Today’s news that UK inflation fell from 4.5% to 4.1 with an RPI of 3% leaves us staring at a clear and present danger of stagflation. The fall in prices is really on the back of oil prices (do not be deceived by those sale prices). The table below of oil prices required to balance the relevant country’s budget, provided by Dennis Gartman (vie the excellent John Maudlin Weekly e-letter), suggests that OPEC will try to maintain a higher price than currently, leaving battling inflation and a downturn.
The old pistols held only 6 bullets and the developed world is fast running out of their monetary policy bullets. Did we shoot our bolt too soon? What was the point of the VAT decrease except to increase Government borrowing? No effect on business, no effect on consumers. A shoddy deceitful piece of transparent Government publicity which leaves you the taxpayer and your children paying tomorrow.
I envisage a scenario where a Conservative government is forced to act like that of the ’79-’83 government in reducing the defecit and ‘cutting’ spending. It’s not pleasant but the only successful policy for the next government (of whatever hue) is a certain route to electoral defeat. the alternative is to pretend (like the 70s) that all is well whilst we slowly bankrupt ourselves.
Who do we blame? Partially the government but it’s a 50:50 split with us, the general public who’ve turned a blind eye to the fact that extra jam today must be paid for tomorrow. We did it for the last ten years and we’ll compound the error by voting out any party who attempts a degree of financial discipline.
At this time of year, it is traditional to infuse an element of optimism. My one hope is that we all wake up and smell the roses (or at least the swing voters) as my fears are too many to mention.
To labour is to struggle 