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What a surprise, out goes a hawk, in comes a dove. Every week the news gets worse and worse for the nations savers.

Edited by simon99

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jobs for the boys... it's how government works at ALL levels in the UK.

And just about every where else. Look at G Bush's appoitments lately.

The sad thing is they do act on growth not inflation initially they will get caught out later and will have to hike interest rate later to put it right. The pain may come later, but it will be all the more intense.

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And just about every where else. Look at G Bush's appoitments lately.

The sad thing is they do act on growth not inflation initially they will get caught out later and will have to hike interest rate later to put it right. The pain may come later, but it will be all the more intense.

If they are going to allow inflation to defuse the debt mountain, maybe buying a house now is the right thing? Lock in a long fixed low rate now?

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Guest Charlie The Tramp

If they are going to allow inflation to defuse the debt mountain, maybe buying a house now is the right thing? Lock in a long fixed low rate now?

Well to do that and make it worthwhile for the debtors you would have to return to the inflation of the seventies, and in todays global economy UK plc would be in very deep doo doo.

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Apologies for my greenish shade but hawk and dove? Could I have a definition please?

Hawk = tendency to support higher interest rates to keep a lid on inflation

Dove = tendency to support lower interest rates to stimulate growth

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Well to do that and make it worthwhile for the debtors you would have to return to the inflation of the seventies, and in todays global economy UK plc would be in very deep doo doo.

Indeed. The only way to 'inflate away the debt' is to create wage inflation of 2-3x over the next few years... which ain't going to happen when your job can be outsourced to China for a few dollars a day.

Inflating away the debt is simply not an option: they can create more price inflation, but that will make matters _worse_ since people will have less money to waste on mortgage interest once they've paid for essentials.

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Well to do that and make it worthwhile for the debtors you would have to return to the inflation of the seventies, and in todays global economy UK plc would be in very deep doo doo.

Charlie - do you think that we are making an unnecessary fuss about these appointments? From what you say above, it sounds like you don't think that they would allow inflation to run away, in which case you must think that they will put up rates (regardless of who is appointed)?

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lower interest rates to stimulate growth

Lower interest rates do not (and cannot, I would argue) always stimulate sustainable economic growth. Take Japan for example. Only structural reform can bring long-term economic benefits. Lower interest rates are merely a sticking plaster for an economy rife with malinvestment and misallocation of capital.

Surely wage inflation is an option, providing that sterling tanks

And what do you think will happen to consumer price inflation if sterling tanks? :rolleyes::rolleyes:

Edited by IPOD

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Charlie - do you think that we are making an unnecessary fuss about these appointments? From what you say above, it sounds like you don't think that they would allow inflation to run away, in which case you must think that they will put up rates (regardless of who is appointed)?

Only time will tell.....

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Indeed. The only way to 'inflate away the debt' is to create wage inflation of 2-3x over the next few years... which ain't going to happen when your job can be outsourced to China for a few dollars a day.

Inflating away the debt is simply not an option: they can create more price inflation, but that will make matters _worse_ since people will have less money to waste on mortgage interest once they've paid for essentials.

Surely wage inflation is an option, providing that sterling tanks to maintain our wage competitiveness globally. I.e. we wouldn't be richer, but we wouldn't have a problem with our nominal debt either.

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Surely wage inflation is an option, providing that sterling tanks

If sterling tanks imports will become more expensive, and seeing as virtually everything you can buy today in Britain is made in China, higher imports prices = higher consumer prices = higher inflation = BOE have to raise interest rates to control it. You've fallen for Harold Wilson's "pound in your pocket" economic fallacy:

http://news.bbc.co.uk/onthisday/hi/dates/s...000/3208396.stm

http://en.wikipedia.org/wiki/Harold_Wilson

Other memorable phrases attributed to Wilson include the comment he made to attempt to reassure the British public after the 1967 devaluation of the pound: "This does not mean that the pound here in Britain — in your pocket or purse — is worth any less...", usually now quoted as "the pound in your pocket".

This is rubbish of course. The real value of a currency is in the amount of goods and services it can purchase (it's purchasing power); clearly if the pound devalues against the currencies of the countries from whom we buy our goods, we can buy less goods with the pound than before the devaluation.

Edited by IPOD

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If sterling tanks imports will become more expensive, and seeing as virtually everything you can buy today in Britain is made in China, higher imports prices = higher consumer prices = higher inflation = BOE have to raise interest rates to control it. You've fallen for Harold Wilson's "pound in your pocket" economic fallacy:

http://news.bbc.co.uk/onthisday/hi/dates/s...000/3208396.stm

http://en.wikipedia.org/wiki/Harold_Wilson

This is rubbish of course. The real value of a currency is in the amount of goods and services it can purchase (it's purchasing power); clearly if the pound devalues against the currencies of the countries from whom we buy our goods, we can buy less goods with the pound than before the devaluation.

Sorry mate, I'm not falling for any fallacy, I'm only saying that it would solve the nominal debt problem because we could afford to repay the capital if wages doubled.

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Sorry mate, I'm not falling for any fallacy

You are actually, but if you can't see it that doesn't surprise me.

it would solve the nominal debt problem because we could afford to repay the capital if wages doubled.

What else would happen if nominal wages doubled? Think about it.

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Guest Charlie The Tramp

Charlie - do you think that we are making an unnecessary fuss about these appointments? From what you say above, it sounds like you don't think that they would allow inflation to run away, in which case you must think that they will put up rates (regardless of who is appointed)?

Large leaves I believe after the MPC meeting in January. A lot can happen in three months and who knows maybe a rate rise then. As I have said in previous posts the MPC are walking on eggshells and I would not like to be in their position. Large was very much concerned with the growing debt bubble as is King and any further votes by MPC members against the votes of the seniors will IMHO create uncertainty in all the markets. I sit in amusement seeing how the media have turned on the magician the past few weeks and Humphrys kicking of him was brilliant. ( The Link is now in The Classics ). BTW did you read old Hump was awarded 10k over his leaked speech from the company which hired him and then sent a video to Tim Allan former Number 10 spin doctor. How the media would have had a field day if the BBC had sacked him over it.

Last but not least Interest Rates 5.25% late spring ( May ) 2006.

<_<

Harold_Wilson

Alongside Super Mac my favourite Prime Ministers.

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You are actually, but if you can't see it that doesn't surprise me.

What else would happen if nominal wages doubled? Think about it.

Ok, no need to be rude about it! Are you saying that debt would double as well? That would be a problem...

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Ok, no need to be rude about it! Are you saying that debt would double as well? That would be a problem...

A doubling of nominal wages would make the UK economy massively uncompetitive in the global marketplace and merely accelerate the trend to offshoring and outsourcing. Devaluing the pound to offset this rise in labour costs would bring it's own problems in terms of imported inflation. Also you have to analyse where this impetus for a doubling of salaries is going to come from. Will it come from business? They want to cut costs, not increase them! Will it come from employees? Of course people want their salaries to rise, but do they have pricing power in the labour market (ie are their skills sufficiently in demand that they can name their price)? I would say there are very few jobs in the UK economy for which this is currently the case. A handful of top bankers and CEO's, maybe. Vast swathes of the UK economy consists of de-skilled McJobs.

Perhaps the impetus will come from the public sector? We have seen Gordon employing legions of public sector workers in the past 5 years:

http://news.bbc.co.uk/1/hi/programmes/panorama/4280818.stm

The public spending prop

What is left of the miracle economy, if you strip out the cheap imports and the consumer spending? What is left is a lot of public spending. The only part of the economy that has grown faster than spending by all of us the past few years has been spending by the government.

In the north-east, one recent estimate puts the public sector of the economy at close to 60%. That's roughly what it was in Hungary before the Berlin Wall came down.

Can public spending on this scale continue? It would seem not:

http://thescotsman.scotsman.com/index.cfm?id=2086362005

http://money.guardian.co.uk/news_/story/0,...1593325,00.html

The Ernst and Young Item Club, which uses the Treasury's own forecasting model, says GDP growth in 2005 will be 1.6 per cent: just half the pace predicted in the Budget. It also adds its voice to the growing consensus that Brown faces a 'black hole' in the public finances, of at least £10 billion - worth about 3p on income tax.

Brown has two choices: either cut public spending or raise taxes. Both will impact negatively on economic growth.

Also, high levels of immigration mean the market in unskilled labour is particularly unable to bargain for higher wages. So in sum I find it hard to see where this 100% increase in nominal wages will come from.

There is also the risk that a doubling of nominal wages would lead to a classic Seventies-style price-wage spiral. However this is probably less likely today, because the productive capacity of the world economy (including China and India) is so great nowadays that even large increases in aggregate demand for goods and services would likely be absorbed relatively easily without eroding the output gap.

http://www.absoluteastronomy.com/encyclope...age_spiral1.htm

http://www.investopedia.com/terms/o/outputgap.asp

Economic theory suggests that a positive output gap will lead to inflation as production and labor costs rise.

http://www.economist.com/research/Economic...c.cfm?TERM=OECD

http://www.tutor2u.net/economics/content/t...y/outputgap.htm

Edited by IPOD

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  • 302 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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