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Tuesday, May 17, 2011

Hello Bank of England - Sort It Out!

You may have seen that inflation has jumped to 4.5% in April.

Yet, the Bank of England, who are in charge of trying to ensure that inflation sticks to a target rate of 2%, are not doing anything to control inflation, through increasing interest rates.

Is this acceptable?

This article argues that savers now need a rate of 7.5% to earn a real rate of interest - as inflation is depreciating their savings.

As far as I see it at the moment, those who got us into this financial mess, through reckless borrowing, and reckless lending, are being let off the hook.

Those who saved for the future, those who's funds were used for such investments, are now being punished.

What the Bank of England is saying to us, through it's monetary policy, is - spend, spend, spend.

There is no point in saving money.

OK.

Though spending can also be an investment - not just for the purposes of consumption.  Hence the record-high gold prices, as gold is seen as a better investment than saving money.

I would have thought that the banks would want us to save money, to help their balance sheets?

It doesn't make good monetary policy to me, to keep interest rates low for so long.  That is what the US did, and the Bank of England to a lesser extent, after the 2001 financial shock, which fuelled the whole credit bubble and huge crisis.

So the Bank of England want another one?