Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Why Record-High Stock Prices Mean You Should Buy More - 20th Nov 19
This Invisible Company Powers Almost the Entire Finance Industry - 20th Nov 19
Zig-Zagging Gold Is Not Necessarily Bearish Gold - 20th Nov 19
Legal Status of Cannabis Seeds in the UK - 20th Nov 19
The Next Gold Rush Could Be About To Happen Here - 20th Nov 19
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

Vote, vote, vote for central banking!

Politics / Inflation May 03, 2007 - 09:44 AM GMT

By: Adrian_Ash

Politics

"...What if the 'first win' of globalization didn't go to China ? What if it went to central bank policy wonks instead – free to keep real interest rates low despite oil prices trebling...?"

TAX PAYERS in Britain were invited to vote early and often in today's local council elections. The French will get to choose between one bone-head and another this weekend, too.


But amid the door-stepping and live TV wrangling in Europe right now, it's a poor central bank drudge who seems to want victory most.

Mervyn King, governor of the Bank of England, celebrated its first decade of political independence with a speech in the City last night. No one lobbed bread rolls or fruit at the governor, not according to this morning's press reports at least. It's only polite to allow a guest speaker his views, after all.

But even a room full of "dismal scientists" must have gasped at the cheek of the man. To quote:

"Inflation expectations [in the United Kingdom] have been anchored," he said, "because the Monetary Policy Committee has responded to events that have pushed the outlook for inflation away from target – and households, businesses and financial markets have understood and anticipated our responses."

Oh yeah? The money supply has been growing at double-digits for two years running. But "the crucial achievement of the MPC is to have anchored inflation expectations," said King. "It is not, I believe, credible to dismiss that solely as the result of luck."

Bravo...encore!

"On that sunny Bank Holiday morning in 1997, we knew [the government] had given us an opportunity to change monetary policy for the better. We had to grab it with both hands. That is exactly what the Bank has done."

Vote, vote, vote for Mervyn King!

"The average deviation of inflation from target has been just minus 0.08 percentage points," the Trimmer went on. But he was big enough to mention – alongside his lack of good fortune – a couple of "downside" shocks to general price levels. First the Pound Sterling rose by 25%, he noted, squashing import prices by one fifth. Then we experienced the largest inflow of migrant labor since Harold Macmillan was prime minister in the early 1950s.

What Mervyn King failed to do, however, was add them together.

Sterling 's rise – plus the flood of cheap migrant workers, now reckoned at around 1% of the population every two years – has helped keep a lid on both wages and import prices. Not a word from Dr. King on this, however. More shocking still, he also failed to mention China , India , Asia , globalization, outsourcing, the global labour arbitrage, and the internet.

No kidding! Britain 's chief economist...talking about inflation...didn't mention the big win he's enjoyed from globalization. Not once. So let's mention it for him.

Take East Asian wage rates, for instance. What have they got to do with the price of fish, you might wonder. Well, the price of fish for British consumers rose 12.6% in the last 12 months, as it happens. But the cost of new clothes, mostly produced in East Asia today, fell more than 8% in the last two years alone. The price of a new television has sunk by one fifth. New cameras are 34% cheaper; furniture's unchanged; carpets and drapes are 7% cheaper; games and toys are more than 5% lower from Jan. 2005.

Worth a mention, Dr. King?

"Ricardian comparative advantage tells us that the first win [of globalization] goes to low-wage workers in developing economies," noted Stephen Roach, chief economist at Morgan Stanley, recently. "[They] enter the global economy initially through their involvement in export production and eventually as a new class of consumers."

"The second win [of globalization] is presumed to benefit the rich nations of the developed world," Roach went on – "where consumers can expand their standard of living by buying low-cost, high-quality goods from poor countries and where workers can ultimately gain from being involved in the production of more sophisticated products exported to increasingly prosperous developing economies."

This much seems true at first glance. "But it's not working as advertised," said the Morgan Stanley man. "The first win is hard to dispute. China has led the way, with more than a quadrupling of its per capita GDP since the early 1990s...[But] in recent years, the benefits of the second win have accrued primarily to the owners of capital at the expense of the providers of labor."

In short – and as in all inflationary periods – the returns to labor have been way outstripped by the returns to capital. But what if we go a step further, too? What if the "first win" didn't go to China ? What if it went to Western central bankers instead?

The shock disinflation enjoyed by the developed world since 1997 – in clothing, footwear, computers, TVs, DVDs, mobile phones, year-round fruit and vegetables – did it not give the "first win" of globalization straight to central bankers? Despite a tripling of oil prices, they've been able to keep real interest rates static...pushing property values up to all-time record levels...creating the biggest credit bubble in history...and reflating the world's stock markets as though spring 2000 never happened.

A central banker looking to take credit for "anchoring" inflation in the early 21st century might want, you would guess, to acknowledge this fact at least. He'd certainly nod towards globalization itself. But no.

In praising that sunny day in May 1997 when the Old Ladies were set free to make policy over tea and biscuits once a month, Mervyn King failed to mention the single biggest influence on consumer prices of the last decade – the sinking price of consumer goods.

Ten years on from winning his freedom, Mervyn King would do well to remember it. An end to this "first win" might let UK inflation – already rising at a 17-year record – slip anchor.

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Gold prices live | Latest gold market news
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 www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2007

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 http://www.MarketOracle.co.uk - 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