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Wurzel Of Highbridge

The Way I See The Uk's Economic Problem.

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Wage inflation is low, this is a big problem because cost infatuation (food, oil etc) is high in comparison as there is a 2% to 4% gap.

Effectively we have income deflation of 2% to 3% per year, this is lowering demand for goods and services as people have less money to spend.

The government and BOE have been trying to stoke wage inflation using low interest rates, this gives people more disposable income.

(It also entices people to take out larger debts that they otherwise would be able to afford. *It is possible that these larger debts will take longer to repay if the price of the debt (interest rates) increase.)

Since there is real wage deflation the reduced interest payments have been ued by consumers to bridge the gap over the last few years.

The government is buying it's own debt via (QE), this is so that they can continue to run public services that collectively the UK could not afford. If they stopped QE then the real drop in living standards would become immediately visible to the general public.

Not only would living standards fall as schools, library's and other public services were closed but the cost of future government debt would rise as they would have to raise and debt from the markets.

It is then likely that mortgage rates would have to rise as the yields on government debt would be higher that that of mortgages thus bankrupting many mortgage holders and the banks.

In theory low interest rates should devalue the currency, thus reducing the cost of labor on an international basis and increase employment.

Problems :-

1: There are multiple countries attempting to devaluing their currencies together.

2: Western countries are attempting to export their way to growth. It is not possible for every country to export to each other and grow at the same time.

Root cause of the issues.

1. There is not enough global demand and ability to pay for goods.

There would be massive demand from countries like Africa for good quality housing, hi tech goods and education etc. but they do no have the means to pay.

2. The demand from the previous era was caused by excessive credit, overbuilding of houses extra demand for goods and oversupply of cars etc that would not otherwise be affordable.

3. The demand and cost of energy keep rising which limits demand as prices rise.

Solutions to the problems:

Destroy production/ the competition - War and economic depressions are good at this.

Increase consumer demand - Lending money at low rates can temporarily increase demand, but there is no sure way of achieving this.

Conclusion:

Attempting to return to the fake prosperity of 2007/8 is a mistake that should not be made.

To compound the demand issues, energy costs have risen which makes a return to the era of 2007/8 even more unsustainable.

Modern technology has reduced the quantity of labor required, so there is not enough global demand for labor to keep the old system and it's international oligarchs afloat.

Most likely outcome for the uk:

Politicians are in a weak position and are unable to make tough decisions. The current system will be perused with governments attempting to push more debt and attempting to lower the cost of debt.

Since debt has to be repaid and the increased debt pushes asset prices, this will be able to achieve temporary periods of growth followed by recessions as demand slumps when consumers attempt repayment.

There will be no significant general wage growth under the current system as there is an oversupply of educated labor across Europe and America, and as time ticks on there will also bee oversupply in BRICS. Unskilled labor will continue to be outsourced to countries where the cost base (cost of housing) is lower.

If anything we will continue to see REAL wage growth decline as other countries compete for resources such as food and oil.

House prices:

House prices IN THE LONGER TERM cannot outpace REAL wage growth.

In the short term the oversupply of cheap credit could push up house prices, but eventually a limit will be reached where the price of credit cannot be reduced, lending multiple cannot be increased and falling REAL wages make repayment impossible.

If governments continue to ramp up house prices via underwriting mortgage lending, it may reduce the length of time taken to the repayment affordability cliff.

Another interesting outcome may be that increased house prices temporarily increases pay and construction jobs as a building boom takes place. As can clearly be seen in the case of Ireland, such booms are unsustainable and eventually collapse.

I believe the best course of action would be a radical overhall of the UK's economic system with emphasis made in the areas of:

1> Low cost subsidised housing to reduce the cost of labour. Build high rise blocks in London and other housing in other areas so that the cost of housing in the UK is the lowest in Europe.

2> Decenrtalising London to other regions of the UK thus giving those areas a chance to build other industries around those.

3> Overhalling the tax system so that speculating on assets is unattractive and investment productive businesses is more attractive, however subsidised housing would make property speculation unattractive in it's self.

The government clearly want a house price boom to give the illusion of wealth, they need to do this as REAL incomes are declining quickly. The biggest problem with this is the declining REAL income makes the increased debt from a boom even more unsustainable.

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The problem is the ones profiting from the problems are the ones making the decisions.

Turkeys do not vote for Christmas.

Isn't this how capitalism always works?

People with capital deploy it -->

more competition drives more and more aggressive growth which becomes unsustainable -->

Crash occurs -->

Money is removed from all Labour by inflation to pay for the folly of a few capital owners -->

Repeat

This happens every 8-12 years and devalues the currency whilst passing more wealth to a smaller elite. Why do you think employees now earn less than they did in the 50s in real terms? Or why the 1% are drifting to another stratosphere in the things they need to buy and service compared to the common man? As this accelerates we lead to revolution to reset the system but in the meantime new services will spring for the wealthy that most just won't understand. Wealth Manager, Dog gyms, personal butlers, personal shoppers, £1m cars, couture dresses for a minority etc...

In the system, there are those that don't have capital to begin with that rise up through the ranks, e.g having "hot skills" in hot areas or getting off the merry-go-round at the right time e.g buying property in 1992 and selling in 2007 and moving country or something more useful like starting a business or inventing a product. These people then become capital owners and perform the same trick.

Labour i.e employed people are simply there to get a job done that capital owners don't want to do. A means to an end. If they could have robots answer telephones and makes cups of tea and book appointments etc. they would.

The problem with this system is that the "great unwashed" who either had no drive, a bad start in life or don't have any ambition are slowly removed from a reasonable standard of living and simply live to eat/chat/watch TV/poop/die - the question becomes - is this an acceptable way of living for the masses? Labour thinks its ok. The Conservatives think everyone should be "a grafter" but the capitalist system cannot enable everyone to succeed so grafters just make good employees that use their efforts to grow the businesses others own. Which works our well for the general Tory viewpoint.

Don't hate the players hate the game. Although humanity has come up with nothing better for a very long time.

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Root cause of the issues.

1. There is not enough global demand and ability to pay for goods.

There would be massive demand from countries like Africa for good quality housing, hi tech goods and education etc. but they do no have the means to pay.

2. The demand from the previous era was caused by excessive credit, overbuilding of houses extra demand for goods and oversupply of cars etc that would not otherwise be affordable.

3. The demand and cost of energy keep rising which limits demand as prices rise.

You forgot the problem of interest and fractional reserve banking. Without reforming (abolishing) those nothing else matters.

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