Friday, January 12, 2007

The Money's Not For Burning

...well, maybe not quite as good as gold

According to the Grauniad and most of the media, it's a disaster:

"Citizens Advice warned of "financial disaster" for Britain's hard-pressed borrowers after the Bank of England stunned the City and angered industry yesterday with the third increase in interest rates in less than six months."

Let's have a little perspective here, shall we.

Britain is floating on a giant sea of debt. We punters owe £1.3 trillion directly, and depending on which exact calculation you take, we owe another £1.8 to £9 trillion on account of our profligate government. So that's between two and one-half and say eight times our annual income.

And now, from those geared-to-the-eyeball home buyers, to PFI-strapped hospital trusts, the bills are starting to come in. Big Time.

So what's going to happen?

Traditionally of course, the solution favoured by politicos everywhere has been to let inflation rip. Default on the debt by debasing the currency. That way, they completely avoid having to make any unpleasant decisions.

Alas, that course is no longer open. Gordo's one unfudgeable act was to make the Bank of England independent and give them but one target- keeping inflation down.

And what that means is that they can and must raise interest rates when the inflation numbers start creeping up above the 2% CPI target. And just lately, the creep has looked like turning into a sprint, helped along by house prices and retail sales that just refuse to lie down.

So this time there's going to be pain. Howls of anguish from those foolish enough to put their eyeballs in hock. Which thanks to our high spending politicos, means all of us.

But that's life. Our fault for trusting politicos with unfettered spending discretion.

And whereas they may mean nothing to the Grauniad et al, this time through all those pensioners, widows and orphans who've invested their savings in fixed income debt such as government bonds will be protected. For the first time since we abandoned the Gold Standard.

Let us all give thanks for sound money.

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