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Realistbear

Deflation --Its Already Here

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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.

You said: "[Money is] Whatever most people think it is."

You can't then say that they don't mean "money" when they say "money".

Your definition of money seems to correspond to what most people mean by "cash".

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Injin,

I think it's time to give up on this nonsense, you clearly do not have a clue.

But I do.

I went and asked loads of people.

Go to your high street and ask away.

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You said: "[Money is] Whatever most people think it is."

You can't then say that they don't mean "money" when they say "money".

Your definition of money seems to correspond to what most people mean by "cash".

People think that "accounts" correspond to piles of cash.

In much the same way as they used to think that banknotes = little piles of gold.

Really simpel experiment - go and ask your average working bloke what broad money is.

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People think that "accounts" correspond to piles of cash.

In much the same way as they used to think that banknotes = little piles of gold.

Really simpel experiment - go and ask your average working bloke what broad money is.

This is irrelevant to your self-contradiction.

Most people say "what do you mean, 'broad' money"?

In any case, asking people what something means doesn't give you their usage of a term.

"Work puts the money in my account at the end of the month"

"The money's in my bank account"

"I moved the money to your bank account"

etc etc

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This is irrelevant to your self-contradiction.

Most people say "what do you mean, 'broad' money"?

In any case, asking people what something means doesn't give you their usage of a term.

"Work puts the money in my account at the end of the month"

"The money's in my bank account"

"I moved the money to your bank account"

etc etc

By which they mean there is a pile of cash that's been allocated to them.

This whole debacle is going on to keep the myth that commercial banks deal only in legal tender banknotes to white van man. White van man won't be "repaying" anything he has "borrowed" otherwise.

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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.

Correct, and this is what has been happening here in the UK.

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

Do you have any money supply figures?

http://www.bankofengland.co.uk/statistics/fnc/Current/index.htm

The amount in £s of notes and coins outstanding has increased 6% over the last year (it is now around £57 bn).

However, this alone can't tell you inflation or deflation, as you'd also need to know what has happened to productive output in the last year too.

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By which they mean there is a pile of cash that's been allocated to them.

This whole debacle is going on to keep the myth that commercial banks deal only in legal tender banknotes to white van man. White van man won't be "repaying" anything he has "borrowed" otherwise.

You assert this, but provide no evidence.

Most people consider money what they can use to buy things. Credit cards that work, internet sites that move numbers/money (there I go doing it myself!) from one screen to another. And so on.

I think most people know that the bank doesn't have cash up to the value of your money sitting in a vault. But again - that's irrelevant to the discussion of how people use the term "money", and, indeed, how they use money itself.

Edited by the_duke_of_hazzard

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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.

You confuse opinion and fact with a wish. You wish this to be the case therefore you are scuttling around looking for evidence to back your wish up.

Deflation is an HPCers wet dream, but there is one trillion reasons why it is only a dream. Or 2 trillion if I need it to be so.

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You assert this, but provide no evidence.

I actualyl go one better - I outline an experiment you can do.

So erm, go and do it liek I have hal;f a dozen times and come back with the results.

Most people consider money what they can use to buy things. Credit cards that work, internet sites that move numbers/money (there I go doing it myself!) from one screen to another. And so on.

Credit cards are allocations of piles of cash. internet sites are instructions to move piles of cash. one screen tells another screen where to move the cash to.

I think most people know that the bank doesn't have cash up to the value of your money sitting in a vault. But again - that's irrelevant to the discussion of how people use the term "money", and, indeed, how they use money itself.

No, it really isn't.

I'm quite happy to admit that operationally people don't use cash.

They do however, consider cash to be money and nothing else.

(I'll also agree it is completely crackers but hey ho.)

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I actualyl go one better - I outline an experiment you can do.

So erm, go and do it liek I have hal;f a dozen times and come back with the results.

Credit cards are allocations of piles of cash. internet sites are instructions to move piles of cash. one screen tells another screen where to move the cash to.

No, it really isn't.

I'm quite happy to admit that operationally people don't use cash.

They do however, consider cash to be money and nothing else.

(I'll also agree it is completely crackers but hey ho.)

Modern money - here is the sales pitch:

You will get:

A fiat currency, backed by nothing and printed by a central body the people have no control over. It's value is an illusion and it's illusion gives it value.

But that's not all!

We will also throw in banking, which will give you the impression of having money in the bank, when in reality it is just an IOU from the bank to yourself of the aforementioned illusionary money.

But it doesn't stop there

We will also include fractional reserve banking, allowing banks to create more of the IOUs from thin air, and charge interest on them, whilst passing a fraction of that interest onto savers, who then pass 20-40% of that to the government. Everyone [who is poweful] is a winner.

But there is even more.

If all that wasn't enough, you also get a reserve that is based on nothing other than digital entries at the computer of the central bank. The fractional 'reserve' is just magnetic polarization of a hard disk drive.

And the final beauty - the best till last is:

Quantitative easing - the fake reserve money can be expanded by the central bank as much as they choose, and given to governments and bankers first to spend before it is devalued as it filters to the rest of the system.

A stunning deal. Buy now this offer is only available for the next 100 years.

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I actualyl go one better - I outline an experiment you can do.

So erm, go and do it liek I have hal;f a dozen times and come back with the results.

I did it. The first one said "do you think I'm an idiot?". The others said "no", but most were a bit hazy on the subject.

Credit cards are allocations of piles of cash. internet sites are instructions to move piles of cash. one screen tells another screen where to move the cash to.

No, it really isn't.

I'm quite happy to admit that operationally people don't use cash.

They do however, consider cash to be money and nothing else.

(I'll also agree it is completely crackers but hey ho.)

I've already shown that this is wrong based on people usage of the term.

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I did it. The first one said "do you think I'm an idiot?". The others said "no", but most were a bit hazy on the subject.

Ask some more people!

Try the high street.

I've already shown that this is wrong based on people usage of the term.

Nope, you haven't.

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You assert this, but provide no evidence.

Most people consider money what they can use to buy things. Credit cards that work, internet sites that move numbers/money (there I go doing it myself!) from one screen to another. And so on.

I think most people know that the bank doesn't have cash up to the value of your money sitting in a vault. But again - that's irrelevant to the discussion of how people use the term "money", and, indeed, how they use money itself.

Bank credit and actual cash/legal tender are under normal circumstances fully equivalent. The problem comes when the system breaks down, banks implode and people find out that their 'cash in the bank' is in fact just a note of credit from the bank to them.

Also of course if you have a large amount in your account, getting it out in cash is going to be very tricky. They don't mind issuing relatively small amounts of money to you via ATMs but try asking a bank for your entire £50k savings as physical cash and see how they react, for example.

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Bank credit and actual cash/legal tender are under normal circumstances fully equivalent. The problem comes when the system breaks down, banks implode and people find out that their 'cash in the bank' is in fact just a note of credit from the bank to them.

Also of course if you have a large amount in your account, getting it out in cash is going to be very tricky. They don't mind issuing relatively small amounts of money to you via ATMs but try asking a bank for your entire £50k savings as physical cash and see how they react, for example.

It does rather beg the question why have we had all these bailouts and pensioners queuing in the streets etc if people know how it works.

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It does rather beg the question why have we had all these bailouts and pensioners queuing in the streets etc if people know how it works.

The whole banking and fiat currency system is an incredibly good way of exercising control over the masses - especially if you can get them to take on debt.

The name of the game is to get other people to to the production and for you to gain a large chunk of the benefits for doing essentially nothing except juggling figures on a spreadsheet.

Even better, if you can get the population to get themselves into debt then you can force ever harder terms on them as they slave away to reduce the notional negative number on the spreadsheet because they will exchange their production for notional positive figures in order to repay the said debt. Genius.

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M4 isn't really the measure of money supply. You can't take out all of the M4 and make a pile of notes (see below). You also can't spend all the M4 in one bank, paying into an account in another without the first bank going bust. It's just counting the same money over and over again.

M4 is just a measurement of leverage and if we ever test it, the government will either have to print to make good on it (hyperinflation) or you won't be able to withdraw/spend it* (which isn't deflationary, as it couldn't/wasn't spent previously either). While we have government deposit guarantees, which do you think will happen (and indeed has been happening)?

So, M4 means very little to the price of goods as no one is spending it. If they do spend it, it is inflationary as the government has to print up money to make good on the bankers' double counting.

All of which, means that M0 (narrow money) is a far more useful measurement, when considering the price of goods (food, clothes, energy etc). You can spend all the M0 as it actually exists.

Of course, mortgages are a different beast altogether, which are probably more suited to the M4 measurement, as this money never really escapes into the economy, as most people have to live in a house. In that respect, if M4 grows to silly numbers, it is again more of a measurement of leverage. I would imagine that M4 could collapse and as long as M0 remains the same, the price of goods could remain static. It would also be good for M4 to collapse, as it means houses would be getting cheaper. However, if the government had to make whole big withdrawals from fictional, double counted, FRB balance sheets, M0 would then then get bigger and the price of goods would likely go up.

EDIT: * As all the banks are playing pass the parcel, with all banks hoping that they won't be caught short of M0, the system can continue to function. If a bank ends up short, the guarantees will be tested and delivered on (queue more borrowing/printing from the government).

Edited by Traktion

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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?

I have mentioned it a few times, but probably worth repeating. During the extremely inflationary time in Russia in the 90s (100s and 1000%/pa) wages were, actually, stagnant and in many cases not paid at all. At best they were lagging RPI by many months and always going up lower than even doctored RPI. I am sure if you google you'll find it is true in 2 minutes. Something to think about.

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

Yes, this is just another form of inflation, just like a drop in the GBP against other currencies.

I'd like to see a full explanation of what is wrong with deflation. Things getting cheaper is something we'd all like to see.

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Yes, this is just another form of inflation, just like a drop in the GBP against other currencies.

I'd like to see a full explanation of what is wrong with deflation. Things getting cheaper is something we'd all like to see.

When your financial system is leveraged 30+ times, deflation is devastating. With that sort of leverage, only a 4% deflation wipes them out.

"sticky" wages are often sighted as a problem with deflation, but in this recession, we have seen many take pay cuts and work fewer hours in the private sector. The public sector love a good strike and bank on their inflation tracking pay rises too, despite many private sector workers not receiving pay rises at all.

Regardless of whether wages/prices are sticky or not, seems beside the point IMO; we wouldn't have to worry about it if our financial system didn't swing from credit fuelled booms and busts.

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When your financial system is leveraged 30+ times, deflation is devastating. With that sort of leverage, only a 4% deflation wipes them out.

"sticky" wages are often sighted as a problem with deflation, but in this recession, we have seen many take pay cuts and work fewer hours in the private sector. The public sector love a good strike and bank on their inflation tracking pay rises too, despite many private sector workers not receiving pay rises at all.

Regardless of whether wages/prices are sticky or not, seems beside the point IMO; we wouldn't have to worry about it if our financial system didn't swing from credit fuelled booms and busts.

So it's agreed that deflation is good for the consumer?

It is bad for companies that have over-leveraged their loans as what they borrowed would be worth more when they have to pay off their loans, but surely a good firm should immediately be using the money to generate money to pay off their loans not just sit on it hoping inflation will eat it away?

Surely inflation which eventually has to lead to a rise in interest rates is also bad for over-leveraged firms as their repayments will get higher?

If stopping that is what the government has in mind we can look forward to high inflation, low pay rises, an even more devalued GBP and a low rate of interest; none of which I am looking forward to.

Edited by caparn

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Bank credit and actual cash/legal tender are under normal circumstances fully equivalent. The problem comes when the system breaks down, banks implode and people find out that their 'cash in the bank' is in fact just a note of credit from the bank to them.

Also of course if you have a large amount in your account, getting it out in cash is going to be very tricky. They don't mind issuing relatively small amounts of money to you via ATMs but try asking a bank for your entire £50k savings as physical cash and see how they react, for example.

Sure.

We're talking about what is meant by the word "money", since Injin assumes it's obvious, but can't be consistent in how to define it for his purposes. It amounts to M0, I think.

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So it's agreed that deflation is good for the consumer but bad for companies that have over-leveraged their loans. Surely inflation which eventually has to lead to a rise in interest rates is also bad for over-leveraged firms. If stopping that is what the government has in mind we can look forward to high inflation, low pay rises and a low rate of interest; none of which am I looking forward to.

It's good for the consumer if they don't have a huge mortgage around their necks, after sharing in the lunacy of the credit boom. The same would go for businesses.

If they put interest rates up, people/companies will default on said huge loans, crystallizing the losses for the banks. If many banks are technically insolvent, if they marked to market, then they would be in real trouble if people started defaulting on their loans. Then we have more bank bailouts, more printing and more mess.

The problem is, there is so much leverage, that the politicians will find the idea of inflation appealing. The problem is, it causes problems in the economy, with business (and individuals) not being able to plan/price easily, which causes productivity to drop, which compounds the problems. What is needed to pay off the debt is genuine growth and monetary reform to stop it happening again.

It seems to me that the current financial system is a stack of jellies - once they start wobbling, they are very tricky to keep upright. We have a wobbly way of adding monetary base/fiat and an even wobblier fractional reserve banking system on top of that. Then add in the various over leveraged (because of the aforementioned) businesses and individuals and you have the blancmange on top! Worse still, the only way we can control any of it, is by moving the plate about a bit at the bottom. No wonder we are in a mess!

Edited by Traktion

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  • 259 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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