17th August 09 - To divine
Someone with a special talent can use a rod and if it twitches there is water about. Without any talent one could use a rod around here and it would probably shake your arm off. That is a funny thing since the weather forecast is consistently day-by-day for warm sunny conditions. Of course that error is down to forecasting. Not the most reliable of sciences. Which brings me back to economics, the credit crisis and Sebastian Becker, an economist with Deutsche Bank in Frankfurt.
Mr Becker has a definition of excess liquidity. The definition is money supply that is surplus to the needs of real economic activity and therefore free to be invested in financial assets. He combined monetary growth figures for the US, Japan the eurozone, the UK and Canada and he found excess liquidity – measured as a rising stock of money to GDP - in these economies is now being created more rapidly than in the late 1990’s stock market bubble, or during the subsequent house price boom. The inference of excess money relative to growth is of course inflation.
One could surmise that all the positive statistics noted in this diary of the 14th August represent merely a tentative indicator of a turning point from a low ebb and may even be a temporary phenomenon. One could say that the German based economist is looking at a long-term and global picture and perhaps being unduly alarmist. But even so, the latest announcement from the Bank of England’s Monetary Policy Committee has come as a major surprise to just about every commentator, even a shock.
QE has reached £125bn at this date. The UK Treasury had mandated a ceiling of £150bn. The committee intends to print money to the tune of an extra (not £25bn) £50bn. Shock, horror. Why? The central bank says that despite the indicators, banks are still not lending freely to businesses or consumers – a sign that the credit crunch remained a major problem. "In the United Kingdom, the recession appears to have been deeper than previously thought. GDP fell further in the second quarter of 2009."
Back to the drawing board.
More comment at http://www.jgwalkersmith.co.uk
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