Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20
Silver's Massive Undervaluation Relative to Gold Makes It Irresistible - 14th May 20
Bitcoin Halving Passes with no Fanfare, but Smart Money is Accumulating - 14th May 20
Will Job Market from Hell Support Gold? - 14th May 20
The Tragedy Of Missed Covid-19 Opportunities - 14th May 20
Worst Jobs Report In US Economic History - And The Stock Market Continues To Rally - 14th May 20
NASDAQ Sets Up A Massive Head and Shoulders Pattern - 14th May 20
Perceiving Coronavirus as a Disruptive Technology - 13th May 20
Why Financial Trouble Brews on the "Home" Front - 13th May 20
Stock Market ‘Sentiment Event’ Rally Grinds On - 13th May 20
The Fed Now Owns All Markets - 13th May 20
Fruit Trees Gardening to Beat Coronavirus Blues - , Apple, Cherry, Kiwi, Pears, Plums, Grapes, Bananas May 2020 - 13th May 20
Gold Investors Shouldn’t Be Losing Focus - 12th May 20
S&P 500 Bulls Again At Resistance – Now What - 12th May 20
US Fourth Turning Accelerating Towards Debt Climax - 12th May 20
Gold in the year of the Coronavirus Pandemic - 12th May 20
Hi Ho Silver : Away! - 11th May 20
The Great Stock Market Disconnect - 11th May 20
The Big Move In Silver May Be Right Now - 11th May 20
Finding Winners in the Wreckage of the Coronavirus Economic Downturn - 11th May 20
Brave New Corona World – A heated Debate between Steven Pinker and Aldous Huxley - 11th May 20
Coronavirus Catastrophe Stock Market Implications - 10th May 20
US Stock Prices are Ignoring the Economic Meltdown, Wait for it… - 10th May 20
Forecasting Crude Oil: This Method Has Been the Undefeated Champion Since 1998 - 10th May 20
Coronapocalypse and Gold - How High Is Too High for the Yellow Metal? - 10th May 20
The Illusion of Owning Gold - 10th May 20 - Nick_Barisheff
The Financial Crisis Will Continue To Lurk Even If the Lockdown Gets Eased - 10th May 20

Market Oracle FREE Newsletter


Forget Deflation this is Stagflation

Economics / Spain Jan 20, 2010 - 02:12 PM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleWell, this is a pretty pass. Deflation in all things except inflation...

THEY WERE SUPPOSED to avert depression. The Bank of England continues to tout their "success".

But it looks like the best that money-printing and zero rates might now deliver is '70s-style stagflation, plus '30s-style wealth destruction and a glacé cherry on top.

Giving Britain its "stag" – as in stagnation – are economic output, wages, capital investment, real estate prices and now, perhaps, a return of the bear market in London shares. Whether or not GDP shows an uptick for the end of 2009, this is the deepest British recession since 1931. Business investment sank to a 6-year low on the last quarterly data, and the number of people out of work for 12 months or more has risen by two-thirds since Northern Rock was bailed out, breaking the dam of bail-outs worldwide in late 2007.

Stepping in with a very 21st century version of drowning, not waving, "The number of people in part-time employment increased by 99,000 to reach a record high of 7.71 million" between Sept. and November '09, says the Office for National Statistics. "There were 1.03 million employees and self-employed people working part-time because they could not find a full-time job...the highest figure since records for this series began in 1992."

Growth in the money supply, meantime – while not quite negative, as in the technical definition of deflation – has slumped to a 5-year low. But not without the Bank of England's best efforts, remember...

Giving us a whole heap of "flation" to add to our "stag", interest rates at 0.5% – plus quantitative easing of £200 billion...almost entirely used to finance the government's record peace-time deficit – just saw the cost of living jump at its fastest pace ever on the UK's official measure.

Recession AND inflation? Wasn't deflation in all things except the cost of living supposed to be the same way that "pass through" from Sterling's fastest-ever decline on the currency market wasn't supposed to show up in prices but only in export sales...?

High Street inflation on the Consumer Price Index leapt last month from 1.9% to 2.9% year-on-year. The older, more trusted Retail Price Index has now reversed its 4% slump of late 2008 to stand near new all-time record highs, while the RPI excluding mortgage costs (neatly slashed on the official data, if not by High Street lenders) rose 3.8% from a year before in December, returning to levels last seen during the commodity-price surge starting in 2006.

Exclude house prices, in fact – only half-way through their typical post-bubble slump – and UK inflation just reached a two-decade high outside the oil-price spike of summer '08. UK wages, in contrast, crept 0.7% higher in the year to November, the latest official data claim, but the average hides the horror. Because in the private sector – as opposed to the printing-press fueled state sector – wages actually fell, shrinking 1.0% on average for the 12 months to December from a year earlier.

Now factor in the cost of living for workers not closing a house-purchase last year (i.e. almost everyone), and that handed a net loss of purchasing power of almost five pence in the Pound to workers outside the state.

Things are equally gruesome for those folk trying to save for retirement or drawing an income from what they put by in the past. The cost of living in Britain has now doubled inside 21 years, and for the second-half of this "Great Moderation", bank savings rates struggled to stay ahead of inflation. Thus the latest data only confirm what savers and retirees buying gold guessed back when the financial crisis began.

Their getting killed might not save the housing market, nor yet save the banks. But the Bank of England is happy to slit their throats regardless.

Monetary policy did nothing for Britain's housing-market turnover in 2009. The number of new house-buyer loans was unchanged from 2008, holding 60% below the approvals peak of 2006.

But with the rate of inflation jumping last month – and set to jump again after VAT returned to 17.5% on New Year's Day – the average discount mortgage (if you can get one...which you can't) is now, at last, cost-free when you account for the cost of living. Tax-free cash ISA accounts, in contrast, have been paying less than zero after inflation since June 2008.

Expect policy to continue favoring home-buyers and spending over retirees and savers...even as home-buyers and spenders suffer net deflation in their incomes. Everyone loses as we revert to all bust and no boom, baked into the crust by parliament's Keynesian consensus and the Bank of England's executive faith in the power of money-supply inflation to redeem the economy.

The Old Lady created twice as many Pounds in the last 10 months as the entire UK money-supply grew by in the first 11 months of 2009, the excess going to overseas bond-holders to finance the government's record peace-time deficit. Naturally, the value of Sterling has dropped as its supply has swollen, both against other currencies and gold bullion. But any hope that the new inflation data might see cash savers benefit from rising interest rates – let alone the end to quantitative easing scheduled for next month – looks premature.

Swap Sterling for gold...? It worked for nine years last decade, and that was before stagflation struck...back before the Bank of England began printing money to finance the state, and looking for all the world like it's actively bidding to destroy the Pound.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules