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Inflation, Bring It On


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Inflation wipes out debts.

Stagflation does not wipe debts.

Stagflation is what we have. Last year £200bn QE was pumped into the economy and it barely managed positive growth. Prices are going up but wages are not. We cannot pay ourselves more than Germans/French/etc. Jobs just get up and leave if you do that. Even oil industry jobs.

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Inflation wipes out debts.

Stagflation does not wipe debts.

Stagflation is what we have. Last year £200bn QE was pumped into the economy and it barely managed positive growth. Prices are going up but wages are not. We cannot pay ourselves more than Germans/French/etc. Jobs just get up and leave if you do that. Even oil industry jobs.

Private sector wage increases are currently tracking inflation but about a percentage point behind. A year ago 1-1.5% was common, it's now more like 2.5-3%. If you are in the public sector it looks more like stagflation, but in the private sector it feels very muh like inflation.

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So your wages ARE increasing in line with inflation? The stats say no. You are asking to be impoverished UNLESS wages increase but there is no sign that they will due to reasons given by previous posters (global competitiveness).

Do you think wages will increase?

Not everyone is upset with the inflation figures. Being young (relatively) with a £200k mortgage and little savings, I'll take as much inflation as you can give to me. That is as long as my salary keeps up with it, and given I work in the oil industry that should not be a problem. :D

Just look at anyone who bought a 5 bed stucco in Knightsbridge in 1970 for £20k.

As long as your salary rises with inflation, then you may have a few of years of pain as interest rates kick up, but after that it's plain sailing, living virtually mortgage free for the rest of your life.

Inflation hurts old people. Young people with massive debt is its friend, as long as you can bunker down and continue to repay during the high interest rate period.

With high inflation but low saving rates, anyone who has a big deposit but no house is screwed.

Inflation, bring it on.

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History tells us inflation eats debt, or are you going to argue that it's different this time :lol:

History tells us that income inflation eats debt. We have had inflation for the past few years, but income inflation hasnt occurred.

Article on the Beeb today, showing that private sector wage increases are on the up, but not as much as inflation. Public sector wages are frozen. So we are all going backwards at different rates at the moment. Falls in real income arent good for paying off debt.

Whether this continues or not, who knows, but global wage arbitrage and peak oil, and a demographic crisis lead me to believe things arent going to be like the 1970's.

Now, mathematically, you are right. A debt fixed in a currency that is devaluing (one definition of inflation) should be easier to pay. Consider one danger though, that of a move to an inflationary environment. If interest rates rise at the same time as inflation, you might get a jump from say 4% interest rates to 20%, whilst your salary goes up 20%. Thing is, if your mortgage was £500 a month, and your salary was £2000 a month after tax, you now have £2400 income, but a £2500 mortgage bill. If that happens, you are sunk.

So dont expect inflation to be your saviour on its own, it may well help a lot. Or it may not happen at all, and we may once again face a deflationary spiral, that danger has not been averted yet.

Edited by leicestersq
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Not everyone is upset with the inflation figures. Being young (relatively) with a £200k mortgage and little savings, I'll take as much inflation as you can give to me. That is as long as my salary keeps up with it, and given I work in the oil industry that should not be a problem. :D

Just look at anyone who bought a 5 bed stucco in Knightsbridge in 1970 for £20k.

As long as your salary rises with inflation, then you may have a few of years of pain as interest rates kick up, but after that it's plain sailing, living virtually mortgage free for the rest of your life.

Inflation hurts old people. Young people with massive debt is its friend, as long as you can bunker down and continue to repay during the high interest rate period.

Inflation, bring it on.

That is a lot of "ifs". It sounds like you are a low level employee in the Oil & Gas industry. I wouldn't want to be in your shoes as the industry consolidates over the next few years.

With high inflation but low saving rates, anyone who has a big deposit but no house is screwed.

A big deposit remains a big deposit if house prices are stagnant or falling. If house prices are falling then the deposit (used to purchase a house) increases in purchasing power even if everything lese in inflating. You don't seem to understand purchasing power.

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So your wages ARE increasing in line with inflation? The stats say no. You are asking to be impoverished UNLESS wages increase but there is no sign that they will due to reasons given by previous posters (global competitiveness).

Do you think wages will increase?

If it were all about global competitiveness, France would not exist

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I'm sorry but he is correct. Inflation wipes out the debts of borrowers, which is why I got the biggest loan I could and bought property as soon as the credit crunch hit. Anyone who is a saver in an inflation era is a sucker.

+1

Houses are not my thing because I think they're expensive for what they are, and so I am mostly in precious metals. What I find so fascinating is the following mentality:

1) The accumulation of a corrupt and debased fiat currency is called 'being prudent'.

2) Taking steps to protect oneself, or even trying to profit, such as borrowing falling currency units to buy real assets, is called 'being feckless'.

Surely the opposite is the truth?

Prices of just about everything have almost doubled (certain assets much more) over the last six years. This means anyone accumulating cash has been taken to the cleaners, and the smart ones are those who bought stuff - even better, those who borrowed money to buy more stuff than could otherwise have bought, since they have leveraged the gains.

Is there anything wrong with my reading of this situation?

Edited by Peppa Pig
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History tells us inflation eats debt, or are you going to argue that it's different this time :lol:

dimwit...Its also great fun jumping off a cliff...right up to the time you hit the ground.

Edited by Bloo Loo
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Well he's obviously a senior fcukwit, because if you can spell oil and gsa (tee - hee) you can land a job at the moment.

Indeed. And that's the important thing here...

You say you're relatively young. I assume you remember a couple of years back, when the oil price was depressed, and projects across the industry were mothballed or completely cancelled wholesale? Not just in the N Sea, but across the whole of the Middle East and the US...

When the PPB hits certain thresholds, projects start getting canned - and when they get to a certain level everything just stops - they even stop pumping the oil just to put the price back up... I know, I work in the industry as well, and have seen it several times now.

Another thing to bear in mind; plenty of folks from the Indian sub-continent, who are happy to earn a few hundred bucks a month, to send home to their folks while they live in an oil company camp for 2-3 years, can spell "oil and gsa" as well.

And the really bright ones are getting degrees, to do the technical stuff as well - in fact, under programmes like Qatarisation, the governments of most M East countries are paying for their their own brightest and best to study in the UK and the US, because it's a matter of policy for them to get up to something like 50% local staffing in a very short period of time. Except quite a few of them stay in the West, because they're loaded and rather like the "extracurricular" that derives from driving a Porsche while their fellow students, or fellow recent grads, take the bus...

All pretty grim for the expat mob, many of whom at times (not unlike your own post,) display a level of hubris that would make an EA wince ;)

So... if you were a "senior f*ckwit" in O&G, who would you pay to do the job; a mature, talented individual with a work ethic to die for, and a relatively modest salary expectation, or someone with a sense of entitlement as big as their ego and their mortgage combined, demanding a king's ransom just for doing them the favour of turning up?

Dangerous things, those Senior F*ckwits :ph34r:

In summary, with that little "O&G Economics 101" in mind, you'd better hope there isn't another dip anytime in the lifetime of your mortgage, otherwise you're going to be in other brown stuff, along with the rest of us.

B

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I agree the public sector is struggling, but there'll be carnage soon. Just look what happened in the '70s. When you've had a £300 per month cut in mortgage payments, you are less likely to worry about whehter you get a 1 or 3% increase. Push up interests though and the unions will be screaming for inflation busting pay rises

As for the private sector wage growth is already up near 3%. History tells us that inflation and wgae grwoth go hand in hand.

The wage growth you foresee will not take place in the UK. The manufacturing base, raw materials, agriculture, etc are all overseas now, if theres going to be wage inflation its going to be there, not in the hairdressing salons, restaurants, kitchen fitters, fast-food shops and decorating services that make up the british economy.

All we have in any real number are retail, financial credit services, and a host of small businesses performing luxury services. Non of them generate any wealth, as in something that we can put on a ship and export. They are secondary tax consumers, and once the primary tax consumers in the public services are starved of the government injected wealth the secondary lifeforms will shrivel and die like the insects that feed of the grapes of a severed branch.

We import everything, even uk manufacturing is entirely dependent on imported component parts and semi assembled products, not to mention the workers from overseas that help keep our wages costs lower. The only thing that we couldn't import was houses, and as the prices continued to climb with the positive feedback loop of cheap credit from overseas, our numpty population borrowed against their houses to import more products and spend our countries wealth in restaurants, hairdressers, coffee shops, designer clothing shops and house remodelling escapades.

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+1

Houses are not my thing because I think they're expensive for what they are, and so I am mostly in precious metals. What I find so fascinating is the following mentality:

1) The accumulation of a corrupt and debased fiat currency is called 'being prudent'.

2) Taking steps to protect oneself, or even trying to profit, such as borrowing falling currency units to buy real assets, is called 'being feckless'.

Surely the opposite is the truth?

Prices of just about everything have almost doubled (certain assets much more) over the last six years. This means anyone accumulating cash has been taken to the cleaners, and the smart ones are those who bought stuff - even better, those who borrowed money to buy more stuff than could otherwise have bought, since they have leveraged the gains.

Is there anything wrong with my reading of this situation?

To answer your points.

1) It is prudent, but not necessarily the best course of action. You are 'Acting with or showing care and thought for the future'.

2) It depends whether it is 'Unthinking and irresponsible'. Buying a house that you cannot afford the mortgage with your income should future circumstance change by 1-2% is irresponsible.

Prices of certain things haven't doubled. TVs haven't, cars bought in 2004 haven't and you can't sell that holiday you went on. Many of the leveraged gains are for things that aren't ever investments.

Maybe if you'd bought gold you might be prudent, but if you'd bought it with a loan then you must know that you are basically gambling on it, which is kind of irresponsible. However if you win, quids in, just don't expect to always win.

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To answer your points.

1) It is prudent, but not necessarily the best course of action. You are 'Acting with or showing care and thought for the future'.

2) It depends whether it is 'Unthinking and irresponsible'. Buying a house that you cannot afford the mortgage with your income should future circumstance change by 1-2% is irresponsible.

Prices of certain things haven't doubled. TVs haven't, cars bought in 2004 haven't and you can't sell that holiday you went on. Many of the leveraged gains are for things that aren't ever investments.

Maybe if you'd bought gold you might be prudent, but if you'd bought it with a loan then you must know that you are basically gambling on it, which is kind of irresponsible. However if you win, quids in, just don't expect to always win.

I think it is all about a point of view. And I guess that is what makes a market after all. For me, it is the height of recklessness to trust a government (ie to keep putting your savings in the form of currency) that is so clearly compromised to the banking sector, and has stolen half of 'savers ' money over the last six years. It is a wonder the pound sterling has not collapsed altogether.

Incidently, I don't eat television sets as a rule - perhaps for a strange bet. But I do need to live in a house, and I need eat, and all this stuff has doubled.

Even the governments own fairy tale consumer index are running at nearly twice the official 'target'. And still they're creating oceans of money in order to keep banks in business at half percent rates.

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Private sector wage increases are currently tracking inflation but about a percentage point behind. A year ago 1-1.5% was common, it's now more like 2.5-3%. If you are in the public sector it looks more like stagflation, but in the private sector it feels very muh like inflation.

So you admit that nominal wage increases are failing to keep pace with inflation

If real wages fall the debt becomes harder to service.

Wage inflation makes debt easier to service, not price inflation

At the moment wage inflation is muted, therefore, your debts won't be erroded.

This isn't the 70's. Somethings happened in the meantime. It's called:

Globalisation

Google 'international wage arbitrage'

Finally, I'd like to wish you good luck

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If it were all about global competitiveness, France would not exist

You don't need to read much from posters on here to realise that your argument is flawed.

Another point is that banks do not like to lose money or see the loans they have erroded and they will protect themselves by increasing the interest they charge on their loans... to YOU.

There are so many ifs and buts in your statement it is hard to see how you have come to the conclusion you have. At present your wages are not increasing with inflation and so you are being made poorer and your ability to pay the mortgage is getting worse.

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Wage inflation. How are your pay rises?

I'm paid in USD, so very nice actually.

Incidentally, you can get good saving rates - just not in GBP.For instance, in Poland 5.0% is the standard bank saving rate (and expected to increase this month), the PLN has been appreciating against other currencies for a year and probably will continue to do so as its tied to Germany and its similarly booming economy. (for clarity I'm biased, I live in Poland)

Storing money in UK banks is no longer risk free so gamble on the stock market or currencies if you want a return.

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