There is much gnashing of teeth at the creeping increase in inflation and Mervyn King’s ostensible refusal to do anything about it. I believe Mervyn is engaging in sensible economic management rather than inflation management but his motives for doing so are very different from mine. For me, with fragile economic recovery underway sporadically across the UK, the current policy delivers a dose of inflation that will inflate away our debt and low interest rates will protect vulnerable home owners bracing themselves for the public sector cuts. Banks can borrow for next to nothing, lend at higher rates and restore balance sheets. Savers? – well at least they will not be homeless.  Meanwhile politicians of all persuasions are grateful for a steady hand on the tiller while they set about righting the fiscal situation of UK PLC.

 Mervyn knows all this but he harbours another ambition. Politicians’ gratitude for Mervyn’s safe pair of hands has blinded them to the deleveraging programme he has embarked upon. By taking the wind out of the sails of every asset class –  but in particular property –  Mervyn is administering medicine we probably all need but frankly we are not going to like. Furthermore, ethically I am not sure an unelected official should be doing this without the nation’s mandate. We are going to fell poorer for a long while to come.

 So will Mervyn get his way?  Mervyn is due to notch up ten years in 2013, just in time for a new man to take the helm with two years to run to the General Election. By this time the coalition will be at war – with both parties positioning themselves as the success story of the last three years. What Dave and George will have realised is that Mervyn’s secret plan to deleverage every asset type will not have made any of us feel any richer and that will win votes from noone. In an indebted society, monetary policy is the single biggest thing to make us feel richer or poorer – the government will realise this at election time. Expect a new man (or woman) to be more understanding.

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