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We're facing inflation.

 

The bankers dropped IRs 50% and printed £170B to force down savings rates.

 

The Central bankers have lost the plot.

 

What are we meant to do ?

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A 20% hike in the price of oil from here would still leave the black stuff comfortably below $60bbl.

Murder for UK living standards though. ;)

Edited by zugzwang

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BOE running out of tools.

I think it was KB who pointed out that when the next recession comes, they will not be able to lower rates.

Now we're looking at the rock and hard place like never before. I think most people on here felt that this would come about, but I certainly didn't feel it would take so long.

Now we're wedged between keeping rates low to "benefit the economy" or raising rates to curb inflation. I think the other big issue is that the US is in a rate raising cycle now. At some point we are going to have to start following.

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Given that CPI inflation ran consistently above the 2% target (almost hitting 5% in 2011 i think) and only fell back below target in 2014 without any sort of interest rate rise or other monetary tightening in response, I think it's safe to say that TPTB won't do a damn thing to combat it as it starts to rise again until it hits at least 5%.

 

Difficult to say if it will affect house prices.  In theory, lower disposable income should curb people's desire to take on ever larger amounts of debt but given that all the stops will be pulled out to ensure cheap lending and people will be deterred from amassing savings due to miserly interest paid, it's not obvious that people will (finally) show some common sense.  I wouldn't bet on it.

 

If inflation starts to grow, rates stay at near zero and the pound further devalues then probably the most rational response is to get your money out of sterling as much as possible.  PMs, straight up dollar or other foreign currency savings, or even bitcoin if you want to take a punt - all avenues to diversify into IMO.   Plus, all my sterling savings are now just going into Premium Bonds - don't fancy being at the mercy of the banks staying solvent when I'm getting next to no interest to compensate me for either inflation or counter party risk.

Hopefully, a house for cash at some stage (or with a mortgage that I can pay off from savings if necessary).

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There is definitely a focused attempt to depreciate the pound and introduce some inflation.

My very cynical viewpoint is that they want to remove tax credits but can't so they are trying to do it by stealth using inflation to destroy the value of tax credits and housing benefits. 

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One thing that's helpful to look at is where inflation impacts most.

http://www.telegraph.co.uk/work-salary/news/millennials-suffering-twice-the-rate-inflation-of-baby-boomers/

Over the last few years, younger people have been more affected by CPI than middle-aged folk who've taken advantage of low supermarket prices by eating in and avoiding flat whites and fast fashion. These, and minimising rent payments, are a good place to start in terms of spending.

Be sceptical of any Made in Britain labels you see, or brand names designed to sound local. The supply chain is rarely domestic, and the market price is affected by factors beyond the individual brand. I can't think of a single product with an entirely domestic supply chain.

Budget now to reduce spending by 5%, if at all possible.

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3 minutes ago, Grumpysod said:

Time to start inflating some of those big debts away, Brexit is probably the excuse the BOE were waiting for

We shall see... there are two sides to that equation.  Capital markets are not going to just want to take hard-losses, just so a Gov can enjoy wonderland HPI etc.  Some Swedish financial investors got out of sterling just before Brexit.  Lot of uncertainty.  Is Gov more powerful than markets?

On 6/30/2016 at 8:29 PM, Venger said:

Political authorities will surely attempt to lighten debt loads by depreciating the value of money. But the market will understand this even better than the politicians. A hunter with a visible snare catches few rabbits. Creditors will seek to stay one step ahead of the authorities, to avoid being tagged with the losses through inflation or currency depreciation.

The lesson of September 1992 is a re-affirmation of a central theme: markets are more powerful than governments. The European Exchange Rate Mechanism cracked apart because the Bank Of England was no match for George Soros. Even with tens of billions of deutschemarks to spend defending an artificially high value of the pound, the British government was obliged by the market to beat a humiliating retreat. Given similar circumstances, it would happen again.

The major economic drama will be the struggle between the market and government over the liquidation of debt. Political authorities will prefer to wipe away debt surreptitiously through inflation. But to inflate away bad debts also means inflating away good credits.

Market participants will seek to preserve the value of their assets denominated in money. To the extent that they succeed, they will make it harder to repay excessive debt in cheap money, and thus make the system more vulnerable to overt default and deflation.

As monetary policy is loosened, in increasingly desperate efforts to reliquify the economy, the market may force a deflationary response. There is a limit to everything, including the good credit of governments. When it appears that authorities are most determined to inflate depression away that very perception could put the economy on the verge of again slipping into the deflationary vortex.

 

 

Quote

Determined reflation, because of its disastrous consequences, would be a foolhardy policy. We expect and hope the authorities will submit to the dictates of the market, and take steps to restore the economy and the government to solvency. This would mean deflation - letting the bad debt be liquidated. Deflation to prevail over inflation. Creditors to prevail over debtors. Financial assets selectively repudiated by default, not obliterated by inflation.

The optimistic reading does not depend upon creditors being more numerous than debtors, but on markets being more powerful than governments. The power of the markets, however, is a long-run power, a power that asserts itself over decades. If events prove that we are not yet at the point where further inflation would be self-defeating, we are very near. A concerted attempt by political authorities to override market disciplines and write down debt through inflation would lead, in the extreme, to the disappearance of credit altogether - an outcome that would doom a modern political economy.

 

 

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7 minutes ago, Grumpysod said:

Time to start inflating some of those big debts away, Brexit is probably the excuse the BOE were waiting for

Can only do that with wage inflation.

 

This inflation is due to imports....the UK workers will not benefit.

It's what you call #FRAUD×

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46 minutes ago, Grumpysod said:

Time to start inflating some of those big debts away, Brexit is probably the excuse the BOE were waiting for

We can inflate away the debt, but you can't inflate away a deficit.

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2 minutes ago, evictee said:

We can inflate away the debt, but you can't inflate away a deficit.

You can if you don't allow the causes of that structural deficit to increase with inflation.

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3 minutes ago, evictee said:

We can inflate away the debt, but you can't inflate away a deficit.

We are a lot poorer than we think we are. Most people are about to discover that living beyond their means or living on the means of others doesn't work long term.

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3 hours ago, TheCountOfNowhere said:

We're facing inflation.

 

The bankers dropped IRs 50% and printed £170B to force down savings rates.

 

The Central bankers have lost the plot.

 

What are we meant to do ?

We voted for Brexit and that is the cause of inflation. 

Don't attempt to deflect blame.

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10 minutes ago, Peter Hun said:

We voted for Brexit and that is the cause of inflation. 

Don't attempt to deflect blame.

interesting how most posters on this board lusted after brexit in order to wreck the economy and are now complaining about it

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2 hours ago, Peter Hun said:

We voted for Brexit and that is the cause of inflation. 

Don't attempt to deflect blame.

Seriously.....Oil low for three years, people on the breadline and an artificially high pound pre the referendum, inflation was always an event away whatever that event

Lovely Rum - wrecked economy ? get over yourself 

 

Edited by Greg Bowman

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2 hours ago, Peter Hun said:

We voted for Brexit and that is the cause of inflation. 

Don't attempt to deflect blame.

The inflation can be stopped today...Raise interest rates.

Br Exit was used as an excuse to rob us some more.

The bankers crimes need to be exposed one way or another

Edited by TheCountOfNowhere

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4 minutes ago, Greg Bowman said:

Seriously.....Oil low for three years, people on the breadline and an artificially high pound pre the referendum, inflation was always an event away whatever that event

Lovely Rum - wrecked economy ? get over yourself 

 

How was the £ artificially high?

 

The dollar and EU are even more artificially high in that case

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2 hours ago, Lovely Rum said:

interesting how most posters on this board lusted after brexit in order to wreck the economy and are now complaining about it

Nonsense.  We welcome this period of adjustment.  It's very handy for exposing the criminals in charge of the UK. (IMHO).

We're complaining about the bankers not the inflation.  I';m happy to pay 20p more for a loaf if house prices collapse 70% real or nominally.

 

 

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3 hours ago, evictee said:

We can inflate away the debt, but you can't inflate away a deficit.

You can only inflate away the debt by inflating peoples earning.

 

Wont happen, globalisation has seen to that

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1 minute ago, TheCountOfNowhere said:

You can only inflate away the debt by inflating peoples earning.

 

Wont happen, globalisation has seen to that

You can by turning your local fiat currency into tissue paper - say by reducing interest rates when they should be increasing them.

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5 minutes ago, TheCountOfNowhere said:

How was the £ artificially high?

 

The dollar and EU are even more artificially high in that case

Didn't say they weren't, but surely millions of people living in other countries Spain, Thailand etc on relatively modest incomes just because the sterling rate was strong was a clue ? when most on here agree that our economy is F***** running  a deficit every month how so ?

Not that I trust the IMF but...https://fullfact.org/economy/exchange-rates-and-imf/

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