Cover of MoneyWeek issue 428

Obama's printing press

27 March 2009 / Issue 428

The debasing of the dollar... PLUS:

  • Four high-yielding stocks you can rely on
  • Matthew Lynn on why we shouldn't fear deflation
  • How I forced Brown to scrap betting tax

Excerpt

Britain heads for bankruptcy

I said in last week’s letter that investors should avoid gilts, what with the market being at the mercy of flip-flopping by the government and the Bank of England. But I didn’t expect the downside to be revealed so rapidly.

First we had Tuesday’s ‘shock’ inflation figures. Not only did the dreaded deflation fail to make an appearance, but in fact, the inflation rate went up. On the other hand, the collapsing pound has driven up the cost of everything we import – hence the rise in the Consumer Price Index, which doesn’t include mortgage costs. Great news if you’ve got a variable rate mortgage, bad news if you like eating or turning your heating on occasionally.

The figures rattled all those people who’d been piling into UK government debt as a sure-fire defence against falling prices. And worse was to come. The next day, Bank of England Governor Mervyn King warned Gordon Brown that Britain simply can’t afford another big stimulus package, poking a major hole in the prime minister’s credibility before both the G20 summit and the budget next month. More importantly, he added that the Bank might not end up spending the whole £75bn it has available for buying gilts if the inflation figures keep going the way they are…

• Read the full editor’s letter here: Britain heads for bankruptcy