Liam Halligan: Does a surge in food and oil prices mean that it’s now time to panic?

Another excellent piece from Mr Liam Halligan, in this morning’s Sunday Telegraph, who has spotted where all of that money — that Ben Bernanke has been printing — has been piling up in great snow drifts of paper.  In my own Rothbardian view, this is out of the United States — before the dollar collapses — and into real commodities which cannot be printed from thin air, which will therefore keep their value in the human needs chain, even when the world’s central bankers start running all of their printing presses all of the time to create the final stage of the crack-up boom initially instigated in 1971 by Richard Nixon’s decision to engage the world in a pure fiat money experiment.

So has Chairman Bernanke created the wave of world revolution sweeping the world, with the increased food prices behind these revolutions being caused by his obsession with the printing press as the solution to all known problems?

Well, Mr Halligan is orthodox enough to avoid going quite so far as we far less restrained followers of the author of Man, Economy, and State. However, he has gone further than anyone else I have yet to read in the MSM, including even our friends at The Guardian, who tread a curious line between praising Keynesianism (i.e. money printing) to ‘grow’ worldwide economies, while at the same time decrying the world’s rises in food prices which are primarily caused by money printing (though they would prefer to say ‘freak’ weather events, to fit in with their ‘global warming’ paradigm which has been causing all of this deep snow and freezing temperatures in North America).

Oh what it must be, to be a writer on The Guardian. You’re half right, half the time, but the socialist world view keeps making you miss the punchbag, even though it is standing right there in front of you. Poor loves.

Getting back to the brave Mr Halligan, here are three cherry-picked quotes to tempt you to read his full piece.

We start with the good:

“Fears about events in Egypt disrupting the Suez canal may also be overdone. This iconic supply route remains open and is now augmented by the more important Suez-Mediterranean pipeline. Given the predominance of Asian rather than Western demand these days, the Suez route out of the Middle East is anyway of much less relevance to global crude markets than it was back in the 1950s.”

Now for the bad, which includes a great Misesian word (for bonus marks, see if you can spot it):

“Despite this relentless demand, commodity supply chains – including mines, wells and processing plants – have lately been hit by a lack of capital investment, courtesy of the credit crunch. That’s why the prices of many economically-important commodities – not only sugar and cotton, but also copper, palladium and tin – are already well above their mid-2008 peaks. It strikes me as axiomatic that crude will eventually follow.”

And here’s the plain downright ugly:

“Consider also that crude reached almost $150 a barrel in 2008 without the hideous backdrop of a potential implosion of the Middle East. In 2008, the world had also yet to witness the grotesque Western policy of virtual money printing – or ‘quantitative easing’.”


  • Liam Halligan was predicting serious inflation two years ago on account of the governments “Keynsian wet dreams”. If he carries on with the same prediction for long enough he’s bound to be right sooner or later!


    Meanwhile I predicted that the main effect of QE would be to boost asset prices (stock market in market in particular) rather than general inflation. The stock market has shot up and I’ve done very nicely. And I don’t even count that as a clever prediction.

    As for Hallighan’s claim that QE equals money printing, this is nonsense. QE essentially just consists of swapping one government / central bank liability for another (bonds for cash). That bears no resemblance whatever to creating cash, period, full stop (i.e. doing a Mugabwe).

    As for the excess so called inflation that currently exists, according to the BoE, this is largely due to the after affects of the 2008 Sterling devaluation and the rise in World commodity prices. As long as these are secular events and don’t feed through to excess wage demands, that just ain’t inflation: it’s a one off rise in prices which should peter out in six months or a year. Luckily the BoE is smarter than Liam Hallighan and recognises this.

  • chef says:

    to create the final stage of the crack-up boom initially instigated in 1971 by Richard Nixon’s decision to engage the world in a pure fiat money experiment.

    So Bernanke’s money printing is Nixon’s fault? And I thought the British (lefty) tendency to continually blame Thatcher was taking the biscuit!

    If we’re going to frame the debate like that then all monetary systems are “experimental”, unless you’re suggesting that there’s an objectively correct money supply we should be using with anything else presenting an unnecessary risk. I’ve yet to see the evidence for such claim.

    • mrg says:

      Breaking the last link to gold was a pretty significant step, wouldn’t you say?

      Nixon facilitated Bernanke’s money printing. Both are culpable.

    • Andy Duncan Andy Duncan says:

      As mrg has said, if you think that the shredding of the final tatters of the gold standard in 1971 was an immaterial thing that we can and should forget about, then I must congratulate your teachers at school for doing such a fine job with you.

      Perhaps we should forget about the French revolution, too, or even the rise and fall of the Roman Empire? As they’re obviously inconsequential for the modern age, which is all determined day-by-day by bright young men in government-funded Westminster think tanks.

      If you had actually read any books on Austrian Economics, then you would realise that there is no such thing as a ‘correct’ money supply. Read just about anything by Murray Rothbard to work that one out, though you might start with ‘What Has The Government Done to Our Money?’ first.

      Start here:


      When you’ve got through that, and ‘The Mystery of Banking’, and if you’re capable of understanding it, ‘Man, Economy, and State’, both of them freely available as PDFs, then please do feel free to come back here and share some more of your anger with us.

      • chef says:

        Yes Nixon’s decoupling was significant, but I wouldn’t say that the move was either undesireable or an “experiment”, more importantly I find it incredibly far fetched to blame the UK’s current financial crisis on a decision made nearly 40 years ago by a disgraced former U.S president (although I expect Gordon Brown would be delighted with this analysis!) Where do we draw the line? Are we to say that the Euro is also a byproduct of American history for example, or should the designers take responsibility for the current mess?

        I’m not really sure that the sarky comment regarding my education was strictly necessary, but if I offended you I apologise, I just found that particular sentence to stand out like a sore thumb in an otherwise interesting article.

        • Andy Duncan Andy Duncan says:

          > I wouldn’t say that the move was either undesireable…

          Well, I’m afraid we’ll just have to agree to differ at that point. The enforced move of Nixon to an entirely fiat money, driven there by French government’s demands for gold, and thereby the destruction of the Bretton Woods agreement with the dollar as the world’s reserve currency was exactly the event which enabled Mr Bernanke and Mr Greenspan before him, to deliver us into our current gigantic mess.

          Not that I believe in a state-imposed gold standard, of course, especially one designed by that glorious idiot, Keynes. But it was still just about better than nothing at all. And without it, both Greenspan and Bernanke have been able to print as much paper rubbish as they have wanted, along with their dependent satellites, such as the subservient Bank of England.

          Our current mess was inevitable, once Nixon cut the cord. The only surprise to me is that it took so long to get to our current disastrous state, in which the election of a British government makes absolutely no difference to the great monster of state spending, fed by borrowing, taxation, and inflation, which is going to destroy us. Which is why it is interesting that you brought up Thatcher. Because without her Reagan might have lost the nerve to impose Volcker upon the paper dollar, who saved it from having to return to the gold standard by increasing interest rates so much, and therefore (temporarily) making it sensible to hold paper rather than real monies like silver and gold.

          There’s absolutely no chance whatsoever of anyone ‘Doing a Volcker’ again to save either the Dollar, the Yen, the Euro, or the Pound; an interest rate of even 10% in Britain really would bring on a revolution. All of these doomed currencies are all going to sink into oblivion this time around, instead, with no Volcker brave enough to save them. Their last ‘hurrah’ will be a ‘world’ currency (the SDR of the IMF? or some other horrible Bancor), but it will only wash for a few years before we’re back in this hole again. And it might not even last that long, as the rope is so tight.

          The only solution is to take the hit of 40 years of malinvestment, caused by your ‘desirable’ action of Nixon cutting the cord, and then a return to an honest free market money system, out of the useless dead hands of government.

          The chances of this happening? Very slim. As with Nixon, it won’t be a chosen solution. It will be one forced upon the dissemblers in Whitehall by circumstances, and all the others in that village who spend each day trying to gull the taxpayer, which will probably involve them all personally being removed directly from office by angry taxpayers who have broken down the gates armed by men with machine guns.

          But all we can do here is keep promoting the very obvious solution, while the politicians and their friends in the parasite class keep trying to dodge the bullet.

          You never know, when it’s bad enough, and the masses are at the gates of Downing Streets with their pitchforks, then it might even be considered.

          Not that Britain may be relevant by then, of course, especially once the dollar collapses and the US empire fades away, like the Athenian Delian League of Pericles faded before it, drowned in a sea of debt and indifference. We’ll just be a small Atlantic island supplying English translators to the Chinese commercial empire, which will dominate the rest of the world, perhaps with a silver standard money forming the backbone of their dominance.

          But we’ll keep going chef. You never know, sense might break out before it’s too late.

          • chef says:

            We disagree because I view ‘sound money’ as a byproduct of productive and just economy, whereas you’re working the other way, i.e if money supply growth can be regulated with a metalic standard cash will retain it’s value, and society will be able to continue functioning without debilitating inflation.

            Clearly the pricing mechanism won’t work if the monetary system is hobbling the economy (like in Zimbabwe), but I don’t believe the same criticism can be levelled at the the post Bretton Woods system.
            Sure, the central banking model we have now isn’t perfect, but actively detrimental to the health of the economy? No, it’s just being used incorrectly. A knife in the right hands is an incredibly useful tool but in the wrong ones it can prove disasterous; Austrians want to blame the knife while ignoring the (government endorsed) human constructs that encourage poor knife stewardship. This is why I feel they’re missing the point.

            If the state creates an environment whereby large sums of fiat aren’t required to obtain housing then demand will naturally fall, no metal required. But fixing the quantity of money without altering fiscal policy would leave millions as lifelong renters because they wouldn’t be able to obtain the credit required to purchase housing.

            Credit or no credit housing would still be expensive, so starving the economy of credit would mean that some would simply have to go without.

            Are Austrians prepared to explain this openly and honestly to the public? Because I don’t see it going down too well.

  • Current says:

    I agree with Ralph that Liam Halligan and many other commentators have been too quick to claim that QE will lead to great price inflation. I doubt that will happen too, the demand for money is currently too high. Only if it drops quickly (which may happen) will there be abnormally high price inflation.

    It’s quite wrong though to say that there is a difference in method between QE and historical hyperinflations. During the German hyperinflation all that was technically done is that one government liability was swapped for another. The German government sold bonds to the central bank. The central bank used those bonds as capital and used that extra capital to back more note issues. They then used those notes to buy more bonds. Currently the Fed and BoE are doing exactly the same thing. The only difference is scale.

  • Mrg, I’ll take your points about QE in turn. First, you say “So the net effect on the money supply was zero?”

    My answer to that is that on a narrow or strict definition of “money”, obvious QE expands the money supply. But what is the difference between government bonds particularly in a very low interest rate environment (say like Japan) and cash? Cash in Japan is a government / central bank liability which the central bank pays you 0% interest for holding, while bonds pay about 1%. The two are near enough the same.

    You then say “If so, why all the fuss? (and why even bother doing it in the first place?). My answer is that many would agree with your sentiments. That is many people think that QE is near pointless.

    Andy Duncan: thanks for the link to the Kate Barker article. I accept that keeping inflation at or near 2% is fiendishly difficult. In that sense, I do not have confidence in the BoE. But I still think that the BoE’s thoughts on this matter are more sophisticated than Liam Hallighan’s.

    • Current says:

      Cash in Japan is a government / central bank liability which the central bank pays you 0% interest for holding, while bonds pay about 1%. The two are near enough the same.

      Go to a strip club. Stick treasury bonds down the underwear of the strippers. See what happens.

      • Current, on the subject of strippers, would your good lady get really excited if a lump of gold was offered to her or a government bond with a 1% coupon?

  • Current says:

    I think it’s necessary to explain to anyone who may be passing why Toby is sounding like a jewellery salesman and I’m talking about strippers.

    One of the arguments made by Keynesians is that at very low interest rates money and treasury bonds become close substitutes. What worried Keynes is that at low interest rates the “speculative” demand for money for money could rise greatly. That is, if interest rates fall to low levels but it’s thought that they may rise in the future then investors will hold money and wait for the rise.

    This is doubtful for a number of reasons. Firstly, holding money as a way of not deciding what you invest in has a cost. This is the fallacy of Buridan’s ass. If an ass is half way between two piles of hay he does not starve to death deciding which one to pick, he makes an arbitrary choice. Toby is going further here and saying if government investments are low return then why not invest in commodities like gold? This isn’t just a practical suggestion it’s also a theoretical challenge to Keynesians. The point is that even a recession can’t make all assets worth less, some it will make worth more. It can’t be assumed that everything else (every stock, commodity, property etc) is like a bond with low yield.

    The second problem that I was alluding to above is that treasury bonds aren’t a medium-of-exchange. If Keynes believed that money and bonds were equivalent then why would that cause a rise in demand for money? Well, he didn’t really think they were equivalent (modern Keynesians have mangled his argument a bit). He thought that money or a bank balance may be preferable if bonds have very low interest because it can be spent more quickly than bonds which have to be turned into money first.

    To some degree the equivalence view is right. I think it’s sensible to consider treasury bills, which have a duration of 1 year or less to be like money. Even if shops and strippers don’t accept them as money big finance often does. But, it’s not really the same for bonds, although they are used like money in finance not all of them are used that way (AFAIK the amount isn’t very high). They are generally held by other governments, finance companies, pension funds and various sorts of unit trusts or mutual funds. They aren’t really money-like. So, if the central bank does OMOs then that really does inject new money.

    If all of the financial assets that government create – money, bills and bonds – are essentially money like then monetary *expansion* couldn’t occur. I don’t think anyone can deny that that does occur.

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