The second half of their argument I have a lot of time for: deflation is a danger to be avoided at just about all costs, in my opinion. That a fall in the value of the currency might destroy real opportunity in the economy is unforgivable in my opinion, and it’s right that the Bank should steer clear of it.

Deflation is a rise in the value of the currency…..

Would the world end if the target was 3%? Or 4%? Or even 5%? I’m not suggesting any more than that, and might only go for doubling to 4% to be honest. The obvious answer is it would not.

It’s true that those owing money would have that written off faster by inflation. But that would diffuse the debt crisis. And it would reduce inequality. Both of those should be key economic targets for any government.

That’s one that’s not going to work again. Nominal interest rates will rise to cover the inflation. It would also of course, entirely put paid to those bond linked pensions funds that Ritchie is so fond of.

Critically, this inflation target would also mean that interest rates need not rise – rate rises that will tip millions into unmanageable debt scenarios and which might precipitate a new banking crisis as a result.

We sure about that?

Sigh:

Nick says:
September 30 2017 at 8:04 pm
What about pension savings?

Reply
Richard Murphy says:
September 30 2017 at 10:49 pm
If you think pensions are paid out of savings you really do not understand pensions

http://www.financeforthefuture.com/MakingPensionsWork.pdf

He wants everyone to save for their pensions through bonds. Then advocates high inflation.

11 thoughts on “Oh Dear”

  1. Too much of this recently to be just a heavy night in the pub. I wonder if he ever gets any feedback from City uni. Surely by now they must be wondering what they’ve foisted on their students.

  2. Surely even he can’t think that deflation means the currency is devalued? This is actual Alice in Wonderland shit.

  3. Latest comments:
    Alex says:
    October 1 2017 at 8:59 am
    Deflation is not a decrease in the value of the currency. In fact quite the reverse. Inflation is a decrease in the value of the currency.

    Reply
    Richard Murphy says:
    October 1 2017 at 9:05 am
    If you’re plating pedant (and like many, that’s all you can do) that argument can be made.

    But it’s entirely appropriate to say in response that all things are relative and and money has no value barring its relationship with other goods. It is wholly apparent that the decrease I referred to was the declining value of money required to purchase a fixed amount of other goods.

    But you’d rather ignore the issue and play semantics instead. Now why might that be?

  4. OK. The man’s a f***ing idiot.But the worrying thiing’s the political class, the MSM opinion formers & apparently half the supposed economic experts are no better.

  5. Annoyingly, he’s not entirely wrong about raising the inflation target to 4% or so. Arguably that’s what the ECB should have done, to quash the deflation in Greece & Spain (and make Germany pay for its reckless lending). But for the UK it’s completely irrelevant, so Murphy remains consistently wrong.

  6. @AndrewM

    He may not be wrong about the 4% target, but he’s got no idea why he’s right.

    It’s a blind squirrel/stopped clock moment.

  7. Disinflation is a fall in prices resulting in a rise in the value of the currency without a slump in output.
    Deflation is a spiralling fall in the output of the economy accompanied by an expectation of a consequent fall in prices that leads to a deferment of purchases that leads to a decline in demand that leads to a decline in output – a much more complicated situation.
    What we enjoyed as a result of the massive fall in the price of oil was a brief period of disinflation.

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