Monday, Aug 11, 2008
Problems stem from deeply embedded beliefs
RGE Monitor: Snake Oil and Deflation
"investment in unproductive works is so widespread as to form part of the popular culture." This article makes the point that our problems are caused very popular false beliefs enjoyed by the whole population (politicians, dolers, bankers, workers), such as delayed payment for consumption etc. The author advocates a change in attitudes, but we are unlikely to rebalance the economy as both politicians and the population have no real desire to do so, and so on to disaster. Begging the question, is this the real crunch ? Or can yet another delay be obtained at the price of a bigger collapse in the future?
Posted by stillthinking @ 11:25 AM (716 views) Add Comment
10 Comments
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1. stillthinking said...
I seem to read more and more articles recently about belief systems, and how we are on the cusp of a paradigm shift. Personally, I don't see anybody in the UK changing their mind about anything. Complaining that life is against them, everything is unfair, why don't they get x, and so on, yes I can believe that. Changing to sensible savers will need a decade of recession before the idea finally gets through.
Talk of deflation is getting quite commonplace now. Apparently commercial investors are starting to turn their noses up at index linked bonds as they don't see inflation being a problem for much longer.
2. japanese uncle said...
This is an exceptionally well written essay by a 'London Banker'!!. I strongly suspect not a few of his/her colleagues in the City just made belief that they were had, and in reality are silently preparing against the severest deflation/recession that this economy has ever seen.
3. mountain goat said...
I wouldn't write inflation off just yet. The GBP has a long way to fall to USD. My view is more like this Telegraph article Gordon Brown and his cohorts go back to their Keynesian default setting. "The UK has the highest budget deficit in the G8. Other leading nations have recently pared their borrowing, but Brown has just let rip. In June, the Government took on another £9.2bn of debt on our behalf - 40 per cent higher than June 2007. Labour - disgracefully - has vastly exceeded its own borrowing forecasts every year for the last eight years.
Problem over the 10p tax rate? Let's borrow another £2.4bn. Trouble with the fiscal rules? Wait for Parliamentary recess, then leak we're going to break them. Northern Rock still a mess? Here's £3bn more. Slump in the polls? In need of a headline? Let's just borrow, borrow, borrow - as we won't be around to deal with the mess."
The article contains this chart which I don't really understand. Anyone out there who can help?
4. Bubble&squeak said...
The input line shows inflation on raw materials/running costs into the factories etc, the output line shows the inflation you and I experience at the shop till, output usually lags input for obvious reasons, however much of the input spike will have been caused by oil which IMHO will be dropping when demand starts to really tank in the next 6 to 12 months
5. Eternal Sceptic said...
I'd like to recommend this link is followed.
http://www.schneier.com/crypto-gram-9902.html.
Personally I have always thought if you need an english dictionary and a PhD in mathematics to understand a sophisticated financial offering, all you need to do is substitute sophisticated for dodgy or alternatively toxic- and run away
6. stillthinking said...
I agree with that article as well. I think the main danger is GB et al. , because he introduces uncertainty and has nothing to lose now. That chart shows the lag between output and input prices, and indicates very high inflation in the near future. The point though is that as we can't, in fact, afford the high prices, demand will drop and the input prices of metals and oil will collapse as we stop buying them. Some think that oil cannot stop rising now but a recession in Asia, US and the Euro-zone are bound to have some effect.
This is the whole dilemma, of course there are mounting deflationary forces, but not now. Now we have high inflation. Thats why Branchflower does have a point, given that we are going into a deflationary recession we can cut interest rates now, and that we should not make the mistake of Japan raising rates (holding in our case) before the real crisis.
This really is a biggy which is why I think that just thinking about house price falls misses the point. You might not want to buy a house for a long time...
When things rip events will go faster. I think the next step will be rent falls lagging job losses -> repossessions+lower disposable income->more job losses. This is the start of a really frightening economic death spiral. That Japan is already in recession (!) wow, but that we even hope to weather the storm is absurd. We should be getting ready for the worst consequences.
7. icarus said...
A very apt, well written piece. I liked "the alchemy of securitisation with a sprinkling of AAA pixie dust was widely accepted as turning financial lead into gold".
The only thing I would change is "Even bank supervisors.....chose to believe the hype and ignore the reality". A lot of them knew what was happening and went along with it because they were getting rich personally and by the time the bank took the hit they'd be in the Bahamas sipping pina coladas. This attitude was summed up by the internal bogStandard & pissPoor e-mails that came to light recently. "Let's hope we're all retired and rich by the time the sh!t hits the fan" was the gist of one of them.
8. bystander said...
"Let's hope we're all retired and rich by the time the sh!t hits the fan"
.....string 'em high.
9. Dave said...
H.
You lot at HPC are trying to take the p!!!!!
Not another delay in you so called HOUSE PRICE CRASH!
By the time it vcomes I'll have been dead for a thousand years!
This site is a load of old tosh!
Dave.
PS
As usual you won't admy comment.
10. layers said...
Great article. Remember all this financial alchemy was - or at least attributed to Alan 'bubbles' Greenspan, that 'genius' who said he never saw the mess he created coming. Liar, liar, ya pants are on fire! This has all been a deliberate ploy to screw us all through the yoking of debt around our collective necks, forever in servitude to the state / banks, and recently through wars – Qui bono - 'military industrial complex'?
And GB et al are going to add the cherry on the top through totally blowing UK Plcs credit rating and hence GBP, by spending and spending until they're finally thrown out of power - God only knows how bad it will be by then.
@Stillthnking - "Begging the question, is this the real crunch ? Or can yet another delay be obtained at the price of a bigger collapse in the future?" Well I think we're seeing the end of the beginning, that's all, as this has a long way yet to play out, particularly if Iran is attacked, and the 'plug' is well and truly pulled on the Western debt-based economy. Perhaps there are shoots of new economic growth that would offset the old service based economies such as hydrogen-based fuel cell technology, Dyson's award winning designs, the building of infrastructure in the UK, but there isn't a lot. Perhaps it really is time to start planning for the worst and that HPC will merely be a storm in a teacup by comparison?