Mervyn King's Open Letter to Alistair Darling

Mervyn King, the Governor of the Bank of England has sent yet another letter to Alistair Darling to explain why inflation is about twice as high as the target of the BoE. Darling's ridiculous reply is available here.

He basically states that the rise of the prices is due to the plummeting value of the British Pound, which has lost 15% of its value in the past few months and rising costs of commodities. And that he expects inflation to be out of the target for at least a year.

He fails to point that the falling value of the GBP is due to the cut of the repo rate he made a few months ago and to the fact that investors are expecting further cuts and they know that neither Darling, nor Gordon Brown nor Merving King will have the political courage and the guts to defend their currency and will try to devalue their currency in the hope of getting more votes at the next election and save their own personal political career at the expense of the currency of their country and trading the future of the British citizens against a short sighted target (the ballot).

Merving King writes as if inflation was out of his control and that he couldn't do anything to prevent it, even though the only tool that can be used to fight inflation is the very tool that only the BoE controls: the BoE rate! Just raise the rates!

Darling/Brown and King are just playing a political game and gambling the future of their country. Shame on them!

Here's why cutting rates won't do any help but rather make things a lot worse:

• The very reason why we are in such a mess is that the rates have been kept too low for too long, creating the real estate bubble and the credit binge
• The UK citizens have the sad world records of both the biggest debt per capita across the whole world and the biggest dept per capita in the history. This is a two dimensional record that will hit the economy very hard and which also end in personal disasters.
• The UK imports most of the products and commodities it needs. Reducing rates will make the GBP fall further and hence increase the imported inflation while not having any upside.
• The UK doesn't have any productive force or industry. A falling GBP will not help export anything.
• The UK relies on foreigners across the whole world to do the low end jobs and the top end jobs. Most workers from Eastern Europe for example in the UK don't mind having low end jobs because it pays well compared to the income they have in their home country. Most people in the City are the same, but on the other side of the scale. They are the productive workforce of this country. They are now starting the leave, as I have seen reported many times and experienced among my colleagues/friends. Once it reaches the point very it's too late, the UK will understand how dependent it is the foreigners, but also how important it was to have a strong currency.
• The UK citizens need to save money, not spend more. Raising rates would help that.
• It won't work anyway, as shown in this Bloomberg report (this is a MASSIVE move):
  

  Sept. 16 (Bloomberg) -- The cost of borrowing in dollars overnight more than doubled to 6.44 percent, its biggest jump, according to the British Bankers' Association.

  The London interbank offered rate or Libor, increased 333 basis points from yesterday, the BBA said today.

So why will they lower rates? Because they are trying to reflate a real estate bubble that will only take longer to pop and cause more havoc. They somehow managed to convince people that borrowing for the rest of their lives to live in a one-bedroom flat 50 miles from their workplace is great and that houses should be unaffordable. This is the Great Con of the past several years. And now, people expect help from the government to prevent the house prices to collapse, at their own expense!

Actual people are getting bankrupt. Actual families are losing their homes. King/Brown/Darling are playing with the personal lives of their citizens for the benefit their own personal careers. This is just disgusting and sick.