Thursday, Oct 23, 2008
Debt deflation
FTAdvisor: Leaviss predicts deflation for UK and Europe
I think it is certain we are now in debt deflation, as people cannot clear their debts through liquidating assets. The main thing to watch now is the actions of the UK government, and to try and see in advance which way existing (and currently reducing) wealth is going to be transferred. Mortgage holders would certainly benefit from partial government ownership, and in effect would have won themselves subsidised council housing. As there has never been a successful escape from debt deflation in the past (WWII not counting as a success) I think the key issue now is not the fundamental economics which have made their effect abundantly clear, but the correct anticipation of the actions of a socialist leaning New Labour government, in particular what level of debt they consider ...
2 Comments
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1. stillthinking said...
...in particular what level of government debt they consider they consider acceptable, the likelihood of tax changes, the extent to which they will nationalise and ultimately whether they will print money.
One way or another, the value of sterling against that of say the euro, with the restrictions holding on the shared currency, looks as though it is going to fall through the floor. Ultimately I believe that while bond holders have so far failed to curtail government borrowing, in the end our dependency on food imports will restrict actions by the government which lead to a devaluation, given the quite high, I think it must be quite high for families, proportion of disposable income (-disposable-) which goes on food.
I am starting to believe that the next main inflection point must be when sterling bottoms and at what value. I have read figures of $1.50 but I think they key value for us will be against the euro. I have no idea what level this will be apart from lower than now.
2. Amos said...
We are in uncharted territory. No nation facing deflation has ever pumped in so much money so quickly as has happened now.
Anything could happen so beware of "experts" who tell you they know.