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There is none so blind as he
who claims he can see…
"I
can see another crash coming," forewarned UK coalition Cabinet member
Vince Cable recently.
Sage
words no doubt, from the man who first forecast that UK banks would hit trouble in...erm…late 2007.
Now, again,
Cable thinks the crash will come in banking...and he thinks it
will come due to a lack
of regulation.
"The
political class as a whole
is not preparing the
public for how massive the problem is. There is not the
recognition, to my mind,
of the seriousness of the problem."
But
what's this? In the same breath, the ex-economist adds:
"We don't have an underlying inflation problem."
Really, minister?
"As
an outsider looking in, I take
the view of the doves,"
Cable told Bloomberg back
in February. "Although
you have inflation, it's almost entirely imported. There's not very much evidence
of British inflation taking place."
In
fact, he claimed, "It's virtually deflation."
No,
minister. It really isn't. Not in the cost of
living. Deflation is only hitting real incomes. And only because we really
do have an inflation problem.
Retail prices
– excluding housing
– rose an average 6.3% annually
in the last three months.
That's the fastest pace since spring 1992. Twenty years ago, however, UK interest rates were at 10%. They're now down at 0.5%, and have been
stuck there for well over two years.
The
net result? For anyone
not buying a house today
(which as Vince Cable knows, means pretty much everyone
right now) it's the sharpest loss of purchasing power in cash savings
since January 1978. Worse still, average earnings are rising at barely
one-third the pace of inflation, growing by just 2.3% year on year.
Still, never mind. "The Bank [of England]'s
job, as the governor keeps
pointing out, is not to
look at today's numbers, but to look 18 months ahead," as Cable told the New Statesman this week. And of course, the
Bank of England – stuck
at near-zero – says inflation will fall back. Just like it's said inflation will fall back for the last 18 months.
"I
find that reassuring," says the
Business Secretary.
Oops! The Bank's
record at forecasting
inflation even a year hence is growing
ever worse, as Peter Hoskin at The Spectator
notes, citing this chart from Citi.
Because somehow,
the famous "output gap" keeps failing to put a lid on prices, even though unemployment
is rising, growth has evaporated, and
consumer credit and spending
continue to flatline.
"Retail sales in April 2011 compared
to April 2010 saw sales volumes increase
by 2.8%," says the Office for National Statistics. "The value of retail
sales increase by 6.2%."
How
come? What could possibly be driving
prices higher in the
absence of booming demand?
Without the legendary
"second-round effects" of inflationary wage claims, why on earth would the value of money be falling at its
fastest pace – even
on the official figures – for nearly two decades?
To
quote Vince Cable, there is not the recognition of
the seriousness of the problem.
Adrian
Ash
Head
of Research
Bullionvault.com
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City
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