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Mikhail Liebenstein

Do We On Hpc Need To Be Careful About Denial Of Inflation

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I don't want this to come across as a Bullish post, and fundamentally I know the economy is in a state with too much reliance on the socially useless finance sector and not enough focus on genuine innovation and wealth creation.

So what I am about to put forward is a view that says, given that on the whole HPCers are correct, we still have to be careful about the system being fiddled.

A way of viewing the current economy is that money is poured in from the top (Central Banks), it then flows into the banks, who perhaps circulate it round a bit internally first and may be loan some to the Treasury where some is then spent by the Government in the real economy. And when the banks are sufficiently confident they also make loans to businesses and consumers who then spend in the real economy and as the money in the economy circulates transactions take place.

What has been happening with QE is that the Government has been filling holes in the banks balance sheets. But where QE goes beyond that, it builds up a great big dam of money. As more QE is added the pressure behind the dam will eventually be too much and the banks will start lending.

Now it is this lending that will have the interesting effect. As it starts, people will suddenly find they are able to do more business and so employment will increase and people will be more confident and will start to drive up asset prices and this then improves the banks balance sheets and so they lend more.

Now the point I am making is that in their reckless pursuit of permanent growth, the monetary authorities are perfectly happy to have a bit of inflation. Remember even if Zimbabwe was bust, it still had the best performing stock in pure index terms (ie not correct for currency).

So all I am postulating is that the action taken so far, QE and low interest rates will have an effect, because at the end of the day they could just flood the economy with money and if a loaf of bread costs £20 a house for £200k might seem cheap especially if average wages got to £200k. I'm not saying that we are there yet, or that this inflation will happen next week, but it might well be so in 5 years from now.

At the end of the day money is just a token a means of exchange, if exchange stops happening because people can't find enough token to buy things or repay previously borrowed tokens the Government will just print more tokens. In which case things will take more tokens to buy, but the tokens you borrowed before will seem like less of a burden.

In essence the Government will rob savers to repay the debts of the feckless.

If we repeat the 1970s, we might suddenly all be feeling very 1980s affluent shortly afterwards, even if it is an illusion.

Edited by mikelivingstone

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We the people will get shafted either way.

We are mere pawns to be played with.

Inflation is seen as good, but it only creates a high cost economy.

There plan clearly is to generate inflation to hide the fraud. Whether they can achieve that is another matter.

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Guest KingCharles1st
I don't want this to come across as a Bullish post, and fundamentally I know the economy is in a state with too much reliance on the socially useless finance sector and not enough focus on genuine innovation and wealth creation.

So what I am about to put forward is a view that says, given that on the whole HPCers are correct, we still have to be careful about the system being fiddled.

A way of viewing the current economy is that money is poured in from the top (Central Banks), it then flows into the banks, who perhaps circulate it round a bit internally first and may be loan some to the Treasury where some is then spent by the Government in the real economy. And when the banks are sufficiently confident they also make loans to businesses and consumers who then spend in the real economy and as the money in the economy circulates transactions take place.

What has been happening with QE is that the Government has been filling holes in the banks balance sheets. But where QE goes beyond that, it builds up a great big dam of money. As more QE is added the pressure behind the dam will eventually be too much and the banks will start lending.

Now it is this lending that will have the interesting effect. As it starts, people will suddenly find they are able to do more business and so employment will increase and people will be more confident and will start to drive up asset prices and this then improves the banks balance sheets and so they lend more.

Now the point I am making is that in their reckless pursuit of permanent growth, the monetary authorities are perfectly happy to have a bit of inflation. Remember even if Zimbabwe was bust, it still had the best performing stock in pure index terms (ie not correct for currency).

So all I am postulating is that the action taken so far, QE and low interest rates will have an effect, because at the end of the day they could just flood the economy with money and if a loaf of bread costs £20 a house for £200k might seem cheap especially if average wages got to £200k. I'm not saying that we are there yet, or that this inflation will happen next week, but it might well be so in 5 years from now.

At the end of the day money is just a token a means of exchange, if exchange stops happening because people can't find enough token to buy things or repay previously borrowed tokens the Government will just print more tokens. In which case things will take more tokens to buy, but the tokens you borrowed before will seem like less of a burden.

In essence the Government will rob savers to repay the debts of the feckless.

If we repeat the 1970s, we might suddenly all be feeling very 1980s affluent shortly afterwards, even if it is an illusion.

This is in essence what I have been saying for the last few years- prices can't drop, so they will "bring up the bottom."

So we have "inflation" although it isn't really inflation, it's just too difficult to work out quite what will happen.

I think the worst offender in the whole nineties/noughties financial farce is credit card loans/store cards etc. IF credit junkies can be weaned off that crap then there is hope- if not, then more of the same- LARGE.

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I think if we get inflation and move to a "higher cost economy" as you suggest then the flight of our industry to low cost economies will accelerate even further bringing even higher job losses. One example: The 70's wage inflation allowed the Conservatives to make 100,000 miners redundant in the 80s as we could ship and buy coal from Sth Africa, Poland etc for a lot cheaper than could be dug out of the ground on our doorstep.

Maybe this time around, the bloated financial services sector would be a candidate for "redundancy" as we exported the tasks to Asia and India?

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I always find inflation an interesting topic. For example, my Pop bought at the top of the last peak, paid a massive 80k for a property that should have been what 50k?

At today's wages etc it all seems irrelevant. My grandfolks bought their family home for 5k! Imagine if they have never paid a penny off of the mortgage! I would gladly repay it for them in a couple of monthly instalments lol.

Makes it hard for me to imagine that people will really be "debt slaves for life" - oh wait, it's different this time rofls :D;):rolleyes: !

:(

Edited by Orbital

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Surely, though, if inflation started to take off, interest rates would also have to rise. This would allow savers to at least partially maintain the value of their savings while, at the same time, precipitating a wave of repossessions and another round of HPC. Or am I being too ignorant/complacent here?

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Surely, though, if inflation started to take off, interest rates would also have to rise. This would allow savers to at least partially maintain the value of their savings while, at the same time, precipitating a wave of repossessions and another round of HPC. Or am I being too ignorant/complacent here?

Nope. Most parties seem quite content to let inflation roar without commensurate savings rates and possibly more importantly wage inflation. It is like a little game. In fact the only time that the central banks seem to bark is when they sniff wage inflation - odd that. This has not been thought through.

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I always find inflation an interesting topic. For example, my Pop bought at the top of the last peak, paid a massive 80k for a property that should have been what 50k?

At today's wages etc it all seems irrelevant. My grandfolks bought their family home for 5k! Imagine if they have never paid a penny off of the mortgage! I would gladly repay it for them in a couple of monthly instalments lol.

Makes it hard for me to imagine that people will really be "debt slaves for life" - oh wait, it's different this time rofls :D;):rolleyes: !

:(

Your Pop would have seen wage inflation, sometimes 10-15% PA, tha would have allowed him to pay off his debt(s).

Where's the wage inflation going to come from this time around in a global economy? My Chinese and Indian competitors aren't going to give their slaves a 15% wage rise just because their UK equivants have received one.......... :rolleyes:

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Surely, though, if inflation started to take off, interest rates would also have to rise. This would allow savers to at least partially maintain the value of their savings while, at the same time, precipitating a wave of repossessions and another round of HPC. Or am I being too ignorant/complacent here?

Interest rates NEVER keep pace with real world inflation - and certainly not after tax is applied to the interest.

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Your Pop would have seen wage inflation, sometimes 10-15% PA, tha would have allowed him to pay off his debt(s).

Where's the wage inflation going to come from this time around in a global economy? My Chinese and Indian competitors aren't going to give their slaves a 15% wage rise just because their UK equivants have received one.......... :rolleyes:

From the devalued pound.

As a result of the money printing mentioned by the original poster Mike Livingstone, the pound will devalue making imports and production in overseas counties more expensive for British consumers - That will inflate wages for British workers who will find themselves in a better bargaining power as a result.

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Interest rates NEVER keep pace with real world inflation - and certainly not after tax is applied to the interest.

Yes, that's why I wrote "partially maintain their value". And surely, in a high inflation environment, banks could not possibly continue to lend money at the current low interest rates, which must inevitably lead to repossessions and more HPC. Hopefully, "partially maintain" would be enough!

Edited by snowflux

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From the devalued pound.

As a result of the money printing mentioned by the original poster Mike Livingstone, the pound will devalue making imports and production in overseas counties more expensive for British consumers - That will inflate wages for British workers who will find themselves in a better bargaining power as a result.

Maybe.

I don't like it, but it could happen.

Check out what's happening in Argentina(again).

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From the devalued pound.

As a result of the money printing mentioned by the original poster Mike Livingstone, the pound will devalue making imports and production in overseas counties more expensive for British consumers - That will inflate wages for British workers who will find themselves in a better bargaining power as a result.

Im sorry, inflated prices means higher wages? theres 3 million unemployed dontchaknow

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Nope. Most parties seem quite content to let inflation roar without commensurate savings rates and possibly more importantly wage inflation. It is like a little game. In fact the only time that the central banks seem to bark is when they sniff wage inflation - odd that. This has not been thought through.

So you get a lot of price CPI inflation before you get wage inflation. As people are paying so much more for food fuel and shoes, they can afford less. First they cut down on luxuries, then they reduce quantity and quality of essentials, then they have to decide which essentials are essential. That tends to mean that basic consumables retain high prices, whilst assets start to fall. Some people call this biflation.

Finally repayment of debt stops looking like an essential and they default. This risks deflation in the broad money supply, but that's OK, as the banks are being stuffed with central bank money to cover the gaps.

lending is falling. money supply must be too...mustnt it?

As above, commercial bank money is (probably?) falling now, but central bank money is still rocketing.

Monetary biflation?

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From the devalued pound.

As a result of the money printing mentioned by the original poster Mike Livingstone, the pound will devalue making imports and production in overseas counties more expensive for British consumers - That will inflate wages for British workers who will find themselves in a better bargaining power as a result.

You think so ? Thre pound has devalued some 30% vs the Euro in the last 2 years. What's wage inflation been in the UK car industry, for example, where European car makers are a big competitor ?

Or how about those Total workers that were striking earlier in the year? Even after this devalution, they weren't asking for a wage rise but simply to keep their jobs.

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So what I am about to put forward is a view that says, given that on the whole HPCers are correct, we still have to be careful about the system being fiddled.

My take is that if the game is fiddled, then one would be idiotic to join in the game. Stock markets are clearly being manipulated. My reaction has been to pull money out of stocks. If you can't play in an honest game then why play at all?

Similarly, the housing market is being manipulated by QE and by overt acts such as mortgage support, politically-delayed repossessions, and tax relief on BTLs. This is a very difficult market to avoid but there two ways to do so - rent or own outright.

So, how do you make money? Well, first is preservation of course. But the only conclusion I could come to was rather than investing in manipulated shares or manipulated property, and given that they are trying to manipulate cash by creating inflation, then I should invest it in myself - ie. my own capabilities in terms of skills and in terms of starting my own business. It's impossible to avoid the fiddled system of course, but at least if I invest in assets I control as much as possible then I minimise the fiddling.

Now then, where can I get a state subsidy for my new business... :P

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Absolutely. If I could level one large criticism at this forum, it’s that most of its members only see what they want to see, and only hear what they want to hear. You’ve all been singing the same song for years now and continue to do so, meanwhile, the house price crash may have come and gone. That’s what happens when too many people with the same agenda come together in one place. Opposing views and the acceptance of being wrong are both greatly diminished.

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Absolutely. If I could level one large criticism at this forum, it’s that most of its members only see what they want to see, and only hear what they want to hear. You’ve all been singing the same song for years now and continue to do so, meanwhile, the house price crash may have come and gone. That’s what happens when too many people with the same agenda come together in one place. Opposing views and the acceptance of being wrong are both greatly diminished.

Look at the chart on the front of the website homepage. Some think it may still have a downward trend, others - bulls possibly - think it will stabalise or move upwards. Nothing wrong with that and there are debates on here all the time on the subject.

The site is called House Price Crash, so anyone coming on to debate knows what they are participating in.

Is there an equivalent site for Bulls ? eg. HousePriceIncrease.co.uk , where everyone gets together and marvel at the month-on-month increases?

I agree that accepting one is wrong is a good trait to have, but I don't think the game is yet over. Do you ? :unsure:

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I always find inflation an interesting topic. For example, my Pop bought at the top of the last peak, paid a massive 80k for a property that should have been what 50k?

At today's wages etc it all seems irrelevant. My grandfolks bought their family home for 5k! Imagine if they have never paid a penny off of the mortgage! I would gladly repay it for them in a couple of monthly instalments lol.

Makes it hard for me to imagine that people will really be "debt slaves for life" - oh wait, it's different this time rofls :D;):rolleyes: !

:(

Try telling that to a Tokyo FTB from the late 80's - There are plenty of 'debt slaves for life' in Japan

Why? A demographic time bomb exploded in Japan in the early 90's

The UK has a similar demographic time bomb about to go off

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I think it is a worthwhile question. It does all boil down to how the extra liquidity manifests in the real economy:

(i) If it was just the UK doing this sterling would fall. But with all governments inflating their money it isn't clear who the winners and losers will be. And the outcome coudl throw the answers to all of the following so... there is no known answer yet...

(ii) I just can't see wage increases for the majority, in the next few years, unless there is a big switch in sentiment. So a few banking bonuses won't change the overall affordability situation. In the longer term - 5-10 years I'm less confident this won't happen.

Wage increases are, of course, the solution to the government's debt problems but only if they cap public sector pensions first.....hmmmm have I heard something about this recently, I think so...can you guess what the plan is .....?

(iii) Prices of goods? These may well rise ( and the stock market at the moment is betting that prices will rise without corresponding labour cost rises.. it's not manipulation as such just speculation). I think the jury is out on this - probably some industries yes, and will depend on outcome of (i), and, of course, consumer purchasing power which (ii) says won't rise yet.

(iv) House prices can't be put in the same basket as share prices at the moment. Indeed the very conditions which would cause a stock market rise in (iii) - flat wages and increased prices would suggest less affordability and further house prices falls. However, we don't have a clear picture of the true market yet- low volumes and low interest rates in some cases are postponing the inevitable and misleading a lot of people.

However were wages to start rising rapidly ( more than 5% p.a), and sterling fall correspondingly to maintain competitiveness, then it really would be the time to buy. Until you see that, you're on safe ground putting your feet up and watching the show.

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Absolutely. If I could level one large criticism at this forum, it’s that most of its members only see what they want to see, and only hear what they want to hear. You’ve all been singing the same song for years now and continue to do so, meanwhile, the house price crash may have come and gone. That’s what happens when too many people with the same agenda come together in one place. Opposing views and the acceptance of being wrong are both greatly diminished.

He's right. Ive said it a few times, but the people (like myself) who have been saying house prices cant go up any further, they will crash. Were wrong for what, 8 years??? We have only gone back about 2 years in price terms, so thats still 75% wrong.

If we had sucked it up and bought 5 years ago, we would still be better off now. Not only would we be 1/5 of the way through a mortgage some of us would now be enjoying the very low interest rates and could be knocking years off our debt. We would still be in positive equity.

Personally my time waiting has shown me how down hill this country is going, and I really dont want to buy here as I hate it. So for me renting is about not being trapped. But for those of you who do want to commit to living here, not buying was a mistake.

Edited by Johnny Storm

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Could the effect of all this QE be inflationary for food etc and deflationary for assets, but only on a local level because it will be accompanied by a big devaluation of the pound (triflation?) ? ie we might end up with the GPB20 loaf of bread, GBP200k average wage and GBP200k average house, but with the GBP worth much less internationally. The situation for the average worker in this scenario isn't too bad as long as they don't try to spend any money abroad, or too much on imported goods/services; it might even help employment as the average UK worker starts to become cheap to employ for multinationals. After all, this year I'm around 20% cheaper to employ for my US parent company than I was 2 years ago.

[nb - economics is not my area. Please show me where I'm wrong here]

Edited by RentingForever

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Could the effect of all this QE be inflationary for food etc and deflationary for assets, but only on a local level because it will be accompanied by a big devaluation of the pound (triflation?) ? ie we might end up with the GPB20 loaf of bread, GBP200k average wage and GBP200k average house, but with the GBP worth much less internationally. The situation for the average worker in this scenario isn't too bad as long as they don't try to spend any money abroad, or too much on imported goods/services; it might even help employment as the average UK worker starts to become cheap to employ for multinationals. After all, this year I'm around 20% cheaper to employ for my US parent company than I was 2 years ago.

[nb - economics is not my area. Please show me where I'm wrong here]

Correct in theory, but two very significant flaws in the argument:

Britain does not produce a great deal in the way of tangibles; thus we are dependent on imports. Even a fair chunk of the service sector - i.e. virtually all non-food retail - is wholly dependent on cheap imports

Second, not all UK debt is sterling denominated. IIRC about 1/3 of securatised UK mortgage debt is denominated in other currency USD, EUR, JPY or whatever. Ironically the expiry of such notes may be supporting demand for sterling; as the loans go back OBS.

So there comes a point where currency devaluation no longer erodes the net UK debt

Hence I don't buy this 'trash the currency to inflate your way out of debt' argument. It will not fly in the face of economic reality.

But that does not mean that the government wont be stupid enough to try.

Edited by Sonic the Hedge Fund

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Correct in theory, but two very significant flaws in the argument:

Britain does not produce a great deal in the way of tangibles; thus we are dependent on imports. Even a fair chunk of the service sector - i.e. virtually all non-food retail - is wholly dependent on cheap imports

Second, not all UK debt is sterling denominated. IIRC about 1/3 of securatised UK mortgage debt is denominated in other currency USD, EUR, JPY or whatever. Ironically the expiry of such notes may be supporting demand for sterling; as the loans go back OBS.

So there comes a point where currency devaluation no longer erodes the net UK debt

Hence I don't buy this 'trash the currency to inflate your way out of debt' argument. It will not fly in the face of economic reality.

But that does not mean that the government wont be stupid enough to try.

Bump

Not to mention ever increasing dependence on energy imports.........

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