George Osborne Does Not Care About Bank of England Governor's Letter
Politics / Inflation Feb 14, 2012 - 07:19 AM GMTThe governor of the Bank of England is supposed to write a letter to the Chancellor of the Exchequer (U.K. Finance Minister) explaining why he has not succeeded in maintaining the annual growth in the Consumer Price Index (CPI) within a range between 1% and 3%. The point of maintaining a median CPI around 2% is to safeguard the purchasing power of the currency that Britons use. The Bank of England and H.M. Treasury are supposed to protect the currency of the realm.
If the CPI is above 3% the Bank of England is expected or supposed to tighten monetary policy in order to reign in the rise in the cost of living and protect the value of the British pound. If the CPI drops below 1% Mr King or Sir Mervyn and his colleagues at the Monetary Policy Committee (MPC) are expected to cut rates in order to bring CPI towards what is seen as a stable rate of growth of 2%.
The latest CPI data for January 2012 was published this morning and it came out at 3.6% and as a result Mr King wrote another letter to George Osborne, the Chancellor of the Exchequer, explaining the actions of the MPC in lieu of the fact that they have missed the CPI target. The last time the CPI was within the target of 1% and 3% was in January of 2009 when it rose at an annual rate of 2.9%! So for over two years the CPI has been above the upper target of 3% and Mr King has written a letter every month to the cahncellor!
What a credible central banker should have done in these last two years would have been to raise interest rates in order to bring the CPI back within the target area but Sir Mervyn has actually done the exact opposite as he has cut the official rate to 0.5% and he has also printed £325 billion out of thin air in order to keep the Treasury's borrowing costs low as the U.K. national debt has ballooned above £1'000 billion or £1 trillion!
The reason George Osborne has not fired the governor of the Bank of England is that he does not care about the purchasing power of the currency as the department he runs, H.M. Treasury, is the biggest debtor in the U.K. and a depreciating currency is actually in his interest as it erodes the value of the U.K. public debt. The downside of this policy, of course, is that the British public is being fleeced through the hidden tax called inflation.
Investors and economists still buy into this deception that the U.K. is in danger of entering a deflationary spiral and that is why the Governor and the Chancellor have been able to keep up this policy of what some people call financial repression or some would even call outright "legalised theft" through inflation. The public though is getting restless as the cost of living keeps rising and their standard of living keeps dwindling.
By Mario Innecco
ForSoundMoney.com
At ForSoundMoney we stand for a hard currency. We believe in a monetary system based on commodity money and a free-market banking system where central banks are non-existant.
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