Friday, 12 October 2012

The second shoe is dropping

At a speech yesterday evening at the Mansion House in the City of London, Lord Turner - a candidate for the position of Governor of the Bank of England when Mervyn King retires next year - made the fatal suggestion that perhaps all the £375 billion of QE'ed money need not be repaid. It could just be written off in a paper exercise. At a stroke of the pen the UK's national debt would drop by a third.

Lord "Print-a-lot" Turner

Just for laughs let us remind ourselves of bread prices in post-WWI Germany; just to see what happens when you print money.

One 400g loaf of bread cost (in Marks)

Year      Price (M)
1914     0.13
1915     0.15
1916     0.19
1917     0.20
1918     0.22
1919     0.26
1920     1.20
1921     1.35
1922     3.50
1923     700 (start of year)
1923     100,000,000,000 (end of year)

After 1923 a new currency was introduced and the situation stabilised. Hitler made his first attempt to take over Germany in November 1923 - and actually became Chancellor in 1933.

What you can see from the prices above is that the end, when it comes, is very sudden; 1921 must have looked like an OK year, 1922 must have been worrying - and 1923 was chaos.

That said, Lord Turner is not favourite for the Governor job. Front-runner at the moment is current deputy Paul Tucker who has been with the Bank for the last 32 years so probably knows where the bodies are buried.

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