Thursday, May 20, 2010
Either the Telegraph are in alarmist mode or there really is trouble ahead
The Telegraph: City fears of 'Great Depression Mark II'
Leading City experts have started raising the prospect of "Great Depression II" amid worries that the European economic crisis could trigger a deeper bout of chaos.
Andrew Roberts, head of European rates strategy at RBS, said "Great Depression II" could now be approaching, adding: "It now has potential to speed toward its conclusion; a European $1trn package which does little and political panic tells you we are about to reach the end of the road. The world should be discussing deflation, not inflation."
...................................Sounds promising.
Posted by titaniccaptain @ 10:29 PM (2502 views) Add Comment
23 Comments
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1. montesquieu said...
Don't know about 'sounds promising' ... holding off purchasing waiting for a cheaper house but kind of need a job in order to pay for it so not really praying for global armageddon ....
2. titaniccaptain said...
Sorry Montesquieu (And all HPCers).....too many french beers.......
"Sounds promising" was meant to be a bit tongue in cheek........didn't translate very well into txt
ooopppssss............
3. devo said...
joseph andrews is going to fall out with you tc ;)
4. titaniccaptain said...
@Devo
Those who know me realise I have a passion for a headline and first paragraph of an article and the impact it has forthwith on those that read it.....hence my choice of postings here tonight........:)
5. devo said...
@tc
that works for me ( but i love you anyway). but will it wash with 'he that must be obeyed'?
6. titaniccaptain said...
Devo you shock me!
I never had you down as someone that would subscribe to the notion of servitude..........
7. devo said...
i know my place - i'm married
coming dear
8. mark wadsworth said...
"The world should be discussing deflation, not inflation."
Well of course, you always have to look at both sides of the equation and entertain all possibilities all of the time.
As ever, let me say that I am 'relaxed' about inflation - being a simple fellow, I compare the nominal price of a house which we might buy (A) with the nominal amount of cash that we have with NS&I (B).
If A is falling = Good. If A rising, then I look like a bit of an idiot, but hey. I cannot envisage a scenario where B is falling.
9. sirmungo said...
Mark @ 8
I have all my cash in NS&I, locked it away for 1 year in Nov at 3.95%. The problem is that house prices have risen by 5-10% since then. I' guess my NS&I has grown about 2% after tax since then. The CPI purchasing power has also decreased by about 2%. So at best my money is standing still, but if it's all for a house then my money is declining....fast...for now!
I need prices to swing now, this "house price crash" carrot seems to be back where it was in 2007, perpetually dangling about 6 months in front of me. The wife won't wait another 5 years for a family home.
I was interested to see this article suggest deflation is the worry, not inflation.
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11. hpwatcher said...
I was interested to see this article suggest deflation is the worry, not inflation.
Keynesian economists - who I think are wrong.
12. flashman said...
hpwatcher: If you think that there is no serious case for deflation, then I agree. On the other hand, if anyone thinks that there is a cast iron case for hyperinflation, then I disagree. All currently available information is in today’s inflation figures. Only a crystal ball could predict unknown future events that could tip us into a hyperinflationary or deflationary environment. We all have an opinion on the likelihood of future events but it is only an opinion. Only fruit loops and conspiracy boys have the conceit to claim that they can predict distant events with any degree of certainty.
And yes...Keynes was a prat
13. the number cruncher said...
flashman @ 10
"When I read this kind of breathless drivel, I am always forced to ask the question: Is this paper trying to scaremonger in the hope of attaching as much blame to Labour as possible, so that the Tories will not take too much heat for the coming austerity measures?"
Spot on!
Keynes was not a prat - he was bloody clever. But like all practical economists he was only ever given power to remedy problems and not set up a system that avoided problems. Any idiot can design a system to avoid economic problems, it takes unbelievable genius to actually put one in place. its easy for the Von Mises brigade to criticise him, but only part of Keynes' work gave politicians an excuse to borrow to much money, but that is not what he proposed in his work.
14. flashman said...
tnc: I did a great deal of thesis work on Keynes, back in the day, and I'm aware that he was clever but that doesn't stop him being a prat. When will economists and governments realise that they can't run the show with theories and fiscal/monetary largesse? Only individuals, scientists, inventors and businesses etc etc can ultimately produce the goods. Academic economists and governments would serve us better if they stopped trying to let the tail wag the dog
15. drewster said...
Mark, sirmungo,
Saving in index-linked NS&I bonds is putting the fox in charge of the hen-house. The government are the ones who publish the official inflation rate, and we know it has been underestimating inflation (by not including house prices) for the last decade.
16. techieman said...
Flash Laissez faire les bloggers!
I think Mark is right. Whether you are concerned about deflation or inflation depends on your circumstances. If you own your house outright and are not interested in buying another then you only care about "bad" inflation in the grocery store - i.e. what you buy. If on the other hand you have lifted a leg in the property market then you really do care about asset deflation, and are no so fussed about 10p on 140 PG tips teabags.
To say that we must increase IRs because we have inflation misses the point. Its not where we are now that is the issue. The easing was caused because of the financial crises and what [would / might - depending on your opinion] have happened if the governments ignored it.
They now have to be very careful because if the reflation has run its course, which is what markets MAY be telling us, then tightening would be a mistake.
As i said the other day, look at the oil price and look at the asset markets. Of course these are just clues, its more complex than that innit (mayb these are just pullbacks from an upward trend).
Perhaps there is an argument to say that we have passed the worst and that holding rates (fiscal tightening notwithstanding) where they aare will cause more inflation and even hyperinflation. Perhaps, but to see that surely we must see wages increase in tandem with taxes and prices. If we don't see that because margins cannot support it, then how can people inflate out of their debts? That to me is the critical point. Until we see wage increases met across the board then we wont see major inflationary pressures building.
17. p. doff said...
Drewster. Even with fiddled inflation figures I'd rather be getting 'fiddled inflation + 1.35% tax free' than a miserable 2.6% taxable (best ish current savings rate) which is still subject to fiddled inflation. If you are in the inflationist camp, it is still some kind of comfort. By the way, they use RPI, which does include house prices - currently 5.3%, so at the moment I am actually getting 6.65% tax free on my existing bonds and 6.3% on the new ones I've just bought. As I said previously, inflation could drop (or the Gov could even go bankrupt!!!) but that's the risk.
Sirmungo I think you've got the wrong type of NS & I. You need the inflation linked ones (3 or 5 year).
18. p. doff said...
Flash. I enjoy your sneering 'put-downs' - your style is similar to somebody I used to know. But do note that some of the conspiracy boys have been spouting the virtues of gold for the last few of years, and whilst their predictions were based on utter drivel, some of the hangers-on and followers on this site have made a good deal of money by 'accident'. I must admit, I would have probably ditched the remainder of my small stash long ago if I had not been slightly influenced by the constant ramping - and I'm usually immune to conspiracy theorists.
19. cat and canary said...
heh heh, flash is quite an author today! made me chuckle!
I haven't bought my gun yet! The world hasn't ended so far! I'm sure society will muddle through, but not without more pain for some.
On the issue of newspaper sensationalism, i am in two minds. Yeah, of course they just want to sell papers, or have political motivations.
But on the otherhand, when you consider a banking system that nearly collapsed, the murder of greek bankers, the collapse of iceland and greece's finances, the political fall out, and now possibly break-away euro countries, ...it has been pretty sensational so far.
The Newspaper industry is desperate because physical print is on the way out. They print the first piece of sensational nonsense that comes into their heads, in the knowledge that there will be an audience of naïve fruit loops who lap it up. It is a foolish strategy because each time they cry wolf, they scare away another batch of sane readers.
20. bellwether said...
While I agree with Flash in that glee about bad economic outcomes is an insane and misguided reaction (and surely more a reflection of current unhappiness) I think what is happening around us is extraordinary, and probably worth getting a breathless about.
While I doubt this is the end of the world/globalisation/fiat currencies, as the conspiraloons hope, I do think the issues are far more serious than most assume.
A ponzi scheme can generally be thought of as a an investment which rises in price irrespective of fundementals, fundementals in this context being income. On the basis that income cannot support asset prices in much of the western world (and esp the UK) or pay off the debt accumulated against them without almost impossible growth, it is arguable that there are ponzi aspects to our economy.
Generally amongst the noise the debt issue is not being taken seriously as is evident in the tendancy to look at say banks or greece as, at one extreme, one off's rather than descriptive of an endemic problem, and at the other, as evidence of the end of the world as we know it.
It seems almost self evident that debt is now an endemic problem (you could argue otherwise in 2007 but surely not after the turmoil of the past 2 years) from which there is no obvious way out (but that is not to say a solution will not be found - it will), if we make cuts earning capacity is compromised and deflation becknons, if we expand and take on more debt we encounter inflationary issues, which once out of hand will undermine trust in the whole concept of money and trade.
21. flashman said...
bellwether: Regarding your definition of a ponzi scheme: Sometimes prices can legitimately get out of sync with fundamentals, if buyers think that the fundamentals will improve at some stage in the future. There are many people that devote themselves to research into the future prospects of a sector, company or even a country. These people are often happy to buy at a price that does not yet match the fundamentals. A small point but quite important to a value based investor.
Whether or not debt is endemic is a matter of interpretation or degree. I replied to a post of yours elsewhere, giving my version of endemic debt. It’s bad for sure but I probably give it a 7/10 for badness, whereas you might give it something like a 9/10. Not so different.
22. bellwether said...
cheers Flash, even for the lecture on factoring in growth when assessing value !
Overall differences as you say are minor, which I find oddly heartening although no doubt the truth of matters will lie somewhere else altogether! - its probably Devo who will turn out to be right afterall !!
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