George wrote:Warwick, I think you mean lost it over the last few years...
They haven't really got going yet, Geroge. Mike Carney, with his forward guidance, has changed completely how the BoE will operate, which will be even more detrimental to savers.
Firstly he is no longer targeting an absolute 2 % value for CPI but has effectively moved it to 2.5 %.
Secondly the 2.5 % he is targeting is not the actual rate but the BoE's prediction of the rate, i.e. the BoE will not raise the base interest rate until the BoE predicts that the inflation rate will go over 2.5 %. Over the last eight years the BoE prediction has been below actual by between 0.5 % and 3.8 %. Since QE started the predictions have become worse and average a little more than 2 % below actual over the last 4 years. If this performance continues he is now effectively targeting a real 4.5 % inflation rate.
Thirdly RPI better represents the actual inflation we feel than CPI and RPI is typically 1 % above CPI so he is now effectively targeting a 5.5 % figure for RPI.
If typical bank interest stays at around 1 % then the spending power of any savings will decrease by 4.5 % per year. This amounts to a 25 % drop in purchasing power in five years.
In "The Economic Consequences of the Peace", 1919, John Maynard Keynes wrote:
"Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become 'profiteers,' who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
You only end to go back a few hundred years and the penalty for debasing the currency was to be hung and drawn. Perhaps a return to such times might concentrate banker's minds?
PS I have also never used a financial adviser. I prefer to make my own cock-ups and over time I have become very skilled at it.