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LuckyOne

My Fears About High Inflation ........

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I have thought that the natural result of QE will be a pick-up in inflation that could get out of control and result in either high inflation or hyper-inflation.

I am slowly coming around to a different view. In the last 10 to 15 years, wealth become increasingly irrelevant as debt was readily available. To buy a car for £30k required wealth of £3k and debt of £27k. A £3k holiday required no wealth and debt of £3k. A house that cost £1m could be bought with wealth of £100k and debt of £900k.

The value of money was massively devalued by the availability of debt and became almost irrelevant.

Now that we are in a period where the world is massively deleveraging, wealth is suddenly becoming very important. Because debt is not freely available to anyone with a pulse anymore, money is becoming increasingly valuable relative to "things" which is resulting in deflation.

QE / ZIRP is really not powerful (or large) enough to replace all of the debt being repaid and the wealth that has been destroyed by the decline in the price of "things" relative to money.

Going forward, prices are going to have to continue to drop to a level that people can afford to pay from savings rather than debt.

While this trend may be reversed at some point in the future, I think that we are in for a longer and more vicious period of deflation than I had previously thought.

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Going forward, prices are going to have to continue to drop to a level that people can afford to pay from savings rather than debt.

I do hope you will be able to stay warm this winter

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I have thought that the natural result of QE will be a pick-up in inflation that could get out of control and result in either high inflation or hyper-inflation.

I am slowly coming around to a different view. In the last 10 to 15 years, wealth become increasingly irrelevant as debt was readily available. To buy a car for £30k required wealth of £3k and debt of £27k. A £3k holiday required no wealth and debt of £3k. A house that cost £1m could be bought with wealth of £100k and debt of £900k.

The value of money was massively devalued by the availability of debt and became almost irrelevant.

Now that we are in a period where the world is massively deleveraging, wealth is suddenly becoming very important. Because debt is not freely available to anyone with a pulse anymore, money is becoming increasingly valuable relative to "things" which is resulting in deflation.

QE / ZIRP is really not powerful (or large) enough to replace all of the debt being repaid and the wealth that has been destroyed by the decline in the price of "things" relative to money.

Going forward, prices are going to have to continue to drop to a level that people can afford to pay from savings rather than debt.

While this trend may be reversed at some point in the future, I think that we are in for a longer and more vicious period of deflation than I had previously thought.

Not so sure, from what figures I have been reading in the papers for CPI seems to be stubbornly above 2%

Has anyone seen any real deflation outside of modern art and stock brokers salaries?

House have gone down ~20% but thats a small fall after a big rise

I'm very unsure about the inflation vs deflation arguments - which is a shame, as its pretty core to protecting wealth at the moment

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Where's M4?

Massive inflation has been happening, but was off-balance-sheet while housing absorbed all the money.

So long as housing continues to absorb virtually all spare money in the economy, there will be neither on-balance-sheet inflation nor more than a ghost of economic recovery. But recovery without bringing the inflation onto the balance sheet will be much harder, and there isn't the political will to incentivise investment in the productive economy over housing via the tax system.

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I have no idea what you are talking about. I hope you continue to be lucky - you'll need it.

I am not changing my asset allocation which should see me through either outcome without suffering from catastrophic results.

Some regard inflation as a strictly monetary phenomenon which is why many are linking QE to high/hyper inflation.

I am starting to think that it might be a phenomenon resulting from the availability of debt and the desire to take on debt. If private sector deleveraging is large than QE, I can see how the economic malaise (massive QE, huge public sector deficits, falling wages and asset prices etc) in Japan from the 1990s to to-day can exist elsewhere.

Even if debt is available to the private sector, I suspect that inflation cannot take root even if there is a massive QE program in place if the private sector are not willing to take on additional debt.

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Guest Daddy Bear
I am not changing my asset allocation which should see me through either outcome without suffering from catastrophic results.

Some regard inflation as a strictly monetary phenomenon which is why many are linking QE to high/hyper inflation.

I am starting to think that it might be a phenomenon resulting from the availability of debt and the desire to take on debt. If private sector deleveraging is large than QE, I can see how the economic malaise (massive QE, huge public sector deficits, falling wages and asset prices etc) in Japan from the 1990s to to-day can exist elsewhere.

Even if debt is available to the private sector, I suspect that inflation cannot take root even if there is a massive QE program in place if the private sector are not willing to take on additional debt.

:D

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A reasonable hypothesis........subject to all things being equal....but all things are in a permanent state of flux. So we will have to wait and see.

:lol:

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I understand, i see your POV but the verdict isn't out yet. Inflation takes time to have an effect, but a currency crash can cause an instantaneous inflation acceleration. Yes alot of money is being detroyed, but we still have inflatio. The only areas of deflation I am seeing are in Houseprices/rent, thats not fully fledged deflation accross the entire system.

Edited by moosetea

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I am not changing my asset allocation which should see me through either outcome without suffering from catastrophic results.

Some regard inflation as a strictly monetary phenomenon which is why many are linking QE to high/hyper inflation.

I am starting to think that it might be a phenomenon resulting from the availability of debt and the desire to take on debt. If private sector deleveraging is large than QE, I can see how the economic malaise (massive QE, huge public sector deficits, falling wages and asset prices etc) in Japan from the 1990s to to-day can exist elsewhere.

Even if debt is available to the private sector, I suspect that inflation cannot take root even if there is a massive QE program in place if the private sector are not willing to take on additional debt.

Do imports make a big effect on inflation in the UK?

I was wondering if the depreciation of sterling was keeping CPI up (clothes, electricals, oil, some foods, etc)?

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Currency devaluation and Goverment spending will have a effect on general inflation. The amount of liquidity being pumped into the world economy by the central banks is huge.

Will it cause inflation? I think it will. When? I wish I knew. Less work is being done.Less widgets are being manufactured yet the solution seems to be expand the amount of money in the economy.

Because we havent seen inflation yet people think we have avoided it. The fact is it lying in wait.

Inflation will come

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Hmmm, still unsure either way myself.

The way I look at it is:

On one hand the amount of money 'destroyed' through the destruction of assett prices (aquired with leveraged debt) seems to be far greater than the 'new' money being injected in to the system

On the other hand, the creation of all this 'new' money would suggest inflation.

Am still on the fence myself.

Had an appointment with a Finacial advisor at HSBC today. They are advising clients it will be inflation.

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.....

Now that we are in a period where the world is massively deleveraging, wealth is suddenly becoming very important. Because debt is not freely available to anyone with a pulse anymore, money is becoming increasingly valuable relative to "things" which is resulting in deflation.

.....

IMO what is happening is a period of inflation of consumables (food energy etc) at the same time as deflation in assets (houses shares etc).

This is certainly true as I type. Whether it will hold good for much longer we will have to wait and see.

Assets have become over-valued as the financial community had run out of this to (make) profit on. By profiting from speculation in things with no intrinsic value, simply financial value, the industry can sustain itself forever - forever that is unless the bubble bursts. CDOs are an example - they are simply IOUs traded and speculated against. They are now becoming worthless as it is clear some or more of the debtors will default.

The clear analysis is that debt has lost its value. Therefore things bought with debt (real estate) are losing their value as well.

Just my theory...

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:D

Useful comment. Have you amended your sig so that it still looks like you are the prophet? You've made your case clear and you've made it clearer that whatever else is posted / whatever else is written you still believe hyper-inflation is going to happen. Others - myself included - haven't made up their minds. Call me ignorant on the matter but I haven't made up my mind, whatever I have read thus far on either side.

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Had an appointment with a Finacial advisor at HSBC today. They are advising clients it will be inflation.

they can't really make much money out of deflationary prospects tho, so they would...

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I have thought that the natural result of QE will be a pick-up in inflation that could get out of control and result in either high inflation or hyper-inflation.

I am slowly coming around to a different view. In the last 10 to 15 years, wealth become increasingly irrelevant as debt was readily available. To buy a car for £30k required wealth of £3k and debt of £27k. A £3k holiday required no wealth and debt of £3k. A house that cost £1m could be bought with wealth of £100k and debt of £900k.

The value of money was massively devalued by the availability of debt and became almost irrelevant.

Now that we are in a period where the world is massively deleveraging, wealth is suddenly becoming very important. Because debt is not freely available to anyone with a pulse anymore, money is becoming increasingly valuable relative to "things" which is resulting in deflation.

QE / ZIRP is really not powerful (or large) enough to replace all of the debt being repaid and the wealth that has been destroyed by the decline in the price of "things" relative to money.

Going forward, prices are going to have to continue to drop to a level that people can afford to pay from savings rather than debt.

While this trend may be reversed at some point in the future, I think that we are in for a longer and more vicious period of deflation than I had previously thought.

Yep, the true value of money way masked by the use of credit. Those with access to it could live quite well until the tap was turned off. Now that we've reached that stage and gone beyond it, the economy will by necessity, function on far less liquidity than before. This will mean severe austerity and a return to the make-do culture.

I'm not certain what the outcome will be, but by definition, what we're experiencing is deflation. Is it just possible that the central banks will pump enough liquidity into the system to more than compensate for the destruction of credit from other sources? That's the question.

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Guest Daddy Bear
Useful comment. Have you amended your sig so that it still looks like you are the prophet? You've made your case clear and you've made it clearer that whatever else is posted / whatever else is written you still believe hyper-inflation is going to happen. Others - myself included - haven't made up their minds. Call me ignorant on the matter but I haven't made up my mind, whatever I have read thus far on either side.

When I was predicting a HPC selling up to rent and joining this site you were probably a scratch in your old mans pants...

Ironically the date you joined this site was the day I completed on a house after renting for 2 years.

I sold at the peak and have bought in at the bottom for the house I wanted. (32% of peak), I have also taken out a 10 year fix at 4.99% (o.p allowed).

I have played the market to perfection.

Make up your mind, put your money where your mouth is.....but don't insult me.

You my friend sadly appear to be a wee bit behind the curve. :lol::lol:

DB

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they can't really make much money out of deflationary prospects tho, so they would...

HSBC as a bank tell their FA's to adhere to a certain message, hence the inflation message is not just his personal opinion but rather the banks. They are trying to sell index linked products.

Still does not mean I have to believe it though :)

He was pro gold and corporate bonds. Was saying steer clear of gilts. He did not give a view on equities as I had already informed him of mine....

And yes, 'Daddy Bear' and his constantly changing signature. Who is he trying to fool? He has about as much financial credibility as the person that empties my bin at work.

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Guest Daddy Bear
HSBC as a bank tell their FA's to adhere to a certain message, hence the inflation message is not just his personal opinion but rather the banks. They are trying to sell index linked products.

Still does not mean I have to believe it though :)

He was pro gold and corporate bonds. Was saying steer clear of gilts. He did not give a view on equities as I had already informed him of mine....

And yes, 'Daddy Bear' and his constantly changing signature. Who is he trying to fool? He has about as much financial credibility as the person that empties my bin at work.

http://www.housepricecrash.co.uk/forum/ind...=112739&hl=

:D

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