Deflation --Its Already Here

[Realistbear]

http://www.bloomberg.com/apps/news?pid=20601102&sid=aLg3kbmWpLQY

U.K. Pay Growth Slows to Record Low, Led by Services Companies

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By Scott "Scotty" Hamilton

June 3 (Bloomberg) -- An index of U.K. take-home pay fell to a record low in May, led by a drop in the services industry, VocaLink Ltd. said.

Annual wage growth after tax and other deductions slowed to 0.5 percent, the lowest since data began in 2004, from 0.8 percent in April, the group said in a statement published today. VocaLink processes 90 percent of U.K. salaries paid directly to bank accounts.

If we are indeed setting records for deflation in wages it follows that there will be less money in the economy to buy houses and everything else. Along with falling wages, we have rising unemployment, soaring personal bankruptcies and the world's largest deficit that will eventually have to be reigned in with huge cuts in job producing expenditure and higher IR as the bond markets will be watching.

Not a good recipe for what the VIs seem to be telling us about the direction of house prices. People simply cannot afford them at today's levels and cannot even afford them at the levels they were at in 2001.

IMO we are facing a HPC of Biblical proportions as everything is lined up just right for such a result.

Edited June 3, 2010 by Realistbear

[Nationalist]

Surely wage deflation IS price inflation. These things are relative.

[Realistbear]

Surely wage deflation IS price inflation. These things are relative.

If wages are deflating debt must increase and debt can no longer increase--it is maxxed out. Thus the inevitable becomes a reality: prices must fall.

Deflation is a natural consequence of a bubble deflating.

Keynes would argue from a relativity point of view but I prefer Uncle Milt's "no free lunch"approach to the question.

[Injin]

Can't see any money supply figures.

[happy_renting]

Surely wage deflation IS price inflation. These things are relative.

No

For example if price inflation and wage inflation are the same (say 5%) , affordability remains the same, but inflation is 5%. It's a zero-sum game, except savings are eroded.

[Realistbear]

Wage push inflation is the number one catalyst for inflation generally. It must follow that the coming of wage deflation will have an equal an opposite effect.

Could this simply be the outworking of a broader cycle. Inflation in perpetuity is as impossible as Brown's dream of a no more boom and bust house price cycle?

[scottbeard]

Along with falling wages, we have rising unemployment ...

People often suggest the average house price should be related to the average wage. I wonder if a better measure would be the TOTAL payroll of the country.

After all, if a million people on average wages lose their job, the UK average wage is unchanged but the ability of the people to buy houses has substantially reduced.

This is why unemployment leads to falls in house prices, even if there is not general money supply reduction as Injin noted.

[Injin]

Wage push inflation is the number one catalyst for inflation generally. It must follow that the coming of wage deflation will have an equal an opposite effect.

No it isn't - money printing is.

Could this simply be the outworking of a broader cycle. Inflation in perpetuity is as impossible as Brown's dream of a no more boom and bust house price cycle?

Nope, inflation is caused by increases inthe money supply (or a reducation in the amount of bodies in thee economy of course.)

This economically ignorant drivel might fly in the comments section of the telegraph but this is a forum for economics geeks, RB. knock it off already, no one is buying it.

[Realistbear]

No it isn't - money printing is.

Nope, inflation is caused by increases inthe money supply (or a reducation in the amount of bodies in thee economy of course.)

This economically ignorant drivel might fly in the comments section of the telegraph but this is a forum for economics geeks, RB. knock it off already, no one is buying it.

Go tell Scotty at Bloomberg, he is the one who wrote the article.

Denial will not stop the inevitable. Embrace deflation as it is the best cure for HPI and every HPcer's vewy bestest fwend.

[Injin]

Go tell Scotty at Bloomberg, he is the one who wrote the article.

Denial will not stop the inevitable. Embrace deflation as it is the best cure for HPI and every HPcer's vewy bestest fwend.

I said no one is buying it here, on an economics geeks forum.

Tout TV will be able to shovel this nonsense all day long.

Deflation is the bewstet fwend of every HPCers.

We don't ******ing have any, and inflation is still an increase in the money supply.

Do you have any money supply figures?

[BalancedBear]

In a globalised world it is just plain nonsense to suggest that if wages fall in one country that deflation will automaticly ensue. We have had several years of very low wage growth, but my weekly shop in Tescos has risen in price at a record rate during thattime. The reason being is that our currency has gone through the floor and if we don't buy things at higher prices, other people around the world will. If the British can no longer afford as much, the same items will be sold to others who can afford them.

Wage deflation may drive down the price of 3 bed semis though, as only British people really want to buy them. However, whilst they may get cheaper, other essential items are getting more expensive, so the money left for accomodation will be even less. This will however not help most people. It would have done though if money had not been printed, so this is an example of printing money destroying the buying power of the people - just like it has always done.

[Realistbear]

I said no one is buying it here, on an economics geeks forum.

Tout TV will be able to shovel this nonsense all day long.

Deflation is the bewstet fwend of every HPCers.

We don't ******ing have any, and inflation is still an increase in the money supply.

Do you have any money supply figures?

M3 recently dropped to the lowest level since the Great Depression in the world's largest economy. I suspect much the same will happen here.

Deflating bubbles are sucking the money out the system faster than the CBs dare print it--the Bond markets will counter every move the printers make.

[ken_ichikawa]

Go tell Scotty at Bloomberg, he is the one who wrote the article.

Denial will not stop the inevitable. Embrace deflation as it is the best cure for HPI and every HPcer's vewy bestest fwend.

Deflation is a MYTH and has NEVER ever occured, other than in ultra short hyperinflation killing actions.

Japan never deflated, the money supply went to the moon, the difference is they exported all of their Yen.

The USA is virtually hyperinflating its money supply the difference is China is hoovering it up.

[ken_ichikawa]

In a globalised world it is just plain nonsense to suggest that if wages fall in one country that deflation will automaticly ensue. We have had several years of very low wage growth, but my weekly shop in Tescos has risen in price at a record rate during thattime. The reason being is that our currency has gone through the floor and if we don't buy things at higher prices, other people around the world will. If the British can no longer afford as much, the same items will be sold to others who can afford them.

Wage deflation may drive down the price of 3 bed semis though, as only British people really want to buy them. However, whilst they may get cheaper, other essential items are getting more expensive, so the money left for accomodation will be even less. This will however not help most people. It would have done though if money had not been printed, so this is an example of printing money destroying the buying power of the people - just like it has always done.

Hey its the new 1984 newspeak esq thinking.

Remember the bit where the Chocolate ration is decreased and yet everybody says oh look the chocolate ration has increased?

The same sort of thinking is working here.

[Injin]

M3 recently dropped to the lowest level since the Great Depression in the world's largest economy. I suspect much the same will happen here.

Deflating bubbles are sucking the money out the system faster than the CBs dare print it--the Bond markets will counter every move the printers make.

M3 isn't a measure of the money supply as it includes credit and bank accounts.

Do you have any money supply figures?

[Realistbear]

M3 isn't a measure of the money supply as it includes credit and bank accounts.

Do you have any money supply figures?

Broad MS (M4) has been decreasing for some time in the UK. Deflationary trends are the new reality and inevitable IMO:

http://www.bankofengland.co.uk/statistics/m4/current/index.htm

Seasonally adjusted provisional figures for April are as follows: M4 increased by £0.6 billion (0.0%),

lower than the average flow for the previous six months

of £3.9 billion. The twelve-month growth rate

continued to fall, to 3.3%

from 3.5% in March.

M4

lending decreased

by £9.9 billion (0.4%) in April. The twelve-month growth rate increased to 4.3% from 4.0% in March.

M4 lending (excluding the effects of securitisations etc.)

decreased by £9.5 billion

(0.4%) in April.

The twelve-month growth rate continued to fall, to 2.8% from 3.2% in March.

"Decrease,""fall"are the repeating key words.

[Injin]

Broad MS (M4) has been decreasing for some time in the UK. Deflationary trends are the new reality and inevitable IMO:

http://www.bankofengland.co.uk/statistics/m4/current/index.htm

Seasonally adjusted provisional figures for April are as follows: M4 increased by £0.6 billion (0.0%),

lower than the average flow for the previous six months

of £3.9 billion. The twelve-month growth rate

continued to fall, to 3.3%

from 3.5% in March.

M4

lending decreased

by £9.9 billion (0.4%) in April. The twelve-month growth rate increased to 4.3% from 4.0% in March.

M4 lending (excluding the effects of securitisations etc.)

decreased by £9.5 billion

(0.4%) in April.

The twelve-month growth rate continued to fall, to 2.8% from 3.2% in March.

"Decrease,""fall"are the repeating key words.

Broad money isn't money, it's a recording of fraud by commercial banks, mulitple counting of the same unit of currency doesn't mean there is more of it.

Do you have any money supply figures?

[Realistbear]

Broad money isn't money, it's a recording of fraud by commercial banks, mulitple counting of the same unit of currency doesn't mean there is more of it.

Do you have any money supply figures?

Well, M3 has collapsed in the US and M4 is shrinking in the UK which says quite a ot IMO. If you are after more MS data the BoE website has a plethora of it. The M4 data is a broader measure and a better guide than narrow money supply.

http://www.bankofengland.co.uk/index.htm

If wages are deflating the inevitable result will be that prices will have to follow as there is no more debt headroom and that is key to understand. In an economy where credit is free and easy as it was under Brown, inflation had room to grow. When credit is restricted or unavailable prices follow suit d wages are the first sign that this is happening.

MS data is of limited use as it is a major lagging indicator much like employment.

THe focus must be on what is happening in the economy now and wage deflation is the early warning sign of macro deflation.

[Injin]

Well, M3 has collapsed in the US and M4 is shrinking in the UK which says quite a ot IMO. If you are after more MS data the BoE website has a plethora of it. The M4 data is a broader measure and a better guide than narrow money supply.

http://www.bankofengland.co.uk/index.htm

If wages are deflating the inevitable result will be that prices will have to follow as there is no more debt headroom and that is key to understand. In an economy where credit is free and easy as it was under Brown, inflation had room to grow. When credit is restricted or unavailable prices follow suit d wages are the first sign that this is happening.

MS data is of limited use as it is a major lagging indicator much like employment.

THe focus must be on what is happening in the economy now and wage deflation is the early warning sign of macro deflation.

No, really, do you have any money supply figures?

[the_duke_of_hazzard]

No, really, do you have any money supply figures?

What's money again?

[OnlyMe]

If wages are deflating the inevitable result will be that prices will have to follow as there is no more debt headroom and that is key to understand. In an economy where credit is free and easy as it was under Brown, inflation had room to grow. When credit is restricted or unavailable prices follow suit d wages are the first sign that this is happening.

Doesn't hold for imported goods, nor indeed goodsd not bought on credit. Lower volume, higher margin per item needed to keep the books straight, increased shipping costs, increased overheads per item shipped/resold.

It is very possible to have high and increasing inflation with reducing wages if you run your economy badly enough and make it so lopsided that the produce internally switch never gets swithced on due to high fixed costs.

[Injin]

What's money again?

Whatever most people think it is.

In the US, dollar bills.

In the UK, pound notes.

And so on.

[the_duke_of_hazzard]

Whatever most people think it is.

In the US, dollar bills.

In the UK, pound notes.

And so on.

Most people think money is credit accounts, eg when people say:

"The bank lent me the money to buy my house"

[Injin]

Most people think money is credit accounts, eg when people say:

"The bank lent me the money to buy my house"

Most people think that "an account" means there is a pile of dollars or pounds (or whatnot.)

It's why the commercial banks are in such shit atm.

When people say "the bank lent me the money to buy my house" they mean "the bank lent me a big pile of currency to pay for my house." That this hasn't actually happened is a source of shock and annoyance to pretty nearly everyone who finds out.

Edited June 3, 2010 by Injin

[Ruffneck]

meanwhile in the real world gold remains above 1200

so much for that crash in gold