 3.4pc, from an estimate of 2.8pc in November. It also raised its forecasts for 2015 and 2016 to 2.7pc and 2.8pc. However, the bullish estimates were qualified by concerns that the recovery was unsustainable and unbalanced.

The Bank also severed the link between the unemployment rate and an interest rate hike, switching to a broad range of measures including wage growth and business investment to assess Britain's ability to support a rate rise.

The Bank pledged yesterday to:

• Keep rates low until growth runs closer to its potential.

• Raise rates slowly even when the economy improves.

• Change course if conditions worsen.

• Maintain QE at £375bn until rates rise.

The Bank believes the UK economy is running at around 1.5pc below its potential, and said it would need to make up more lost ground before it would consider raising rates from their record low of 0.5pc.

The Bank said productivity was much weaker than expected, while surveys pointed to less slack in the economy. "The Monetary Policy Committee (MPC) has taken a cautious approach," said Mark Carney, the Bank's Governor.

"We've learned that as yet the recovery is neither balanced nor sustainable. A few quarters of above trend growth driven by household spending are a good start but they aren't sufficient for sustained momentum. "The MPC will not take risks with the recovery."

… Charlie Bean, a deputy governor of the Bank, said the first rate hike would come before the economy hit full steam, which it predicts will happen at the beginning of 2017. "I think it's reasonable to expect that you'd want to start tightening policy before slack is completely eliminated," said Mr Bean. "If you tighten too early, there's a risk of foregoing some of those endogenous productivity gains. Too late [and] inflation could take-off."


Aye, there's the rub – presented in the last graf. The timing of the "tightening" is what's important. And, of course, we are not meant to wonder how in the bowels of central banks around the world, good, gray men arrive at the decision as to when to tighten and how.

Because, in fact, they do not have the tools to figure out when and how. All central bankers have is backwards-looking indicators and thus predictions amount to no more than guesswork. Central banking is presented by the bought-and-paid-for mainstream media as a science when it is nothing more than a kind of economic mumbo-jumbo.

The same could be said for Carney's big announcement that Britain's economy was unsustainable and unbalanced. It sounds like he has gotten the UK confused with Sochi and figure skating.

All that can really be grasped from Carney's generalities is that the Bank of England intends to continue to print money at full speed. And this corresponds to what Yellen is to do in the US, what the ECB is doing, what Japan is doing and, of course, what China has been doing at hyperspeed literally for decades: making the printing presses sing.

Along the way, we've had – in recent times – the crash of 1987, the recession of the early 1990s, the tech bubble of the later 1990s, the tech crash of 2001, the housing bubble of the 2000s, the disastrous housing bust of 2008, the stock market implosion of 2009 and now the boom of the early 'teens.

Always they print.

And in between they point fingers at regulators, corporate "crooks" and politicians who are presumably to blame for the business cycles that they themselves instigate and generate.

This boom, too, will end ruinously and yet, outside of the alternative press, no one is writing about the extreme recklessness of central banking and its surprising – yet almost inevitable – escalation.

An unbiased observer watching from a distance would surely conclude two things from the just-announced intentions of US and British central bankers to continue to stimulate aggressively: First, these intentions are as rash as they are deliberate and second, those at the helm obviously want another great bust.

This is exactly what we've been writing, of course. They're pushing a Wall Street Party as hard as they can. And they know full well the harder they push the worse it will be in the end.

From a boom to end all booms – with plenty of prosperity for all – to a ruinous bust that is perhaps intended to usher in a good deal more globalization: This would seem to be the plan. These men and women, impeccably groomed and soft-spoken, are surely – in a sense – silk-clad thugs: What they are preparing for the West will likely cause blood to flow in the streets.

After Thoughts

Washington's regulatory agencies have bought billions of rounds of bullets and continue to arm themselves with the latest military gear. What do they know?

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