
The problem that Charlie and policy makers have is that the economy is bifurcated. Different parts of it are not just doing different things, but doing opposite things. Demand and economic activity is declining along with consumer and business confidence, because of Government policy. That creates pressure to keep interest rates low, and along with every otehr country in the world to engage in Monetary Easing in a hope to encourage economic activity, and to devalue the currency as part of the growing international currency war, as each economy goes into protectionist mode trying to keep imports out, and to boost its own exports. But, on the other inflation is rising, and has kept rising for nearly two years despite repeated assurances from the Bank that it was about to fall.

As I've said before, the State is not too unhappy about that. Debt is measured in nominal terms. The more inflation rises, the more nominal GDP increases, and so debt to GDP falls. In effect, creditors are paid back in funny money, devalued currency. It also has another postive effect related to Charlie's hopes. If inflation is rising, then people think that all those things they were intending to buy, they had better buy now, before the price goes up.
But, there is that other side of the economy. The reduced level of economic activity, and uncertainty means that shops and factories with unsold stocks may want to get rid of them quickly to avoid the possibility that in a recession they might not be able to sell them. That will mean that bargains will be there to be had. Moreover, workers in both the Public sector, and in the Private Sector dependent on the Public Sector, will be worried that they might not have a job in a few weeks time.

But, there is another reason they might decide to save rather than spend despite the high consumer inflation and the low interest rates. That is that a much bigger part of potential spending is moving in the opposite direction. Over the last 20-30 years, many workers, particularly in parts of the country like London and the South-East, have been priced out of the housing market, by a bubble in property prices. I have been arguing for the last few months that that bubble was due to burst, and the latest figures show that it is probably bursting in dramatic style.
Figures from the Halifax show that in September - which is the strongest month of the year for hosue sales - house asking prices fell 3.6%. That is the biggest monthly decline since current records began in 1983. It is bigger than any monthly decline during the house price crash of 1990, when house prices fell by 40%. That is the measure of how dramatic the collapse is likely to be. Moreover, as i've pointed out previously the decline is being restrained so far by the measures introduced in 2008/9 to counteract the financial meltdown, the historically low interest rates, the fact that banks have been holding off repossessions, in the hope of an economic upturn, and so on. When those things are removed, a trully massive collapse is likely. A graph produced by Left Foot Forward shows how much.

Just to go back to 2000 prices would mean a 50% fall. In 1997, when Japan's Bubble burst again property prices fell almost 90%. As an indication of how high prices are, and how much they could fall consider this. My sister bought her semi-detached house in 1972 for £2,000. Today, it would sell for around £120,000. If prices fell 90% as they did in Japan, that would mean a price of £12,000, or still 6 times what it originally cost!
This has huge consequences. For all those people who have been priced out of the housing market over the last 30 years, such a fall would be a massive windfall. Imagine you were thinking of buying even a £100,000 house.

The huge savings that could be made for people in such circumstances - and there are still 30% of people in rented accommodation, plus those who might be wanting to move to more expensive properties - far outweigh the losses from higher consumer inflation. That is a strong reason that the authorities might not get the consumer spending they want. There is a strong reason to beleive that. Its basically what has been happening in Japan for the last 20 years.
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