Thursday, August 6, 2009

Bank of England Loves Inflation

This is a bit scary from the Bank of England today:

In the light of the Committee’s latest Inflation Report projections and in order to keep inflation on track to meet the 2% inflation target over the medium term, the Committee judged that maintaining Bank Rate at 0.5% was appropriate. In the light of that outlook, the Committee also agreed that it should extend its programme of purchases of government and corporate debt to a total of £175 billion, financed by the issuance of central bank reserves. The Committee expects the announced programme to take another three months to complete. The scale of the programme will be kept under review.

The Committee noted that the increase in the scale of the programme would necessitate an increase in the range of maturities of government debt that the Bank was willing to purchase. That is explained in an accompanying market notice.

It's news to me that the BofE, and therefore likely the Fed, is so committed to non-deflation that it will print money--debasing the currency-- at a time when inflation was 1.8% (per the statement). Does anyone really think that in a large complex economy such as Britain's, it is possible to measure the inflation rate with such great precision? Worse, what's wrong with letting savers actually have a positive return on their savings?

The Bank of England should stop manipulating interest rates to pump up the credit bubble again, and so should the Fed.

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