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Bank Of England Warns Of The Consequences Of Thrift

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http://www.telegraph.co.uk/finance/economi...-of-thrift.html

An attempt by British consumers to rein in spending after the harsh lessons of the recession could limit growth and therefore depress household income further, the Bank of England warns today.

It says in its latest Quarterly Bulletin that household decisions to spend or save will have major consequences for the economic outlook, because consumer spending accounts for two-thirds of total spending in the UK.

"Any attempt to reduce consumption is likely to push down on output and hence household incomes. That could actually make it harder for households to increase their savings – known as the paradox of thrift."

The Bank says that even if households saved as much as 10pc of income, it would take nine years to bring wealth back up to the average of the last 20 years.

Credit conditions are likely to remain tight, the Bank says, which could limit spending – as could job insecurity.

The Bank also says that most financial asset prices have continued to increase over the third quarter and conditions in bank funding markets have improved. Improvement in sentiment has prompted analysts to revise upwards their expectations for short-term corporate earnings, coinciding with a rise in equity prices.

It reveals in the Bulletin that, from July 24 to August 4, the Bank did not buy any corporate bonds after receiving no offers in five consecutive auctions.

How can anyone be in any doubt about the idiots we have at the BoE and they all supposedly hold PHD's.

So everyone needs to spend all they earn in the vain hope it will boost demand at a point in time when everyone is fearing losing there jobs and there is no money to borrow. Even if people did this all we would be doing is supporting Asian manufacturers so they in turn would need to lend the money back to us for us to afford goods.

Somehow I think we've already crossed the point of no return and the system is imploding and another debt led expansion is not going to work.

Edited by interestrateripoff

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The bloke on the bbc breakfast news spoke to someone about pensions.

He got told he should be saving 20pc of his income ages 39 to save for ahis pension. (And that would give him a 1/3-1/2 salary pension)

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http://www.telegraph.co.uk/finance/economi...-of-thrift.html

How can anyone be in any doubt about the idiots we have at the BoE and they all supposedly hold PHD's.

So everyone needs to spend all they earn in the vain hope it will boost demand at a point in time when everyone is fearing losing there jobs and there is no money to borrow. Even if people did this all we would be doing is supporting Asian manufacturers so they in turn would need to lend the money back to us for us to afford goods.

Somehow I think we've already crossed the point of no return and the system is imploding do debt led expansion is not going to work.

Its quite a reasonable comment.

The problem is that our economy is unbalanced. In an economy based on consumer spending, we must increase consumer spending to keep the economy growing.

I'm not saying it is right. If our economy were based on gassing Jews and pulling their gold teeth the BOE would argue for gassing more Jews.

The nature of our economy is a political choice. Its not for the BOE to decide political direction.

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"The Bank says that even if households saved as much as 10pc of income, it would take nine years to bring wealth back up to the average of the last 20 years."

Debt is wealth.

Saving is poverty.

Negative interest rates are good for you.

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How can anyone be in any doubt about the idiots we have at the BoE and they all supposedly hold PHD's.

So everyone needs to spend all they earn in the vain hope it will boost demand at a point in time when everyone is fearing losing there jobs and there is no money to borrow. Even if people did this all we would be doing is supporting Asian manufacturers so they in turn would need to lend the money back to us for us to afford goods.

Somehow I think we've already crossed the point of no return and the system is imploding and another debt led expansion is not going to work.

The problem with the paradox of thrift in this case is not with consumers, who by historical standards are not saving much, but with employers - with total wage based income dropping and pay cuts/freezes across the board, even in profitable companies that could afford pay rises, how, exactly, do these captains of industry expect to increase sales?

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"I have reached the conclusion that this government (New Labour) and its various "independent" branches such as the Bank of England and the myriad "experts" with vested interests in continuing debt fulled prosperity are under a very dangerous spell cast by a certain Scotsman whose motives appear to be based on self-aggrandisement."

I agree.

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2x earnings would that do it?

Or do we need to go higher?

Yes, I think about 2x earnings. If we all spend that, everything will be just fine. Now get out there and shop.

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How can anyone be in any doubt about the idiots we have at the BoE and they all supposedly hold PHD's.

Not really, the paradox of thrift is fairly basic A-level standard economics and they were just pointing it out. You can look at Japan to see a good example of it in action. You wrote "So everyone needs to spend all they earn", but the BoE didn't suggest anything of the kind. You seemed to have twisted what they said to suit your point, whatever your point was.

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Not really, the paradox of thrift is fairly basic A-level standard economics and they were just pointing it out. You can look at Japan to see a good example of it in action. You wrote "So everyone needs to spend all they earn", but the BoE didn't suggest anything of the kind. You seemed to have twisted what they said to suit your point, whatever your point was.

I understand the paradox thrift, my point it that it is going to exist because we are over extended with debt.

The debt needs paying off which creates it's very own paradox thrift. You can't keep debt levels expanding forever.

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"the paradox of thrift is fairly basic A-level standard economics"

Is that the one where the savings rate is too low to support investment so the government has to step in and print money....

Or is it the one where overseas investors have to come over and buy up your country's assets because nobody has saved enough to invest themselves...

Or is it the one where pensioners have to be paid out of current tax receipts because nobody saved for their retirement?

Debt is good.

Thrift is bad.

Negative interest rates are good for you...

Edited by Toto deVeer

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Guest P-Diddly
The bloke on the bbc breakfast news spoke to someone about pensions.

He got told he should be saving 20pc of his income ages 39 to save for ahis pension. (And that would give him a 1/3-1/2 salary pension)

I just moved to a country where cigs are cheap. That should sort the pension out.

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The bloke on the bbc breakfast news spoke to someone about pensions.

He got told he should be saving 20pc of his income ages 39 to save for ahis pension. (And that would give him a 1/3-1/2 salary pension)

Maybe giving an example for a man aged 39 rather than the presenter himself.

The presenter (and anyone he happens to be living with at the time-male or female) will benefit from the BBC final salary pension at taxpayer expense so he doesn't need to worry.

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i.e. If you are going to repay debt and save, do it first. Alternatively, keep spending until you are the only feckless last one and then realise there is no money left to pay it back.

The readjustment must be made. In reality, all the BoE is pointing out is the inevitable pain ahead of us.

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He may wish to address his comments to the Chinese.

They're the problem, not white van man.

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The bloke on the bbc breakfast news spoke to someone about pensions.

He got told he should be saving 20pc of his income ages 39 to save for ahis pension. (And that would give him a 1/3-1/2 salary pension)

no, thats not saving, thats spending on a pension....keeps bankers in jobs.

what he means is saving for your own benefit....bankers not needed for that job.

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Not really, the paradox of thrift is fairly basic A-level standard economics and they were just pointing it out. You can look at Japan to see a good example of it in action. You wrote "So everyone needs to spend all they earn", but the BoE didn't suggest anything of the kind. You seemed to have twisted what they said to suit your point, whatever your point was.

totalcreditmarket.jpg

Considering that debt has clearly driven expansion, please tell me how much more debt we can take

to stop the paradox of thrift?

Ludwig von Mises describes the endgame brought on by reckless expansion of credit: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

Please explain in simple A-level terms how we get around this problem?

Edited by interestrateripoff

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"What do I have to say today to justify more printing?"

Lie

Printy printy

Lie

Printy printy

Lie

Printy printy

Lie

Which comes first, the lie or the print?

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Guest happy?
http://www.telegraph.co.uk/finance/economi...-of-thrift.html

How can anyone be in any doubt about the idiots we have at the BoE and they all supposedly hold PHD's.

So everyone needs to spend all they earn in the vain hope it will boost demand at a point in time when everyone is fearing losing there jobs and there is no money to borrow. Even if people did this all we would be doing is supporting Asian manufacturers so they in turn would need to lend the money back to us for us to afford goods.

Somehow I think we've already crossed the point of no return and the system is imploding and another debt led expansion is not going to work.

The paradox of thrift is quite a simple concept and like QE it is counterintuitive. Paradox of thrift requires people to spend money rather than pay down debt as to save or pay down debt now would drive the economy further into recession.

The difficulty for politicians is that there is little/no-room to manouevre, wee Georgie's ideas seem sensible and practical until you consider the consequences. Paradox of thrift therefore requires the individual to spend to drive growth - there is some implicit/vague notion that at some stage government spending will be reduced, Vince Cable seems to have grasped this but has given no indication when that may happen. Ken Clarke knew it and managed to time it correctly in the last recession.

Whilst I recognise there is some merit in paradox of thrift I've always been a skinflint and anyone relying on the likes of me to drive the economy is going to be sorely disappointed. I have all the consumer-goods I want and anything new will merely be replacing stuff I cannot get repaired.

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The only trouble is that people don't have much spare cash to spend. Most have already borrowed as much as they can. We cannot just keep borrowing earning from the future to spend now. It has to stop sometime.

Edited by BalancedBear

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The paradox of thrift is quite a simple concept and like QE it is counterintuitive. Paradox of thrift requires people to spend money rather than pay down debt as to save or pay down debt now would drive the economy further into recession.

It's ********.

If I pay my debts then someone else has my money - if they want to buy things, they will.

If they don't, they won't and theres nothing wrong with that at all.

A perfectly valdi economic outcome is for more or less everyone to laze about the house all day doing a minimum. If they don't want to make lots of stuff, it's fine. If they do, it's fine.

Obviously our slave masters don't like to see us idle so they come up with this sort of bilge to justify prodding us into unwanted activity. :angry:

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