Oh, right

In the summer of 2021 no one was really expecting serious inflation

Except every monetarist on the planet. Try Tim Congdon for example.

Because the government is going to take more in tax this year – most from people who’re suffering the most and they will not acknowledge this

But more tax is the MMT answer to inflation!

A package of new spending funded by QE

Oh, right.

24 thoughts on “Oh, right”

  1. I suspect most public economists pooh poohed Tim Congdon. Here is an interesting take from Krugman who, as long ago as December 2021, was thinking of transitory inflation, rather like the Fed and BoE

  2. “In the summer of 2021 no one was really expecting serious inflation”

    In the summer of 2021 I was doing financial calculations for the family. I assumed that at about the start of the next tax year CPI would be around 8% and RPI about 10%. Good enough for rough work, eh?

  3. I was so entertained by the annual reappearance of his shtick about HMRC and the Tax Gap that I neglected to look at this one as closely as I should.

    I warned of the problems of reopening

    Any diehard have a clue what he’s referring to? From my understanding if he had his way we would not have reopened at all. Whether that would leave us in an even worse state is a hypothetical but I don’t think wanting the entire population imprisoned is something to be proud of unless you’re vaguely unhinged

    And that everything might be disorganized as that happened, with real economic risks arising
    Which is what happened, although almost no one else predicted it

    Of course this latter day Nostradamus was on the money when it came to inflation (And apologies for posting these two links directly Tim) but they are from last year:


    His predictions about the impact of COVID reopening also seem to have been rather wide of the mark


    And the government did nothing to plan for or mitigate this foreseeable risk
    As a result, they did not stop companies profiteering from it

    As the Streetwise Professor has pointed oiut – the myth about profiteering and speculation is just that – a myth. I’ll grant the government is abysmal but there’s one thing they could have done that’s worse – follow this imbecile’s prescriptions.

  4. I was so convinced the inflation was coming that I bought a container load of wheelbarrows so people could take enough cash into Tescos to buy a loaf of bread.

  5. Dennis, Tiresome Denizen of Central Ohio

    In the summer of 2021 no one was really expecting serious inflation

    Translation into English: “In the summer of 2021 I wasn’t really expecting serious inflation”

    And the only reason he wasn’t expecting it was because he wasn’t paying attention.

  6. Dennis, Tiresome Denizen of Central Ohio said:
    “ the only reason he wasn’t expecting it was because he wasn’t paying attention.l

    More that he was in denial that his beloved money-printing QE could possibly lead inflation.

  7. Spud wrote more than one lengthy post last summer explaining why inflation wouldn’t happen and when outgoing BofE chairman predicted 4% inflation by Xmas spud said he didn’t know what he was talking about as there wouldn’t be say.

    Inflation was 4.3% at Xmas.

    The thing about that blog from spud is that it’s his brief for a BBC radio appearance. He’s basically going to go on radio and lie about what he was saying last year.

  8. I might be a bit thick here, but isn’t one of the problems with inflation that it benefits those with variable incomes (business profits, commissions etc.) at the expense of those with fixed incomes (wage earners).

    Aren’t the additional tax revenues he mentions more likely to come from those whose earnings fluctuated (i.e. those who can afford it) rather than those whose earnings stayed quite fixed?

    How do people on fixed incomes pay more tax?

  9. Surreptitious Evil

    He’s basically going to go on radio and lie about what he was saying last year.

    He can usually manage to be completely incorrect about what he said in the previous sentence, never mind the previous year. I’m not sure that it is lying per se, he would be less blatant if it was if he had any self-worth at all but that he is so utterly ignorant about everything, including what he, himself, just pronounced.

  10. @Van_Patten I think we can all agree that when it comes to P³ we can safely scrap the “vaguely” from “unhinged”.

  11. Are monetarists always expecting inflation though? Wasn’t 2009 QE going to cause immediate hyperinflation? Are stopped clocks right twice a day?

  12. rsm

    It’s not so much “expecting” as ” living in fear of ” inflation.

    I too was surprised that the earlier QE didn’t cause inflation, but the western economies were so deflated and there was a strict control on the amounts that it worked by stopping the deflation worsening. The new money was in the economy, but because it was in bonds, no one could really get at it.

    In 2020-21 the idiots shut down the economy and started giving money to people not to work or wastng it on PPE and because this fictitious cash was now in the real economy it had an instantaneous effect on inflation. And it happens every time from Argentina to Zimbabwe.

  13. Ottokring

    Why wouldn’t bond traders use their QE money to spend into the real economy as they wish?

    Are you saying it’s okay to bail out the rich, because their material needs are largely satisfied so giving them QE money is only inflationary for asset markets?

    And if you don’t bail out the rich, they will crash the real economy by selling off the assets that support the real economy?

    Isn’t the real lesson of QE that you can fight funding cost inflation by printing money? As funding costs skyrocketed, the Fed printed money to increase supply?

    Why not use the same strategy for real economy inflation? If you see inflation as money demand, simply supply more money? If it works for the private market goose, why not for the public too?

    If you had a CBDC account that paid you the inflation rate as interest on your savings (or if you just buy inflation linked bonds), why should you fear inflation?

  14. @rsm

    2008 vs 2020 covered before by me a week or three ago

    Simple summary: It stayed in banks, not given to public

  15. @Pcar

    Even if you’re right, couldn’t bank shareholders have redeemed their bank investments for real money any time they felt like it?

    Do we really not have enough physical supply to give everyone an inflation-proofed basic income?

    Is almost 3 acres of farmland per person in the US enough to keep us each fed, at least, since Masanobu Fukuoka proved he could produce 1200 pounds of rice on a quarter acre using natural farming, i.e. no fuel, pesticide, irrigation inputs needed?

    Is inflation more about supply and demand for paper (options) contracts, than about physics?

  16. rsm

    Bank shareholders had no access to the bonds, they never owned them or had any share in them. In fact being a bondholder is not always ” sitting on a beach earning 20 per cent” as investors in Greece discovered. They were for liquidity so that banks could go about their business without worrying about not meeting their liabilities.

    Part of this is caused by idiots, like Murphy, spreadinga fiction that banks create money. Any loans made during the day have to be reconciled overnight, whether it be from deposits or from interest payments or inter bank loans. Remember “every pound has a home.”

    The govt tomorrow could give everyone two grand a month basic income. You will find that ina few months that two grand will be worth nothing and I will make a fortune selling wheelbarrows.

    OK real world example – both Germany and Austria after the Great War were broke. They couldn’t meet their reparations payments and no one would lend them any money because they were a bad risk. Germany was invaded by the French and Belgians who seized the coal and steel production in the Rhineland. In Austria attempts by Joseph Schumpeter to introduce new taxes failed in Parlament. Both governments started printing money, but because there was nothing to back up this new money ( remember, no loans, no gold,assets in the hand of the French etc ) the cash was worthless and it prompted the hyperinflation which lasted until Britain and America took pity and allowed Streseman and Seipel to restructure their reparations payments using loans. Of course this caused problems further down the line when in 1930-1 US banks called in their loans and caused a banking crisis which really sank their economies.

    The modern system of fiat money that we live with today is fraught with dangers. The USA is effectively bankrupt and has been for years but people still lend her money because she has lots of gold and natural resources and aircraft carriers and nuclear weapons. She teetered on the brink in 2008, I don’t think that she will collapse this time, but she is in the hands of imbeciles and it will take years to undo the damage.

    Last point: this notion that livestock take up valuable growing land is fiction. Cows and sheep graze on grasslands that are usually not suited to any other type of production. War and natural disasters cause shortages, but we can work our way around this with better distribution and more efficient use of land ( eg not put wind turbines or housing estateson on arable land or grow biofuels).

  17. Ottokring

    When banks reconcile, why can’t they borrow again, and keep putting off final settlement for another day? Isn’t that the whole business model of banking?

    If you get $2k per month UBI today and prices go up 100% tomorrow, but your income automatically goes up by the same percentage, does your real purchasing power suffer?

  18. Banks lend to each other all the time. It oils the wheels. All banks are in debt to the other banks. Thisis what happened to Norther Rock, although actually it was sound it had no liquiditybe because the other banks wouldn’t lend to it and it had to go to the Bank of England. Lehman Brothers UK collapsed so dramatically because the overnight payments from the American office didn’t turn up.

    As to hyperinflation : one is always behind the curve. Prices could change several times a day. Unless one is paid in cash twice a day there is no way that one could keep pace. Increasing pay by the rate of inflation just makes the matter worse, it is a never ending upward spiral.

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