Push vs Pull, Causality vs Correlation
"David Kern, chief economist at the BCC,....benefits would only be maintained if short-term policy "stays expansionist" and "Quantitative easing should be pursued aggressively".
Scenario 1: Growth as Causality for Inflation
Companies grow, they borrow more money to fund expansion, the money is created from thin air, the money supply grows (i.e. inflation) but the currency holds it's relative value because the money supply has grown as a result of real growth.
Scenario 2: Inflation as Causality for Inflation
Government spends, borrows money from central bank which prints money in response (a fake loan because the central bank never refuses it's own government loans).There's no real growth there, when the government stops digging holes and filling them in again, there is no new market created and the digging-filling industry is once again in collapse. For a while the money supply matched the growth, but the growth is from pushed money, (a blown bubble), not pulled money (sustainable growth). The spending stops and the growth goes away.
Yet both scenarios look like growth in an economists model, which is why economists make lousy CEOs, they don't understand real markets and can't tell the difference between blowing a asset bubble and creating a new product segment.
Worse still, when Governments spend money, they distort the market. They order 10 million blue widgets to help the blue widget market, but it draws money away from the orange widget market, which didn't need help.... when the spending stops, blue widget companies are everywhere but still nobody wants blue widgets and they've destroyed the orange widget companies.
They've delayed the restructuring of the blue widget market and damaged the orange widget market.
The end game here is a collapse in Sterling, to fund the next round of growth, Brown will have to spend more, and borrow more. Each round has to be bigger than the last round by at minimum the inflation he creates. Even if he does it quickly before the bubble collapses again.
If he waits for the deflate, he has to spend even more, but the result is inevitable, sooner or later the fake asset bubble he tries to create will collapse, because there is no real demand there that needed filling and so the supply is in excess of the *real* demand and must fall back.
Sweden has essentially gone negative on interest rates, which is to say that the Swedish Krona has no future as a currency, they can't sell it, they can't even give it away. Sterling, likewise will likely fail if Brown continues to print money to fund spending which is all that quantitative easing really is.
My wifes employer (importer from China + Philippines) use to have to pay in US$, now she pays in Euros, as her trading partners increasingly price their products in Euros. I think it is because the Euro is run like it has value and is a proper currency.
I think GBP is not, and I think this BCC economist is making the same mistake all Keynsian economists do and thinking inflation is inflation is inflation whether it's from governments pushing money or companies pulling it.