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gruffydd

Who's Not Bothered About Inflation?

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More worried about deflation at the moment, already my wages are down 25% from two years ago, now expecting another 5% reduction shortly - so all those going on about inflation are in a dream world where im sitting

Im in construction sector - management, incase anyone asks.

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More worried about deflation at the moment, already my wages are down 25% from two years ago, now expecting another 5% reduction shortly - so all those going on about inflation are in a dream world where im sitting

Im in construction sector - management, incase anyone asks.

What you earn will have not necessarily have reverse reflection on the price you will have to pay for goods and other services. Particularly if they are supplied form abroad, those goods//services are supplied by government or businesses facing increased pressure on margins because their are carrying too high a cost base for the earnings they can reasonably make. Services provided over here by foreign companies can be priced at whatever the market will take, useful for the as they can subsidise their home country businesses. Nor will you 25% wage reduction make you competitive with cheap labour that can be imported at the drop of a hat without any sound reasoning.

Quality food is now becoming too expensive for UK consumption, quality food is now being exported in larger quantities than before, if you cannot afford it, tough.

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I've stuck with a deflationary outlook since the start of all this, with a few wobbles towards the high (not hyper) inflation camp. Views remain the same as we approach the end of the stimulus measures, which have only contained the issues for a while. None of the root causes yet solved or attempted to be solved. The market will win out in the end, and I get the feeling that we've hardly started the required deleveraging. Hope I'm wrong cos a full on deflationary collapse wouldn't be pretty.

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Not worried but protecting myself from it as best I can.

We are one big global event away from hyper inflation.........Iran is where I place my money, even so we are definatley going to get high inflation.

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More worried about deflation at the moment, already my wages are down 25% from two years ago, now expecting another 5% reduction shortly - so all those going on about inflation are in a dream world where im sitting

Im in construction sector - management, incase anyone asks.

:lol:

that's not deflation; that's poverty, your poor *******. literally.

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Inflation is not always what it seems :

http://globaleconomicanalysis.blogspot.com...s-not-mean.html

Speculation != Inflation

People have got very worried about the QE measures but what is often not entirely grasped is the enormity of the leverage that the banking system conjured out of thin air which now has to be "called" with some real cash.

Add to this the "wage pressures" that globalisation and out-sourcing is putting on consumers and you have classic deflationary environment .

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Deflation may be short lived and I suspect both the USA and GB now see inflation as the cure for all evils - including the credit bubble. We are already seeing significant increases in mortgage interest rates here in the USA and I suspect it's a precursor to gradual 'boiling of the frog'. If your wages are being forced down over the next few (2- 3) years then take heart in the fact that we could be heading to a period of high (5-10%) inflation. All engineered by the Fed and BoE. I personally have asked my family to help me cut expenses by 30% this year and will do the same next year. All because I am worried about wage deflation.... ironic when you consider the human sh it who perpetrated this mess (e.g. Goldman S.) are about to pay out record bonuses.... look out for oil companies to also carry on awarding pay rises and giving bonuses, all paid for at the pump by you and me.

If you go back to the 1980s - when I were a lad - you may recall your parents or grandparents talking about the high inflation rates. Mine certainly did, and I can recall they made a bad decision buying a modest house with easily affordable mortgage. In hindsight, this was a terrible decision since high inflation resulted in spiraling wages that reduced the real cost of the loan. I they had taken more risk then they would be living in a million pound house. I believe (or hope!), this is about to happen again. My bet is we will see inflation rise along with interest rates to the 5-10% mark and that this will persist to 5-10 years. If so, today's prices will seem like good value.

Remember the game is to cheat your neighbor, or son or daughter. If you can do it twice all the better. Make someone else pay for your health care, your dental treatments, your overpriced houses, and the loans that prevent your banks, building societies, and insurance companies from failing. Boomers will do this for long enough to ensure you will never get the same benefits and that you will live in undeveloped nations. Recent history tell you this is all true, America's neighbors are the EU, ME and Asia who bought the CDOs, and Americans neighbors are the conservative midwest, the young, and the deliberate 'illegals' who pick crops and wash dishes. Remember - if your parents could man gas chambers, or slaughter Indian women and children at Amritsar, or carpet bomb residential areas in Dresden then cheating your sons and daughters is not even worth thinking about.

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More worried about deflation at the moment, already my wages are down 25% from two years ago, now expecting another 5% reduction shortly - so all those going on about inflation are in a dream world where im sitting

Im in construction sector - management, incase anyone asks.

Wage deflation does not equal deflation in the price of goods, just as wage inflation does not equal an increase in the price of goods. This is the kind of crazy economics that Grodon Brown bangs on about, which is complete rubbish. The price of goods which we in the UK buy are determined by the global market, and what others can afford and are prepared to pay. If your wage deflates by 50% it does not mean all goods must become 50% cheaper. It will most likely mean that you have to consume 50% less, as other conutires with more stable currencies and less wage deflation can buy what we cannot.

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My wages are flat, and factory workers all over the world are twiddling their thumbs. I don't see where inflation is going to come from.

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Wage deflation does not equal deflation in the price of goods, just as wage inflation does not equal an increase in the price of goods. This is the kind of crazy economics that Grodon Brown bangs on about, which is complete rubbish. The price of goods which we in the UK buy are determined by the global market, and what others can afford and are prepared to pay. If your wage deflates by 50% it does not mean all goods must become 50% cheaper. It will most likely mean that you have to consume 50% less, as other conutires with more stable currencies and less wage deflation can buy what we cannot.

True, but what's interesting about this recession is that it is very much global. UK, USA, EU, Japan - ie pretty much all developed countries are suffering the same effects. In the days that economies were less in synch, it was possible to get out of it more easily (eg. through currency depreciation). But, if many other countries are trying to depreciate their currencies at the same time, then that doesn't work. Also, even changes in rates (eg. €/£) didn't see a big boost in British exports because they're all in recession at the same time. All major western nations are playing the same game - QE, low interest rates, bailing banks, not paying off debt. It's very difficult for any nation to get a relative advantage.

It is also therefore very difficult therefore for inflation to take hold - if all countries have less purchasing power, then there are no better alternative countries to sell goods to (China and Brazil are not there - yet), so goods must get cheaper. Similarly, labour costs cannot go up as all countries are competing for jobs, so no wage inflation.

That is why I am still in the deflation camp (but I do keep reviewing this position).

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march 26th 2009, you said:

For me weighing all this up cash is king.

We are not going to wake up one morning and face hyperinflation it doesn't work like that. Most of us will see the signs well in advance and be able to move our funds. Cash is the easiest thing to change into something else, I would rather hold cash right now than any other asset.

I guess at the end of the day you pays your money you takes your chances.

If the hyperinflation scenario looks likely fund will go straight to NSI rpi linked bond. Any opinions?

today, 3 months later, you said:

Not worried but protecting myself from it as best I can.

We are one big global event away from hyper inflation.........Iran is where I place my money, even so we are definatley going to get high inflation.

from: saved for posterity ;)

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I am starting to believe the wall of money theory where the smart money just moves around hovering the cash from the illinformed.

a crap economy money goes to the governments>

b governments print money and take the mick since they want the money out in the conomy>

c Not getting anything for their money the money moves to commodities/shares>

d Having spent the money the governments raise rates and print more to pay for commodities>

e They raise rates even more causing (a) again (2010) which is annoying since they did (B) to avoid (a).

f commodities go nuts since people loose faith in smaller countries since rich countries compete for money (via irs) with poorer countries. Imagine would you lend the UK money at 5% and Morocco at the same rate nah niether would I would want 7-10%

g smaller countries default.

We then have bad economy+Inflation+high rates we then get to the bottom and start again.

Better to just skip a-e and clense the economy via IRs but you would be be in a job if you did that and even dictators do not like their friends loosing money either.

Like many I am getting the "returning to normal" feeling a la the chart.

I think Fred Harrisons article was called the depression of 2010 so I am far from relaxed either deflation or inflation could happen still but I certainly do not think the boon times are coming back.

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It is also therefore very difficult therefore for inflation to take hold - if all countries have less purchasing power, then there are no better alternative countries to sell goods to (China and Brazil are not there - yet), so goods must get cheaper. Similarly, labour costs cannot go up as all countries are competing for jobs, so no wage inflation.

That is why I am still in the deflation camp (but I do keep reviewing this position).

I agree with what you say, but in most cases goods cannot get much cheaper, as margins are slim. The solution is what we already see happening - that is manufacturing capacity being severely scaled back to cope with the new post-bubble levels of demand. Prices of goods will remain as they are and inflate if commodities go up in price. manufacturers that make things at a loss will go bust. Wage deflation will not mean cheaper goods, but simply mean fewer goods being made, to cater for lower levels of demand.

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I agree with what you say, but in most cases goods cannot get much cheaper, as margins are slim. The solution is what we already see happening - that is manufacturing capacity being severely scaled back to cope with the new post-bubble levels of demand. Prices of goods will remain as they are and inflate if commodities go up in price. manufacturers that make things at a loss will go bust. Wage deflation will not mean cheaper goods, but simply mean fewer goods being made, to cater for lower levels of demand.

I understand what you mean, but I still cannot see how prices of goods can remain the same. If there is less money in the economy (through unemployment and wage deflation) then spending must reduce (assuming credit remains frozen and people don't want it anyway). Yes, at that point margins get slimmer - ie. prices of goods go down. Yes, capacity is reduced - ie. people are made unemployed. This has a feedback effect (why buy now when it'll be cheaper next month?) and carries on leading, as you say, to bankruptcies - which are the result of prices being driven down below cost. But it can go on for quite a long time. At some point in the future, yes there will only be a few number of suppliers left and prices cannot go down any further, but that point could be several years off yet.

I also am not convinced commodity prices going up means finished goods prices going up. First of all because if the money is not there to buy the goods, it makes no difference what the raw material cost is - the goods cannot be afforded. If those particular goods really must be bought, then purchases of other goods (and therefore prices of them) will go down to compensate. Even for essentials like food, people can cut back quite a long way and still eat sufficiently. Secondly, because there is less money and less demand, I cannot see how commodities prices can carry on going up (there is a limit to how much raw materials stock China are willing to buy or how much commodities investors are willing to invest once they see that the bust has not ended).

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