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pezo

Whats The Difference?

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Hi All,

I'm fairly new to all this and have basically done a quick economics 101 by reading this board and putting 2 and 2 together to make what usually turns out to be 12.

I see the BBC are running a story about inflation in Vietnam running at 13.9% due to the fact it devalued its currency by 8.5% so they have raised interest rates. Link

What I don't seem to get is why is inflation there so high relative to the UK or the US where it was also devalued (or was it devalued as my understanding is that QE can be clawed back), or is Vietnam just an extreme case of what happened here? i.e. did they devalue by more % of there base money supply than we did? If so what are there chances of hyper inflation relative to the UK and US which is where a number of people on here seem to think the UK and/or the US are heading.

I could easily be wrong in my assumptions or could be being a bit to logical about it all but its going to take a far smarter person than me to figure it all out!

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Hi All,

I'm fairly new to all this and have basically done a quick economics 101 by reading this board and putting 2 and 2 together to make what usually turns out to be 12.

I see the BBC are running a story about inflation in Vietnam running at 13.9% due to the fact it devalued its currency by 8.5% so they have raised interest rates. Link

What I don't seem to get is why is inflation there so high relative to the UK or the US where it was also devalued (or was it devalued as my understanding is that QE can be clawed back), or is Vietnam just an extreme case of what happened here? i.e. did they devalue by more % of there base money supply than we did? If so what are there chances of hyper inflation relative to the UK and US which is where a number of people on here seem to think the UK and/or the US are heading.

I could easily be wrong in my assumptions or could be being a bit to logical about it all but its going to take a far smarter person than me to figure it all out!

Firstly, I should state that I know nothing about the Vietmanese economy, although I would guess that it is an IMF rape victim, with a diabolically exploited slave/workforce, where the proportion of average income spent on food is very high, possibly ~80%.

So the first thing to consider is that it is likely that the Vietnamese factor in food costs into their CPI (price inflation) calculations much more than we do. Since food raw materials (and indeed all commodities) have recently significantly increased in price, it is going to hit the Vietmanese much harder than it will rich westerners.

(The above leads us neatly into one of the most common economic fallacies. Namely, that inflation is the same as price increases, which is wrong. Inflation is defined as being an increase in the money supply. Price increases are merely a (potential) effect of more money chasing the same amount of goods and services).

Something else to consider is that most of these developing world economies bend themselves over sideyways in order to keep thier own currency competitively low against the US dollar (effectively the worlds reserve currency). This basically means that the central banks feel compelled to print more currency in order to balance supply/demand issues for any surplus dollars looking to be exchanged into native currency in marketplace. The reason that developing nations do this is that they want the products that they produce to be competitive on the world market. If Vietnam's currency increased too much against the dollar, then US purchasers would take their business elsewhere.

However, printing too much FIAT money, can also lead to credit bubbles forming as a result of Fractional Reserve Banking, whereby banks create money out of thin air as loans, and charge interest on it. (If you dont understand this concept, then I would suggest you google "Money as Debt". There are many good economics books out there, that can be easily understood by the Layman, but for some reason, most of them seem to have great difficulty describing the fine details of FRB whilst assuming the reader has perfect knowledge of the subject). Therefore, too much credit creation (which causes inflation) is a bad thing which leads to unsustainable credit bubbles such as the mortgage crisis or the dotcom bubble. However, in a debt based ecomony (see Money as Debt), money supply inflation is necessary to avoid economic crisis occurring. This is because at any one time, there is more nominal debt than actual money in the economic system, and therefore, more money has to be created (inflation) in order for it to be possible for their to be enough money to settle existing debts. Needless to say, in such a system, deflation (of the money supply), would be catastrophic.

So both too much inflation and also deflation is to be avoided at all costs.

To take a stab at answering your question, I would say that the Vietmanese government has found itself trapped between trying to keep its currency low against the US dollar, against the backdrop of the Federal Reserve's Quantative Easing (or money printing) program, at a time of significant rise in global food and commodity prices.

Something else I should make very clear is that the CPI (Consumer Price Inflation) in this country (UK) is one of the most fraudulent doctored statistics out there. It would be more accurate to call it the CPlie. Recently it was stated that the UK CPI was ~4.5%. This is way above the BoE's 2% target. In reality however, the true CPI is much higher than 4.5%. Perhaps the Vietmanese are more honest in the way they calculate inflation.

If you are really interested in gaining a grip on economic issues then I recommend the following

Money as Debt 1+2

www.khanacademy.com (lots of brilliant finance videos on there for the novice)

Then after that there are lots of brilliant books (but even more shitty ones). However you should be aware, that economics is such a witches cauldron consisting of millions of interacting forces, which boil down to perhaps a few really important categories, all of which are subject to organic market forces, market rigging, and plain old chaos theory. No matter how much facts and details that someone absorbs, where you hag your hat is as much down to instinct/belief system as anything else. So bear that in mind when you have some 'know-all' pontificating the economic facts of life to you. There are many 'experts' out there that can provide in-depth analysis after an event (such as housing crash), but precious few providing such analysis before the event.

Edited by Retardstic

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  • 312 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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