Inflation or Deflation? - 3

This is a sequel to the two previous posts:
  1. Inflation or Deflation - 1 (07/12/2008)
  2. Inflation or Deflation - 2 (10/12/2008)
This time, I think, we can be more pragmatic and let the academic debate for a forthcoming post. And we will focus on the UK, because this is were I live and also because the GBP is collapsing like the currency of a developing country and that the duo-pole Brown/Darling and Mervyn King are behaving as if the collapse of their currency does not matter.

First, remember that they are just acting like in a bad play, and that they're just pretending, and deceiving the public. I mentioned their acting back in September '08.

Second, remember congressman Fadden stating that the Fed is one of the most corrupt institutions in the world? Well, I think he didn't say the most corrupt because that rank might be already taken by the Bank of England. The reasons? As corrupt and absurd and dangerous as the Fed is, they still publish a lot of information about what they are doing on a day to day basis and it is possible to track down their actions in a fairly detailed way.

The Bank of England is lot more secretive about what they are doing, they have even obtained from their accomplice in crime (Gordon Brown) to not have to disclose their short term liquidity help to banks. They also stopped publishing most of the Money Aggregates (the likes of M0, M1, M2, M3, M4, etc.). They only publish M4 now, which is the least useful of these money aggregates...

Unfortunately, even the little information they publish remains very scary. Look at these charts: the M4 is skyrocketing at a very dangerous rate. The charts come from the official BoE publication.

As you can see, the money aggregates in the UK are rising at 45-50% yearly rate! That's really gigantic and would just by itself explain the crash of the currency in the Forex markets.

Where am I going with all this? Well, I would like to answer all the people who keep on telling me or the radio/TV/newspapers that basically, "Since you leave in the UK, it doesn't impact you". This just plain non-sense or stupidity.

My point is that if China did that, they would be fare less impacted, since they produce almost everything they need. But a country like the UK which doesn't produce ANYTHING and keeps on importing everything from agricultural products to industrial ones, is going to see a major impact. Moreover they also import highly skilled people to manage their industry and most of the people who work in finance are also foreigners who got attracted by the high salaries and the highly over-valued Pound (including myself!). Also, most of the low-end tasks are carried out by foreigners as well (Indians, Pakistanis for example, are the people I see running the public transports or 99% of the tills in the supermarkets). I hear lots of people from eastern-Europe came to the UK to do engineering, plumbing, or working in construction...

All these people are going to leave the country. The UK is losing its workforce. Most of my friends from the Euro-zone have left already, and those remaining are preparing their departure as well. Many many people from Eastern Europe have left, because it doesn't make sense for them to stay in the UK, leave far from their family, work in a hard working environment, and earn 30% less than what they were doing just 12-18 months ago.

This is the first impact.

The second one is that everything you find in the supermarkets and shopping centres in the UK are imported. So yes, in the short term, clothing companies are making huge discounts to get rid of their inventories, but this is not going to last. Next season's collection is going to either be a lot more expensive to cover for the loss of value of the pound if the company is based abroad, or to cover for the higher expenses (producing abroad) if the company is UK-based (there aren't that many of these...).

What I have noticed when doing my grocery shopping is that the size of everything is decreasing very quickly: washing powders, cleaning products, fruit boxes, etc. Even the cucumbers are a lot shorter than before. This is no joke! Cucumbers are a lot shorter, and I have showed this to my friends, they laughed when they saw them! The fruits and vegetables are really low end quality. When going to Sainsbury's (low end supermarket chain) I felt like being in Russia. I am shopping at Waitrose (high end supermarket chain) but I feel like everything is really nice, but super expensive!

Another thing that gave me the shivers, is that I haven't been to find Mach-3 blades for the past month in the supermarket. This is to me a very good proof that things are getting really really bad, because shaving blades, alcohol, cigarettes are the typical things people tend to stock at home while expecting the worst to happen...

So my belief is that the Eurozone and Japan are not going to be impacted by price-inflation, and will see prices decline on the short and mid-term, the UK is going to see a massive inflation because of the huge money printing and the huge drop in the value of the GBP. I believe the USD is going to fall in the short-to-mid term, bringing inflation in the US since they import a lot of stuff. But that inflation is going to be far less than the one we'll see in the UK.

[updated: fixed many typos... apologies]

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