Wednesday, Feb 18, 2009
Inflation could be back sooner than you think Inflation could be back sooner than you think
MoneyWeek: Inflation could be back sooner than you think
Why inflation may not drop as far as many people think - and could soon be on the rise again.
Posted by damien @ 08:30 PM (922 views) Add Comment
8 Comments
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1. hpwatcher said...
The case for deflation is heavily overstated....inflation is the real killer and has gone no where.
STAGFLATION!
2. damien said...
Apologies for the double-posted title on this
3. james stephenson said...
The 'Phillips curve' would have us believe that rising unemployment will mean inflation stays low.
But the 80s/90s showed that the two have no relationship. The classical view of inflation states that changes in money supply are the only things that cause inflation.
A 9-0 vote in favour of printing more money means inflation is coming our way.
We have left the lunatics in charge of the asylum.
As I said, rising employment, rising inflation and rising interest rates are going to make things very rough indeed. We have never had a situation where there are such massive levels of home ownership with so many people remortgaged to the peak of the cycle with so much other debt.
This depression will be studied in disbelief by future historians. Brown will certainly be seen as a bumbling, talentless oaf who merely reigned over a period of wealth created by massive debt, unrestrained greed and inadequate regulation.
It will also be seen as the death of liberal economics and maybe the event that caused the world to base it's economic/regulatory model on the brute fact that humanity is prone to socially destructive selfishness and greed. But I suspect not for the latter.
The problem is that coming out of this mess will be a massive consolidation of power & wealth for the Global State.
At the moment we are seeing the failure of democracy to deliver any kind of social justice, as those who's greed & negligence caused this, are being fed choice morsels from your ever more bare looking table.
Am I alone in daring to imagine what the darkest hours of Global Democracy might look like.
Sorry for the pessimism, but the planet is in negative equity for the first time in it's history. These are monumental and paradigm changing times, and 'positive thinking' is not going to get us all out of this one. Do your best to clear all debt and make sure you don't have significant amounts in Sterling. Perversely, in 12 months time, property will be the safest place to have your money. I doubt that Sterling will last that long.
4. hpwatcher said...
Brown will certainly be seen as a bumbling, talentless oaf who merely reigned over a period of wealth created by massive debt, unrestrained greed and inadequate regulation.
As arrogant and as controling as Gordon Brown is, he won't be able to control the national contempt and disgrace that he has earned by his incompetent decisions.
He will do down in history like a Neville Chamberlain figure.....someone who got it all so totally wrong. His will also be remember for the stupidity of his epitath ''No more boom and bust''.
5. techieman said...
James S - Good post, most of which i agree with BUT the existence of depression (and quite a few on here - not just the appocolyptic types - have been pointing toward this) is unlikely IMO to be coupled with inflation in any great degree. It is a deflationary depression thats on the cards with shrinkage in GDP and money supply. Its self feeding.
I think we dont really give the electorate the credit they deserve here. Yes the people that have overstretched themselves will pay the price, (so thats deflationary default) the "sensible" ones are now looking to de-leverage or save if they have no debt. Again thats deflationary liquidation. What interests me is what will happen with all this infusion into the market? I mean you can create cheap money all you like but if people:
a. PERCEIVE the low cost of it as being temporary or
b. No longer believe they can either fund their expenditure with any new debt or think they can use the cash to create a positive leverage on an always appreciating asset (eg - for the masses that means buying a house ).
then they aint gonna borrow it. Infact the only beneficiaries of the borrowing will be the bailout junkies, which we will have to pay for by increasing taxes (probably sooner than anyone here thinks).
Thats not to say there wont be a temporary blip against the downtrend, but after that runs out of steam and proves that our illustrious leaders arent then we have capitulation as no-one believes them. This has happened before many times. in many societies throughout history its at best naive to believe that it wont happen here.
relative to the article - yes the pound has fallen true but have price rises fully reflected that fall? Why not ? is it because margins have been squeezed as regardless of companies needing to increase prices they cant sell their goods if they do?
I normally like David S - but i dont like this:
" Council tax, rail season tickets, London Oyster cards, cab fares – all have either been hiked this year or are about to rise. And The Telegraph notes that the nation's supermarkets are secretly shifting their prices higher behind a smokescreen of 'special offers"
i could take all of those apart - except supermarkets. Public sector and quasi public sector prices will lag and the elasticity of demand for transport is a bit unlike other stuff. Rail season tickets and London Oyster cards are generally used as a means for people to get to work - so any increases in them are not really inflationary but are merely substitues for other funds that would have been spent - in any case the impact of those depends on the proportion of the spend.
As for supermarkets - I think we will find people will start to maintain or reduce their "weekly basket" in terms of quality. More tinned mushy peas less petit pois etc, so their actual spend may decrease or be constant.
For the supermarkets
6. techieman said...
Sorry "(and quite a few on here - not just the appocolyptic types - have been pointing toward this) " should have also said "for a long time", even before Recession was generally accepted. And as for cab fares.... well go talk to a black-cab driver in london.
7. inbreda said...
"3. james stephenson said...
I doubt that Sterling will last that long."
And this is what scares me. I have agreed with everything that you have written. Despite the fact that money (in credit form) is disappearing, money (in paper form) is being created and it is the latter that will cause inflation. Maybe it's just the circles I move in (HPC forum!) but I don't really think anyone trusts the GBP any more. More to the point, on a simplistic level, joe public don't trust the banks any more, and they associate the banks with paper money. Their eyes are being opened to the fickleness of finance and I don't think it will take much for them to lose confidence in the pound. Foreign investment is less likely to visit the uk than anywhere else IMO as we are in the worst situation to cope with this.
And I get to thinking that if sterling goes, so will all other fiat currencies - at least temporarily - and if that happens the new currency will almost certainly be gold. And if that happens you could add a zero or two to the current price.
8. mountain goat said...
Techieman we argued deflation v inflation many moons ago and it is still the unknown!
Recently I read how only the Euro-zone will experience full blown deflation (if it doesn't fall apart) and USA hyper-inflation. Germany has a Weimar Republic history and therefore fear hyper-inflation. His points were:
A) The "no bail-out" clause of the Maastricht Treaty (the treaty that led to the creation of the euro), which stipulates explicitly that neither the Community nor any Member State is liable for or can assume the commitments of any other Member.
B) The euro zone's lack of FDIC-type deposit insurance
C) The ECB's inflation fighting mandate.
D) Germany's 3,413 tonnes of gold reserves, the largest in the world (besides the US gold reserves, if they still exist), and the EU zone's 10,413 tonnes of gold reserves. (MG-not sure what he means here?)
E) Germany's export oriented economy and trade surplus
F) Germany's long standing low-inflation policy
G) Germany's contempt for Keynesian economics.
The USA has deflation in it history so is trying to fight that, which means they are heading for hyper-inflation.
Both deflation and hyper-inflation happen because of monetary decisions in times of financial crises. History means Germany and USA will make the opposite mistakes to last time.
Worth thinking about IMO.