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Michael

The Idiot's At It Again!

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''

*****!

''But there is a better way – five or six years of 5% inflation does the job nicely. That way we get to inflate our debt away and we don't have to go through all this austerity nonsense. In the long run, interest rates need to rise back to some normal level – say 4% – so that when the next shock comes the Bank of England can cut rates. For now, interest rates have to stay at 1% or lower until at least 2015, which hopefully will create some inflation. And more quantitative easing would help, as that adds more stimulus to the economy – which is positive for house prices.''

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''

*****!

''But there is a better way – five or six years of 5% inflation does the job nicely. That way we get to inflate our debt away and we don't have to go through all this austerity nonsense. In the long run, interest rates need to rise back to some normal level – say 4% – so that when the next shock comes the Bank of England can cut rates. For now, interest rates have to stay at 1% or lower until at least 2015, which hopefully will create some inflation. And more quantitative easing would help, as that adds more stimulus to the economy – which is positive for house prices.''

Danny boy is often described as an idiot looking for a village.....what caused the problems =inflated house prices and debt... the cure =more HPI and debt..brilliant!

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Nice to see the comments are tearing him an new anus. I hope he bothers to real them. That man is one of the architects of our current misfortune - he joined the MPC in mid-2007 and immediately started demanding interest rate cuts when rises were required to choke off the debt bubble.

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Inflation only works where wages go up as well so the ratio of peoples debts to their income falls over time. This worked in the 70s as I know myself but, so far, it's not working now. Prices are going up but not incomes so all are being progressively impoverished; what this means is that the debt burden actually increases in terms of peoples income, not at all a good thing.

Somehow I think the game is up.

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ie. nick money off savers to pay borrowers

cheers danny

It's going to happen one way or another - it's choose your poison time. You either get failed banks and partial hard defaults* and/or bank runs, or you print and get partial soft defaults.

Unless those with cash spend it, debts will go unpaid and bank liabilities (deposits) will not be met.

EDIT: To point out, I agree that the support of the bubble in its making was terrible. Those responsible should have long lost their jobs. However, we are where we are...

* Or you get the begging bowl out and hope a bailout will prolong the pain, hoping those with cash will spend it before they need another bailout.

Edited by Traktion

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What he is proposing is, as you have correctly pointed out, is called theft.

And if there wasn't QE and the banks had failed, would the partial loss of your deposit be 'theft' too?

Both are defaults, just one is the market process of liquidation and deflation, while the other is centrally managed leading to inflation.

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Inflation only works where wages go up as well so the ratio of peoples debts to their income falls over time. This worked in the 70s as I know myself but, so far, it's not working now. Prices are going up but not incomes so all are being progressively impoverished; what this means is that the debt burden actually increases in terms of peoples income, not at all a good thing.

Somehow I think the game is up.

If inflation is expected, people spend their cash. Whether this is on lumps of gold, shares, business ideas etc is a little beside the point (although some spending is better than others). The point is, those with cash spend it, then those with debts can get their hands on it to repay what they owe.

Of course, if the money ends up in good business ideas, helping to push money into companies, in turn pushing up wages, then that is even better. The priority has to be to get the money moving though or there will be inevitable defaults, whether hard or soft.

There would be no need for QE, if those with lots of cash spent it. I am sure they are more concerned with debts going unpaid, than the price of goods going up - the loss of spending power would likely outweigh any increase in prices.

IMO, we have to remember that there is no easy way out from here. The imbalances need ironing out one way or another, including those at the international level. As I've said many times, the imbalances are the main problem, along with the lack of exposure to risk (which feeds the former).

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To add, they could fund the bailout money by taxing the wealthy more too. If you tax something like land value, it would be hard to avoid, cut down on rent seeking, hit the wealthy hardest and rebalance the economy too. Again, it's another poison, but you have to ask yourself - who has benefit most from the credit/housing boom?

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And if there wasn't QE and the banks had failed, would the partial loss of your deposit be 'theft' too?

Both are defaults, just one is the market process of liquidation and deflation, while the other is centrally managed leading to inflation.

For a start, at the time of the trouble, very little of my assets were in a bank for this very reason.

The banking crisis was the realisation of an earlier theft. We've suffered a good decade of theft.

Edited by Tiger Woods?

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Danny boy is often described as an idiot looking for a village.....what caused the problems =inflated house prices and debt... the cure =more HPI and debt..brilliant!

The trouble is, the politicians dont care - its not their money.

Krugman and Bernanke have enough failed predictions and ideas behind them to totally discredit them, but they keep their jobs.

Even when its documented, blatant and played over and over again (ie like Jim Cramers BUY BEAR moment) they keep their jobs.

People like being lied to, they prefer to believe the unbelievable than face up to reality.

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How long can you have a policy of inflating debt away and still expect to be able borrow money, when it's boils down to defaulting by a slightly less direct means?

Edited by Riedquat

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Inflation only works where wages go up as well so the ratio of peoples debts to their income falls over time. This worked in the 70s as I know myself but, so far, it's not working now. Prices are going up but not incomes so all are being progressively impoverished; what this means is that the debt burden actually increases in terms of peoples income, not at all a good thing.

Somehow I think the game is up.

What do you mean its not 'working'?

The banks are making profits again.

That means it is working.

They dont care about unemployment or purchasing power, so long as Gordon gets to say 'we saved the banks' all is ok.

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For a start, at the time of the trouble, very little of my assets were in a bank for this very reason.

The banking crisis was the realisation of an earlier theft. We've suffered a good decade of theft.

If you already had non-cash assets, then you will be quids in by this process anyway. That is, unless you were essentially at the front of the queue in the bank run, expecting the bank to fail - again, being quids in.

There are probably many STRs out there frothing at the mouth over inflation too, despite the fact that they have benefited hugely by selling up after a huge credit inflation, made possible by others (often youngsters) taking on huge debts. Those STRs who sold up, then bought gold have not only benefited at the expense of others, but also dodged the bullet of the fallout - the wise and wealthy tend to be able to do this. This is the way of the world, however, people need to realise that one person's savings is another's debt - having a large surplus, means that someone else has a large debt. This is worth reflecting on.

Our banking system means there will always be winners and losers one way or another*. It's a case of the powers that be deciding who to protect and who to exploit.

EDIT: * FRB, state backed or otherwise, tends to have either a polarising effect or an inflationary treatment. Narrow and Limited Purpose banks would be more equitable, IMO, but that's a whole other debate.

Edited by Traktion

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It's going to happen one way or another - it's choose your poison time. You either get failed banks and partial hard defaults* and/or bank runs, or you print and get partial soft defaults.

Unless those with cash spend it, debts will go unpaid and bank liabilities (deposits) will not be met.

EDIT: To point out, I agree that the support of the bubble in its making was terrible. Those responsible should have long lost their jobs. However, we are where we are...

* Or you get the begging bowl out and hope a bailout will prolong the pain, hoping those with cash will spend it before they need another bailout.

And if there wasn't QE and the banks had failed, would the partial loss of your deposit be 'theft' too?

Both are defaults, just one is the market process of liquidation and deflation, while the other is centrally managed leading to inflation.

Traktion, you have an interesting argument, but its oh so dangerous. You are basically saying, the banks have dropped a bollock, anyone left standing with any assets will have to pay, and I think that you agree with Danny that inflation is one way of paying.

The problem I have with this argument is that it assumes that default and liquidation will be contagious and catastrophic, and we don't know that. Insolvencies are rarely as bad as they first look and the world doesn't end. Countries very rarely default anyway, you just get a royal IMF shafting.

Its similar to the argument about whether you should pay ever ransom money, because if you do, you only get short-term relief and make the long-term problem worse. RBS have been shown to underestimate their losses several times now, and this bailout will not be the last for them or anyone else.

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The problem I have with this argument is that it assumes that default and liquidation will be contagious and catastrophic, and we don't know that. Insolvencies are rarely as bad as they first look and the world doesn't end. Countries very rarely default anyway, you just get a royal IMF shafting.

These people agree that a controlled partial default would work:

Sovereign defaults are always contentious, but they don’t need to end in catastrophic financial collapse. This is especially so in Europe, as Lee Buchheit and Mitu Gulati have argued in a well-read paper on “How to Restructure Greek Debt,” because over 90% of these debts are issued under domestic law. Troubled nations, as part of their rescue plans, can and should introduce legislation that permits a qualified majority of creditors to change terms on outstanding sovereign and bank debt, while protecting bank deposits. Such rules could, for example, require 2/3 of non-protected creditors agree to a restructuring plan. This reduces the risk that holdouts can prevent a deal from being reached, but still gives creditors clear powers to negotiate terms.

Well-planned debt restructuring will not cause a systemic financial collapse. It is misleading to draw parallels from the chaotic liquidation of Lehman Brothers for the outcome of debt relief in Europe. The direct impact of debt relief for Greece, Ireland and others is easily measured and managed. The debtors and creditors are well known.

Peter.

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Traktion, you have an interesting argument, but its oh so dangerous. You are basically saying, the banks have dropped a bollock, anyone left standing with any assets will have to pay, and I think that you agree with Danny that inflation is one way of paying.

The problem I have with this argument is that it assumes that default and liquidation will be contagious and catastrophic, and we don't know that. Insolvencies are rarely as bad as they first look and the world doesn't end. Countries very rarely default anyway, you just get a royal IMF shafting.

Its similar to the argument about whether you should pay ever ransom money, because if you do, you only get short-term relief and make the long-term problem worse. RBS have been shown to underestimate their losses several times now, and this bailout will not be the last for them or anyone else.

Soft or hard default - those are the choices.

I don't agree with Danny in that inflation is the best route out, as I would rather see the tax regime changed, along with the banking system, and a few partial defaults. Without fiscal changes though, nor changes to the banking system, the BoE's choices are limited - they can either wait for potentially large defaults, bank runs, IMF bailouts etc, or they can print some cash and hope inflation doesn't get out of control. The BoE can only work from the hand it is dealt.

We get to watch the alternative taking place in Ireland anyway. The fullness of time will demonstrate which poison was the least deadly. It just gets my goat when people assume that without bank bailouts, those with deposits wouldn't lose out - this is obviously untrue.

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Soft or hard default - those are the choices.

I don't agree with Danny in that inflation is the best route out, as I would rather see the tax regime changed, along with the banking system, and a few partial defaults. Without fiscal changes though, nor changes to the banking system, the BoE's choices are limited - they can either wait for potentially large defaults, bank runs, IMF bailouts etc, or they can print some cash and hope inflation doesn't get out of control. The BoE can only work from the hand it is dealt.

We get to watch the alternative taking place in Ireland anyway. The fullness of time will demonstrate which poison was the least deadly. It just gets my goat when people assume that without bank bailouts, those with deposits wouldn't lose out - this is obviously untrue.

True - we are all in for a bumpy ride, whatever happens.

Its just that the hard-liners amongst us want something to happen that deters the policy behaviour that we all agree was irresponsible.

The thing about default is that it changes the culture overnight and puts down a historic marker.

It looks like Ireland is going for an IMF shafting, which is not a hard default but does seem to somewhat change the culture.

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  • 146 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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