Guido Fawkes Is Wrong Again

Paul Staines aka Guido Fawkes,

Guido Fawkes is back with his inflation is here to doom us all refrain.  He used to produce graphic charts to demonstrate the rate of increase in prices, yet now he’s reduced to the use of slogans, as the charts demonstrate that inflation has been static or is falling for many months.

I prefer to read people who’ve studied the markets a little more myself, people like Prechter who writes on the US economy, where deflation has taken hold already.
Prechter On Inflation/deflation
The case for runaway inflation seems so logical. Over the past eight years, the Fed’s lending rates have twice fallen to zero, meaning that credit is free. The Fed has created $1.5 trillion of new money. Central banks around the world have offered unlimited, cost-free credit. The government is spending money like mad. And the Fed and the Treasury have bailed out or guaranteed another trillion or two of bad debt and promise to cover even more. Oh, and the Chairman of the Fed swore eight years ago that he would drop money from helicopters.

There is only one problem with the logic involved: It does not lead us to present conditions. In the great inflations of history – such as what occurred in Germany in the 1920s and Zimbabwe in the 2000s — several things happened: The money supply zoomed; interest rates soared to double and triple digits; commodity and stock prices went up; consumer prices rose relentlessly; and people raced to get rid of money as fast as they got hold of it.
Today, not one of these events is happening. In fact, the opposite is happening: M3 (a measure of the amount of money and credit in the system) is contracting at its fastest pace since the 1930s. Interest rates on Treasury bills are stuck at zero. The CRB index of commodities is at half its value of just two years ago. The stock market is lower than it was 10 years ago. The PPI and CPI (measures of producer and consumer prices) have a zero rate of change. People are struggling to get anyone to part with a dollar: They can’t get loans, they can’t sell their houses, and they can’t land a job. And Walmart is cutting prices. This is the “Bizarro” version of Germany and Zimbabwe: everything’s backwards.
Crux: Well, not everything. Gold is at all-time highs.

Prechter: And so are Toronto real estate and vintage wine. But let’s put these markets in perspective…
British inflation is artificial, in the sense that energy prices have tumbled, oil from $140 to $75, natural gas from $14 to $4, yet your gas and electric bills are no lower. Nor is petrol at the pump. In the US where the consumer insists that retail prices match market prices, deflation took over three months ago. It would be the same in Britain, except the government permits extortion by utility companies and energy providers to raise the level of revenue which otherwise would be collapsing. The only inflation is the cost of government.
Guido’s about twenty years early with his inflation warnings, or possibly fifty.  He seems to be nearer the mark outing the private habits of the famous, but who can blame him for wanting some light relief occasionally, incorrectly forecasting the financial future.  

Mind you Guido’s today’s quote of the day is absolutely spot on –


This IGIndex quote tells you of the growing disconnect between Wall St and Main St.  The Bulls are still pumping, believing that inflation will bail out their inadvisable purchases.  While those living in the real world know a different truth. 

This afternoon’s important manufacturing data was largely downbeat as figures showed that expansion in industrial production for August was lower than forecast, at just 0.2%. Car manufacturing firms in particular have scaled back their output amidst feelings that continuing job losses will lead to a sharp fall in consumer spending.

Also announced today, the Empire State manufacturing index for September fell from 7.10 to 4.14 – its lowest level in over a year. This suggests a loss of confidence in US recovery prospects amongst factory managers. Despite this news, the Dow Jones Industrial Average managed to bounce back from a sharp dip at the open to rise 0.28% by 4pm (London time) thanks to speculation on takeover bids in the food and technology sectors.
The Tap Blog is a collective of like-minded researchers and writers who’ve joined forces to distribute information and voice opinions avoided by the world’s media.

4 Responses to “Guido Fawkes Is Wrong Again”

  1. Guido Fawkes says:

    I’ve been more accurate than the Bank of England though, haven’t I?

    They’ve been warning about deflation for 2 years.

    Inflation has remained above target throughout.

  2. tapestry says:

    The problem is caused by the fact that prices are not brought down as markets fall. Interest rates to householders when bank rate is 0.5%. Petrol and energy are kept at peak prices. VAT is jacked up. It is not inflation in the sense you describe with the money supply rising. It is bureaucratic pricing when the money supply is falling fast.

    Government gilt sales and printing as described have been used merely to stop banks crashing. The money was doled out round the economy yonks ago. The majority of money supply doesn’t come from governments. It comes from you and me trading with each other and lending to each other. That is falling hard.

    Any government stimulus is going to be limited in scope from hereon, as international markets are watching every move. Gilt rates are falling – another of your rejoicements! That’s because inflation is not a threat any more. Money supply is on the floor. Interest rates are on the floor and are not budging an inch.

    It is a quaint folk memory that inflation kicks in when governments spend too much money. Not any more, it doesn’t. These times are deflationary. Inflation has been falling for two decades and now we’re tipping across the line (bar government interventions to keep prices high).

    Thanks for calling in to defend self. Do the Milibands have any sexual pacadillios or are they really as boring as they seem?

    Gold by the way rises when the stock market goes up and falls when it falls. If we get a real stock market crash, the effect should be clear. If not, I’ll write to apologise.

  3. Guido Fawkes says:

    So where do you see inflation, interest rates and unemployment peaking in the next 5 years?

  4. tapestry says:

    Pass the chrystal ball.

    Five years? Hmmm.

    Inflation negative or zero.

    Interest rates similar to today.

    Unemployment high. Without growth there will be few jobs, and with the financial crisis becoming entrenched, growth will be hard to find.

    My opinion is that the bottom of the downturn is years away, maybe five. Inflation has lasted fifty years. Deflation won’t be a five minute affair.

    I feel that people can’t conceive of a deflationary period yet. It’s outside peoples’ experience. I like the chart showing how long it took inflationary trends to arise, to peak, to decline and then to dip into deflation. These are long term things, not six month affairs as Andrew Lilico wrote recently. I hope I don’t misrepresent what he was saying, but he saw deflation being very short-lived. I don’t.

    Your comment was quite specific that inflation was rising earlier this year, which it was. But it is not rising now. It was only food shooting up which stopped it falling despite the bureaucratic price rigging of energy prices.

    I don’t think anyone knows the future, you, me or the BoE. We are all entitled though.

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