UK Inflation - the Libyan threat.

Inflation in 1960s and 1970s.



It has been some forty-five years since I visited Benghazi. I was the third officer of a 16,000 ton tanker delivering aviation fuel to NATO air forces in Malta, Libya and Cyprus. The three navigating officers had agreed we would each have one port off-duty, being the junior I was allocated Benghazi. What seemed the short straw, turned out to be a delight. An early morning swim in the crystal clear, warm Mediterranean waters, a bit of sightseeing, gin and tonic followed by fine wine and a superb evening meal topped by an introduction to my first experience of the real art of arabian belly dancing, under scented blossoms and star-filled skies, still remain clear in my mind. I have since then always taken particular note of events in that country.

I have previously described on this blog, the events which led to the surge in inflation in the 1970s and 1980s, illustrated in the graph above. These posts, which destroy the myth that prosperity has ever been due to the EU or its forerunners, may be read from here for the post of November 2007, titled "Welcome to the world of $100 Oil and 'EU' be warned!" The second, more recently, in October 2010, is linked here, also discussed Sovereign Default and Ireland and concluded as follows:

Although tanker charters were not handled on the Baltic Exchange, the renowned philosophy belonging to that institution "my word is my bond" held true, and Charter Parties once agreed could up to that point never be renegotiated. As oil prices began to rise, in contradiction of normal market rules, because it was becoming increasingly difficult to find a home for the annual six per cent oil production increases, the safety net offered to Occidental was no longer needed and Oxy had no need for or proper employment for the chartered tonnage. The company's founder Armand Hammer (Arm and Hammer?) determined that the charters would be re-negotiated and that was effected.

Concurrently fixed price oil contracts could no longer be honoured at the new higher prices, sovereign oil producing states in the West who should have known better, such as the UK and Norway, enforced changes to their Oil Licence and Production Agreements to capitalize on the higher price, as they justified it, to share in the "windfall" profits.

Honesty in contract law became history in energy related industries (although resistance to renegotiating Charter Parties was fought for by some until the mid-nineteen-eighties) thus the seeds of the deep slump, for which Margaret Thatcher is still blamed by certain fools to this day, took root.

If Ireland proceeds to gain consent for changing the terms under which its banks foolishly borrowed money, there can be no calculating the consequences. Feeding greed never pays as can be seen, I believe, in the consequences of the events I describe above.

Treasures from the threads - Number fifty-two

To an article about above target UK inflation and another stupid letter to the boy Chancellor Osborne from BoE Governor (shifting goalposts) King, linked here, comes this pithy point:

ultron

3 minutes ago

The continued wilful failure by the BoE to execute its mandate and contain inflation is astonishing. There is only one reason why interest rates are being held artificially low: to support the housing market. Companies do not need these rates--they are not borrowing! They are sitting on cash piles and waiting for better times. Does King want to reinflate the property bubble? Yes. It's a disaster for pensioners and savers, of course, but who cares about them as long as the speculators and the rash are bailed out? I have some advice for you, Mr King: it's going to end in disaster. Long-term rates are going up, whatever you do, and property is coming down.

CPI vs. RPI - Google to the Rescue

If there are many like myself who have worried over recent times at the way different indices offer varying ideas on the true direction of our doomed economy, the news that Google will monitor price rises based on online sales actually made will come as something of a relief. The report is linked from here.

Can politicians be trusted in any area of life? The evidence everyday seems to mount that they can neither be trusted on prior promises nor on policies and that such doubts must soon extend to their control of the national statistics upon which their present deliberate wealth destroying policies are based. The deliberate manipulation of statistics, if not already a fact, must pretty surely be soon on its way.

When Google's inflation index has become a measure of trust, will our politics have been so reformed that politicians could be once again trusted to ensure that Google is kept honest?

More on the change from RPI to CPI from The Independent, linked here.

UK Inflation - Can King be believed?

A 17 month high to 3.7% on the CPI and 5.3% on the RPI (the highest for 19 years) should not be a surprise, detail here. Again Mervyn King must write to the Chancellor of the Exchequer pleading the temporary nature of the rise......... but can he be believed?

Actions speak louder than words, however, and I for one find it hard to believe the percentage increase in Bank of England pension fund investment in index linked 'Granny' Bonds, (read here) rising from 70.7% in 2008 to 88.2% in 2009, cannot have been accomplished without at least the tacit approval of the BoE Governor, after all it is his own pension at risk.

When King writes "If the recovery continues as expected, that will gradually erode the slack in the economy, bringing inflation back to target" the big "If" seems to indicate that this will not be the case!

Watch a video from the USA on hyperinflation called "Meltup" linked here.