Investment Line: We are walking on deflationary quicksand

Does this actually help anyone............ perhaps Edwards has watched one too many England games.

I can buy into the story that the greater risks facing the UK economy (and the rest of the G7) is deflation as opposed to inflation, but why is there nothing in between in Mr Edwards world? If deflaiton really is beckoning the entirely responsible response should be more QE, but this will simply help slow the rate of decline in prices rather than spark a burst of 20%+ inflation. The problem facing the G7 economies is that the quantitiy of money (defined in broad terms) is growing too slowly if at all. More QE is required to stimulate "M" in order to prevent an outright decline in money GDP. Why cloud the clear deflaiton story with talk of 20% inflation. Utter nonsense!

The article is a creation of extreme fear for the future. Whilst I take no joy in immediate bleak outlook of growth, I also believe that creating fear deters entrepeneurs and companies in taking risks, due to risk return scenario. The flipside is that that supply of money can create growth by companies taking risks, increase unemployment etc. I emphasis that the key words are 'supply of money' - thus ensuring that taxes not merely increased to reduce the debt unless there is doubt on achieving growth!

Reagarding John Clarke's response, I think the reason Mr Edwards has gone for 20%+ inflation is because relying on policymakers and central banks to get things right is misguided. They made continual mistakes from 1997 onwards which has largely created the current problems. Believing they will do the right thing now is optimism unjustified by evidence. Having held rates too low for years, the BoE was still flirting with raising rates in mid 2008, ie completely the wrong action at completely the wrong time. It has no idea of what the aim of QE is - read the statements, the reason has changed every few months. It also has no idea what the effect has been or what to expect. It is simply hoping it has helped.

The problem with inflation is that it is essentially about confidence and so it is hard to have just enough - it tends to be very low (and targeted to be so), or out of control. Bond markets generally make it so as confidence is either there or not there, there is no shade of grey (just look at Greece and how quickly that happened). The QE would have to keep up with confidence/expectations so would just fuel the problem. It is such a fine line it is essentially impossible to walk. As a result, flipping from deflation to high inflation is entirely possible, likely even. The Goldilocks period we went through prior to 2008 was a phantom, driven by debt and cheap Chinese exports not by sensible policy.

The best we can hope for is that the BoE is using a strategy of misdirection - they tell us inflation will come down and they are fighting it, thus keeping expectations low, whilst secretly hoping it stays a bit too high to sort the debt problem. We should hope they have finally wised up, which means constantly lying to us.

We can only despair; all the simple notions of economics seem to be irrelevant and the market is apparently governed by psychology; why we should think the market is efficient is beyond comprehension, it ranges from one extreme to the other. Everyone gives an opinion after the event and no predictions are reliable, predictions that do prove right seem to owe more to blessed providence than skill.

Thanks (I think) "anonymous 3", but QE in the UK has quite clearly helped. Do the math - without the Bank's asset purchases M4X would currently be some 5-10% lower, sufficient to ensure (albeit in a simple MV=PT world) that the economy would have remained in recession.

I'm afraid I don't follow your argument about inflation and confidence (or do you mean expectations?). I would make a couple of points. The cost of living has undoubtedly risen sharply over the last 12 months, hence the surge in headline CPI inflation. But I would contest that this has had anything whatsover to do with domestically generated inflationary pressures, which remain fundamentally weak. Although we cannot directly observe the output gap, we know it must be deeply negative, which means that core inflationary pressures will fall substantially over the next 12-18 months, evetually pulling the headline rate lower as a result. Only if the UK economy's productive potential has been reduced to little more than zero is it even remotely possible that inflaiton will be higher than it is currently in 24 months time.

Instead, the bigger danger is deflation - on this I agree with Mr Edwards - with the likely policy response being more QE. However, I repeat this will not be inflationary!

Only 2 months ago we were talking about a growth surprise and it was looking as though Western governments had won the game of chicken with the markets and the bond market vigilantes were in full retreat. Now the situation in Greece and the Eurozone has been allowed to escalate and we are once again facing the challenge of 'reflexivity' i.e. it is the markets that determine confidence and not what is happening in the underlying economy.

Maybe we should make a start by throwing the likes of Edwards into the Tower of London!

I think the doom and gloom nature of the article is well received and there should be more of it.

I think too many, for too long, simply buried their heads in the sand not recognising the pitfalls ahead and simply wishing things would just go away ... ignorant exhuberance.

As a result, whatever the economic policy or resolution may be, it is, and generally has been, reactive rather than proactive, leaving us in the mess we are in today.

Maybe if we were more upfont and honest about the current state of affairs we can plan better for the future.

Here's to the Emu's !!!

Want to make some real money - tax free?

Sell your house/property now, use the proceeds to rent for a while then buy back in the quiet winter months of 11/12. Lovely jubbley!!

Just done exactly what " Beanthairdunthat " suggests. Now what to with the "proceeds" between now and winter months of 11/12 ? This "novice"

would apppreciate any suggestions!