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Don't Bet On It
September 2015

Liam Halligan: Will he admit he was wrong? (RT/YouTube)

Every now and again a newspaper columnist makes readers choke over their cornflakes. As long as the choking doesn’t go too far, that can be a good thing. Making an outrageous comment or thinking outside the box can make an important contribution to public debate.

So I was not too upset one morning in early January 2011 when over breakfast I read Liam Halligan’s influential column in the Sunday Telegraph. He alleged that I was “on the losing side” of the “monetary easing argument”. Halligan and I had disagreed about the costs and benefits of the Bank of England’s quantitative easing (QE) programme since it began in early 2009. I was grateful to him for highlighting a vital issue in public policy. I was also confident that in the end Halligan, not me, would be on the losing side of the argument.

In my view, the banking system was in trouble, partly because of its own mistakes but also because of an official regulatory attack which required it to operate with more capital than before. I therefore expected stagnation or even contraction in the quantity of money. Worried that the money weakness could lead to deflation, I advocated QE. It would lead to the creation of new money by the state rather than the private sector. As long as money growth remained subdued overall (which was my expectation), I was relaxed that inflation would stay down.

Halligan is a lively and pungent commentator, with a gift for colourful phrase-making. His position was quite different, that QE risked a dramatic rise in inflation. QE was “money printing” and tantamount to “the last refuge of declining empires and banana republics”. The main cost would be inflation so serious that it could undermine “the public’s trust in fiat money and the sanctity of contract”. But colourful phrases are not the same thing as a precise statement that can be contradicted by evidence. Both in early 2011 and later I had immense difficulty in extracting from Halligan a forecast of inflation with specific numbers at a particular future date. He cited large rises (doubling, trebling, etc) in banks’ cash reserves as foreshadowing “price pressures” which would “get much worse in the medium term”, but he did not say exactly how much worse or when.

To make matters more precise, I offered Halligan a wager. (Up to £100,000 could be at stake, if he wished, or a lunch at the Savoy, if not.) He would win if inflation over the next two years were at least 3 per cent a year higher than in the previous two years. Given all the ranting and raving about declining empires, banana republics, the sanctity of contract and so on, I thought Halligan was certain that inflation would rise by at least 3 per cent and that in fact he envisaged much higher figures. But he declined the bet and for more than two years discontinued the discussion.

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September 15th, 2015
10:09 AM
Here is 'another one'? "Interest rates 'may reach 8% by 2012' Interest rates could increase 16-fold within two years to 8% - adding £900 to the average monthly home loan bill, it was claimed last night. An economist at an influential think tank has warned {24 August 2010} that the base rate may spiral 'rapidly' as the Bank of England will need to curb runaway inflation. Andrew Lilico, of the Policy Exchange think-tank, said: 'To keep inflation (as measured by the Retail Prices Index) down to only 10% for one year, the economy will have to be able to tolerate interest rates of perhaps 8%.' " Read more: ixzz2JmcqOxDz

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