The Bank of England is Tempting its Hyperinflationary Fate
The Bank of England is tempting fate. Its Governor Mervyn King is so content his stimulus efforts that he’s considering the expansion of its $332 billion bond purchasing. In a forecast out today, the BOE explains that its bond purchases and low 0.5 percent interest rate, the lowest since its 1694 founding, are the solid bedrock of a fast recession recovery. It’s appalling that the BOE could genuinely believe it can stimulate the economy so precisely as to avoid the danger of inflation.
As Zero Hedge put it in its coverage, “opening the stimulus and liquidity spigot is sure to boost any economy as a one-time event. The bigger questions are i) how long can artificial stimuli be applied; ii) what happens to the new baseline level once the temporary “sugar high” is removed; iii) how does a Central Bank have any confidence that it can time the success of output gap reduction/stimulus and liquidity measure tightening, contrary to all empirical evidence.”
If there were an economic policymaking overconfidence illness going around, this would be one especially terrible case of it. Perhaps Zero Hedge sums it up best, “We are fairly confident that the Weimar Republic also did not have hyperinflation as a policy end goal.”
It’s an uncertain time to be in the pound sterling. See the full analysis from Zero Hedge in its coverage of the Bank of England blowing a bubble of unprecedented proportions.