Is the government expecting rampant inflation?

For some years now I have predicting high inflation coming to the UK. For most of that time I have been ridiculed by friends and colleagues. Now they are less certain that I am an absolute fool!
One interesting fact is that the ultimate protection from rising prices that has been available for most of the past 30 years has been National Savings & Investments' (NS&I) tax-free, index-linked savings certificates.

These certificates have guaranteed to beat inflation, and your entire deposit was protected by the Government. Oddly (or not) the state-owned savings bank has withdrawn these products twice in the past few years and they're currently not on sale at all. There is plenty of demand, the latest issue sold out after just a few months in 2011.

NS&I recently stated that it is unlikely to bring the savings certificates back before April 2013. That doesn't mean that they will return in 2013, it's just that NS&I don't plan that far ahead.

It would seem that the Government, which decides how much savings NS&I is allowed to accept in any given financial year, doesn't want any more of our money to finance its massive borrowing needs.
Now why might that be? Is it because it's currently cheaper for the Government to borrow from elsewhere than for it to pay us more than inflation? Does that not point to higher inflation coming?

Is the future inflation or deflation?

A good question but I have always been of the mind that inflation is the enemy and not deflation. The more the Bank of England and ministers told me otherwise, the more I knew I was right.

This piece at Anna Raccoon seems to be in agreement with me, here's the conclusion:

'The ECB balance sheet is nowhere near sufficient for the task and so the choice is either:

• to let country after country default and smash all their national banks (surely a non-starter),
• let the Euro dissolve and go back to national currencies (the right move, but devastating for the EU project as a whole, so I can’t see it on a large scale) or,
• get the ECB to print.

And thus I think inflation, rampant and long-term as the UK engages in de facto devaluation as we also print to avoid having Sterling “over-valued”'

Say goodbye to your savings...

"Ever get the feeling you've been cheated?"

Like John Lydon, Guido seems to think we have been conned:

'Guido believes it is the deliberate policy of the Fed and the Bank of England, with the complicity of their political masters in the US Treasury and HM Treasury, to inflate their government debts away. Inflation is a pernicious form of taxation, it punishes the old and those who save and leads to a worse reckoning in the end. We are being deliberately swindled by the political elite.'

Read more at this Guido fawkes post.

For more of my thoughts on why deflation was never the worry but inflation was, you could start with reading this piece noting that:

'Governments printing money to get out of a problem leads to inflation every time and this time will be no different. Don't say you weren't warned... '

And this to be reminded of Andrew Lilico, chief economist at Policy Exchange, predictions that interest rates may rise to 8% within two years so as to try and choke rising inflation... In fact the scariest of Andrew Lilico's predictions is that if the economy cannot stand such high interest rates then the solution may be inflation peaking at 20%.

'Japan beats deflation for the first time in two years'

'Japan beats deflation for the first time in two years'

So reports the headline on this BBC piece. My immediate thought when I read the headline, and bear in mind that a lot of people don't read much if any of these articles was, if Japan the land of deflation is starting to experience inflation then we really could be in the early stages of a nasty period of inflation.

The BBC do go on to explain that this is not all good news:

'However, credit ratings agency Fitch has downgraded its outlook on Japan's debt to negative from stable.

Fitch said it was worried about the high levels of Japanese government debt.

...

Gross domestic product shrank 0.9% in the first three months of the year.

Japan's economy has now contracted for two quarters in a row, the generally accepted definition of a recession.'

However that headline really should be re-written.

Do you ever get the feeling that you are over-taxed and that the value of your money is decreasing?

Do you think it's coincidental?

'The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation.' - Vladimir Ilyich Lenin

Raiding our pensions

Over the years I have warned that world governments have and will steal from our pensions pots and other savings in order to get their hands on money to fund their activities that they just will not cut. The most recent article was from January this year and can be read here. Up until then the countries affected so far were Hungary, Bulgaria, Ireland and France; today I read at The Revelation Group that:

'The United States is expected to reach the legal limit on its debt later on Monday and will start dipping into federal retirement funds to give the country more room to borrow, a Treasury official said.

As Reuters reports further, The U.S. Treasury will settle $72 billion in maturing bonds on Monday, which will push the country right up against its $14.294 trillion borrowing cap, the official said.

...

Secretary Geithner sent a letter to Congress this morning alerting them to actions that have be taken to create additional headroom under the debt limit so that Treasury can continue funding obligations made by Congresses past and present.

The Secretary declared a “debt issuance suspension period” for the Civil Service Retirement and Disability Fund, permitting Treasury to redeem a portion of existing Treasury securities held by that fund as investments and suspend issuance of new Treasury securities to that fund as investments.

He also suspended the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.'

Land of the Free? Budgetary restraint? What you save is yours? All of that counts for nothing when left-wingers 'need' to preserve what they 'need' to fund. The money may have run out (see Liam Byrne in the UK) but that won't stop them spending it. Left-wing governments don't admit their mistakes they just keep on spending and find new sources of income. If you think that the US Federal Government will stop at suspending payments into state pensions then you are wrong. How long before they follow the Hungarians and force you to either remit your individual retirement savings to the state, or lose the right to the basic state pension (but still have an obligation to pay contributions for it)? How long before they follow the Bulgarian government and try and transfer private early retirement savings into the state pension scheme? The US government is screwed, the money has run out and they will not cut back, or if they do it will not be by anywhere near enough.

In the US, and elsewhere, the future is more Quantative Easing and thus inflation, more debt (only reducing because of that inflation) and more much more taxation and misery.

Unconvinced that I am right, sure that the US government (and others) would not take this sort of action? Really sure?

The Elevation Group include this handy reminder:

'What do people in power do with that power? Do they willingly give it up, or do they abuse it?

* What do people in power do with opportunity? Do they let it pass, or take it?

* What do people in power do when they make mistakes? Do they do what’s right for the masses at their own expense, or do the protect themselves and their friends first?

* What do people in power do with responsibility? Do they accept it, or pass it on to someone else?

* What do people in power do? What’s right for others, or what’s right for them?

* So ask yourself… What will our politicians, lawmakers, bankers, and traders do?

Will they face the pain of their decisions and do what is right to fix the problem, likely losing everything they have and all of their power in the process, or will they do everything then can to try and keep their power, and above all else, protect the status quo?'

Still convinced that I am wrong?

Bad news for the BBC/Labour

When inflation was going up along with unemployment the Labour/BBC line was that this was dreadful economic new and showed that the Tories policies weren't working and that economic expansion policies were needed. Now inflation has dropped (yes it is still far too high and this could be just a blip) and unemployment is down as well, how will the BBC report the news.

At the moment the news is reported without comment or spin:

'UK unemployment fell by 17,000 in the three months to the end of February to 2.48 million, official figures show.

The Office for National Statistics (ONS) said the jobless rate among men had fallen, but had risen among women.

Youth unemployment stood at 963,000, with the jobless rate for young people remaining above 20%.

The number of people claiming jobseeker's allowance fell by 700 between February and March to 1.45 million, the ONS said.

Total pay rose by 2% compared with a year earlier.

The latest figures mean that the overall rate of unemployment in the UK now stands at 7.8%.'

I wonder how long before a Labour spokesman is quoted counselling caution or some other siren voice of despair is given a platform to criticise?

Friday morning catch-up (part 2)

Even more Firefox tabs that need closing.

1) The Spectator thinks that David Cameron is heading towards a 'crunch with Europe':

'No contraceptive is 100 per cent effective: not even if it’s called Oliver Letwin. For that degree of assurance, you need the snip. That is to say: an end to Brussels diktats once and for all. Either out of the EU; or inside it, operating under the original 1975 free trade deal alone. That, I suspect, will be the end result. A crunch is coming. The only question is how long we have to wait.'

I wish I shared their hope but I have severe woriies about David Cameron's soundness on this as on many policies.


2) ABC News decided to look at Barack Obama's two year record on Egypt, a fact-checking exercise. There's a lot, here's one part:

'As ably covered by the Washington Post’s Fact Checker – and former State Department reporter – Glenn Kessler, the Obama administration was far more quiet on the need for Egypt to engage in serious political reform, at least publicly, than the Bush administration.

Perhaps more glaringly, while the Bush administration tried to directly fund civil society in Egypt – pro-democracy groups and the like – the Obama administration changed that policy and cut funding significantly, ending an effort to provide direct funding to democracy groups not “approved” by the Egyptian government, and reduced funding in the budget for programs to promote civil society groups.

As Kessler writes: Bush’s final budget “proposed spending $45 million on democracy and good-governance programs in Egypt, including more than $20 million on promoting civil society…But that nascent effort was largely shelved when the Obama administration took office. For fiscal year 2009, the administration immediately halved the money for democracy promotion in Egypt; the civil society funds were slashed 70 percent, to $7 million. Meanwhile, money that was to be given directly to civil society groups was eliminated and the administration agreed to once again fund only those institutions that had Mubarak's seal of approval.”'

3) The Israel Project printed some photos that we in the West are never normally shown - of Israelis injured by rockets fired at them from Gaza. Here's one of' Five-year-old Lior Ben Shimmel who was seriously wounded when a rocket directly hit her neighbor’s home, where she was playing Jan. 16, 2008'

4) The Liberal Media's hate figure, Sarah Palin, Tweeted:

'Media: ask “Will Obama Admin exert as much ‘constructive’ pressure on Iranian govt to change & allow freedom ~ as they just did for Egypt?”'

The BBC and US Media appeared not to notice or ask the perfectly sensible question.


5) Working Class Tory doesn't think that the UK is a shining example of multiculturalism working in the past:

'British history has not been a successful one - if you're looking to find harmonious relations between the countries of the British Isles. We haven't a history of multi-culturalism, we've a history of ethnic and religious war. To pretend otherwise would have very few points of contact with reality. '

He even explains why Enoch Powell felt he had to speak out about immigration, of course quoting enoch Powell immediately removes your right to be listened to (according to the British 'left') but I am not of the left:

'Many, many conservatives oppose multi-culturalism and mass immigration precisely because when you have (or in the case of immigration, import) lots of different, and competing, communities, they will inevitably clash. Enoch Powell was motivated to speak out on immigration because he saw the atrocities that took place during the partition of India and feared something similar could happen in this country. '

6) The centre for Security Policy thinks that Barack Obama keeps bad company:

'President Obama’s trusted circle has been, if anything, even more problematic. For example, Mr. Obama has consorted with people who are revolutionaries, communists, liberation theologians and Islamists. Some have even been appointed “czars” in his administration.

At the moment, though, we must be concerned not only with who Barack Obama considers his friends, but with those who deem him to be one of theirs: The record suggests he must be seen as a “Friend of Shariah.”

How else can we explain the seeming inconsistency between, on the one hand, the president’s indifference to demonstrations in Iran last year that were vastly larger and more sustained than those to date in Egypt, and, on the other, his insistence after a week’s worth of protests in the latter that there be nothing less than complete “regime change,” starting immediately?

The only obvious common denominator is that, in both cases, Mr. Obama is pursuing policies favored by those who adhere to the repressive, supremacist and virulently anti-American Islamic political-military-legal program its adherents call shariah. In Iran, shariah is already the law of the land, ruthlessly enforced by the Shiite theocrats of Tehran. In Egypt, the Mubarak regime’s failure faithfully to enforce shariah is one of the principal impetuses behind the Iranian mullahs’ Sunni wannabe counterparts, the Muslim Brotherhood (MB or, in Arabic, Ikhwan).'

7) Someone, and I forget who, has got very excited by a court decision on Council Tax.


8) The Mail reported that

'Axing speed cameras has caused road deaths to FALL

Road deaths dropped 14 per cent in three months while speed cameras were being axed or switched off.

Fatalities over a year fell 21 per cent to a record low, Department for Transport figures show.'

Why is anyone surprised? I have predicted this for a while.


9) Terry Smith thinks that ex-Labour Minister and friend of Gordon Brown, Baroness Shriti Vadera, doesn't really understand what inflation is:

'When the panel was asked about inflation Shriti Vadera replied:

‘If you strip out the inflation that is being driven by essentially emerging markets, the scramble for resources, whether its food, water and commodities, and any other type of one off event like VAT increases, that the underlying inflation levels are not yet at any point that we should be worrying about.’

To which I retorted: 'I find that if you strip out the bad stuff, things are always quite good!'. The idea that there is no inflation if you ignore the things where the price is going up has a rather obvious flaw.'

10) PC World magazine explained

'Get Internet Access When Your Government Shuts It Down
Does your government have an Internet kill-switch? Read our guide to Guerrilla Networking and be prepared for when the lines get cut.'

What's happening to the price of gold?

The gold price looked set to rise and rise this year but instead fell back a fair back in late January to around $1320 per oz and even now is trading below $1370 per oz.

Why is this? Am I wrong in seeing high inflation in much of the world as being a driver of the gold price up? Love Money have an opposite point of view that deserves reading, here's one point:

'Gold loses to inflation
Some people say gold is a currency. The debate between economists on this issue is heated and more complicated than most people realise. I'm not bothered how you classify gold, but it has at least one similarity with currency: it has lost to inflation most of the time. This is ironic, because most people buy gold to protect themselves from inflation.'

Confused? if so then Harvey Organ's blog will probably not help, here's an extract from an article on the price of silver and gold:

'silver in complete backwardation.

xxxxxxxxxxxxxxxxxx

I

Saturday afternoon,  this article, Near Zero Contango in Comex Silver Futures, came to my attention in which the author noted that silver was in zero contango throughout all silver contracts.  I have verified that this is correct.  This means that silver is in very short supply at the spot price as investors are not willing to sell their metal at spot and buy a futures contract for fear that they will not get the physical metal.  This is the first time this has ever happened in silver.  The bankers have tried to bid up the prices on silver at the further out months at the comex, trying to keep the facade that silver is in proper contango and ample supplies of silver are with us.   This is not true as we now know that silver is in short supply as I have indicated to you on many occasions.  Adrian Douglas has also presented another paper on silver today.  For seven years, gold and silver have traded in perfect uniformity.  If gold goes up by 1% then silver will rise somewhere around 1%.  Douglas has now concluded that the shackles have been removed and silver is now on its own.  Douglas also noted that silver is basically in complete backwardation or no contango.'

Help!

Are you ready for high inflation?

Bert Flossbach, an asset manager in Cologne, is:

'Flossbach is convinced that the euro will also degenerate into a soft currency. The enormous debts facing some euro-zone governments, he says, make it inevitable. Flossbach expects galloping, double-digit inflation -- and not in five or 10 years, but soon. The only missing ingredient, he says, is a trigger, a dramatic event that will put an "avalanche-like process" in motion.

...

Polls show that the majority of Germans, and especially older ones, have grown worried about their savings. Many are scared that inflation will consume their nest eggs, and that they will end up footing the bill for bailing out banks and entire countries. "The large figures have really alarmed people," says Manfred Neumann, a currency specialist in Bonn.

To avert economic collapse in the wake of the financial crisis, central banks have been pumping more and more money into the economy. In doing so, economists say, they have created the fertile ground on which inflation can now thrive.

Some politicians are also sounding the alarm. Frank Schäffler, a financial expert with Germany's business-friendly Free Democratic Party (FDP), notes how the European Central Bank (ECB) has been financing government debt by printing money. "In the medium term," he says, "this inevitably leads to inflation." Michael Fuchs, an economic expert with Chancellor Angela Merkel's center-right Christian Democratic Union (CDU), is particularly worried about commodities prices, saying that they contribute to "the greatest inflation risk."'

Read more at Der Spiegel and be prepared to worry about the coming inflationary storm.

When did deflation stop being the worry?

I have been banging on about inflation being the coming concern for many many months, whilst for a very long time the official line was that deflation was the worry. Last April I blogged that:

'I predicted that Gordon Brown's panic policy of quantitative easing would lead to inflation and I was right. Gordon Brown and Alistair Darling, assisted by the pro-Labour BBC, pushed the idea that deflation was the real worry; I think we all know that was complete crap. Here are the inflation rates of our current economic peers - USA 1.1%, Germany 1.2%, France 1.7%, Italy 1.4%, Spain 1.5% and here's the rate of a country that will soon be our peer if Gordon Brown's reign of incompetence is not ended on 6 May - Zimbabwe around 200,000,000%

Gordon Brown calculated that by creating fake prosperity based on property prices and other debt he could ensure his hold on power. The system crashed before he could hold an election and so he used quantatative easing to artificially boost the economy by pushing a fear of deflation. What excuse will he use for the next bout of bank note printing?

If George Osborne, David Cameron and Ken Clarke cannot tear Gordon Brown apart over this then they do not deserve to win the election. '

Last September I blogged that:

'For months we have been told that the problem facing the UK nad much of the world was 1990s Japanese style deflation. Today with the news that 'UK Consumer Prices Index (CPI) inflation remained unchanged in August at 3.1%' even the BBC seemingly manage to realise that the problem is inflation not deflation.

Governments printing money to get out of a problem leads to inflation every time and this time will be no different. Don't say you weren't warned... '

It is odd that the MSM have finally cottoned on the inflation being on the rise, why so late though?

Here comes UK inflation

Fraser Nelson in The Spectator asks 'How much bigger does Britain's inflation have to become before Mervyn King realises it’s a problem?' and explains why it is a problem. I have been a big fan of Fraser Nelson's writing for a while an this is a great one. Here's a short extract but do read it all:

'3. The Bank of England is fanning the flames of inflation with base rates at an absurdly low 0.5 percent. This implies that the British economy needs a fiscal life support machine. In fact, Britain’s economy is projected to grow by a very respectable 2 percent this year: our manufacturing sector reported the sharpest upswing in 16 years. Exports are doing pretty well. There is no justification in such low rates – especially with inflation so high. On the tube last night, I saw HSBC offering to lend me money at 2.3 percent a year. This is less than inflation; a real-terms negative interest rate. So, I’m being paid to borrow. They should plaster this sign at HSBC branches to tell robbers: it’s okay. You don’t need a gun. HSBC is offering people money for free. Precisely the craziness that landed us in the mess the last time.

...

5. Mervyn King seems to specialise in seeing no evil. The Governor did not notice that Britain was incubating a debt bubble the first time around, nor does he appear to notice a new one inflating. You’d think that he’d be making speeches galore about the limitations of inflation targeting, given that massive problem identified it in. By obsessing on CPI, he nurtured an asset bubble in Britain – and did so by needlessly fighting a benign deflationary shock. It is staggering just how little analysis there has been. As Johan Norberg argued last week in a powerful cover story, the crisis was caused by record-low mortgage rates, and debt-fuelled spending. To cure the crisis, the Bank of England has prescribed record-low borrowing rates, and debt-fuelled spending. The Bank seems not to have paused to consider that its ‘solutions’ are the same vices which caused the crisis in the first place. '

But the one that scares me the most is the one that I have been 'banging on about' for a while:

'7. If Mervyn King and the Bank of England is trying to inflate its way out of a debt crisis, we should be told. It’s a fairly well-establish tactic (especially in countries that finance government splurges by printing bank notes.) What happens is this: policymakers pretend to fight inflation, so feign surprise each month by how high inflation is. Then, they blame it on a short-term blip. But you soon lose your credibility – and, fatally, this is starting to happen to King. Already, the markets are beginning to price in the cost of inflation to gilts. From the Café Nero owner to the Japanese hedge fund manager, word is getting around: Britain is letting inflation rip. '

This could get bad, very bad, very bad indeed!

The one hundred and fifth weekly "No shit, Sherlock" award

This week's winner is the headline on the BBC website

'Bank of England says inflation will be above 2% in 2011'

"No shit, Sherlock"

It would seem that inflation is not an accident it's a deliberate policy

Further to this morning's piece about the Bank of England's Deputy Governor, Charlie Bean, telling us to "go out and spend to help invigorate the UK's economic recovery" because "I think it needs to be said that savers shouldn't necessarily expect to be able to live just off their income in times when interest rates are low. It may make sense for them to eat into their capital a bit."

The more I think about this advice the more angry I get. There are many anger making points arising from Mr Bean's advice, here's a few:
1) If people have put money aside for a rainy day, something the last Labour government singly failed to do, why should they be punished whilst the feckless find the amount of their debts reduced?

2) If the current economic recession was caused largely by excessive spending, why does Mr Bean want us to repeat the mistakes?

3) Inflation is just another stealth tax, maybe the most effective one. It is a tax imposed by governments on those holding its debt and anyone whose savings are not index-linked (and by the correct index) is paying towards that tax.

4) In Feb 2009, just before the Labour Government & Bank of England turned on the banknote printing presses, the Bank of England predicted that inflation in late 2010 would be between 0% and 1%. A year later in Feb 2010 they predicted it would be between 1% and 2%. Now in September 2010 it's 3.1%. So why hould anyone believe a Bank of England who still claim that inflation is not a real worry, deflation is?

5) OK so we are not alone, the US Federal has said it is willing 'to provide additional accommodation if needed to … return inflation, over time, to levels consistent with its mandate' - More deliberate inflation...

6) Back to the value in property point. Yes my house has gone up in value and yes that is nice (on paper) but it gives me no income and I can only release that increase in value when I sell it. But at that point I will need to buy another house so how does that help. As I see it the only time the 'profit' in my house will be realised is when I die and the beneficiaries of my will pay inheritance tax. Hold on is that the real plan? Force old age pensioners and other savers with no real income to starve so that they die and then the government gets a percentage of the rise in house prices in the form of inheritance tax? Surely no government could be that cruel...

The difference between fellatio and inflation

French politician Rachida Dati has been forced to issue a public apology after confusing fellatio (oral sex on a man) with inflation. The 44-year-old former justice minister and MEP has been called ‘Rachida Barbie’ by her political opponents because of her supposed poor understanding of complicated political and economic issues.

On Sunday she was asked about overseas investment funds maybe profiteering during a period of economic uncertainty and said:

"I see some of them looking for returns of 20 or 25 per cent, at a time when fellatio is almost non-existent."

In French, fellatio is ‘fellation’, which sounds rather like inflation, which is the same in French as in English.

Miss Dati has apologised for her slip of the tongue (pun intended) saying on Facebook: ‘This kind of thing happens if you speak too quickly on this kind of programme.’


Of course fellatio is likely to bring about inflation but I suppose that after completion, deflation is likely to follow!



Thanks t The Mail for the spot.

What happened to the problem being deflation?

For months we have been told that the problem facing the UK nad much of the world was 1990s Japanese style deflation. Today with the news that 'UK Consumer Prices Index (CPI) inflation remained unchanged in August at 3.1%' even the BBC seemingly manage to realise that the problem is inflation not deflation.

Governments printing money to get out of a problem leads to inflation every time and this time will be no different. Don't say you weren't warned...

Here comes high interest rates

For some time now I have been predicting, and being ridiculed for so doing, rising inflation. So I was intrigued to read the predictions of Andrew Lilico, chief economist at Policy Exchange, that interest rates may rise to 8% within two years so as to try and choke rising inflation. If you want a bad night's sleep then I recommend reading Andrew Lilico's predictions, they are in today's Telegraph (front page of Business). In fact the scariest of Andrew Lilico's predictions is that if the economy cannot stand such high interest rates then the solution may be inflation peaking at 20%.

Sleep well!

Ready for inflation? NS&I are.

News that National Savings & Investments have withdrawn their index linked products leaves me wondering if 'the real fear is deflation' as we are constantly told or if the real worry is actually inflation. Time to buy more gold?

Ready for higher interest rates?

For some time now I have been telling people that the threat is not deflation but inflation and I am often derided for it. So I was interested to read in The Telegraph that whilst:

'The Consumer Price Index rate of inflation dropped from 3.4pc in May to 3.2pc last month, according to the Office for National Statistics' it 'fell short of economists' targets of a decline to 3.1pc.

Increasing concern was the increase in "core" inflation, which excludes volatile factors such as food and petrol, from 2.9pc to 3.1pc.'

Expect inflation to rise very soon...

"The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

"The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost."

That's an extract from s speech given eight years ago by Ben Bernanke then the new governor of the Federal Reserve. Read this article by The Telegraph's Ambrose Evans-Pritchard and see if you think the money printing presses are about to roll again...:

'Clearly we are nearing the end of the "Phoney War", that phase of the global crisis when it seemed as if governments could conjure away the Great Debt. The trauma has merely been displaced from banks, auto makers, and homeowners onto the taxpayer, lifting public debt in the OECD bloc from 70pc of GDP to 100pc by next year. As the Bank for International Settlements warns, sovereign debt crises are nearing "boiling point" in half the world economy.

...

Bernanke warned in that speech eight years ago that "sustained deflation can be highly destructive to a modern economy" because it leads to slow death from a rising real burden of debt.

At the time, the broad money supply war growing at 6pc and the Dallas Fed's `trimmed mean' index of core inflation was 2.2pc.

We are much nearer the tipping today. The M3 money supply has contracted by 5.5pc over the last year, and the pace is accelerating: the 'trimmed mean' index is now 0.6pc on a six-month basis, the lowest ever. America is one twist shy of a debt-deflation trap.

There is no doubt that the Fed has the tools to stop this. "Sufficient injections of money will ultimately always reverse a deflation," said Bernanke. The question is whether he can muster support for such action in the face of massive popular disgust, a Republican Fronde in Congress, and resistance from the liquidationsists at the Kansas, Philadelphia, and Richmond Feds. If he cannot, we are in grave trouble. '