Why we might be buggered

Either way, serious inflationary pressures are now upon us. The Bank of England insists this situation is transitory and we should “look through” rising prices. So why raise ultra-low interest rates or rein in quantitative easing (QE), the extraordinary ongoing expansion of our central bank’s balance sheet?

That view is convenient – telling politicians and financial markets what they want to hear.

Well yes. The thing is though, it’s a standard assumption that monetary policy takes about 18 months to work. So if you want to head off inflation you’re got to tighten monetary policy 18 months before the inflation arrives. Not, as will likely happen, 6 months after it does.

No, the MMT solution of higher taxes doesn’t work any faster. Especially given that we generally only raise tax rates for next year, not the current one.

9 thoughts on “Why we might be buggered”

  1. I tried to engage the Great Potato on the MMT solution to inflation.

    Pointing out that he’s always banging on about how the rich save all their money, I asked him if it wasn’t the case that raising taxes on the rich wouldn’t work to curb inflation. They’d carry on living their lifestyle and just save less. So wouldn’t it be necessary to raise taxes across the board – disproportionately hitting the less well off?

    He didn’t engage. Running off and hiding under a stone as he always does when faced with a question he can’t answer.

  2. My personal inflation rate seems to be well in excess of the CPI

    Ford prices are up, energy bills (tariffs) up, fuel is up, even Amazon prices are going up

  3. The only tax that could work for MMT purposes is a universal sales tax (or maybe a VAT). That could be changed on the fly, prices across the economy would adjust immediately, upwards at least, which is when you need them to react fast, at the point you want to take money out of the economy. But of course its utterly regressive, there’s no ‘VAT allowance’ or progressive rates, the poorest would pay the most in % terms. All other taxes are far too complicated to change on the fly, so would be useless to react to rising prices.

  4. But I *want* the rich to save all their money, ‘cos then I can borrow it and use it to build factories and stuff and add to the economy.

  5. I can’t help feeling that the odds of something really bad happening increase every day while Biden is apparently running the show. The level of cluelessness makes Murphy seem benign

  6. I’m currently pricing up some construction work on the farm. The price of everything is going through the roof. Just this morning I have been on to my supplier of drainage pipes, he said there have been multiple price rises by all the manufacturers in recent weeks and he expects more soon. Aggregates are the same, as is timber, concrete (if you can get it – there often isn’t the material there to buy at any price) and steel, everything is going up, prices are rising weekly. But there’s no inflation at all of course………

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