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Endgame: The End of the Debt SuperCycle and How It Changes Everything by Jonathan Tepper, John Mauldin

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CHAPTER THIRTEEN

The United Kingdom

How to Quietly Inflate Away Your Debt

Who would be prepared to lend with the fear of being repaid in depreciated currencies always before his eyes?

—Georges Bonnet, French foreign minister of the 1930s

The United Kingdom is a wonderful test case of how a central bank creates a housing bubble, props up the economy after the banking system collapses, and works hard to inflate away debt through stealthy inflation. After years of rising house prices where the average person thought a house was the safest investment in the world, the British banking system imploded in 2008. The United Kingdom is now in the process of trying to recover from a painful bust, and the central bank is doing all the heavy lifting by monetizing public debt, weakening the currency, and providing an ultraloose monetary policy.

This chapter will look at the United Kingdom. We will look at how the crisis started, how it unfolded, and what the central bank’s response was. We will also explore how the central bank is using inflation to increase the nominal level of GDP and reduce the burden of debt to GDP. So far, the Bank of England is being very successful at creating inflation, and this holds clues to how the Federal Reserve could create similar levels of inflation to fight the threat of deflation in the United States.

The United Kingdom Economy: Not as Safe as Houses

If you wanted a totem for the credit crisis, you could do worse than the United Kingdom. The United States ...

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