Thursday, October 09, 2008

Free money !

At least for banks. The Bank of England interest rate has come down 0.5% just as inflation is taking off. Various banks and building societies are reducing mortgage rates ( no doubt von Brun ordered them to do so or there would be no tax payer subsidy ).

Soon the email/letter from your bank saving savings rates have been dropped by 0.5% will drop through the door.

In many cases this will now mean banks have peoples money on deposit paying less than the rate of inflation. In other words they are making money whilst savers will be losing it.

Doesn't sound very stable to me.

Still we all know someone's going to get done over for all Gordon Brown and Alastair Darling's trickery.

Update: The DT's Harry Wallop catches up with this today here.


Vindico said...

Ah, but inflation is not about to take off. It is about to sharply reduce, especially if the money supply contracts.

Man in a Shed said...

Maybe - I assume under normal circumstances reducing interest rates increases the money supply. But fear may keep it in check.

I have a suspicion that the route out of this crisis is going to be for governments to print more money - which is another way of removing it from everyone who hold any.

Man in a Shed said...

I note that my suspicions are shatred by Philip Delves Broughton at the First Post - see this extract page 2 from his article.

" There is another reason to believe that inflation is secretly desired by the United States. It would be the quickest way of erasing its debts - far quicker than actually working to pay them off.

Milton Friedman said that inflation is a purely monetary phenomenon. The more money sluicing through an economy chasing a limited supply of goods, the higher inflation goes. Many economists argue that this fundamental link has been broken by globalisation, the rapid growth of emerging economies and more sophisticated money management by Central Banks.

But it is hard not to suspect that all those colossal cheques being written by the US government and others will not have some effect on prices. Ten per cent inflation by the middle of next year will make the gold hoarders look even smarter than they do today "