Coffee House

Metaphorical Merv

16 May 2012

Mervyn King unfurled a mast of metaphors this morning. ‘We are
navigating through turbulent waters, with the risk of a storm heading our way from the continent,’ he said. ‘We don’t know when the storm clouds will move away.’ The eurozone, he
said, is ‘tearing itself apart’.
So poetic was his language — a rare gift in a central banker — that it almost made one forget the painfully prosaic nature of his facts and figures. Inflation, already at target-busting
levels, will be much stronger than the Bank initially envisaged, remaining above 2.5 per cent for the rest of the year. That’s almost a whole percentage point higher than its February
forecast. The Bank also slashed its growth forecast to 0.8 per cent for 2012 and 2 per cent for 2013, from 1.2 per cent and 3 per cent respectively.
Even then, economists say these new GDP predictions may be too optimistic, and they predict another bout of Quantitative Easing as the central bank tries yet
again to kick-start the economy (never mind that it hasn’t seemed to work so far). But QE, as everyone knows, is likely to push inflation even higher, so we are caught in a vicious cycle, a
whirlpool, a terrible economic maelstrom — especially with the eurozone likely to unravel and unleash the mother of all typhoons. The government says the UK economy may only get back on its
feet around 2014, and that again is probably a sunny assessment.
Coffee House has often taken King to task, especially for QE, a policy that has raised prices and eaten into the value of pensions without resuscitating the economy. But it’s difficult, with
all that’s happening across the Continent, not to feel every so slightly sympathetic towards Merv. It’s true — if the eurozone breaks up, all bets are off. So big will be the
financial tsunami — the earthquake, the hurricane — that whatever a single national central bank can or cannot do might pale in comparison.
The governor of the Bank of England is — how shall we put it? — between a rock and a hard place.

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Show comments
  • paulg

    The mentally ill will be setting fire to themselves? we all know the cost of utilities have gone up, and the regulator is trying to impose a maximum tarriff but this suggestion seems a bit excessive in order to stay warm.

    I wouldnt be mooting this suggestion as it seems the govt is so bereft of ideas, they maybe spinning it as a social good,esp if the elderly can get their act together an gather around whilst the flames burn.

    Resources are finite but ideas are not, there is no shortage in the western world. The goods and products we all use were unheard of 20 yrs ago. Who would have thought people chatting away to each other could be floated for 100 billion.

    The modern economy is based upon credit, how else can people afford cars? houses? etc. That is the crux of the problem, debt is all relative, if you earn 10 million pound owing a million is trivial.

    There is no recession, the economy moves because peoples wants and needs can be easily met. Every service and manufacturing plant in the land can produce a 1000 times more than it could in the 1930’s at a far cheaper rate.

    Our problems are simple and only need to be thought through.

  • TomTom

    “The real UK economy IS sparking up”

    Do tell, Michael where you discovered this spark ? You could make a fortune by organising coach tours to see this Modern Miracle ! There are millions of people who would find it a revelation to know there is a “real economy” which is showing signs of life.

  • Guy Forks

    I really do think that the government is playing on the dark side. Thats why Cameron and Osbourne have both taken part in Bilderberg. Bilderberg is of global importance, and is now advocating Rubio with Romney.

    Even without the terrifying importance of Bilderberg, this government has managed to pass three bills which will damage the fabric of society. They did these in a way which was reprehensible, with welfare reform bill, legal aid bill and health and social care bill.

    The really sad thing is that this was so unncessary. Its motivated entirely by greed and money, the grim fact is that in a recession the rich get richer and the poor get poorer. Using the media the government has launched a cynical campaign of propoganda against disabled people. The welfare reform bill went through a scandalous process in the house of lords and was eventually forced through in its ugliness with financial privilege. The legal aid bill followed it closely, which was also cynically planned to fraudulently attack disabled people. The Health and Social Care Bill which is like a ‘hand grenade thrown into the NHS’ was also conducted with brutal suppression of sense, and was accompanied by a risk register which is yet unpublished.

    But now this is done, we are left with an aftermath which no politician has been able to forsee. The reason is that no MP is disabled and on benefits, being told to find a job which does not exist. Make no bones about it Tories, after the olympics the country will go down disgustingly. First 500000 disabled people will be cut off support. With nowhere to turn to they will turn to the NHS. With no drugs, no homes, no future, there will be acts of desperation. People with mental health issues will set fire to themselves in public places. The NHS will fail.

    Politicians will be scratching their heads wondering how this happened, because all over UK people will be angry and desperate. All because a handful of crypto fascist super toffs have done a hatchet job on UK.

  • michael

    The real UK economy IS sparking up (albeit from a very low base…gotta start somewhere). It’s the halitosis inflated bubble gum economy of the last administration that remains dormant, and long may it sleep.

  • John Jefferson Burns

    Bank Governors and non executive politicians enjoy spooking markets and executive politicians.

    Remember Bernanke’s Jackson hole speech

    And this:-

    Germany’s president, Christian Wulff, has argued the European Central Bank (ECB) is violating the EU constitution in buying up the bonds of Southern European governments, and the Bundesbank is thundering that the ECB’s broader bail-out machinery lacks “democratic legitimacy.”

    Yes so the actions of the Greeks lack democratic legitimacy.

    The world is crazy.

  • Anne Wotana Kaye 1

    Ne’er cast a clout ’til May is out!

  • Nickle

    Inflation – UK not Eurozone.

    Yet another admission of failure by Merv. The same lot who moved their pensions into inflation linked gilts to protect themselves against their failure.

    Insider trading – in the BoE.

  • jd

    Mr King was asleep at the wheel when the banking crisis developed. He predicted deflation, we have stubbonly resistant inflation. QE has robbed the prudent and done nothing to promote recovery. Recovery will occur when there is confidence in British economic policy. Hopefully the next head of the BOE will be competent and able to do this.

    If Mervyn King is predicting Greek exit, then it is probably time to buy Greek bonds based on his track record of predictions.

  • daniel maris

    We can only hope that Mervyn King is as wrong about a Eurozone crisis as he has been about exports, growth and inflation.

  • Fex Urbis

    King has proved time and time and time again that he is useless. The man is a fool.

  • Edward Sutherland

    Clarissa, I for one can bring myself to feel no sympathy for this man who has proved so utterly inept in his role. He has completely failed to mitigate, let alone control, inflation. His predictions on inflation and growth have been woeful. Still, he can look forward to a 100% taxpayer-provided, inflation-proofed pension, along with City directorships and a seat in the House of Lords, while those he was meant to serve and protect suffer from his incompetence.

  • Cogito Ergosum

    Merv’s saving grace is that he saw through all the lies of the wide boys when the credit crunch began.

    But he is woefully mistaken on quantitative easing, because it is giving money to the wrong people. The economists are always complaining that the savers don’t spend. Of course we bl**dy don’t, we’re not getting any interest on our savings. Give us a proper rate of interest and we will spend. Instead of wasting money on quantitative easing, give the money to the savers so they can spend it.

  • Joseph Alan Jones

    The only people who gain from devaluing by printing currency are those who have borrowed thousands. They pay back less than they have borrowed. This is paid for by those whose savings they are borrowing.Robbing the prudent the thieving bastards!

  • Kevin

    “between a rock and a hard place.”

    I am not sure the two sides are equally hard. A Eurozone break-up would create problems for the banking sector, certainly. Taking money from savers, however, has so far been a no-risk strategy for the MPC.

  • jonnyjackhammer

    “The government says the UK economy may only get back on its feet around 2014, and that again is probably a sunny assessment”.
    I’m amazed at this silly optimism. Who are they kidding. The UK/European/USA economies are undergoing a Great Correction. We can’t compete globally and the only way we will get GDP to increase is by increasing the population. (Which is not the same as an increase in GDP/head and also reduces our quality of life). So we will be bumping along the bottom for a long long time…many years.
    Perhaps someone can identify our comparative advantage cos I can’t. One of the few things we could sell around the world is our Higher Education and even that is complacently trading on a deteriorating brand based on past reputation. And where is the OU in this failure of imagination??

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