It's Only Make Believe

For the latest character assassination of our heroic Central Bankers, it was the toss of a coin between two iconic recordings,' It's Only Make Believe' by Conway Twitty amongst other artists, and 'Tragedy' by the Bee Gees, amongst other artists too. Many will probably agree that it has been an absolute tragedy watching the baseless actions of our Central Bankers in their response to both managing and, latterly, tackling inflation.?Modest action is perhaps a more appropriate response. They appear to be much less animated than the proverbial rabbit in the headlights.?At least the word transient has now been removed from their rhetoric but they still continue to feed us with articulate bull-shit primarily because, deep down, they just don't have a clue what to do; and if they did know what to do, they wouldn't dare admit that they have been ?key culprits laying the foundations for the high level of inflation that we are now enduring.?There are indeed many sonf titles already used by yours truly that highlight the problems the global economy is facing and reflecting on some of my earlier articles you may ask yourselves - 'How Long Has This Been Going On' - and when it comes to creating the debt fuelled inflation bubble you may also agree with another headline about inflation - 'We Just Can't Get Enough'.

This introduction brings me neatly on to some data for our beloved Bank of England which may even convince its most loyal supporters that we are definitely now living in A World Of Make Believe with the potential for tragic consequences that are also in evidence.?The game-plan for everyone is now focussed much around the survival of the fittest, both mentally and physically,?because Andrew Bailey has already told us that he just 'Hasn't Got A Clue What To Do'; ?but he will never concede that the bedrock for higher inflation has been orchestrated from within the Bank's own control mechanism with perhaps a little help from his friends at the UK Treasury.?Admittedly the war in Ukraine has not been helpful to their own game-plan, but it does conveniently provide them with an opportunity to deflect criticism?and therefore lay much, if not all of the blame, at the feet of Vladimir Putin.

Recently there was some fascinating data in the Financial Times Money Section which could be used as a Case Study to challenge the Bank of England over the reasons for its existence.?Here is a potted history.?The Bank was formed in 1694 with a base rate of 6%.?Since that date, the average base rate has been around 4.6%.?The rate was cut to 5% some twenty years after the Bank's formation and it stayed around this level throughout the period of Queen Victoria's reign - 1937 to 1901. Base rate has only been 2.5% or lower for one-sixth of the time - this includes ?a ten year period over the second world war and the thirteen year period following the financial crisis in 2008. ?Base rate has never ever been as low as the 1% experienced in February 2009 but that didn't stop the Bank from reducing it ?to 0.5% in 2012. The Bank is now forecasting a base rate of 2.5% by the end of 2023 which is still half the actual rate of the last 328 years.??Central Banks will of course claim credit for the two decades of low inflation since the start of the new millennium but much of this downward pressure on inflation can be attributed to globalisation and definitely not the astuteness of Central Bankers.

This dangerous game-play with ultra-loose short rates is now coming to a rapid conclusion and there is little if anything left in the locker to fight inflation other than a protracted tightening in monetary policy.?Ironically prices at the end of Queen Victoria's reign were lower than they were at the start of her reign ?- the figure under Queen Elizabeth's reign ?are more than 5% compound per annum ?which is probably why the MPC was created in 1997 to control inflation at around 2.5% - this was later changed to 2%.?Some will say that they have achieved their outcome but as I have already alluded to, this result was very much the result of downward pressure on prices from globalisation and was nothing ?to do with the exemplary skills of the MPC; and what they will never tell you is that to help their cause they were given the powers of Quantitative Easing.?QE is a modern acronym that has allowed the printing presses to inject money supply approaching ￡1trillion - that's ￡1,000bn or ￡1,000,000,000,000.?Dividing that by a population of 60m?equates to money printing of ￡16,000 per capita. I am sure that we all feel much better for this QE policy initiative.

Maybe you are not convinced about the benefits of QE and you would be correct to be sceptical because The Bank of England does owe us a huge apology.?Their only task is to maintain inflation around 2.5% but Andrew Bailey is now forecasting 11% inflation by the end of the year and his latest response is to raise base rate from 1% to 1.25%.?This announcement follows a 0.75% tightening by the Federal Reserve the previous day.?I can recall another article written last year titled 'The Game Of The Blame'

In summary we are all going to have to pay the price for the gross mismanagement and miscalculation ?by Central Bankers who have kept short rates far too low for far too long.?Had they or the Treasury warned the populous that money printing would have some inflationary consequences they may have bought a measure of credibility but I am not aware there were ?any warning shots.?Perhaps collectively they just didn't see inflationary problems on the horizon.?If that is the case then you may ask the legitimate question?Do we still need the Bank of England's Monetary Policy Committee? if they are incapable of doing what they were intended to do when it was formed which is the attempt to control inflation around 2.5%.

How high will inflation go.?Nobody really knows - it's all a process of guesswork but it is not just price inflation that we now ?need to be concerned about - it's a given that if price inflation continues to trend higher there will be massive pressures on wage push inflation.?The forthcoming Rail Strike is perhaps a gentle reminder to those old enough to remember how life was in the seventies when the US led the way and short rates went through the roof with the express aim of controlling rampant inflation through a manufactured recession.?We all need to be careful what we wish for but if history were to repeat itself, the one asset class that appears over priced is the domestic property market.?The rule of thumb is that property prices fall 3% for every 1% rise in base rate.?I will let you do the maths if base rate were to rise from 1.25% to 5% by the end of next year which is twice the Bank of England's current forecast and I emphasise the word current.?My message to all those tracker mortgagees who are moaning about a 0.25% rise in base rate to think seriously about fixing their mortgage rate or selling their property. Your home is only your castle if it isn't built/mortgaged/financed on quick-sand.

Ironically, Tragedy by the Bee Gees was a big hit for them in the late seventies, an era our leaders appear to have taken us all back to, and ?It may be time for its re-release as many factors behind higher inflation are once again in evidence; but just remember that we no longer have leaders with our best interests at heart.?They are just living or maybe surviving in The Land of Make Believe.??We all therefore need cheering up and perhaps a new TV Soap Show for both Parliament and The Bank of England could be made and screened.?There is a huge amount of material that will make us all both laugh and cry.?It could be called 'The Only Way Is Ethics' or for those of us who would prefer a more classical bias 'Now Is The Summer Of Our Discontent'.

?I am merely telling you what you need to know and be aware of because we have a Government and a Central Bank that will never want to 'rock the boat'.?My comments may be upsetting but sometimes we all need a reality check.?I hope I am wrong in my conclusions but don't blame me. I am just giving you my opinions. ?Vent your anger at that famous double act, Boris & Bailey. You may indeed ask the question - not How Long has This Been Going On but How Long Can They Go On with rudderless leadership.