As many of you know, I am approaching 50 this year. A little maths confirms I am a child of the 60’s. If I was ever to go on Mastermind my specialist subject would be “Disney Animated Films”. I’m almost word perfect.
Like Woody in “Toy story”, everything changed with the Apollo Missions. I remember at primary school, lessons stopped as we all watched Neil Armstrong step on the moon on a huge colour telly. I especially remember the NASA countdown clock and the jargon. It took me ages to understand what “T minus” stood for. On occasion the clock was paused due to a technical problem. We waited with baited breath for it to restart.
Interest rates in the UK dropped to 0.5% in February 2009. That was 23 months ago; they will only be going in one direction next, and of course that will be up. I am looking forward to the countdown clock being started again. The majority of my clients have cash on deposit which is eroding daily against inflation which seems out of control. Many people in the UK however are not sharing my enthusiasm due to the fear of their mortgage costs rising.
Traditional Economic Theory states (and it is all theory) that in order to stimulate an economy, give everyone more money. If people feel flush they will spend. Goods and services will be bought and companies will make money. The economy starts to grow naturally. The main tool central banks have to achieve this is to lower the cost of borrowing. If that isn’t enough, throw some money in by writing more cheques with an extended promise to pay. Now what can happen is they go too far. A bit like trying to get a fire going by pouring petrol on it. If things start to do too well and the economy starts to boom workers want a bit of the action and demand higher wages which causes inflation. Inflation is what we have now but it isn’t because workers want a bit of the action. On the contrary many feel they could lose their jobs and indeed in the public sector many are; 2000 announced by Manchester Council yesterday.
So as inflation stays above the Bank of England’s target of 2% for the 13th month, the question is when does the clock start its countdown to launch, and just how high will this baby fly? I am in the school that believe we may not even see that happen this year. After all it’s the Government who owes the billions of debt and would not like to see their costs going up. It’s like asking turkeys to vote for Christmas.
Finally, as a bit of fun; From the 1942 Disney film, can anybody tell me who said “If you can’t say anything nice, don’t say anything at all”?