If Inflation Starts Going In The Uk

[scepticus]

It's what the word savings means, you see - to put something to one side and not use it. Nobody uses the word savings as you do bar, a few thief bankers and apologist "economists".

I think you are right about the general perception. You can see that from posts on this board, which are certainly more informed than your average joe.

However of course in reality savings are spendings. That is what capitalism is.

People don't realise they can't earn interest unless someone spends their savings.

The crucial insight is that civilisation as a whole doesn't save a bean, ever. Everything is consumed.

[Injin]

I think you are right about the general perception. You can see that from posts on this board, which are certainly more informed than your average joe.

However of course in reality savings are spendings. That is what capitalism is.

No, savings are real things put by that aren't currently in use. That's what savings are in reality.

People don't realise they can't earn interest unless someone spends their savings.

That's because banking is fraud, not because they at wrong. It's a very simple form of misdirection, this - to use one word with two meanings and rely on the victims use of thw word to steal from them.

Generally people think they earn interest because the bank gives them a portion of it's fees, charges etc and that the bank lends it's own money (savings.)

The crucial insight is that civilisation as a whole doesn't save a bean, ever. Everything is consumed.

You are sat on a chair (saving) typing into a PC (saving) in a house (saving) having eaten breakfast (which was saving until you ate it)

Civilisation IS savings.

[BalancedBear]

Right now people who inherited large amounts of money have been getting an easy ride. They've been making like 4% on their money while not taking any risk whatsoever. The idle rich. But someone is having to pay for that extravagance.

Now policy may be moving the other way, where the real value of their money will decline unless they spend it now. Although so far even with all this printing and ZIRP there stil has been a slight deflation.

In an era where there is way too much savings like everyone saving for a retirement of luxury.. and not enough opportunity. NIRP becomes the logical outcome. NIRP meaning to me holding government bond rates under 1%, while causing an inflation of say 5-10% a year.

Posts like this show that lunatics are beginning to run the asylum. 4% for no risk is not a huge reward before tax when inflation has run at about 3% - yes prices are rising this year, just take a look at the RPI stats.

It is entirely right that money does have a price, as otherwise nobody would need to work and could just borrow money at zero % forever. Money is a medium for exchange and it needs to have a correct market value, not a fake one set by governments. If it is manipulated for any period of time, it will become worthless and people will use other mediums of exchange. If we get high inflation there is no way anyone is going to save sterling, rates will have to rise, or currency collapse will ensue. The BOE will be able to print as much as they want, but nobody will want the money.

Edited October 28, 2009 by BalancedBear

[Alan B'Stard MP]

Most people who have "cash in the bank" think they have cash in the bank. i.e. it's just sat there waiting for them.

It's what the word savings means, you see - to put something to one side and not use it. Nobody uses the word savings as you do bar, a few thief bankers and apologist "economists".

Where do you people think interest comes from? The tooth fiary?

[Sour Mash]

This is not about IF we get inflation, but WHEN.

Let me be more precise; it will be stagflation, with wage increases lagging and standards of living falling even lower than they are now.

Yep - even if the economy was genuinely growing, wage rises for earners and interest rates for savers never keep pace with the erosion in value of their salaries/savings.

However with the way things are going we'll see an economy in the doldrums combined with hefty price inflation. So the salary increases will be nowhere near enough to even give the pretence of keeping pace. Given the massive balance of trade deficit, it's clear that the country has long been living beyond its means on imported goods so the fall in living standards for the general public will be even more marked with a weak pound and weak economy.

On the positive side, I'd say there's still scope for another sizeable drop in nominal house prices alongside their erosion in value due to the debasement of the currency.

[scepticus]

You are sat on a chair (saving) typing into a PC (saving) in a house (saving) having eaten breakfast (which was saving until you ate it)

Civilisation IS savings.

What an interesting perspective. You equate savings and wealth, or rather savings=physical goods. The problem is the chair breaks eventually (and every time I sit on it I consume more of the chair), the PC has a built in life of about 3 years, and my breakfast if I don't eat it will probably last a month or three max. Likewise all these things consume energy in production and use, and energy is never saved except in batteries.

What about services? A haircut. If there is a hairdresser with no customers as that a saving?

Physical goods can't last. Money in theory can last forever and maintani its value if it is kept in circulation. That is the difference, and that is the basis of our civilisation called capitalism.

[scepticus]

Posts like this show that lunatics are beginning to run the asylum. 4% for no risk is not a huge reward before tax when inflation has run at about 3% - yes prices are rising this year, just take a look at the RPI stats.

Any risk free reward above 0% (real return) is a ponzi scheme and will eventually fail. It's distortionary to markets - the idea you can get even a small return for no risk.

[Injin]

What an interesting perspective. You equate savings and wealth, or rather savings=physical goods. The problem is the chair breaks eventually (and every time I sit on it I consume more of the chair), the PC has a built in life of about 3 years, and my breakfast if I don't eat it will probably last a month or three max. Likewise all these things consume energy in production and use, and energy is never saved except in batteries.

That's right, kiddo. In order to consume, you must first save.

What about services? A haircut. If there is a hairdresser with no customers as that a saving?

Saving of what?

Physical goods can't last. Money in theory can last forever and maintani its value if it is kept in circulation. That is the difference, and that is the basis of our civilisation called capitalism.

No, capitalism is the saving of real things today so you can make more real things tomorrow.

It requires things saved in reality. Cell life is not possible without savings, stored energy. Humans have been clever and externalised this process into the physical world through the manipulation of objects. (Such as storing grain, pooling water and so on.)

Savings first, then consumption - no other system is possible for very long because it means death to try.

[ken_ichikawa]

It requires things saved in reality. Cell life is not possible without savings, stored energy. Humans have been clever and externalised this process into the physical world through the manipulation of objects. (Such as storing grain, pooling water and so on.)

Savings first, then consumption - no other system is possible for very long because it means death to try.

A very good anology , except that when there are no savings , then the cannibalism starts , I think I'll go practice with my bow as surely soon we will have to start hunting other humans for food.

[Johnny Storm]

This is not about IF we get inflation, but WHEN.

Let me be more precise; it will be stagflation, with wage increases lagging and standards of living falling even lower than they are now.

We've had that for years, probably around 10. The company I used to work for, (and im sure this was not uncommon) used to give a 2%, 3% or so pay rise every year. Everything went up more than that. Food, council tax, fuel, electricity. So every year was everyone worse off than the previous year.

People didnt care too much, as long as they owned a property that went up 10% or so a year.

[ken_ichikawa]

We've had that for years, probably around 10. The company I used to work for, (and im sure this was not uncommon) used to give a 2%, 3% or so pay rise every year. Everything went up more than that. Food, council tax, fuel, electricity. So every year was everyone worse off than the previous year.

People didnt care too much, as long as they owned a property that went up 10% or so a year.

I remember the big divide in our office one side the property owners who seemed happy with their 0.5% increase and the 3 renters who were perpetually being screwed.

This was particularly nasty as we were also tasked with senidng out fee notes which would invariably be 10% on last year for the same amount of work and yet we would be paid less..

You might say go get a better paying job but when there are cartels out there to make sure wages stay low its almost as if you can't win

[scepticus]

No, capitalism is the saving of real things today so you can make more real things tomorrow.

In injinland you call that capitalism. I call it what humans have been doing since the year dot. I call it technology.

Capitalism is just a technology, a codification of the process by which the current surplus (the new surplus extracted, not the forms of prior surpluses) is divided between individuals and the way in which consumption of the surplus may be temporally deferred by one individual or another.

Back to the hairdresser. What do we call the hairdressers skill? Presumably if people value having a nice haircut that's wealth/savings in your definition.

[RB's love cub]

No one has mentioned peak oil, the low blip in price has now gone, it will make all the toxins in the mud a whole lot worse

[Injin]

In injinland you call that capitalism. I call it what humans have been doing since the year dot. I call it technology.

Year dot?

That'll be why they had space shuttles in the time of christ...oh hang on....

Capitalism is just a technology, a codification of the process by which the current surplus (the new surplus extracted, not the forms of prior surpluses) is divided between individuals and the way in which consumption of the surplus may be temporally deferred by one individual or another.

Nope.

Back to the hairdresser. What do we call the hairdressers skill? Presumably if people value having a nice haircut that's wealth/savings in your definition.

Nope.

[spivT]

I think you are right about the general perception. You can see that from posts on this board, which are certainly more informed than your average joe.

However of course in reality savings are spendings. That is what capitalism is.

People don't realise they can't earn interest unless someone spends their savings.

The crucial insight is that civilisation as a whole doesn't save a bean, ever. Everything is consumed.

you seem to have an obession, or rather a chip on your shoulder, about people getting a 'return' on their bank savings.

i keep my 'savings' in the bank not to earn interest, but because it's liquid and it's safe. I probably don't have enough of these savings to spread around into gold etf's or equities or investment property or whatever [or maybe i just don't understand these things enough], so therefore perhaps my savings aren't 'working' for me. but then as soon as i spend my savings in this way they become investments. as in savings and investments.

if i don't get a return on my savings becuase you object to people keeping their money in a bank doing nothing and demand a return, then what are most speculative investments if they are not sitting on something doing nothing, expecting a return in the form of dividends or interest payments on bonds and then speculative gains on sale in the case of equities, commodities and property ?

you have an unhealthy attitude toward people who keep their money in a bank, which is not uncommon. Or do you work as an IFA, and all these people keeping their money in a bank, not seeking advice taking out weird and wonderful mortgage products, is bad for business ?

[scepticus]

Nope.

Nope.

Injin, that's not debate.

[Injin]

Injin, that's not debate.

Nope.

[scepticus]

i keep my 'savings' in the bank not to earn interest, but because it's liquid and it's safe. I probably don't have enough of these savings to spread around into gold etf's or equities or investment property or whatever [or maybe i just don't understand these things enough], so therefore perhaps my savings aren't 'working' for me. but then as soon as i spend my savings in this way they become investments. as in savings and investments.

savings of money are a deferral of consumption. Even at 0% your savings are working for you in the sense that someone else is consuming your share of consumption for some purpose, on the understanding that you'll get it back at some point in the future.

The misapprehension you have is that transport of wealth into the future should be free in terms of fees and risk. It can only be free if someone else is willing to consume in your stead. Further, if consumption in future is more expensive than consumption now (for example because of peak oil), then one might expect that deferral of consumption would result in a loss.

Lastly, and this is a point for injin too, as soon as the idea of money is introduced, then people want to save that, rather than physical goods. But if money is veil over barter, if everyone saves the money tokens and no-one does anything with them the physical wealth of society will deteriorate (since goods and services need to be maintained, which is not free). This deterioration would be expressed as inflation due to the volume of goods and services declining wrt the medium of exchange. So the idea of capitalism is to express savings as spendings, and not really as a vehicle for investment or growth, but mainly as a means for individual deferral of consumption into the future without a general drop in output as a result of inactive hoarding of money.

[Game_Over]

As many of you know I am a very strong proponent of massive QE.. as I view most of the world moving deeper and deeper by the month into a deflationary death spiral. Because of the nature of the fractional reserve monetary system.

But I fully admit if inflation does start going Britain is toast. That is how close we are to state failure ala eastern Europe. Say inflation starts moving at 4% or higher, the state would still be in a position where it had to run deficits of ~£200 billion pounds. When you have revenues of about £500 billion and expenses of ~£700 billion there is no easy way to close that deficit gap.

In fact I've mentioned before that to close the gap would require reducing people on the government payroll by 25%. And there is 8.8 million directly employed by the state with millions more as contractors. So we are talking about at least 2.2 million layoffs. In boom times this might be conceivable as many could find employment in the private sector, but right now the private sector itself is in severe contraction. So firing 2.2 million would almost certainly lead to massive defaults on mortgages, car loans, credit cards etc.

Even the IMF solution is questionable to me. Its one thing to provide a few billion to Pakistan to buy time. But the UK would need hundreds of billions of dollars, with the current IMF fund only at something like $200 billion. And its not like countries like Indonesia and Mexico had total public and private debts nearing 400% of GDP. If the IMF stepped in and ordered a massive reduction in the state, it would almost certainly cause a death spiral of loan defaults and bank failures.

One possibility I see is QE to inflate away the real value of the private debts outstanding, and crash the pound year by year.. then go to the IMF at that point.

By deflationary death spiral, I presume you mean living within our means

The economy has expanded to meet increased demand generated by an unprecedented credit boom.

None of this 'wealth' ever actually exsisted

So the economy is now going to have to shrink until output meets the level of demand that we can actually afford to pay for

All the measures taken so far have just been putting off the inevitable and making the final day of reckoning, when we are forced to accept economic reality, much worse.

There is no escaping what is going to happen - everyone is going to be much worse off - because the wealth that none of us did anything to create, never actually existsed in reality.

GAME OVER

[spivT]

savings of money are a deferral of consumption. Even at 0% your savings are working for you in the sense that someone else is consuming your share of consumption for some purpose, on the understanding that you'll get it back at some point in the future.

bollix.

if i am saving or there is a glut of saving, it means the govt. sector is spending. it is absolutely wrong to suggest that someone else in the non-govt. sector [housholds, private firms], is or needs to make up for the spending or consumption that i am putting off. The govt. is the one that steps in to spend to fund the saving desires of the private sector.

t can only be free if someone else is willing to consume in your stead

and as if on cue....yes, there you go you prove my point, that would the sovereign govt. spending in my stead. So, whats your problem ?

Edited October 28, 2009 by spivtastic

[Injin]

savings of money are a deferral of consumption. Even at 0% your savings are working for you in the sense that someone else is consuming your share of consumption for some purpose, on the understanding that you'll get it back at some point in the future.

Money cannot be a deferral of consumption if it's being consumed by someone else.

You are saying that you can save todays loaf by having your mate Bob eat it all. Completely insane.

The misapprehension you have is that transport of wealth into the future should be free in terms of fees and risk. It can only be free if someone else is willing to consume in your stead. Further, if consumption in future is more expensive than consumption now (for example because of peak oil), then one might expect that deferral of consumption would result in a loss.

There are only two risks associated with real savings -

1) Theft

2) Rot

Which explains why people generally like to store some of their wealth as gold throughout history.

Lastly, and this is a point for injin too, as soon as the idea of money is introduced, then people want to save that, rather than physical goods.

Philosophical fail - money is what people want to save, you have everything exactly backwards. Money is not an idea, it is an observation. (in the absence of some force making everyone use one item alone.)

But if money is veil over barter, if everyone saves the money tokens and no-one does anything with them the physical wealth of society will deteriorate (since goods and services need to be maintained, which is not free).

Nope, they'll be used as and when people want to, and replaced along the same lines. People have internal mechanisms that sort all this out (the need to eat for example means that crops must be grown.) IF they are free to do so.

This deterioration would be expressed as inflation due to the volume of goods and services declining wrt the medium of exchange. So the idea of capitalism is to express savings as spendings, and not really as a vehicle for investment or growth, but mainly as a means for individual deferral of consumption into the future without a general drop in output as a result of inactive hoarding of money.

This isn't capitalism - it's a description of fiat fractional banking.

What you are saying is you can maintain output if you successfully misrepresent to people their wealth.

Why bother?

[scepticus]

What you are saying is you can maintain output if you successfully misrepresent to people their wealth.

What I am saying is that output will only be maintained if people make the effort to maintain it. If people require to be paid for their effort, if the medium of exchange is hoarded then there will not be enough money in circulation to pay people to maintain what they maintained yesterday and output will fall. Some people will be unemployed and some of the existing wealth will rot as a result.

[spivT]

What I am saying is that output will only be maintained if people make the effort to maintain it. If people require to be paid for their effort, if the medium of exchange is hoarded then there will not be enough money in circulation to pay people to maintain what they maintained yesterday and output will fall. Some people will be unemployed and some of the existing wealth will rot as a result.

and that is why the UK govt. amongst others is running a budget deficit.

there is no coherent reason for your demonisation of the desire to save. the paradox of thrift is not a problem if the govt. is willing to match that desire to save.

[Injin]

What I am saying is that output will only be maintained if people make the effort to maintain it. If people require to be paid for their effort, if the medium of exchange is hoarded then there will not be enough money in circulation to pay people to maintain what they maintained yesterday and output will fall. Some people will be unemployed and some of the existing wealth will rot as a result.

Why on earth woud this be true if people are free to choose what to use as money?

Lets say all the money is gold and all the gold is eventually owned by one man.

Great, let him keep it, we'll all use silver. Someone corners the silver market? no problem lets use something else. Doing this isntantly reduces the purchasing power of the hoarder, so it's then in his interests to start to use his hoardings. Even if he doesn't it doesn't matter because everyone else has moved on.

As long as we aren't forced into the use of one item then money will self adjust just like any other good or service does, according to price signals.

As for unemployment - it's a completely impossible thng without someone forcing it to happen. The earth is choc a bloc with resources, other people and stuff to get on with. Only by denying resources to humans by some mechanism or allowing them to access resources cheaply in exchange for doing nothing can there be any unemployment.

The next thing to add is simply this -

Lets say the bulk of humanity fancies a lie in. They won't go to work today as much cos they can't be bothered. productivity falls off a cliff as everyone stops spending and working

My question is - So what?

[scepticus]

there is no coherent reason for your demonisation of the desire to save. the paradox of thrift is not a problem if the govt. is willing to match that desire to save.

I have not demonised it. I merely point out that there may be circumstances in which real output may not be able to be maintained at previous levels and so savings would be partially inflated away as a result of the drop in output. This equates to a negative real rate of return.

In any case, our likely next government (and even labour) are not making any noises that they plan to match increased private saving desire with their own spending. Quite the opposite in fact.

As a result if we get a large output drop in the UK one would expect:

1) damage to existing UK savings

2) damage to the value of sterling on forex

Under such circumstances while you may get a 0% or better nominal return you could reasonably expect a negative real return.