Alistair Darling is considering printing more money in an attempt to ease the credit crunch.There is a distinct possibility that the Chancellor and Mervyn King, the Governor of the Bank of England, may try expanding the money supply by billions. The prime aim would be make these funds available to the government to boost the economy.So this is Gordon's get-out clause then - he can promise to spend billions but may have to devalue the pound in the process and even print the billions he is promising the spend... not quite the brave new Gordon who flew to Europe to persuade everyone to jump on his heroic spending bandwagon.
The real fear is the danger of deflation, NOT a major concern for those who are shopping for bargains if course.. and the decreasing interest rate is plainly having little effect on the economy. In fact the separation between the Bank of England and government has become blurred over the last 18 months far more so than at any time since official government constraints on the BoE were lifted, allowing it to effectively set it's own rates.
There may be uncertainty about the economy and the effectiveness of the interest rate cuts, but there are some certainties about printing money which you can 'take to the bank'.
- Inflation is certain and with increasing unemployment, this is NOT a welcome side-effect.
- Massive and instant devaluation in the pound is likely, making imports hugely expensive - those companies whose business relies on imports are likely to be hit very hard.
Whatever the uncertainties might be, the effects that we know about should make this a non-starter even though the government are being quoted as suggesting that this is a 'sensible contingency..'. I think we have already demonstrated that government actually has very little grip on the economy, and a measure like this could easily send things spiraling out of control. I heard only today that Zimbabwe has had to start printing Trillion dollar notes such is the extent of their inflation...
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