Stagflation

[Ace]

I overheard a new word yesturday, just checked the meaning. Looks relevant for the Oil Prices and what the BOE will do with IR.

http://en.wikipedia.org/wiki/Stagflation

[AgeingBabyBoomer]

Actually its an old word, got bandied around in the mid-seventies, and early nineties, after the last oil cirses...

ABB

[cgnao]

Actually its an old word, got bandied around in the mid-seventies, and early nineties, after the last oil cirses...

ABB

<{POST_SNAPBACK}>

And now it's back to haunt us.

[Portent]

I distinctly remember discussing stagflation during an Economics lesson at school in the 80's. I seem to recall the teacher saying it was far worse than high inflation.

[Guest Charlie The Tramp]

Stagflation is a term in macroeconomics used to describe a period of characteristic high inflation combined with economic stagnation, unemployment, or economic recession.

Stagflation is thought to occur when there is an adverse shock (a sudden increase, say in the price of oil) in a country's aggregate supply curve. The effects of rising inflation and unemployment is especially hard to counteract for the central bank. The bank has one of two choices to make, each with negative outcomes. First, the bank can choose to pursue a loose money policy to stimulate the economy and create jobs by increasing the money supply (by lowering interest rates) and exacerbate the inflation problem further. Or second, pursue a tight money policy (by increasing interest rates) to try and rein in inflation at the cost of perhaps increasing unemployment further.

[cgnao]

The bank has one of two choices to make, each with negative outcomes.

<{POST_SNAPBACK}>

Either way, we're fvcked.

We're in for a repeat of the 1970's, with two added bonuses

- a massive credit hang over

- a permanent oil shock due to peaking production

batter down the hatches the storm is coming.

[Guest Charlie The Tramp]

Either way, we're fvcked.

We're in for a repeat of the 1970's, with two added bonuses

- a massive credit hang over

- a permanent oil shock due to peaking production

batter down the hatches the storm is coming.

<{POST_SNAPBACK}>

Remember the 70s well, strange thing it was not as frightening as today.

[Time to raise the rents.]

I overheard a new word yesturday, just checked the meaning. Looks relevant for the Oil Prices and what the BOE will do with IR.

http://en.wikipedia.org/wiki/Stagflation

<{POST_SNAPBACK}>

Stagflation is great for HP's.

Remeber you heard it from me first Ace!

[Time to raise the rents.]

I distinctly remember discussing stagflation during an Economics lesson at school in the 80's. I seem to recall the teacher saying it was far worse than high inflation.

<{POST_SNAPBACK}>

I also remember my economics teacher in 1985. He was the perfect incarnation of a truck driver (probably converted to teaching by accident).

He stated that demand couldn't be increased by reducing prices which I challenged & was barked down on.

It seems to me now that reduced prices have created a more throw-away society now than existed then and that he was clearly wrong. Reduced price = buy, use & throw = higher demand than expected.

Edited July 31, 2005 by Time to raise the rents.

[cgnao]

Remember the 70s well, strange thing it was not as frightening as today.

<{POST_SNAPBACK}>

That's because the HPC forum did not exist at the time. So people did not know what hit them.

Edited July 31, 2005 by cgnao

[Guest Charlie The Tramp]

Stagflation is great for HP's.

Remember you heard it from me first Ace!

<{POST_SNAPBACK}>

I agree.

I bought two properties in the seventies at rock bottom prices IMO. The best one a four bed detached chalet house with 60 foot frontage two years old at 17.95k.

Edited July 31, 2005 by Charlie The Tramp

[cgnao]

I agree.

I bought two properties in the seventies at rock bottom prices IMO. The best one a four bed detached chalet house with 60 foot frontage two years old at 17.95k. 

<{POST_SNAPBACK}>

Average 1970 gold price: £15.03

Gold price now: £244

£17,950 = 1194.3 ounces of gold at 1970 prices.

1194.3 ounces of gold today = £291,409.

It's all inflation. On average, 8.28% per year for 35 years.

Amazing isn't it how governments get away with it.

Buy gold.

[MarkG]

Stagflation is great for HP's.

Only if wages increase. If wage inflation is low then it will be real bad for house prices as people are forced to stop wasting money paying interest on their mortgage and start spending it on important things instead (like petrol at ten pounds a gallon).

And, of course, with Chinese workers willing to do the same jobs for $0.50 an hour, significant wage inflation is a little bit unlikely.

It sure would be amusing to see stagflation _and_ a house price crash simultaneously. Well, it would be amusing if I'm out of the country by the time, anyway.

1194.3 ounces of gold today = £291,409.

And if you'd sold at the peak around 1980, it would have been nearly twice that.

Edited July 31, 2005 by MarkG

[Guest Charlie The Tramp]

Only if wages increase. If wage inflation is low then it will be real bad for house prices as people are forced to stop wasting money paying interest on their mortgage and start spending it on important things instead (like petrol at ten pounds a gallon).

And therein is the reason why house prices took a dive or you could say were a bargain IMO during the 70s.

Prices were allowed to rise but wages frozen under the governments so called Prices and Incomes policy. Hence the industrial unrest during that decade.

BTW a neighbour of mine at the time bought his three bed semi at 15% interest on a shelf stackers wages without financial ruin. Albeit his wife did a part-time job.

Edited July 31, 2005 by Charlie The Tramp

[cgnao]

And if you'd sold at the peak around 1980, it would have been nearly twice that.

<{POST_SNAPBACK}>

Incorrect.

In dollars, the peak was nearly twice as much as todays price.

But sterling was stronger against the dollar in 1980 (2.40) than it is today (1.75).

So the gold price went only briefly over £300, which is only about 20% higher than today.

[Time to raise the rents.]

Average 1970 gold price: £15.03

Gold price now: £244

£17,950 = 1194.3 ounces of gold at 1970 prices.

1194.3 ounces of gold today = £291,409.

It's all inflation.  On average, 8.28% per year for 35 years.

Amazing isn't it how governments get away with it.

Buy gold.

<{POST_SNAPBACK}>

Umm, excuse me,, did the gold give you an income during your ownership & were you able to borrow to secure that income???

[cgnao]

Umm, excuse me,, did the gold give you an income during your ownership & were you able to borrow to secure that income???

<{POST_SNAPBACK}>

25 years ago was the time to sell gold as it was overvalued. Remember £300 in 1980 were worth much more than £300 today due to inflation.

Gold is now deeply undervalued, underowned and has just broken out of a 25 years downtrend. With inflation picking up and a probable oil shock in the making, now is the time to buy. Like in 1970.

I started buying 3 years ago at just under £200/ounce. It's up more than 20% since. And this is just the beginnig.

[MarkG]

AFAIR the gold price peak was about $850. At 2.4 to the pound, that's about 350.

So the gold price went only briefly over £300, which is only about 20% higher than today.

I hadn't realised quite how high the price of gold had risen... I thought it was still down around 210 pounds an ounce .

[cgnao]

AFAIR the gold price peak was about $850. At 2.4 to the pound, that's about 350.

I hadn't realised quite how high the price of gold had risen... I thought it was still down around 210 pounds an ounce .

<{POST_SNAPBACK}>

The price was over £300 for only a handful of days.

Anyway as James Turk wrote, gold looks set to go much higher.

This same guy called the bottom in 1999-2000.