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oatbake

Milton Friedman: Money and Inflation

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Thought I'd share a great talk from the economist Milton Friedman on Inflation and explains a lot of what's been happening with house prices. He even talks about inflation being divisive: winners and losers, and he specifically talks about housing in this regard. The bit between 34 and 38 mins(ish) is probably the most relevant to housing but the whole talk is worth listening to. We talk a lot about a divided society and I believe inflation is one of the leading causes.

 

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36 minutes ago, oatbake said:

Thought I'd share a great talk from the economist Milton Friedman on Inflation and explains a lot of what's been happening with house prices. He even talks about inflation being divisive: winners and losers, and he specifically talks about housing in this regard. The bit between 34 and 38 mins(ish) is probably the most relevant to housing but the whole talk is worth listening to. We talk a lot about a divided society and I believe inflation is one of the leading causes.

 

I'm not remotely a fan, the belief that govt controls the quantity of money in circulation is hopelessly mistaken, but it is interesting to hear Friedman blaming Nineteenth century gold miners for causing inflation but defending Twentieth century trade unions against the same accusation! If only the Thatcherites had demonstrated the same intellectual integrity.

 

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10 hours ago, zugzwang said:

the belief that govt controls the quantity of money in circulation is hopelessly mistaken

What happens if you refuse to deal in pounds sterling in this country?

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He gives the game away in the first few minutes with the joke about the cryogenic guy. It was himself and the people he represents (rent seekers) that were getting hammered by inflation, while debtors (boomers) never had it so good. 

Bankers love to blow smoke up their own arses, pretending that nothing would happen without capital. 

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3 hours ago, Locke said:

What happens if you refuse to deal in pounds sterling in this country?

Legal tender. There's a significant clue in the name but the issue is completely irrelevant to this thread.

The failure of Friedman's monetarist program in the 1980s is a matter of historical record not conjecture.

 

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18 hours ago, zugzwang said:

Legal tender. There's a significant clue in the name but the issue is completely irrelevant to this thread.

The failure of Friedman's monetarist program in the 1980s is a matter of historical record not conjecture.

 

Interesting that you refused to answer the question and attempted to evade.

If you refuse to deal in the government's currency, they come with thugs and break your legs.

The banks are 100% supported in their money creation activities by the State.

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20 minutes ago, Locke said:

Interesting that you refused to answer the question and attempted to evade.

If you refuse to deal in the government's currency, they come with thugs and break your legs.

The banks are 100% supported in their money creation activities by the State.

I'm not evading anything. The Monetarist experiment failed spectacularly in the 1980s because the State does not control the money supply.

Almost all money is created commercially as credit derivatives or synthetic repo by non-bank financial intermediaries in the shadow banking system beyond the ambit of any govt regulator. The GFC began as a liquidity crisis in these dark pools in 2007 which fed over into the banking system proper via contagion, the central banks being powerless to contain it such was the extent of the exposure.

As for the issue of UK legal tender. If you find the concept onerous, leave! Nobody's barring the door. On the contrary, hundreds of thousands are clamouring to get in every single year. Go trade crocodile teeth up the Amazon, live the dream.

 

 

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3 hours ago, Locke said:

Interesting that you refused to answer the question and attempted to evade.

If you refuse to deal in the government's currency, they come with thugs and break your legs.

The banks are 100% supported in their money creation activities by the State.

They won't break your legs. But trying to pay your tax bill in bitcoin or hand-drawn "Locke" currency will probably not get you very far. 

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3 hours ago, zugzwang said:

As for the issue of UK legal tender. If you find the concept onerous, leave! Nobody's barring the door. On the contrary, hundreds of thousands are clamouring to get in every single year. Go trade crocodile teeth up the Amazon, live the dream.

Still evading I see.

1 hour ago, Ah-so said:

They won't break your legs. But trying to pay your tax bill in bitcoin or hand-drawn "Locke" currency will probably not get you very far. 

"They won't break your legs, but if you don't use their currency they will come and break your legs."

Not sure what the point of your post was?

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5 hours ago, Locke said:

Still evading I see.

Public services have to be financed on a continuous basis. Legal tender is a mechanism for ensuring they can be. Most people recognise the benefits that accrue from this obligation far exceed the costs. Those who dispute it are ultimately free to leave the country.

 

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"But the economy did not behave in the way the Monetarists predicted. The squeeze on money led to a wave of factory closures while inflation continued to rise.

Even more mystifying was the behaviour of the money supply. Despite the squeeze it was still growing, something the Monetarists thought impossible. By the end of 1980 unemployment had nearly doubled, manufacturing output had fallen by a sixth; Britain was declining faster than even in the darkest days of the 1930s..."

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7 hours ago, Locke said:

Still evading I see.

"They won't break your legs, but if you don't use their currency they will come and break your legs."

Not sure what the point of your post was?

Because at no point will anyone come and break your legs. 

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2 minutes ago, Locke said:

Ah, so they'll just leave me alone?

If you do not pay monies owed, eventually the bailiffs will turn up, but they are not, to my knowledge, empowered to break your legs. At this point you probably can pay using an alternative means of exchange, such as any gold bullion you have lying around. These will be happily accepted as a way of clearing the debt.

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7 minutes ago, Ah-so said:

eventually the bailiffs will turn up, but they are not, to my knowledge, empowered to break your legs. At this point you probably can pay using an alternative means of exchange

You seem to have switched to taxation, when we were talking about legal tender. Nonetheless, what if you refuse to pay them off?

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5 hours ago, Locke said:

You seem to have switched to taxation, when we were talking about legal tender. Nonetheless, what if you refuse to pay them off?

I wasn't aware that the conversation was just about legal tender. "Legal tender" is a very narrowly defined concept and most payments are not made in it. The BOE defines it as "if you are in debt to someone then you can’t be sued for non-payment if you offer full payment of your debts in legal tender." 

Items that are not legal tender include debit card payments and Scottish banknotes (even in Scotland).

http://edu.bankofengland.co.uk/knowledgebank/what-is-legal-tender/

 

 

 

 

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4 hours ago, Ah-so said:

I wasn't aware that the conversation was just about legal tender. "Legal tender" is a very narrowly defined concept and most payments are not made in it. The BOE defines it as "if you are in debt to someone then you can’t be sued for non-payment if you offer full payment of your debts in legal tender." 

Items that are not legal tender include debit card payments and Scottish banknotes (even in Scotland).

http://edu.bankofengland.co.uk/knowledgebank/what-is-legal-tender/

 

Quite right. The OP references Milton Friedman! Sadly, the Austrians/libertarians who rock up here periodically seem more interested in trading insults than examining the mechanics of the laissez faire capitalism they espouse; like the deafening silence in Tory circles over the GFC, evidence of a distinctly unserious mindset.

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1 hour ago, zugzwang said:

Quite right. The OP references Milton Friedman! Sadly, the Austrians/libertarians who rock up here periodically seem more interested in trading insults than examining the mechanics of the laissez faire capitalism they espouse; like the deafening silence in Tory circles over the GFC, evidence of a distinctly unserious mindset.

A free market approach to the GFC would have been to let the dodgy banks go bust. Arguably even let savers lose their money (after all you should take some interest in where you have your money saved). What happened? Gordon Brown spunked billions in public money into bailing out these private corporations in a vain effort to salvage some of his reputation around handing the economy and win the 2010 election. Interest rates were slashed to save idiotic overindebted homeowners/landlords. 

The Tories then took over with yet more state intervention. Help to buy. More money printing (QE). And please don't give me the "independent Bank of England" nonsense...

Without all of this state intervention (which capitalism firmly opposes!), there would have been an almighty crash in 2008/2009, probably continuing until around 2014. Yes it would have been painful but the ones suffering the most would be those who took the greatest risks.

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1 hour ago, oatbake said:

A free market approach to the GFC would have been to let the dodgy banks go bust. Arguably even let savers lose their money (after all you should take some interest in where you have your money saved). What happened? Gordon Brown spunked billions in public money into bailing out these private corporations in a vain effort to salvage some of his reputation around handing the economy and win the 2010 election. Interest rates were slashed to save idiotic overindebted homeowners/landlords. 

The Tories then took over with yet more state intervention. Help to buy. More money printing (QE). And please don't give me the "independent Bank of England" nonsense...

Without all of this state intervention (which capitalism firmly opposes!), there would have been an almighty crash in 2008/2009, probably continuing until around 2014. Yes it would have been painful but the ones suffering the most would be those who took the greatest risks.

I hate the fact that bankers got away with it, but it was the lesser of two evils. Actually those who took the greatest risk, the equity holders, did lose most of their investment - usually 95% of the value of their investment. Anyone holding shares in Lehman Brothers lost the lot.

The consequences of allowing the banks to fail would have been utterly catastrophic, comparable to the Great Depression. The idea that it would have been hard but we would have got over it is laughable - people would have been starving within days, almost certainly leading to riots and looting of supermarkets until the food ran out. The only solution would have been nationalisation of the banks, which effectively we had with RBS and LBG.

The bail outs and QE were the lesser of two evils.

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3 hours ago, zugzwang said:

Quite right. The OP references Milton Friedman! Sadly, the Austrians/libertarians who rock up here periodically seem more interested in trading insults than examining the mechanics of the laissez faire capitalism they espouse; like the deafening silence in Tory circles over the GFC, evidence of a distinctly unserious mindset.

A lot of them seem to be obsessed with having to use a particular medium of exchange and the fact that it is ultimately under duress  (or melodramatically having your legs broken).

Life is too short to worry such ultimately childish concerns. If you don't trust the currency, buy other assets, but don't think you have some right to choose how you pay people. If someone agrees to accept gold, shells, rice or hand-drawn Locke notes, then they can, but they largely want the domestic currency. 

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16 minutes ago, Ah-so said:

I hate the fact that bankers got away with it, but it was the lesser of two evils. Actually those who took the greatest risk, the equity holders, did lose most of their investment - usually 95% of the value of their investment. Anyone holding shares in Lehman Brothers lost the lot.

The consequences of allowing the banks to fail would have been utterly catastrophic, comparable to the Great Depression. The idea that it would have been hard but we would have got over it is laughable - people would have been starving within days, almost certainly leading to riots and looting of supermarkets until the food ran out. The only solution would have been nationalisation of the banks, which effectively we had with RBS and LBG.

The bail outs and QE were the lesser of two evils.

I'm sure the bankers learned their lesson. It's not like we're in the same position only 10 years later...

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3 minutes ago, oatbake said:

I'm sure the bankers learned their lesson. It's not like we're in the same position only 10 years later...

They didn't of course. Although many are now retired and a while generation of bankers are now in place who were not working at the time of the GFC. Banks are definitely safer than they were a decade ago - increased regulation has seen to that. 

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31 minutes ago, Ah-so said:

I hate the fact that bankers got away with it, but it was the lesser of two evils. Actually those who took the greatest risk, the equity holders, did lose most of their investment - usually 95% of the value of their investment. Anyone holding shares in Lehman Brothers lost the lot.

The consequences of allowing the banks to fail would have been utterly catastrophic, comparable to the Great Depression. The idea that it would have been hard but we would have got over it is laughable - people would have been starving within days, almost certainly leading to riots and looting of supermarkets until the food ran out. The only solution would have been nationalisation of the banks, which effectively we had with RBS and LBG.

The bail outs and QE were the lesser of two evils.

I think it is wrong to state this as a matter of fact, unless you have some proof to support your assertions. Personally, I don't believe it would have been anarchy, but then we'll never know.

Edited by Captain Kirk

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2 minutes ago, Captain Kirk said:

Personally, I don't believe it would have been anarchy, but then we'll never know. But I think it is wrong to state this as a matter of fact, unless you have some proof to support your assertions.

Obviously I do not have "proof" of this, but I wrote a post on this a few years ago in reply to someone who sneered at the idea of the failing of the banks leading to tanks on the streets. I explained the logical consequences of the banking system going down (it would have been RBS, LBG and Barclays at a minimum).

Let me see if I can find it as I can't be bothered to type it out again on a mobile. 

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7 minutes ago, Ah-so said:

They didn't of course. Although many are now retired and a while generation of bankers are now in place who were not working at the time of the GFC. Banks are definitely safer than they were a decade ago - increased regulation has seen to that

LMAO, good one. We shall see soon enough...

What's going to bail them out this time? Low interest rates? More money printing? 

This feels exactly like 2007 all over again. Increasing interest rates, house prices and rents starting to go into reverse. Queues forming outside dodgy banks anyday now...

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  • 259 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% +
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      • up 5%



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