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December 01, 2009

Comments

Tom Freeman

Agreeing with the crowd on immigration endears him to the Tory leadership. Disagreeing with the crowd on inflation endears him to the Tory leadership. Whether he's intending to defect after he's been safely re-elected to his solid Labour seat, or whether he's merely angling for a 'goat' job under Cameron, this has been the general theme of his career over the last couple of years.

Paul

Good analysis esp re: the comparison with FF's immigration stance, and I agree with Tom that there must be some danger of a post-election defection given his attempts at contrariness on whatever grounds; everything points that way.

My fuller post is at Though Cowards Flinch. Didn't think the LibCon edit (not by me) quite captured what I was trying to get at, so if you've got the energy any chance you can link to the original in your 'Top Blogging' section rather than the LibCon one?

Laban

While high inflation isn't the consensus view, people like Liam Halligan and Albert Edwards are convinced it's going to happen - not over the next year, but over the next 5-10 years.

And what's QE done but inflate asset prices ?

Goodhart : "Equities rise, and exchange rates fall in countries pursuing QE more aggressively (USA and UK) relative to those doing less (eurozone and Japan)."

That sounds like an inflationary result to me. The spectre of deflation the BoE waved around last year was never likely given the fall in sterling and our dependence on imports.

The great fear if Labour should get back is that they'll find it easier to keep the presses running than to cut spending. Doesn't take many years of inflation to destroy the value of a pension.

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Econoclast

I don't buy the 'hyper-inflation' conclusion either, but neither do I think we can just blithely accept forecasts of sustained low inflation. As you say, the Bank is engaged in a battle against deflation and is using QE and some verbal intervention to push the pound down. We are in uncharted policy territory. Currently, there are no risks of inflation given plenty of spare capacity and an impaired monetary system. This is why extreme monetary and fiscal stimulus is justified. But timing and calibrating the withdrawal of that stimulus when the economy recovers is the tricky part. Tighten too soon and the recovery peters out - the lesson of the 1930s. Tighten too late and inflation will ultimately rise - the lesson of the 1970s. I'm not sure what is most likely, but the critical point is that there is a substantial risk of a policy error. As an aside, it seems that people jumping back into the housing market are assuming the second scenario is more likely.

chris

@ Econoclast - I entirely agree. I cited those forecasts not to suggest that they will be correct, but merely to show that mainstream thinking is miles away from the "megadose of hyperinflation" view. Yes, there is a risk of inflation going well above target sometime - but that's a wholly different thing from hyperinflation.

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Whether he's intending to defect after he's been safely re-elected to his solid Labour seat, or whether he's merely angling for a 'goat' job under Cameron, this has been the general theme of his career over the last couple of years.

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