The Bank of England today raised benchmark interest rates by 50 basis points after the government reported year over year inflation had hit 9.4% and was expected to “peak” at 13.5% next year. Prognostications as to when inflation might peak are worthless. What is clear is that England knows it is facing a prolonged and deep recession and admits it publicly and now admits the cost of energy is a major cause. Nothing gets by the British government.
Meanwhile, the Biden administration in United States is burning the midnight oil trying to redefine what comprises a “recession” with left wing “experts” all chipping in their two cents worth that the traditional definition of two quarters of declining GDP is no longer valid. They must mean politically valid since economically that definition is time tested.
It has been a long time since a Western democracy had double digit inflation and 13.5% is a serious problem that will precipitate a viciously harmful response. Central banks have only one tool to combat inflation and that is raising interest rates and with respect to the Bank of England, a 50 basis point rise from 1.25% to 1.75% isn’t going to do much to tame inflation when the interest rate is so far below the inflation rate. Winter is not far away, energy costs have gone through the roof, and Brits are going to have trouble finding enough money to stay warm while putting food on the table, a situation not eased by higher interest rates.
Like an arsonist throwing gasoline on a fire, Biden’s recent effort to enact the Inflation Reduction Act by spending more billions on pet left-wing projects is more theatrics than policy. The U.S. tax foundation’s analysis suggests the new Act will lower GDP by 0.1% and cost 30,000 jobs, hardly an “inflation reduction” measure, but it will reduce incomes for pretty well everyone but the favored few who benefit from the pork-laden bill. It is hard to imagine a more inept and incompetent leader than Biden, unless you turn your mind to Justin Trudeau. His approach to rampant inflation and soaring food costs is to attack farmers and restrict their use of fertilizers. I used to think more supply meant lower prices but I guess in drama school they have a different economic theory than that derived from Adam Smith and his successors.
Face facts. There is a global energy shortage resulting from institutional stupidity which saw leaders embrace the flawed climate change theory that emanated from the Club of Rome’s desire to use climate fears to rally support for a post-national socialist global government (Karl Marx gone mad). There has been no supply response to higher prices and none is in sight. Short term measures like depleting the U.S. strategic petroleum reserve and begging OPEC to produce more oil has seen a modest reduction in oil prices but done nothing to ease the natural gas shortage which is reaching crisis proportions in Europe, and those band aids will expire without much impact on the supply-demand balance through the winter.
Germany has turned to coal and oil as a “temporary” measure to keep the lights on, but without a global fossil fuel supply response what will be “temporary” will be any relief from rising prices. Using oil to fuel electric power plants just adds to demand which is fast outpacing supply. Doubling down on the “climate agenda” will exacerbate this man-made catastrophe and the U.K.’s recession will spread faster than COVID across Europe and eventually to North America. Russia, China and India will be spared somewhat since they have had the common sense to rely on coal and oil all along. I expect China’s economy to keep growing while the West contracts and economic power to keep shifting eastwards.
How did we get to the point where voters elected these climate nutters and bought into their charade?
Wow! After reading this article, I just about want to run out into the street yelling "The sky is falling! The sky is falling!"
I appreciate your last sentence: "How did we get to the point where voters elected these climate nutters and bought into their charade?" I think we know the answer.
Well said! I think what plays out in Europe + UK this winter will be interesting [ and by this I mean frightening ] to keep an eye on as in some form it will find its way into North America and play out here, disrupting lives, politics, possibly/probably causing deaths, etc. To which 99% of the US population is completely ignorant, at least for now. Good article. Thanks for sharing!