I do not, by any means, always agree with Diane Coyle, but I do with this in the FT today:
A quick and politically painless way to reduce debt burdens, private and public, is a bout of high inflation.
This would arbitrarily redistribute resources from savers to borrowers, but it would clear the decks for the economy to grow again. If we face sustained low or negative inflation, by contrast, the prospect of lost decades looms large.
There will be howls of protest from small savers and some on fixed incomes, I know. But they have done very well for a long time. And the young need inflation now. In fact they don't just need it; sustained inflation of 4% or more is almost vital for a while, mixed with house building to keep asset prices down. Aggressive increases in the minimum wage would have to be another key feature of the policy.
Delivering all this is another issue so weak is our economy.
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Inflation only works as a tactic if it is unexpected. As soon as everyone recognises it it gets priced in. So essentially it is a strategy reliant on deception. Are you comfortable with the government lying to people in this way?
What complete nonsense
We have had inflation targets for years
I’d guess the low inflation mantra is purely to protect the piles of dosh corporations are sitting on. The debt slavery of the populace is also highly useful to the banks who have been ‘renting’ out money for 30 years to compensate wage stagnation.
I notice that you have long campaigned for local authorities to begin issuing bonds, and indeed this may be about to happen. What do you believe will be the effect upon bond prices, and thus the value of the holdings for the buyers of these debts, of an escalation in inflation ?
All bond prices reduce in real terms if there is inflation
That is as I suspected. So would you still be keen to encourage the issue of Local Authority bonds, knowing that buyers would see the value of their bonds fall in price should we see the desired rise in inflation ?
Yes
They would remain the best investment available
As long as wages could inflate too, then I agree wth this.
I think this generally happened until the mid seventies.
‘All bond prices reduce in real terms if there is inflation’
‘They would remain the best investment available’
I only have a very limited understanding of investments and am probably missing something obvious, but could you please explain how something which would drop in price in the event of inflation would remain the best investment available ? I can see how selling the bond would be best for the local authority, but not for investors.
Thanks
You know the answers so I won’t bother
“There will be howls of protest from small savers and some on fixed incomes, I know. But they have done very well for a long time.”
My 76 year old mum is a small saver and relies on the state pension and a very small fixed pension from my late dad.
Could you expand on how she has ‘done very well for a long time’ from the current economy?
My mum is too nice to howl in protest but I would do so on her behalf.
Just go and look at the data on how pensioners have been protected so well, compared to the young
Just Google it
‘You know the answers so I won’t bother’
Candidly, if I knew the answer, I would not have asked the question. I have taken the trouble to contribute a comment to your blog. Perhaps you could do me the courtesy of answering my question.
If bond prices were to fall because of a rise in inflation, as you have confirmed, how would these investments be the best available ?
Because others would fare worse
Could someone explain why inflation is now a “must” Am I the only one who wonders how the bogey man of the 80s is now the white knight?? Wht is the basic difference?
At a few % it was always good news
The paranoia came from oil hike in 70s