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Boe To Warn That Uk Risks Slump Into Deflation

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BoE to warn that UK risks slump into deflation

The Bank of England will downgrade its growth forecasts and issue a warning this week that the UK economy risks slumping into a debt deflation trap, the Telegraph reported on Monday.

The newspaper said BoE Governor Mervyn King will use the Bank's Inflation Report on Wednesday to say the risk of such a slump was one of the main reasons behind the bank's surprise decision last week to extend its quantitative easing programme.

The paper also cited former BoE monetary policy committee (MPC) member Sushil Wadhwani -- now a hedge fund manager -- as saying the current apparent upturn in the UK economy may be wiped out by another downturn next year.

Wadhwani told the Telegraph he saw growing evidence the UK was tracking a similar path to that of the Japanese economy in 1990s, which apparently recovered from its initial economic crisis only to fall into stagnation for decades.

"The recession is over, in the sense that you will probably now get three to four quarters of a decent bounce -- just as Japan did in the early 1990s," Wadhwani told the paper. "People think things will then return to normal -- but these bounces are driven by temporary factors."

"The second half of 2010 could be more difficult for the UK than 2009," he added. "There will be a big fiscal tightening, the VAT (value added tax) cut will have gone; and the world as a whole will be slowing at that point. You will have several things coming together which will dampen the economy."

The BoE stunned markets on Thursday with a 50 billion pound increase in its quantitative easing (QE) programme to 175 billion pounds ($293 billion).

The Bank's policymakers said weak economic conditions and tight credit warranted a large expansion to keep inflation on track to meet their 2 percent target, suggesting their new growth and inflation forecasts next week will be gloomy.

The Telegraph said Wadhwani's warning was likely to be echoed by King, who will say that although the worst of the recession is now passed, the knock-on effects on lending to companies and individuals mean the recovery will feel almost as painful as the downturn.

It said King would refuse to rule out extending the QE scheme beyond the 175 billion pound level set by the MPC this week.

The title is a bit misleading. It should read 'UK will slump into deflation', but that is just a case of semantics really.

The BoE will 'stun' the market again and again as it keeps printing more worthless money.

Sorry Sibley and all you rampers. Better get used to the 'shape' of things to come, as we are following Japan's model, hook, line, an sinker. The difference here is that the citizens have no wealth, no savings.

japan-house-prices--nov08.gif

Edited by cashinmattress

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BoE to warn that UK risks slump into deflation

The title is a bit misleading. It should read 'UK will slump into deflation', but that is just a case of semantics really.

The BoE will 'stun' the market again and again as it keeps printing more worthless money.

Sorry Sibley and all you rampers. Better get used to the 'shape' of things to come, as we are following Japan's model, hook, line, an sinker. The difference here is that the citizens have no wealth, no savings.

japan-house-prices--nov08.gif

deflation was always inevitable due to the massive deleveraging of credit and money.

it obvious what will happen to everyone except those whose viewpoint is focused only on a month by month basis.

japan tried to do the same trick to avoid deflation, interest rates at 0.5%, massive stimulus package, none of it worked either.

its embarrassing watching financial analysts say that the fiscal stimulus is working.

a fiscal stimulus is spending money now using money youve borrowed that needs to be paid back later. a lot of them still havent worked that out yet and its shocking beyond belief.

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its embarrassing watching financial analysts say that the fiscal stimulus is working.

a fiscal stimulus is spending money now using money youve borrowed that needs to be paid back later. a lot of them still havent worked that out yet and its shocking beyond belief.

If Financial Analysts can't work that out, where does that leave us?

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japan-house-prices--nov08.gif

Someone humour me, it's late.

Why did Japanese property prices fall for 15 years, as in what happened to ordinary joe public?

Did banks not lend money to people? Did they want higher deposits? Did the pubilc say no thanks I'm shit scared?

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So does this mean that I should just go out and buy a house now, as I will have to wait another thirteen years to get a bargain?

Hmm, or wait? wait wait wait... fed up with it.

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Someone humour me, it's late.

Why did Japanese property prices fall for 15 years, as in what happened to ordinary joe public?

Did banks not lend money to people? Did they want higher deposits? Did the pubilc say no thanks I'm shit scared?

A few factors I suspect - even though there was a ZIRP, individuals mortgage rates were higher. Banks were zombie banks (ie technically insolvent) so wanted bigger deposits and less risk. And individuals eventually thought they'd put off the property purchase as house prices can only ever go down.

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Someone humour me, it's late.

Why did Japanese property prices fall for 15 years, as in what happened to ordinary joe public?

Did banks not lend money to people? Did they want higher deposits? Did the pubilc say no thanks I'm shit scared?

I think debt revulsion, and buying into a falling market were factors.

near zero interest rates are there for one reason only....to get people borrowing.....they never did.

thats why we have it here too.....

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I think debt revulsion, and buying into a falling market were factors.

near zero interest rates are there for one reason only....to get people borrowing.....they never did.

thats why we have it here too.....

This is deluded tripe (pardon my french)

There is no lending because there are no savings to lend (real market interest rates are high, and credit standards are too tight)

The reason there are no savings available is because the goverment is soaking up what pittiful savings there are. Even the government cannot borrow all it wants, hence it is printing money.

While there are savings, there will always be borrowers.

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So does this mean that I should just go out and buy a house now, as I will have to wait another thirteen years to get a bargain?

Why do you have to buy...why don't you rent and save your money instead, just like the Japanese. Your money will be able to buy more each year.

I believe the 20th century paradigm of working all your life to pay off a mortgage may change to saving all your life to buy a home when you retire where you want to live.

Think about it...you save your money in a SIPP and ISAs for 25-30 years, getting tax back etc. At the age of 60ish you are able to take 25% of your SIPP out and use all your ISAs to possibly buy a house cash. At that point loads of boomers will be dying leaving a vast swathe of affordable properties in the bracket you are buying in.

Of course, this goes against our natural desire for the security of 'owning' our own home now, however for most of the duration of a mortgage we only rent it off the bank. Over the period of the mortgage you pay for the house twice over.

If we are entering a period of terminal decline in real terms of property prices (which is possible given our indebtedness and the prospect of increasing energy prices) it makes sense to adopt this strategy...it requires big Cajones though!

Edited by HovelinHove

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The comparisons with Japan are utterly unfounded, and deliberate propaganda by the authorities.

Japan was a productive economy that created a lot of savings.

The UK is non-productive and has little to no savings (which are already being earmarked by government)

It is precisely this difference that determines whether you get a Japan or US 1930s, or whether you get a Zimbabwe or Weimar experience with the currency.

Don't screw this up folks, you only get one shot at this!

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http://uk.biz.yahoo.com/10082009/325/machi...-ill-japan.html

Monday August 10, 08:35 AM

Reuters

Machinery order outlook bodes ill for Japan

By Tetsushi "Sushi" Kajimoto

TOKYO (Reuters) - Japanese manufacturers forecast a sixth straight quarterly fall in machinery orders in July-September, suggesting they remain wary of expanding their production capacity despite signs of a global economic recovery.

The consequences of Japan's housing boom of the 80's lingers on and on and on and on. If Gordon and the EAs think our boom is going to recover before it has even begun they are criminally dissolusioned. Instead of trying to re-stoke inflation in a market that nearly finished us as a nation they should be encouraging a healthy dose of deflation for the sake of future generations and freedom from debt.

Edited by Realistbear

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Someone humour me, it's late.

Why did Japanese property prices fall for 15 years, as in what happened to ordinary joe public?

1: Did banks not lend money to people?

2: Did the pubilc say no thanks I'm shit scared?

1: No they lent it to foreigners ( the japanese carry trade was the result)

2: Yes, that's about the size of it (as so many of them were trapped in negative equity/ loaded with intergenerational mortgages ....etc

The recent world wide credit and stock market boom had its foundation in the carry trade (plus Greenspan dropping rates for too long after 9/11). Institutions borrowed from the bank of Japan and re-lent to Western consumers, or leveraged the money up to buy options, shares , derivatives.

Edited by Jack's Creation

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deflation was always inevitable due to the massive deleveraging of credit and money.

it obvious what will happen to everyone except those whose viewpoint is focused only on a month by month basis.

japan tried to do the same trick to avoid deflation, interest rates at 0.5%, massive stimulus package, none of it worked either.

its embarrassing watching financial analysts say that the fiscal stimulus is working.

a fiscal stimulus is spending money now using money youve borrowed that needs to be paid back later. a lot of them still havent worked that out yet and its shocking beyond belief.

Richard Koo has argued that Japan's stimulus did work insofar as it prevented a massive collapse in GDP, and with it Japanese society no doubt. Sure, it has lead to a stagnant economy with near zero growth but hey, given the alternative, it certainly worked.

Thanks to the insane monetary model, it seems they now have no other choice but to provide massive stimulus. An economic collapse suits the purposes of no-one... perhaps at best they can slow the contraction with QE. At worst... well what other options do they have?

Edited by roman holiday

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deflation was always inevitable due to the massive deleveraging of credit and money.

it obvious what will happen to everyone except those whose viewpoint is focused only on a month by month basis.

japan tried to do the same trick to avoid deflation, interest rates at 0.5%, massive stimulus package, none of it worked either.

its embarrassing watching financial analysts say that the fiscal stimulus is working.

a fiscal stimulus is spending money now using money youve borrowed that needs to be paid back later. a lot of them still havent worked that out yet and its shocking beyond belief.

Richard Koo has argued that Japan's stimulus did work insofar as it prevented a massive collapse in GDP, and with it Japanese society no doubt. Sure, it has lead to a stagnant economy with near zero growth but hey, given the alternative, it certainly worked.

Thanks to the insane monetary model, it seems they now have no other choice but to provide massive stimulus. An economic collapse suits the purposes of no-one... perhaps at best they can slow the contraction with QE. At worst... well what other options do they have?

Edited by roman holiday

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This is deluded tripe (pardon my french)

There is no lending because there are no savings to lend (real market interest rates are high, and credit standards are too tight)

The reason there are no savings available is because the goverment is soaking up what pittiful savings there are. Even the government cannot borrow all it wants, hence it is printing money.

While there are savings, there will always be borrowers.

The reason why the yeild on Japanese Government bonds were super low was that government was the only ones that banks COULD lend to. There was only a very short credit crunch in Japan, banks were very eager to lend and apparently could deliver money faster than a pizza could be delivered. Problem was no-one wanted to lend. They all wanted to repair their "balance sheet".

Richard Koo is a good listen on Japan.

http://media.csis.org/er/090326_koo.mp3

posted originally by tbbeta

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Hedge Fund managers controlling the B of E. Bank bosses have the FSA on a string. A corrupt govenment entwined with big business.

The gap between rich and poor grows by the day.

As each day goes by my gut feeling is to flee before being trapped when sterling collapses - but where?

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1: No they lent it to foreigners ( the japanese carry trade was the result)

2: Yes, that's about the size of it (as so many of them were trapped in negative equity/ loded with intergenerational mortgages ....etc

The recent world wide credit and stock market boom had its foundation in the carry trade (plus Greenspan dropping rates for too long after 9/11). Institutions borrowed from the bank of Japan and re-lent to Western consumers, or leveraged the money up to buy options, shares , derivatives.

History ryhmes yet again. Look at all that cheap American money going into China now blowing up more bubbles. this one shouldn't take too long to crash.

Edited by roman holiday

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The comparisons with Japan are utterly unfounded, and deliberate propaganda by the authorities.

Japan was a productive economy that created a lot of savings.

The UK is non-productive and has little to no savings (which are already being earmarked by government)

It is precisely this difference that determines whether you get a Japan or US 1930s, or whether you get a Zimbabwe or Weimar experience with the currency.

Don't screw this up folks, you only get one shot at this!

If we had Labour for another 5 years, I'd say we were going to Zimbabwe, but with Tories coming...it's Japan.

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