Sunday, Sep 19, 2010
Wake up and smell the s**t.
Market Oracle: UK Government Stealth Debt Default Continues at Minimum Rate of 3% per Year
'...the coalition government is not going to cut the debt at ALL! they can't cut the debt because the last Labour government has ensured that the gap between that which the government spends and earns is unbridgeable, all that the governments can do is erode the purchasing power of all workers and savers in the economy through inflation'
Posted by hpwatcher @ 10:17 AM (637 views) Add Comment
15 Comments
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1. estrader said...
HP, ask people you know whether inflation is good or bad, without emphasis on either and I will bet less than 10% will say it's bad. I had a discussion with an Engineer and trainer, someone I would consider well above average intelligence and he thinks inflation is not only good, but great. The idea that in future he could pay off his entire mortgage with a few months salary is fantastic! There are some here who think inflation causes less misery than deflation...
2. hpwatcher said...
HP, ask people you know whether inflation is good or bad, without emphasis on either and I will bet less than 10% will say it's bad. I had a discussion with an Engineer and trainer, someone I would consider well above average intelligence and he thinks inflation is not only good, but great.
This is because he thinks the price of his house will rise too; he probably doesn't have any savings - just a massive mortgage - so he doesn't care.
But did you remind them that living expenses i.e. energy, food, council tax etc etc would also rise too, so he would see increases in those as well as any mortgage costs?
3. quiet guy said...
"China has now effectively ran out of cheap farm labour"
That sounds a bit dodgy to me. I know some people who have been to China and they assure me that there's still plenty of poverty (with no safety net.) In the long run, Chinese living standards and the price of their exports will surely increase but that process could easily encounter some setbacks lasting years.
4. estrader said...
HP, I didn't remind him of anything, why should I need to? He is a grown man. This video sums up my experience with people...people, sheesh!!
5. techieman said...
there is nothing wrong with a bit of inflation, there are two key points 1. that its a bit and 2. that wages keep up and/or exceed it so there is no real falls in living standards. Debt values stay as they are in nominal terms. So the debt burden will be there as a fixed nominal amount. Since debts (ex servicing them) values stay fixed, even if wages do not keep up with inflation its not that important since wages are inflating and are reducing the value of the debt.
you can only inflate away debt if you have wage inflation. if you have inflation on core goods, but have plenty of people ready and able to fill jobs - i.e. competition for places, and shrinking demand for goods and services outside of that core, and increases in unemployment then there is no incentive for wages to be increased. Therefore any inflation on core good, erodes the purchasing power on other goods including the servicing of debt. That is why any inflation today doesnt result in reductions in nominal debt.
Just as in the past the purchasers of fixed sum assured endownments (for example) invested in a benign environment and the value of their investments were eroded by 1970s inflation that they had not witnessed before, but at the same time wages also rose, now its the opposite IF and until wages rise. So the investments because worth less in original purchasing power terms but any debts were eroded.
Until we see increasing wage pressures that are actually fullfilled there is no reason to expect anything but asset price deflation.
6. techieman said...
est - when she says "you're kidding" i thought she actually meant kidding about the proposition.....silly me...... awesome!!
7. estrader said...
So, techie,
Has the BOE done enough or too much for a 'bit' of inflation?
8. techieman said...
...or not enough?
IMO they have done enough so far, they are surprised that they have not done better and caused a bigger spike but they wont be allowed to keep it up.
i dont think they have done too much - if they had we would be seeing rates at about 10%.... i know real rates are 10% or more yes... blah blah blah! :). Am off out not so enjoy your sunday.
9. techieman said...
out now - sorry!
10. novice pete said...
@4 estrader
About 2mins in the woman in the pink top was trying hard to argue but as soon as the petition guy said " you should do your patriotic duty",
she took the pen and glanced at the camera, I wonder if out of fear? Very subtle persuasion.
11. hpwatcher said...
no reason to expect anything but asset price deflation.
Okay, some assets have gone down a *very small amount* i.e. houses, but gold is at an all time high. The cost of energy is increasing, food prices are increasing, travel costs are increasing - even my phone bill is getting more expensive. Also, I ocasionally have rare books rebound and even the cost of that has gone up about 25% in the last year. The cost of living is increasing and wages will need to follow at some point.
Moreover BOE are simply going to continue to keep on printing - or electronically creating money - and because of this asset prices will be sustained - BOE have already said as much. I think it's unlikey that deflation will happen in any major way...and that means ALL prices going down as opposed to just house prices. I don't see just house prices going down as a sign of deflation - it's just house prices going down - after all house prices went down in the early 90's and no one called it deflation then.
12. techieman said...
"The cost of living is increasing and wages will need to follow at some point". - why?
"Moreover BOE are simply going to continue to keep on printing - or electronically creating money - .. - BOE have already said as much. " - so what? governments always promise to make us better off but do they?
13. hpwatcher said...
"The cost of living is increasing and wages will need to follow at some point". - why?
Because it always seems to.
"Moreover BOE are simply going to continue to keep on printing - or electronically creating money - .. - BOE have already said as much. " - so what? governments always promise to make us better off but do they?
Well, they have done so in the past; it's perfectly logical to assume they will do the same again.
14. techieman said...
... just like its logical to assume that house prices will continue to go up cause they always have in the past.. its looking in a mirror to tell where you are going to go.. remember past performance may not be indicative of future performance.
You are not alone in this kind of linear thinking which is of course why every trend continues ... until it doesnt..
15. Fra Paolo said...
If this current inflation in the UK is largely an imported phenomenon, and if wages of those in work are not keeping pace with it while at the same time the number of people in work is falling, then it could be the old link is broken down. I think this is why the BoE is not getting too upset about it: the desired aim is being achieved, in suppressing the growth of real income.
In my thirty-two years of adult life in Britain, governments have always exaggerated the effects of their policies by not paying enough attention to the link between interest rates and the exchange rate and the effect of that on the desired economic outcome. (The severity of the Thatcher recession of the early 1980s was as much down to the inflated value of the British pound, which the government then regarded as not particularly significant, as the cost to companies of borrowing money.) Could it be that they've finally learned a lesson?