Actual rate of inflation in the United Kingdom is only 1.1%

I managed to see Andrew Neil's Daily Politics at lunchtime today.

One of the items was about the rise announced today in the inflation rate, which is now at 3.7% - prompting calls for a rise in interest rates.

However, during the programme it was revealed that if you remove recently increased taxes the actual rate of inflation in the United Kingdom is only 1.1%.

As inflation is caused by too much money circulating in the economy, and as the effect of tax rises is to REMOVE money from the economy, then surely there is no need for interest rate rises?

Or have I got that wrong?

http://www.independent.co.uk/news/business/news/inflation-rise-adds-to-pressure-for-rates-hike-2187310.html

The whole de-industrialisation process will have to be reversed

Above: I was very encouraged by reports earlier in the week that Business Secretary Vince Cable is going to make it harder for foreign take-overs similar to Kraft's raid on Cadbury. The takeover of Cadbury was done with leveraged finance (ie the deal was loaded with debt) and the debt paid for by exporting British jobs to cheaper parts of the world. Unpleasant, unacceptable face of capitalism, as they say.



Above: a selection of Eurochoc - what does it matter if the chocolate we eat is made in Poland or Belgium or Ireland since globalisation is good for everyone.

Mind you, even Jonathan Freedland on The Long View tried to maintain that the Cadbury take-over was nothing to get bothered about (unless of course you are one of those who have been made unemployed).

Globalisation is inevitable and good for everyone.

But what happens in say thirty years time when salaries in the Far East and Europe are roughly equitable (the Chinese ones rising, the European ones absolutely plummeting)? There will then be no advantage in making manufactured goods in the Far East - they may as well be made close to the local European markets to save the cost of transport. So the whole de-industrialisation process will have to be reversed.

In the meantime a few (comparatively very few) people will have made huge amounts of money out of globalisation while everyone else is going to pay.

Gillian Tett from the Financial Times

After work I accompanied Terry (my ultimate boss) to an economics seminar delivered by Gillian Tett from the Financial Times. By taxi to a side road off St James, and then into one of the clubs. Up the stairs two at a time as we were so late. We took our glasses of Chilian white wine into the meeting and sat down right at the back just as the introduction was ending. Gillian Tett walked to the podium. Dull blonde hair, soberly dressed, her neck swathed in seed pearls. Her background - she trained as a social anthropologist in Tajikistan, then wrote the Lex column for the Financial Times, then headed the Capital Markets team at the FT. She described her efforts to understand the financial markets over the last seven or eight years, looking at financial structures from the point of view of a social anthropologist. As an anthropologist she was able to identify "cognitive capture" – the way elites hang onto power. She developed a sketch map of how the City of London worked, from the point of view of a social anthropologist ("It's symbolic that Canary Wharf is an island. They speak a language few people understand. Bankers have retreated into a private world like philosophers in Plato's cave"). She discovered that the concept of risk dispersion via hedge portfolios, although claimed to be a safer system was in fact a "bunkum" creed ("because of the slicing and dicing people couldn't see along the chain"). She began to dig around into the concept of "Market Completion" ("a private financial ideology few outside the City has heard of"). Market Completion aimed at spreading risk perfectly all over the financial system, but in fact this was all nonsense ("but no-one was able to see this because of greed - Market Completion had the function of keeping the elites in power"). There was also the problem of fragmentation. Within banks departments were extremely competitive, with the risk departments usually having little power. Senior management had little idea of what CDOs were doing and very small groups of people were taking decisions. She was very critical about the disconnect between the City and the rest of society ("we need to have a good hard look at the cultural translators in society - these should be politicians, media and academics, but they are not doing their job"). The City is two miles from Westminster, but there is no interaction between the two ("the geeks don't understand the political context, and the politicians and lawyers don't understand the geeky stuff"). Financial regulation had become separated from monetary policy. Most banks have become too big to manage and need breaking up. The idea that the crisis is all the fault of America is not valid ("it's like saying the drugs problem is the fault of Colombia whereas in fact it is the fault of drug policy enforcement in Britain"). Her finishing comments included: "Slowing down the pace of financial innovation might be a solution, otherwise we could be looking at these crises every fifteen years". "You have just seen a future Editor of the FT" Terry said to me on the way out.

Am I missing something?

The Daily Politics this lunchtime was going on about how none of the parties were telling us the truth about the financial deficit.

Vince Cable has warned that the Liberal Democrats would impose "more ferocious spending cuts even than Margaret Thatcher".

Am I missing something?

We need thirty billion (American billion) pounds sterling to halve the deficit in four years.

There are about thirty million productive taxpayers in the United Kingdom.

That's £250 per year per head for four years.

It's five pounds per week. Even my cousins who live in Bellingham (and have nothing) could afford that. Even my old friend who lives on the Marsh Farm Estate in Luton (and has less than nothing) could afford that.

So what is all this talk about savage cuts and unrest in the streets?

It's five pounds a week for four years.

Send out a hypothecated tax bill for £1,000 with payments spread over four years and let's just pay the money and get it over with.

Or am I missing something?

Cadburys

Not good news that Cadburys has been bought by Kraft. The government seems impotent to stop foreign corporates swooping in and trashing British companies. Other governments stand up for their people, but not ours.

Having seen what has happened to Terry's (it was featured on Newsnight yesterday) I will never buy a Terry's Chocolate Orange again.

Trade Union leaders have appeared on television blaming "Thatcherism" for the continued incidence of corporate takeovers, but this is a lazy and historically wrong analysis. The process was set off by Tony Benn when he was Minister for Technology in the late 1960s and leading industrial "rationalisation". We took a wrong turning in the 1960s and have never really recovered.

You can see how it happened in episode 2 of the excellent 2000 documentary The Mayfair Set.

http://www.youtube.com/watch?v=0zXiGQU64SY&feature=PlayList&p=768DE4F399464F36&index=0

http://www.youtube.com/watch?v=NW--y3RLfh4&feature=PlayList&p=768DE4F399464F36&index=1

http://www.youtube.com/watch?v=2g1qU-MO_D8&feature=PlayList&p=768DE4F399464F36&index=2

http://www.youtube.com/watch?v=JGMdT_5A_b8&feature=PlayList&p=768DE4F399464F36&index=3

http://www.youtube.com/watch?v=pm3HB_AAeQY&feature=PlayList&p=768DE4F399464F36&index=4

http://www.youtube.com/watch?v=ZnjCDBl_SAw&feature=PlayList&p=768DE4F399464F36&index=5

David "Danny" Blanchflower

David "Danny" Blanchflower, former member of the Monetary Policy Committee, speaking at Citiwire NMA this week:

(from my notes)

* The Bank of England base rate will be less than 1% for the next five years.

* Germany is about to go back into recession.

* Effectively (ignoring the government's manipulation of the figures) the United Kingdom will not come out of recession until 2011 at the absolute earliest.

* Unemployment will rise to 3 million.

* Youth unemployment is creating a lost generation.

* Two and a quarter million people are not employed and are not unemployed - they have dropped off the labour force.

* More 23-year-olds are unemployed now than at any time in the past twenty years.

* Wages will remain low for a very long time.

* House prices will fall another 20 to 25%.

* The UK consumer is in for a shock - inflation will reach 8% within three years, and that will come on so quickly it will take everyone by surprise.

* The UK's credit rating is secure - there is no prospect of the UK being down-rated unless unemployment reaches four million.

* Social unrest is a serious possibility (when asked what the best investment to be made David Blanchflower said "a gun" because of the risk of social breakdown).

Presumably the politicians know all this, and yet they are not saying a word to the rest of us. David Blanchflower was sacked from the Monetary Policy Committee when he started to speak out of line. What is to be done?