“The Government spewed billions into Covid relief and that manifests itself in inflation – shock horror.”
It’s obviously true but even so the Patatum will be angry.
“The Government spewed billions into Covid relief and that manifests itself in inflation – shock horror.”
It’s obviously true but even so the Patatum will be angry.
That chart doesn’t show the covid printing. How much did it jump in 2020-21?
I’m still waiting for an explanation as to why printing money via QE in 2020 was different from printing money via QE in 2009-16. If printing £400bn in 2020 has created inflation, did the other £400bn in the preceding decade not also have the same effect? And if so why did people like our host agree with it in the first place, telling us it was just a ‘monetary operation that didn’t affect the real economy’?
Nice quote here too:
“He added that when the cost base goes up for retailers “you either pass that on or go bust”.”
I thought we were told that businesses couldn’t pass on cost increases because if they could raise prices they already would have?
As has already been explained – it’s the process of others going bust which reduces supply and thus allows higher prices…..
“As has already been explained – it’s the process of others going bust which reduces supply and thus allows higher prices…..”
How many supermarket chains have gone bust recently?
Is that a chart of central government economic fuck-ups? The graph’s certainly got the right profile
“I thought we were told that businesses couldn’t pass on cost increases because if they could raise prices they already would have?”
But if the cost base of supplying X goes up, it’s a common factor for all suppliers of X. So they all get a chance to raise their prices without competitive disadvantage, and without collusion. Or they keep selling X at the lower price till they are out of stock and out of money.
The ‘without collusion’ bit is important, but the Government has yet to understand that they are the common factor that causes competitors to respond similarly.
“But if the cost base of supplying X goes up, it’s a common factor for all suppliers of X. So they all get a chance to raise their prices without competitive disadvantage, and without collusion. Or they keep selling X at the lower price till they are out of stock and out of money.”
I know that, you know that, but our host apparently doesn’t. He thinks that when the price of diesel goes up, all the haulage firms keep their prices the same until some of them go bust, then the rest can put their prices up. Which is probably how it works in the economic text books.
Whereas all of us in the real world know they all just put their prices up together to cover their new cost base, and if you want your goods moved you have to pay the new price. And if the price of diesel then falls, they all desperately try to hang on to the higher prices as much as possible. Maybe eventually someone decides to cut prices a bit to gain more trade, and the others have to do likewise, but generally speaking the prices all go up in lockstep, and then only dribble downwards slowly afterwards, if at all.
QE in 2020 was different from earlier only in terms of amount printed/years
Same amount as for 2009 – 2019 in rough numbers, but banged into just a couple of years since the covid grants, UC uplifters loan recipients and fraudsters have had a chance to spend it. Plus Q in the famous equation was smashed due to lockdown and reduced supply from China.
It does get my goat the whiners about below inflation pay increases. If your employer pays you 6-7% when inflation is 10%, and the government dishes out energy support payments £150, £400, £325*2 and a further £150 now, caps prices, discretionary assistance in Wales of £60 just cos you can invent a sob story, and uplifts your UC working element by inflation, then you’re probably just ahead.
Hence GDP broadly flat, despite everyone telling us we’re 3-4% worse off. We’re not.
“QE in 2020 was different from earlier only in terms of amount printed/years”
Well precisely. It was all money printing all along, monetisation of the deficit. QE was sold as some sort of esoteric monetary operation, that was just for the pointy heads at the BoE to understand. When the reality was the BoE printed money and the government spent it. But because people like Tim did not call it what it was, money printing, everyone convinced themselves they’d invented monetary perpetual motion, and wheeled it out for any old reason. I mean you could argue that in the very depths of the GFC a bit of money printing wasn’t going to do much harm, given the amount of debts that were going bad. But printing money because the pound had a wobble after the Brexit vote? That showed the BoE really did think they’d discovered something new. And turning the taps on for a bad case of the sniffles was just the logical conclusion of that whole process – it was free money, with no consequences. Why didn’t we think of it sooner?
And all this started with not calling QE what it is, money printing.
No Tim, jsut no.
Inflation wasn’t caused by increasing M0 like there’s no tomorrow. And it had nothing to do with post-lockdown supply chain constraints or supply issues caused by a war on mainland Europe. it was because of B.R.E.X.I.T. The four horseman are coming. Because of Brexit. With a causal link that goes something like… BECAUSE
“How many supermarket chains have gone bust recently?”
But supermarket managers tend to be better businessmen than, for example, farmers.
One big difference surely:
After the GE, money was printed (QE) however the economy mostly carried on as normal, though there was a recession and there were job losses. Those that lost their jobs lost their incomes as well, aside from any benefits they were entitled to.
During Covid, money was printed to pay people to do nothing, or do less. So incomes remained the same while production fell sharply. The same money chasing fewer goods in other words.
Damn good point and not one I’d thought of.
And all this started with not calling QE what it is, money printing.</b)
Amusingly, the Hero of Ely got this right & Tim got it wrong. Tim's thesis was that QE was a temporary measure & government would reverse it in the approved manner. They never did, did they? They just did more & more. And more.
QT has started. Late, granted, but it has started.
There would have been no consumer inflation nothing nil zero zilch not a sausage if only the financial genii in their infinite wisdom had not directed COVID relief to consumer spending. The example they should have followed is to direct the relief to the financial markets as they did with QE which resulted in massive inflation in stocks, bonds and housing but affected the price of a loaf of bread not a whit. OK so the people hurting and supposed beneficiaries of COVID relief were consumers aka voters, not Wall Street tycoons down to their last hundred million, and I suppose that there was some justification.
Southerner
Interesting experiment all the same. Tried two different forms of QE and got two quite different results. The subsequent text books can affirm this wasn’t just theory or a lab/economic model, it was real/tested.
Another good observation. When the money newly printed was spent into hte economy we got inflation. When it only went into financial markets we didn’t – except in asset prices.
So, Spud’s shrieking that we should do QE for green projects will give us inflation then.
” When the money newly printed was spent into hte economy we got inflation. When it only went into financial markets we didn’t – except in asset prices.”
So how exactly was the mechanism different between the two? QE involves the BoE buying gilts out of the market, gilts that the government has issued. In both cases all the proceeds of the gilts issued was collected by the State and spent. It all went into the economy. In 2009-11 it was spent on paying pensions, and benefits, and State employee wages. In 2020-21 it went on paying people to do nothing, paying pharmaceutical companies to poison people, and to pay stupendous amounts of money to mates of the Cabinet for PPE and Track and Trace etc etc. It all went into the economy. Its obvious that absent QE in 2009-11 the UK government could not have borrowed as much money as it did, and thus government spending would have been lower. Ergo the QE went into the economy in both cases. That was the whole f*cking point. The suppression of interest rates, and the driving of capital out along the risk curve in 2009-16 was just a bonus.
The reason we got inflation in 2020-21 and didn’t in 2009-16 (although we did, inflation rose from under 2% in 2009 to over 4% in 2012) was that the GFC was a recession. Demand was suppressed significantly. So juicing the economy in such circumstances was ‘ok’-ish. If you’re going to print money, do it when the economy is in the doldrums, bad debts are being purged from the system. But to do it at a point when the economy isn’t in recession, and then significantly reduce supply at exactly the same point was madness. But the only reason that madness was considered a good idea was that the truth regarding the first bouts of QE had not been made clear. QE is always money printing.
The varied explanations do all hang together. MV=PQ. OK, so money printing that goes into financial markets doesn’t have high V – money printing that goes into retail consumer hands does. Therefore different effects upon wide money supply (and this is the difference we do see between growth in M0 and M1 and M3 and M4 in the two different periods).
Now, it is of course possible that all of these things are jointly caused by summat else. But it is still true that the explanation I’ve been putting about here for the psat 15 years or so works.