Friday, January 9, 2009

War on Savers Continues in Britain

The Angl0=American war on savers continues. Note the report from on U.K. manufacturing:

Jan. 9 (Bloomberg) -- "U.K. manufacturing plunged in November, extending its longest streak of declines since 1980, and factories raised prices at the slowest pace in a year as Britain’s recession worsened."
Output dropped 2.9 percent in November, matching the biggest drop since 2002, the Office for National Statistics said today in London. Economists predicted a decline of 0.6 percent, according to the median of 20 forecasts in a Bloomberg News survey. A separate report showed producer prices rose 4.7 percent in December from a year earlier. "

"This provides concrete evidence that activity is grinding to a halt in the U.K.,” said Alan Clarke, an economist at BNP Paribas in London."

"The central bank cut the key interest rate yesterday to the lowest since it was founded in 1694 to keep the credit squeeze from deepening the recession.
The bank may lower rates further as the recession raises a “considerable risk” that the inflation rate will fall below the bank’s 2 percent target, George Buckley, economist at Deutsche Bank AG in London, said yesterday."

Let us examine the above.

First, prices were up almost 5% year on year despite continual declines in output. This is stagflation, 1970s style. Yet the Bank of England is punishing savers with record low rates, far below historical inflation and providing no incentive for people to rebuild their savings, and is implicitly encouraging people to revert to the same risky behaviors that built an unsustainable boom which has now gone bust.

Second, an enabler of this unfair and inappropriate Bank of England policy is Alan Clarke, an "economist" (who, statistically speaking, did not foresee this bust), who overstates matters a wee bit: No, Mr. Clarke, manufacturing is not "grinding to a halt". It has gone down due to more competitive manufacturing elsewhere in the world, much of it financed by British manufacturing companies eager to lower their cost of goods. If Britain really wanted manufacturing to grow, British companies (and other firms) could build factories in Britain.

Third, another enabler of matters is Mr. Buckley, another "economist", who is apparently horrified that inflation may actually go under the bank's target. In other words, in his opinion, it's a disaster if the bank fails in its pro-inflation mission, and its "target" is a sham meant for comsumption by the great unwashed public.

These economists, who calls on and who do not charge for their opinions, are touts for a corrupt system. What they say is of interest because this corrupt system remains in power. But what they say is profoundly wrong. The lenders who made bad loans, and the borrowers who borrowed not wisely but too well, need to work matters out between themselves. But the pro-inflation and anti-saver bias of the past decade needs to end in order for the investment climate to improve.

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