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scepticus

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  1. I agree the key change is retail accounts with the CB. However don't discount the impact of genuinely anonymous digital CB currency - it would politically allow the deprecation of paper cash, which is a key step on the road to an interest rate which can be negative or positive. Depends whether you believe negative rates are inflationary or deflationary - opinion is divided. Certainly never ending printing of money and issuance of new government borrowing (which are basically the same thing) is inflationary, but I think the point of a negative interest rate is as an alternative to that which can still sustain demand. And currently there is no alternative. So I would suggest that in the medium to long run, CBDC and the possibility of negative rates are a stablising factor set against ever expanding deficits and QE. Time will tell, but if and when this ever comes to pass it will be a very significant money making opportunity for those that guess correctly how it will and won't pan out, and I'm not sure the hyper-inflationistas will be on the right side of history.
  2. There are slow burning changes underway including CB digital currency and -ve interest rates. The trigger hasn't been pulled yet but the system evolution pathway seems clear to me. Obviously one doesn't pull that trigger when a stagflationary recession is all everyone is talking about but after the next blow off top and re-emergence of deflationary pressure that finger will be very itchy.
  3. The reason why rates can't go up that much is because the economy needs to re-balance. After 30 years of excess returns to capital (yes that is mine and your savings) and negative returns to labour, we'll need a good decade at least of excess returns to labour over capital. And that has to mean a loss in purchasing power of money. It is a very much ignored fact that the targeting of price stability in the regimes of the last 50 years have been at the expense of wages. One picks one's poison - we all picked protecting the rich and pensioners rather than Joe Blow's income. The only way rates really get to take off if is wage inflation really takes off, and I mean to the extent that its is in danger of undoing 30+ years of excess returns to capital. Don't hold yer breath. A parallel but very important factor is ageing and demographics. With Brexit and the ending of a cheap influx of immigrant labour, wages are going to have to rise relative to return on capital due to this factor as well as past imbalances. So my view is : rising wages, slowly at first and then accelerating as demographics bite rate rises must trail wage rises, and really here I mean wage rises at the bottom end of the market negative real return to capital for the forseeable. This will apply regardless of the nominal interest rate be it 0, +ve or -ve. Rising rates imply downward pressure on real estate and other assets, but rising real wages imply rising real estate prices, at least within in a regime of negative real interest rates. That said I do think a rise to 1% nominal rates may well blow the froth off the top of the market. Lastly its interesting to note that one way for real wages to rise is for housing to get cheaper while actual income remains static. However its hard to see how the return on real estate can be de-coupled from the return on capital markets (what with BTL and all that) and we do have a housing supply problem in this country, and real estate will still be protected if the state can manage it since its real estate that backs the credit money supply. It'll take quite some while for all this to play out. If we do get any sharp corrections they probably won't last, so if that happens consider taking the plunge if you have some margin.
  4. Self driving HGV convoys are quite an easy problem relatively speaking to self driving domestic vehicles. The AI lorries would not do the last 10 miles. They'll be the new canals. Out of the depot en-masse, maybe 2-5 vehicles per convoy, via a very familiar route, along the motorway, into a local distribution centre. Fully mapped and monitored the whole way from Glasgow to Rome. Bad weather could disrupt, but in most circumstances all the long haul human drivers can be replaced, and instead the humans do the last 10 miles and door to door delivery. A network can be built like this, a bit like the backbone of the internet. Only the lead vehicle and rear vehicle needs the full gamut of sensors and AI, one forward facing and one rear facing, and with a small array of side facing sensors on the middle ones. Need not be fully autonomous anyway, they can be supervised by an ex-driver sitting at home, to deal with any unexpected weather events or motorway accidents etc, and for legal cover etc.
  5. Quite so. Has always been the problem with the financial system logic. IRs must go up in line with inflation to protect real value of savings, but no such similar guarantee or protection for wages. That boondoggle works for a while, but not forever. Wages should go up and real rates should be negative to rebalance the wage/interest income situation.
  6. I did not question the standard definitions for nominal and real rates of return as you stated them above. I merely stated two opinions: 1) a nominal rate that differs significantly from the real rate is not a social benefit, its a social harm. 2) I question the 'standard' interpretation of the nominal rate as being simply the real rate plus expected inflation. edit: oops I see my mistake. I should be talking about the nominal rate of interest versus the real rate of return. I do apologize! Let me restate the above as: I do not question the standard definitions for nominal interest rate and real rates of return, instead I state two opinions: 1) a nominal interest rate that differs significantly from the real risk free rate of return is not a social benefit, its a social harm. 2) I question the 'standard' wisdom that the nominal interest rate should be simply the real risk free rate plus inflation.
  7. Its a shame you've chosen to ignore and not engage with my key points. It feels like the above is a shimmy to justify that, especially since you haven't highlighted what exact definition you think I've misused, which makes any kind of constructive further response on my part impossible. I am unclear whether this avoidance is a conscious strategy on your part, or you are genuinely confused by what I have written.
  8. Seems like eating out will become permanently more expensive and so it should, hospitality staff are long overdue a pay rise. This will come about from lots of staff leaving that, and related, industries, as per recent news articles. Which doesn't really matter because no-one has to eat out to survive. The hospitality industry likely needs to get smaller to balance supply and demand and be able to recruit workers at sensible wage levels. There is I'm sure some core inflation at work but in itself nothing to be scared of as so far as a whole as long as average wages in the lower range of wage earners are rising at least as much, or preferably more, than said inflation. Alongside that there is a lot of rebalancing going on after a major shock, some of which is likely to become permanent. Too early to unpick all the different drivers, I think. And also, its a good thing if median real wages rise, even if it makes discretionary purchases look expensive and inflation look significant. It would be a grievous mistake for monetary (or fiscal) policy to be employed to reduce employment in the median wage range in order to protect pensions and savings of the better off, or frankly the pensions and savings of cohorts which have previously been the beneficiaries of unwarranted protection whether better off or not. That will lead to tears all round sooner or later. So, lots of stuff and prices changing, lots of supply and demand imbalances, during which sensible people looking for work, or to switch industries, or to invest savings need to remain calm and patient, and avoid tilting at windmills. It would be a brave central banker who thinks he or she has the measure of exactly what is going on and would make any major changes either way to current policy apart from perhaps to try or signal a wee taper and see what occurs.
  9. TfL is only the latest chapter. It was owned by and funded by central government, sometimes under British Rail, over various periods from the end of WWII. That is no different to people who pay the highest rates of income tax to subsidise low earners and non earners. What it neatly sums up, is your Thatcherite standpoint - which of course you are entitled to - and the rest of the country is free to (and likely to) take considerable issue with. Bristol does stand on its own feet by and large - its quite lucky. Up north is a very different matter however.
  10. Well it certainly wouldn't hurt, either London or the regions, based on your view. Based on what you said London will always be able to pay for itself and more, and so it should do, given it is part of the transfer union we call the UK.
  11. Not so. The above is not the case in Germany or Australia for example. Also from https://www.europarl.europa.eu/RegData/etudes/BRIE/2019/637951/EPRS_BRI(2019)637951_EN.pdf: "A prominent trend is the concentration of pockets of relatively high wealth creation in almost every capital city region. Particularly high ratios were recorded in Inner London – West with a GDP per capita six times as high as the EU-28 average (i.e. 611 %), Luxembourg (258 % of EU average), the Irish capital city region (217 % of EU average) and the Belgian capital city region (200 % of EU average)." So while one would in general expect a higher level of wealth in a Capital city, London is still a massive outlier thanks to post-war policy of both Labour and Conservative administrations.
  12. Ah, a classic apology for a deep seated and long running London bias. Business rate funding for TfL only started from about 2017. Prior to that it was DFT grants. Also, TfL benefits from a huge endowment of existing long term infrastructure, mostly funded in the past from central funding. This endowment produces a steady income from fares not enjoyed by most other urban areas because they never got the capital investment in the first place. Restoring the long running iniquities of regional transport funding is going to have to involve London and the SE losing out to the regions, otherwise the gap will never be even slightly closed. And the difference in tax take per head is a red herring, we are all well aware of the reasons for the difference. I would be fine for London to devolve but only after 5 decades of preferential treatment has been reversed. I can certainly see why Londoners might like to pull up the drawbridge now.
  13. Interesting. I was completely unaware of this iBuyer thing. I don't think its inflation hedging, its a middleman thing, buying a bit lower than private buyers and selling at market, possibly with some premium for brand reliability. So agnostic to inflation, but highly exposed to deflation/recession. One undeniable upside is that it will squeeze EAs. There will be downsides though.
  14. Just add some evidence for the above, since writing that last respose I find this: https://blogs.imf.org/2020/09/30/monetary-policy-for-all-inequality-and-the-conduct-of-monetary-policy/ Which think makes the some of the same points I made above. e.g. In the first setting, we find that a central bank should place some weight on observed consumption inequality. That means the central bank will use monetary policy, by setting lower interest rates that stimulate growth and wages and thereby reducing consumption inequality, while tolerating inflation moving above its target. However, we find that this weight is generally small and thus output and inflation are not that different from those that would prevail if the central bank ignored inequality. Interestingly, a central bank pursuing such “optimal policy” cares progressively less about inflation and more about growth the higher the initial level of inequality. This is because when initial inequality is high the central bank will try harder to adjust interest rates to stabilize wages and protect the consumption of the poor. Thus, stabilizing wages, and hence inequality, coincides with stabilizing growth.
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