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frugalista

Forget Oil Prices, The Iranian Bourse, Prospect Of War, M3 Etc.

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That reason is the size of the US federal budget deficit. Currently hovering around the 8.2 trillion dollars mark.

If the budget deficit were a stack of crisp new $100 bills, it would be 12 miles high (or so I heard on NPR the other day).

There are only 4 ways to pay off the budget deficit:

  1. Cut spending.
  2. Raise taxes.
  3. Have a real economic boom (e.g. mid to late 1990s).
  4. Print money.

Since options 1. to 3. are basically closed, everyone knows that the Fed is going to turn to option 4. I have researched M3 and it is a red herring. The extra dollars will show up in M0 and M2.

Increasing the US money supply will be the real reason for the next inflationary period.

frugalista

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Increasing the US money supply will be the real reason for the next inflationary period.

I'm not trying to be thick, honest.

Tell me again why doing the above will not keep HPs up.

:unsure:

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If the US government prints money, it may well keep US house prices up, in nominal terms, all things being equal.

However, to stop their exchange rate bombing, they will have to stay on a high IR footing, which could have the opposite effect on US house prices.

The UK has a big private / personal debt problem, but nowhere near as big a government debt problem. So, the UK is less motivated to increase the Sterling money supply. So, there is not so much reason to think the UK money supply has to keep increasing (although maybe it will).

Another big difference is that the US has had a recession in the last 10 years and the UK has not. I think this is bad news for the UK going forward because it means the economy doesn't have much room to grow.

But, how long can UK IRs stay below US IRs? They have obviously been closely related in the past.

Interested to hear your thoughts.

frugalista

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Thanks

In the last gen UK IRs were higher than US 'cos we had a bigger inflation problem - due to unions?

We don't have the same relative inflation problem now. Also, of course, $ will import inflation to US which will not affect us as directly.

fp

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My thoughts are that the Fed are battling in the same war as the Bank of Japan, and their common enemy is deflation. The Japanese have adopted an ultra loose monetary policy for nearly a decade and a half in an attempt to reflate their domestic economy (which has seen property prices fall by 60-70% in the meantime). The Japanese habitually announce that they have defeated the dreaded deflation, only for the many headed Hydra to rear again.

While the Japanese employed strict immigration controls, The Americans have (until recently) opened their southern borders to wetbacks; possibly believing that the active economic cohort represented by these immigrants would act as a counter balance to the retiring baby boomers. While the Japanese and Americans have relaxed lending to 'happy go lucky' standards the Japanese have saved and the Americans have invested in fixed non productive assets (mainly because the high cost US economy cant support competitive industry anymore).

Incomes growth in the US has being static since 2000 (if you believe CPI) deficits have grown, productivity has fallen, manufacturing employment has plummeted. The dollar is dead in the water, the Fed may attempt to print the deficits away but this would cause interest rates to soar and incomes would have to grow in parallel to support the indebted US consumer. I'm afraid that the US will have to take its deflationary medicine at some time, the sooner the better for the global economy.

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Thanks

In the last gen UK IRs were higher than US 'cos we had a bigger inflation problem - due to unions?

I suspect the "unions" argument could be a bit of a red herring.

The early 70s were marked by the formation of OPEC, and the closing of the Fed gold window. So you had a lot of rich sheikhs with petrodollars, looking to get rid of those petrodollars before more dollars were printed. The money poured into western economies, stoking inflation.

So again, global issues seemed to be the main driver.

frugalista

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If you actually look at the deficits, you find that the biggest chunk of them are from the medicare costs and other social security costs - future liabilities.

Now, what I find amazing is the %age of national wealth that is spent on health care in the US. It is 14% of the US economy against 7% for other advanced nations. Yesterday, there was news of options expenses that the Directors of one of the larger healthcare companies - UDS healthcare granted themselves - the usual couple of million?

No - $1.6 BILLION!!!

Because consumers have limited choices, and little knowledge, so they cannot choose quality, it is a limited free market at best.

Healthcare is an industry like a water company, or other classic monopoly. You have little choice over where you get your water, and as such these are regulated industries, in order to benefit the community.

Most of these structural deficits the US faces can be 'revised downwards', costs cut and difference poilitcal choices made - but sadly only during tougher times I think.

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Now, what I find amazing is the %age of national wealth that is spent on health care in the US. It is 14% of the US economy against 7% for other advanced nations. Yesterday, there was news of options expenses that the Directors of one of the larger healthcare companies - UDS healthcare granted themselves - the usual couple of million?

No - $1.6 BILLION!!!

Because consumers have limited choices, and little knowledge, so they cannot choose quality, it is a limited free market at best.

Healthcare is an industry like a water company, or other classic monopoly. You have little choice over where you get your water, and as such these are regulated industries, in order to benefit the community.

Most of these structural deficits the US faces can be 'revised downwards', costs cut and difference poilitcal choices made - but sadly only during tougher times I think.

Yup, the US is being crippled by healthcare costs. I live in the US and have interacted with their healthcare system. It is cr@p. Probably the worst in the industrialized world. The reason it is so expensive is because:

  • Americans are neurotic hyperchondriacs, and therefore easy it is easy to con extra money out of them for healthcare which is of little health value.

  • There is a huge bureaucracy which arises from the tangled web of interacting businesses which make up the industry. This has to be paid for.

  • Lobbying, advertising and marketing between insurance companies has to be paid for.

  • Consumers effectively buy their own drugs. Therefore there is no economy of scale which would be achieved by a large insurer or government buying the drugs. Drugs which the NHS buys for a couple of quid are sold to US consumers for 20 dollars or more.

  • If you work for a small employer, you often have to buy your own insurance out of your wages. No economies of scale are offered to such consumers (unlike big employers). This is therefore an opportunity for insurers to overcharge.

  • The litigious nature of US society means that all healthcare workers have to insure themselves to ridiculous levels and then the pass this on to the consumer.

  • Many Americans go without insurance and therefore do not get early treatment for preventable conditions. They then end up paying thousands of dollars (and sometimes going bankrupt) when the conditions become chronic.

frugalista

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Yup, the US is being crippled by healthcare costs. I live in the US and have interacted with their healthcare system. It is cr@p. Probably the worst in the industrialized world. The reason it is so expensive is because:

  • Americans are neurotic hyperchondriacs, and therefore easy it is easy to con extra money out of them for healthcare which is of little health value.

  • There is a huge bureaucracy which arises from the tangled web of interacting businesses which make up the industry. This has to be paid for.

  • Lobbying, advertising and marketing between insurance companies has to be paid for.

  • Consumers effectively buy their own drugs. Therefore there is no economy of scale which would be achieved by a large insurer or government buying the drugs. Drugs which the NHS buys for a couple of quid are sold to US consumers for 20 dollars or more.

  • If you work for a small employer, you often have to buy your own insurance out of your wages. No economies of scale are offered to such consumers (unlike big employers). This is therefore an opportunity for insurers to overcharge.

  • The litigious nature of US society means that all healthcare workers have to insure themselves to ridiculous levels and then the pass this on to the consumer.

  • Many Americans go without insurance and therefore do not get early treatment for preventable conditions. They then end up paying thousands of dollars (and sometimes going bankrupt) when the conditions become chronic.

frugalista

I have also been on the recieving end of US treatment, and got a bill for $1500 for a 10 min consultation with a GP in a hospital for a minor tick bite. My Rx cost just $45 for the anti-biotics I needed - I could have got them cheaper from the internet.

The outlandish pay deals that these people are recieveing for no economic benefit to the community, other than owning a pretty big monopoly, shows that the profits to these healthcare companies are crazy in relation to what people are paying, and shows that the area needs regulation.

Here are 1.6 billion reasons to reform U.S. health care

http://desmoinesregister.com/apps/pbcs.dll.../604210408/1110

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That reason is the size of the US federal budget deficit. Currently hovering around the 8.2 trillion dollars mark.

If the budget deficit were a stack of crisp new $100 bills, it would be 12 miles high (or so I heard on NPR the other day).

There are only 4 ways to pay off the budget deficit:

  1. Cut spending.

  2. Raise taxes.

  3. Have a real economic boom (e.g. mid to late 1990s).

  4. Print money.

Since options 1. to 3. are basically closed, everyone knows that the Fed is going to turn to option 4. I have researched M3 and it is a red herring. The extra dollars will show up in M0 and M2.

Increasing the US money supply will be the real reason for the next inflationary period.

frugalista

Just to add a little perspective:

US National debt is now 65% of their GDP. In 1996 it was 67%, which was a post war high. In 1946 it was an incredible 122%. Our National Debt is currently 36% of GDP.

http://www.timesonline.co.uk/article/0,,11...2090441,00.html

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Just to add a little perspective:

US National debt is now 65% of their GDP. In 1996 it was 67%, which was a post war high. In 1946 it was an incredible 122%. Our National Debt is currently 36% of GDP.

http://www.timesonline.co.uk/article/0,,11...2090441,00.html

Excellent! I particularly liked this bit:

$9 TRILLION is enough to solve the Palestinian crisis by rehousing every Israeli and Palestinian family in a £1.5m detached house in Henley-on-Thames

So Wayo, do you think the US debt is manageable? Or are they sailing directly for uncharted territory?

frugalista

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I suspect the "unions" argument could be a bit of a red herring.

Did you see some union bloke saying on the news yesterday that there should be an amnesty for the half million workers ehre illegally!

With 5 million on the dole his idea was outrageous and not very union imo.

Only a nulabour union would say something so insane.

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Guest mattsta1964

That reason is the size of the US federal budget deficit. Currently hovering around the 8.2 trillion dollars mark.

If the budget deficit were a stack of crisp new $100 bills, it would be 12 miles high (or so I heard on NPR the other day).

There are only 4 ways to pay off the budget deficit:

  1. Cut spending.

  2. Raise taxes.

  3. Have a real economic boom (e.g. mid to late 1990s).

  4. Print money.

Since options 1. to 3. are basically closed, everyone knows that the Fed is going to turn to option 4. I have researched M3 and it is a red herring. The extra dollars will show up in M0 and M2.

Increasing the US money supply will be the real reason for the next inflationary period.

frugalista

Cost to US of Iraq War......so far.

A lot of dollar bills

http://www.crunchweb.net/87billion/

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  • 301 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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