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Realistbear

Mpc's Adam Posen Warns Britain At Risk Of Japan-Style Deflation

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I concur, I think that's what hyperinflationists fret about, too. I don't think it's a very sensible view, however.

Agreed.

Agreed.

Erm... disagree, strongly, for several reasons. Obviously, I think it extremely unlikely that everyone arguing deflation is doing so for the same reason - and, more specifically, my views fall into the deflationist camp... but I am definitely not arguing for easing of any kind. In fact, I think we can only begin to see a recovery once we've seen tighter conditions for long enough for them to be judged likely to last indefinitely.

I suspect that fear of deflation is disproportionate to its net impact. Just as, in a boom, economic conditions favour one demographic over another - so, too, in a deflation. As it stands, we're in a very weird situation... where wages (and the cost of survival) have been pushed extremely low relative to the price of assets. In my view, that's unsustainable, and it must correct, in the medium term, in some way. I think it extremely unlikely that wage inflation will be the mechanism... especially not with a progressive tax system which nominally penalises high earners (not that I'm saying this is right or wrong - just recognising how the system works.)

Perhaps the confusion comes from different assumed definitions of 'deflation' - so, I'll try to be clear what I mean. By deflation, I mean the falling price/valuation of all assets in nominal terms. I find it entirely possible that the cost of living will rise during a deflation - but that this won't be offset by capital gains. This gels with my interpretation of the 40% CGT move... assuming it isn't implemented on past gains... passed after the peek... this new tax is likely to raise little revenue - since gains will be accounted to have materialised during the 18% CGT era. I'm not an accountant - I'd be interested to hear opinions on how realistic this hunch might be.

Sure, if you use a different definition of deflation to mine we will have sttrange out comes in conversation on the topic.

By deflation I mean classical deflation, a reduction in the amount of money around this hasn't happened before a full blown economic collapse, ever. The closest to it is the great depression but only if you allow for dollars to go from one weight of gold to a smaller weight of gold and not call that inflation. I also think that wages won't rise, what will happen is that the average person will find themselves out of more markets than just the housing one as prices go beyond them in more spheres. This is the end result of the rentier system with no firm limit on money expansion we have in place. You either borrow to buy or get outbid by someone who did and the borrowing can't be paid off anyway without further money printing so why not live high on borrowing, cross your fingers and worry about it later?

I agree that the process of ever increasing rentier behvious sucking peoples created wealth away must end, but not yet.

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http://www.nytimes.com/2010/05/25/business/global/25debt.html?src=busln

In Europe, Britain May Face Largest Debt Hurdle

By LANDON THOMAS Jr.

Published: May 24, 2010

LONDON As governments from Greece to Portugal to Spain try to sell markets on their budget-cutting zeal, the country that may face the biggest hurdle is Britain.

Propelled by a robust economy that finally collapsed in 2008, Britains spending boom was the most expansive in Europe, producing a welter of shiny hospitals, school buildings and highways, along with a cadre of well-paid public sector officials.

Now the new government must unwind not so much the debt incurred from two years of economic stimulus efforts, but more broadly, the structural deficits built up over more than a decade of expanded health care, education and pension commitments.

Prime Minister David Cameron has talked boldly of closing a British budget deficit now equal to 11 percent of its gross domestic product. But he also has said that he will allow health spending to outpace inflation, continuing a trend started by the Labour government that has doubled the cost of the governments elephantine National Health Service since 2000.

It is this apparent disconnect between the promises of politicians and the harsh demands of investors for immediate and across the board spending cuts that is at the root of the financial crisis in Europe today.

Even after the nearly $1 trillion rescue package arranged by European Union leaders to shore up the weaker euro zone members, financial markets have gyrated as fears build that debt-plagued nations lack the will to stand up to powerful unions and pare back once generous welfare programs.

You need a martyr to cut this type of deficit, said Andrew Lilico, chief economist at Policy Exchange, a right-leaning London research group, who has argued that quick and immediate spending cuts would actually hasten economic recovery rather than derail it.

You need someone to say, I will do the right thing and everyone will hate me.

According to a recent analysis by Citigroup, Britains structural deficit meaning the part of the budget gap that will not close even when the economy improves was 9.2 percent of G.D.P. last year, ranking third in the world behind rapidly aging Japan and almost bankrupt Greece.

As is the case with other countries in Europe, like Spain, Greece and Ireland, Britain has a deficit that has grown mostly because of a decade of rising government outlays that seemed reasonable at the time, but rested heavily on rising tax revenue that disappeared when the bubble burst.

In a recent report, the International Monetary Fund warned that the countries that would have to make the biggest sacrifices in spending cuts and tax increases to return to precrisis levels of indebtedness Britain, France, Ireland, Spain and the United States also face the biggest increase in spending demands. These are driven by the rising number of the elderly, thus making the cuts all the harder to impose.

All developed economies now have in-built structural components in their government deficits due to having pension and health systems and aging populations, said Edward Hugh, an independent economist based in Barcelona. And these costs will go up by the year.

The British chancellor of the Exchequer, George Osborne, who has long urged the Conservative Party to trim the deficit, said on Monday that he would push through £6 billion ($8.65 billion) in spending cuts.

Though decidedly modest when compared with a budget deficit estimated to be about £178 billion, the cuts represent an effort to convince skittish markets that Mr. Camerons team is committed to fiscal restraint.

The latest menu of restrictions, freezes and spending reversals also represents an effort to convince the public that Britain must be in tune with the budget-cutting in Greece, Portugal, Spain and other parts of Europe.

The years of public sector plenty are over, Mr. Osborne said. The more decisively we act, the more quickly we can come through these tough times.

Mr. Cameron has fulminated publicly about cutting public sector pay and decreed that members of Parliament themselves take a 5 percent pay cut.

But it remains unclear whether he can force significant savings in what has become in many respects a public sector aristocracy of elite civil servants, heads of national railroads and top officials of obscure agencies, like the National Policing Improvement Agency and the Horserace Betting Levy Board. The heads of those two agencies, for example, were paid salaries last year that exceed Mr. Camerons pay of £197,000 (about $284,000) £211,831 and £220,665, respectively.

Among the highest paid have been administrators and doctors within the countrys government-financed National Health Service, which has become its own separate economy with its 1.7 million employees and £100 billion plus budget.

For example, David Taube, a doctor, administrator and medical director for five hospitals comprising the Imperial College Healthcare N.H.S. Trust, was paid £260,000 (about $375,000) at the exchange rates last year. That is also more than the prime minister received.

According to the TaxPayers Alliance, an advocacy group for spending cuts, the highest-paid 805 government employees in Britain received a 5.4 percent pay increase last year, with the average official taking in £209,224.

Whether it be the £1.3 million paid to the chief executive of the Royal Mail, the £267,000 for the head of information technology in the Department for Work and Pensions, or the £270,000 earned this year by the chief executive of the Guys and St. Thomas Hospitals in London, the galloping pay of public sector workers in Britain has become a major component of the structural deficit and shows little sign of letting up.

We have been doing this for five years now, and the numbers just get bigger and bigger, said John OConnell, an analyst at the TaxPayers Alliance.

Starting in 2000, the Labour government made it a priority to improve the N.H.S.s lackluster reputation and invested billions in bricks and mortar as well as the salaries of its growing ranks of doctors and administrators.

Health care spending in Britain soared to 9 percent of G.D.P. from 3 percent. The image of the service has been transformed from one that exemplified drab inefficiencies of the British state to what is now hailed as a world archetype, even by Conservative politicians like Mr. Cameron.

As for Dr. Taube, a spokeswoman for the Imperial College Healthcare N.H.S. Trust said that he was a leading renal clinician and that the bulk of his salary, £180,000 to £185,000, came from his clinical work. He was paid an additional £75,000 to £80,000 for his administrative duties.

Now the new government must wrestle with whether it can restrain such pay and spending and at what political cost.

Edited by AvidFan

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Would you care to elaborate on that?

The Japanese left a soldier hiding in a cave in every major country in the World post-WW2. They all believe in the Emperor, the code of the Samurai and have no knowledge of a nation that has resorted to pornographic cartoons and reality gameshows.

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Sure, if you use a different definition of deflation to mine we will have sttrange out comes in conversation on the topic.

By deflation I mean classical deflation, a reduction in the amount of money around this hasn't happened before a full blown economic collapse, ever. The closest to it is the great depression but only if you allow for dollars to go from one weight of gold to a smaller weight of gold and not call that inflation. I also think that wages won't rise, what will happen is that the average person will find themselves out of more markets than just the housing one as prices go beyond them in more spheres. This is the end result of the rentier system with no firm limit on money expansion we have in place. You either borrow to buy or get outbid by someone who did and the borrowing can't be paid off anyway without further money printing so why not live high on borrowing, cross your fingers and worry about it later?

I agree that the process of ever increasing rentier behvious sucking peoples created wealth away must end, but not yet.

When looking at economic issues, the definitions, I think, are key.

I reject discussion of 'classical deflation' (accepting your definition thereof) because I can find no coherent definition of what constitutes money. This is not a superficial problem, in my view. We instinctively feel we know what money is when we see it - but, in context, not all money is equal - and therein lies the problem. It is effectively impossible to measure what is relevant about the money supply... in spite of that, I feel the concept is valid - and, while it is extremely difficult to demonstrate statistically, I feel that what matters about the money supply will contract over the next few years. I do not think this will be a bad thing.

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When looking at economic issues, the definitions, I think, are key.

I reject discussion of 'classical deflation' (accepting your definition thereof) because I can find no coherent definition of what constitutes money. This is not a superficial problem, in my view. We instinctively feel we know what money is when we see it - but, in context, not all money is equal - and therein lies the problem. It is effectively impossible to measure what is relevant about the money supply... in spite of that, I feel the concept is valid - and, while it is extremely difficult to demonstrate statistically, I feel that what matters about the money supply will contract over the next few years. I do not think this will be a bad thing.

Oh I have a decent definitionj of what money is (I think!)

It's what the bulk of the population thinks it is.

This means it's paper currency and notes (given the general ignorance of bank credit, broad money etc.)

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  • 197 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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