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VeryMeanReversion

Interesting Report - Raoul Pal

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Some excerpts:

But let's not forget that the UK is the single most indebted major nation on earth if we take into account total debt. It is in fact 475% of GDP in debt.

Never, ever gonna happen

I have never in my life heard, read about or dreamt about a country that can reign in that kind of debt via austerity measures.

Mathematically, it's simply next to impossible.

But markets are bl**dy lousy students of history and it will be left ot me to tbe the one voice yet again pointing out the insanity of what people are expecting.

The UK will eventually default. There is no other achievable option.

A default would be the best thing, and although the short-term outcome would be horrific, it would at least mean that the futue would not be quite so bleak.

Then goes on to show the treasury forecasts are hopelessly unrealistic and expects the debt-to-GDP ratio to explode.

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To take the opposite position, we seem to have had analyses (doom-alyses) like this before, but TPTB always seem to be able to pull a rabbit out of the hat and string things along. Will it be any different this time? (I suppose that things have to fall over eventually, but why this time?)

Specifically, I don't get the point about the UK CPI. He seems to be saying that higher oil prices will depress the CPI (because of less money to spend elsewhere?). That wasn't the empirical finding of the run-up in oil prices a couple of years ago,

Peter.

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Some excerpts:

But let's not forget that the UK is the single most indebted major nation on earth if we take into account total debt. It is in fact 475% of GDP in debt.

Never, ever gonna happen

I have never in my life heard, read about or dreamt about a country that can reign in that kind of debt via austerity measures.

uk govt will partially default thru a bit of inflation

public sector liabilities will be defaulted on in quite a big way - pensions etc

uk consumers - who hold I dunno half the debt or so - a lot of them will effectively default and default in a bigger way on death

so it is all about partial default

providing government gilts are only partially defaulted on then surely not such a big deal - house prices will absorb the effective cost of default from everyone else, ie banks will lend less domestically to absorb bad debts

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Specifically, I don't get the point about the UK CPI. He seems to be saying that higher oil prices will depress the CPI (because of less money to spend elsewhere?). That wasn't the empirical finding of the run-up in oil prices a couple of years ago,

Peter.

To try to answer my own question, I guess this article may explain the thinking behind the statement. It's a question of time frames - initially CPI goes up due to higher prices,then it goes down due to the recessionary effects of the higher prices,

Peter.

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To try to answer my own question, I guess this article may explain the thinking behind the statement. It's a question of time frames - initially CPI goes up due to higher prices,then it goes down due to the recessionary effects of the higher prices,

Peter.

Another aspect people ignore is that the CPI basket of goods (a nominal typical shopping basket) is always being revised. This is why I don't see the rising cost of imports having as much impact as people expect - when we can no longer afford non-essential imported goods, we will stop buying them, and they will be removed from the CPI.

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Another aspect people ignore is that the CPI basket of goods (a nominal typical shopping basket) is always being revised. This is why I don't see the rising cost of imports having as much impact as people expect - when we can no longer afford non-essential imported goods, we will stop buying them, and they will be removed from the CPI.

Have a look at what they're doing to portion sizes on any type of pre-packaged food - I mean anything. And look at the "pure product" content too. The amount of chicken breast meat in your preferred ready-meal for example. It's going down and down... being replaced by water weight, pea starch, etc, etc.

There's more than one way to control CPI. Of course, increasingly poor diets will naturally feedback and have a negative impact on longevity over decades, which will fix the pensions/benefits/old age problem that drains "wealth" from the country.

Then the cycle begins again.

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uk govt will partially default thru a bit of inflation

public sector liabilities will be defaulted on in quite a big way - pensions etc

uk consumers - who hold I dunno half the debt or so - a lot of them will effectively default and default in a bigger way on death

so it is all about partial default

providing government gilts are only partially defaulted on then surely not such a big deal - house prices will absorb the effective cost of default from everyone else, ie banks will lend less domestically to absorb bad debts

These are very good points. A UK mortgagor defaulting on some foreign-held RBMS isn't a UK sovereign default; it's a problem for the foreign creditor (uness we bail that creditor out by taking the debt onto the sovereign balance sheet :huh:)

Similarly with defaulting on UK pensions or even PFI. The bond markets might even look at such an internal default favourably, since it leaves more UK resources for them.

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There's more than one way to control CPI. Of course, increasingly poor diets will naturally feedback and have a negative impact on longevity over decades, which will fix the pensions/benefits/old age problem that drains "wealth" from the country.

Nay, I predict the end of the obesity/diabetes crisis and increased longevity. As long as people don't start taking up smoking Woodbines again.

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  • 152 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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