Where Does It Go? - UK Money Blog £

Carrying on with Darling-Brown’s measures to aid the voters before the next election, the Government announced measures to give free insulation to the poorest families, and half price for every one else.  This actually sounds like a great idea, and is another bit of evidence showing the credit crunch may be bad for the banks but actually good long term for the planet, seeing as this move comes in the same week as oil prices dip under $100 a barrel due to falling world demand.  The BBC story is found here.

This won’t do much to lessen the blow for families short term however, with all UK fuel companies putting up prices in preparation for increased winter demand. Its estimated electricity bills are going to go up by £500 a year by 2010, an extra £10 a week. With inflation currently at 4.4% everyone in the UK is finding themselves with less money in their pocket.

Why did the inflation leap so much?  Its the consequence of UK banks flooding more cash into the bank system in April where an extra £50billion was pumped into the system.  Every note that is printed means the rest are worth less.

Some say money is the price we pay for civilization, but does that mean it has to be fiat money system?  The £ used to be pegged to the price of gold, one Troy pound was equal to one pound note.  In 1844 the Bank of England was made the only bank that was allowed to issue banknotes, with exception for the Scottish banks. At the beginning, pound notes were only printed when there was a surplus in the Bank of England of gold to back it up. This did mean higher interest rates to keep the gold standard supply.

The gold standard was abandoned just before the First World War, which virtually crippled the UK, only exasperated by the Second World War. The UK entered decades of decline, only halted by the discovery of North Sea oil.  Now we employ a fiat money system borrowing is easier, but are we better off?