Tuesday, Mar 02, 2010
No relief for mortgage holders
BBC: No pay rise for '16 million workers'
"Sixteen million workers, or more than half the UK's workforce, do not expect to get a pay increase this year, a survey suggests. A further nine million expect to receive a pay rise below the level of inflation, the YouGov survey suggests."
Not much chance of mortgages being inflated away then.
Posted by phdinbubbles @ 08:18 AM (1105 views) Add Comment
23 Comments
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1. techieman said...
Hang on that cant be right... We are going to have hyperinflation, so all the debts will be worthless in weeks... or have i been misreading some of the eminent bloggers here?
2. wdbeast said...
techieman – I totally agree with your sentiment.
The writing is on the wall on this one. We will have price inflation which will lead to a call (especially from the public sector) for wage increases in line with price inflation.
This will happen at the same time as cutbacks are being made in budgets , with possibly a hung parliament.
An Autumn of discontent on steroids awaits us, no wonder the pound is tanking.
3. titaniccaptain said...
@Techie
Sorry to go on about the yellow shiny stuff but if we have deflation and a devaluing currency won't gold go up in relative terms to sterling?
In fact I find this question is of paramount importance, I think a conclusion must be reached on this matter.
What are the possible scenarios in relation to gold withing a deflationary environment coupled with a devalued currency?
Any ideas?
4. titaniccaptain said...
The reason I single out Gold and not other metals is that it is TRADITIONALLY perceived as a a storage of wealth and is actually thought to be real money itself due to it's rarity. I am kicking myself at not listening to my own advice on agricultural land 3 years ago........I still think farm land land is the REAL expression of wealth. And in a deflationary environment I would expect it to rocket.
Why? I hear you ask....
If pound is devalued then the cost of food will also go up. Add any potential war with Iran and it's effects on oil prices and we will be looking closer to home for our food produce.
BUT.
If there is no doomsday scenario on the horizon then at least with land you can use it for something.
5. alan_540 said...
@1 You've been keeping your powder dry dry for a while techieman, well said!
6. alan_540 said...
Half the workforce expecting a pay freeze (reality a pay drop then of 3.9% at least) - hardly reason to expect house prices to increase over the next 12 months! This recipe needs a couple of extra ingredients to make it taste nice, maybe a touch of interest rate rises and a pinch more of unemployment.
7. alan_540 said...
I do wish house prices would drop back to affordability, but don't really wish increased unemployment on anyone, just to be clear.
8. techieman said...
Wdbeast and alan:
I will clarify what I meant. There may (obviously) be "imported inflation" yes, and there may eventually be hyperinflation. At the moment though there is deflation in my view. How does that manifest? Well if prices go up but wages do not increase in tandem then there is no wage –price spiral.
I am not saying that the decrease in the power of the workers is a good or bad thing. That’s a different debate. What I am saying is if you use more of your income to live then the luxuries will suffer first, including big ticket items and also including putting off purchases (eg replacing the washing machine or buying a shinny new car). The savings rate went up - classic hoarding of money rather than consuming it, i.e. deflation, and now that rate is going down because people realised that things might get bad and now they have to spend those savings.
The alternative view is that all the companies are using this as an excuse to bash the employees and increase margins. That is a possibility, but anecdotally you have to ask people you know how they are and their companies are doing .
TC
Really this is a difficult call. As you know I have gold from way back, I sold a large amount in March 2008 (I think we discussed it at the time – I think everyone here was saying it was off to the moon, and I said guys you are making me nervous and I got out of a large % then).
To be honest I comtemplated getting out of all of it. I didn’t though, mostly because of the comments made by S2R1.
I made one trading call on Gold recently which made a quick $50, but I am not really enamoured with it one way or the other. Yes the gold bugs may be right or wrong. I would be crazy to hope they are wrong - since i still have some on board.
All I can say is look at the discussion below, and remember no-one has a monopoly on wisdom.http://www.housepricecrash.co.uk/newsblog/2010/03/blog-on-the-way-to-ounce-27981.php
9. mark wadsworth said...
Techie has deftly steered the topic round to inflation again, so I shall repeat: you only get high inflation if you also have currency controls.
Whether that is split buying selling rates, restrictions on the amount you can exchange, pegging it to another currency, deliberately depressing your own currency or deliberately trying to push up the value, does not appear to matter. While I wouldn't put it past Labour or even the Tories to seriously consider having currency controls if and when things get really bad, that is still an unlikely outcome.
This is not based on theory (and I struggle to explain it) but it is based on observation.
As a separate issue, there was a handy chart in the Sunday Times which said that UK domestic inflation has been running at a fairly constant 4% since the early 1990s. It is only import prices that have been low - between negative and positive two per cent.
10. flashman said...
The cause of inflation can broadly be defined as an increase in monetary aggregates (M0 to M3) in relation to assets i.e. in almost every inflationary episode, commodities are chased upwards by an increase in the supply of monetary aggregates or credit. This was seen clearly in the price of oil before its fall.
If you are a deflationist then you by definition believe that there will be a decreasing supply of monetary aggregates and credit
If you are an inflationist then you by definition believe that there will be an increasing supply of monetary aggregates and credit
I can’t see there being a surge in the supply of monetary aggregates or credit so I am obviously not an inflationist. On the other hand I can’t see the supply of monetary aggregates falling of a cliff either, so I am not a deflationist either. My money is on a gentle increase in supply of M0 to M3 and therefore gentle inflation
Regarding gold and other metals: The price of metals has traditionally had a very poor reactivity relationship to the rise and fall in inflation. The leading relationship (gold is considered quicker than copper) that some people see is actually so “baggy” that we actually can’t tell if they are leading or lagging. Like I said, gold actually leads or lags less than the master metal copper but its quicker reaction is caused by speculation rather than by real demand, so it can’t tell us much.
11. letthemfall said...
We understand inflation as an increase in prices and wages, the traditional technical inflation. I wonder whether we will see steady price rises and static wages, in effect a fall in the standard of living. We are also seeing a transfer of wealth to a few, a fall in the standard of living of the majority.
12. 51ck-6-51x said...
Alan,
If so many are to be out of work I hardly imagine much likelihood of rate rises.
13. flashman said...
letthemfall: Our position in the world has changed. We are uncompetitive. We can chose to acknowledge that fact or we can carry on campaigning for higher wages/living standards. Our struggle to accept reality sometimes manifests itself in the spectre of workers striking in response to being told that their plant might be closed down, if it continues to be uneconomical. It is all so tragically quixotic.
Class warfare or ‘redistribution’ will not provide the workers with an increase in living standards. If we increased the top rate of tax to 90%, there would still not be enough in the pot, to provide so much as a loaf of bread per week to the average worker. It would however totally destroy our ability to compete.
I am in no way defending the bankers or any other beneficiaries of the Norman invasion but we really do need to face up to the fact that the UK is just one of the crowd and we need to compete.
There is, however, one way we could ease the workers' burden... provide every family in the country with a free plot of building land (all from state owned land). Just imagine the joy and feedom this would cause. This is, in effect, a paragmatic redistribution that would enhance our competivity. Redistribution via taxation always destroys a country
14. debtfree said...
@1
let's not confuse high inflation with hyperinflation, which is a currency event that happens in a deflationary environment.
15. mark wadsworth said...
Flash, that's music to my ears, but you don't even need to give people "land", it'd be quite sufficient to give everybody at age 25 planning permission for half a house (or a small flat) so that when people get married, if houses are too expensive, at least they can have a new one built wherever they choose. A couple of hundred square yards of farmland costs a couple of hundred pounds, that's the least of our worries.
And a quid pro quo, if you own land you would only be allowed to build on it if you first purchased the planning permission from somebody who wanted to sell it - so instead of the £100,000 planning gain going to the landowner it goes to young couples, it would be like a "universal inheritance" but without needing any taxes to pay for it.
So there'd be a level playing field between existing home-owners, young couples, landowners and homebuilders. Of course, most sensible young couples would pool their planning permissions with a few dozen others, haggle with a builder and get themselves a nice little estate built with a playground for the kids and so on, but everybody chooses, and pays for, his own particular house.
And if all this new building pushes down the price of existing houses, so what? People could then sell off their planning for £10,000 (or whatever) and use it as a deposit or buy furniture or something.
16. letthemfall said...
flashman: "Redistribution via taxation always destroys a country"
Really? The nordic countries seem to do okay with a fairer distribution of wealth. I don't think redistribution amounts to warfare; more a case of assigning pay to value. I think most of us agree that the high paid bankers did not create the value implied by their pay. On the contrary.
Being competitive is also about being fair; everyone needs incentives, not just the top paid. I sometimes wonder what would be the result of removing from the economy £1bn worth of work by the highest paid (probably a handful of people), then the same expt from the bottom (hundreds of thousands?). In which case would the economy be worse off? Or perhaps more meaningfully, in which case would society be worse off?
17. flashman said...
mark w: You have obviously given more thought to the details than I have. Yes giving young people tradable planning permission is a good idea. Economic freedom and social justice is just a policy choice away. I wonder if DC or GB would ever consider such a thing? Unfortunately the UK’s most useless debate is set to continue for the foreseeable future...in the red corner we have the incredible myopic man "Soak The Rich" and in the blue corner we have the mighty buffoon "Hunt That Fox".
18. flashman said...
lethemfall: all fair points worth considering but the main issue has been skirted. We are uncompetitive. The admirable Scandinavians are quite competitive in that their productivity is higher than ours. It is also a bit of a myth that the Nordic countries have "a fairer distribution of wealth". Sweden has a similar rate of taxation to us (very slightly lower corporate tax and very slightly higher personal taxation). Norway has less corporate tax than us and about the same personal tax as us. It is probably true than the Nordic countries have a better standard of government services than us. Seeing as they don't tax any more than we do, it can only be because they run their services more efficiently. No surprise there.
19. letthemfall said...
flashman:
I don't intentionally skirt the issue of productivity, but to be honest I haven't looked at any comparison figures. Equality is not just down to taxation. I query your comments on Swedish tax. AFAIA, Swedes pay about 48% of their personal income in tax (don't know how this is apportioned though); we're about 33%. Corporate rates are much closer. But it's also about relative incomes. Swedish bosses typically earn up to 3 times their worker's wages, whereas over here it's - well, sky high in many cases. I would imagine this contributes to some extent to their higher productivity.
20. flashman said...
letthemfall: I think you might be looking at 2005 OECD figures? Our taxation has risen considerably since then and of course we have to add in indirect (aka stealth) taxation. In any case we are talking about a few % points difference. I think that we both prefer the "Nordic model” but we can't expect to emulate their admirable welfare record before we match their work rate, efficiency and attitude. The average Swedish middle manager actually earns a fraction more than the average UK middle manager. Of course, our bankers and Chairmen earn more than anyone but there are hardly any of them.
Next month our new tax rates will rocket us up the ‘redistribution’ charts. It has arguably been empirically proven that our new tax rates are beyond the point at which tax rates are considered efficient. i.e. we might get less receipts than we did before.
I like the idea of redistribution but my preferred method is detailed above
21. mark wadsworth said...
Flash, I'm glad you like it, of course it will never catch on because it's pro-homeownership and anti-Home-Owner-Ist.
LTF, international comparisons are incredibly difficult, but we sure as heck pay more than 33% in tax - chuck in Primary and secondary NIC and VAT and duties and so on it's somewhere around 45%, simple fact; our government now spends nearly 50% of GDP.
22. easybetman said...
CIA FACT Book 2009 data
https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html
GDP $2.198 Trillion (at exchange rate of 1.53, which is about where we are now)
Gov Revenue: $819.9 billion ( 37.3% GDP via Taxation)
expenditures: $1.132 trillion (2009 est.) ( 51.5% of GDP which will of course be paid back via future taxation)
https://www.cia.gov/library/publications/the-world-factbook/geos/sw.html
GDP: $ 397.7 billion (taken when exchange rate 7.821 Krona to a dollar, 7.19 krona to a UDS today but this shouldn't really matter as GDP and government revenue are measured using the same exchange rate)
revenues: $196.9 billion ( 49.5% of GDP)
expenditures: $211.4 billion ( 53.5% of GDP)
The Nordic has superhigh VAT rate of 25%, Sweden has employer NI of 31%. This 2 perhaps make up for the 12% differences in taxation. But in term of what UK governmetn is spending now (which will be paid back via taxes), there isn't much difference compared to the Swedes. Also, the GDP data contains the usual +/- errors)
(http://en.wikipedia.org/wiki/Taxation_in_Sweden).
23. flashman said...
easybetman: Thanks for the CIA figures. Very interesting. It has to be said that UK tax revenues took one of the biggest hits in the world in 2009. Perhaps 2006/7 would be a better year to compare. Our tax rates are also set to rise next month whereas Sweden’s are set to remain static (afaik). We also have more stealth taxes than they do which somewhat cancels out their extra employers NI and VAT.
As you point out, the most relevant stat is that the UK and Swedish governments spend an almost identical % of GDP. It's pretty clear that we don't get anything like the value for money that they do.