Tuesday, May 20, 2008
Inflation 70s style on its way?
FT: Insight: Life won’t be easy in the ‘nasty decade’
From yesterday's FT. Suggests that there is no reason, given very low interest rates, that inflation won't take off as in the 1970s. Also suggests that property is one a the few assets to make real returns under these conditions. Not in the early 70s.
Posted by letthemfall @ 11:26 AM (674 views) Add Comment
10 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. ontheotherhand said...
During the '70s, real interest rates paid less than zero in 41 of the 48 months between 1974 and 1978. Therefore people with debt did better than people with cash. If inflation increases there may be a time coming when it makes sense to load up with as much debt as possible and buy assets.
2. inbreda said...
Yes, ontheotherhand, it does make sense to load up with debt backed assets when inflation breaks through the fiddled stats.
However - houseprices are already overvalued and may fall in real terms.
I think this is why there is so much talk in investing in gold. Currently not considered to be overvalued. Unfortunately not easy to get a mortgage on gold. But certainly savers should be looking to put their cash into gold if they beleive this will happen.
3. Rimmer said...
I remember the 70s, although its true that those who brought then did ok by inflation, there is only one way UK Gov can combat it and they will need too, thats by raising IRs, true in 10 years you may have done ok, you may need 3 jobs to fund it though, also thats providing your seen as an A1 case for lending all that debt ( which naturally the banks dont get back - inflation does them no favours either )
4. wiltshire said...
People need to stop trying to keep up with the Joneses. All that's achieving is the pushing of more and more people into debt, the waste of valuable resources and the increasing power of the super-rich.
I look forward to a time when people are less concerned with shopping/banal entertainment and show more concern for their communities and society as a whole.
5. Rentinginthesouth said...
ontheotherhand - This is a really good point and something that I have been thinking about recently.
If inflation really kicks in, it does make sense to get debt out and buy assets - such as property. Although the housing market is falling, I don't think we will see falls of 35-40% the way inflation is currently at (say 10% this year).... if wages are looking to rise with inflation, I will be extremely tempted to buy property in the first half of 2009.... I may as well get a mortgage that erodes along with my savings.
6. Rentinginthesouth said...
wiltshire - I couldn't agree more. I don't want to be rich - just find peace and work hard to keep it!
7. letthemfall said...
Hear hear Wiltshire. All the effort that goes into what is so much rubbish, and earns people large sums, has its impact on the economy, society and the environment. And all these surveys tell us how unhappy we are. I saw "entrepreneur" Martha Lane Fox on the TV earlier. Did Lastminute really add that much of value to our economy? - some, perhaps, but equal to the amount of money she must have extracted? Now she is running Kareoke bars. Some people like them - but I find it hard to see them as contributing real wealth to the economy. But no doubt it generates (funnels) considerable wealth to her. That's our society's idea of creativity.
8. uncle tom said...
Inflationary pressures have been building for a few years now, and the likes of the BOE have been somewhat myopic, and lacking of the ability to look any distance into the future.
Quite suddenly though, those pressures have built up dramatically, and the BOE and Govt have not got adequate defences in place.
Our Merv has often pointed out that once the inflation cat is out of the bag, getting it back in is a tough job.
However, it now looks likely to escape...
9. planning4acrash said...
UT!!!! Inflation pressures HAVE been here for years. Not been building up. What the heck do you think rampant house price inflation was?!?!?!
10. Bluestone said...
during 70s inflation often firms made some attempt to pay higher wages. this is a different era - unless you are nigh on indispensible they won`t and won`t even be able to pay up this time. that`s why 70s style house inflation is so unlikely.