November M4 Data

[Pluto]

Having just returned from a trip to India among other places, I can confidently state that it is already happening. The credit squeeze has led to a surge in capital inflows and the Govt there is seriously considering placing restrictions on foreign investment. I also read in the local papers that India is still expected to exceed the growth traget of 9% for 2007 as the growth is increasingly driven by domestic consumption rather than global factors ( I certainly saw a lot of evidence of it whilst there)

The same is true for China who now are the #1 cell phone market in the world. Also only about 1/1000 of the population has a car. They also save 25% of their earnings.

The market there for multi-nationals is huge.

Compare that with our debt ridden population and you will quickly see the UK/US has no room financial to grow. The final nail in our coffins will be our entitlement system which is going to push us over the edge.

Edited December 20, 2007 by Pluto

[FreeTrader]

Months of ploughing your lonely deflationary furrow and finally you are in the ascendance against the inflation brigade.As a paper Bear I hope you are right.Anecdotally,I can't see where all this inflation is.Yes public sector services cost more and petrol,but that's where it stops.Meanwhile in the real world ,all the private sector businesses I have communication with are slashing prices to maintain volume to capture the shrinking discressionary spend.Even winning businesses like Tesco( who have a 4% rise in input costs ) only dare pass on a 0.8% increase in output prices.My own drawings are down 10% YOY.Yep civil servants can bleat about their 2% pay settlements but if you want to sell UK holidays or restaurant meals you will go out of business unless you slash 10% off last year.

Yes, this is a good point, and it's something that one of the MPC members actually admitted to recently (I think it was Paul Tucker, but maybe it was former MPC man Stephen Nickell). Basically he said that when you have a set inflation target of say 2% and import prices are dropping (Chinese goods etc.) then you actually have to force inflation into the system at a rate above 2% (on things like domestic services) to hit target - it's a mathematical necessity. He went on to say that the converse will be true if commodity price inflation stays well above 2% - the BoE would need to take steps to 'force' services price inflation below target.

This is why we'll need to watch carefully for suggestions from the politicos that the target inflation rate should be raised.

[bTW Pluto - China raised interest rates again today. The long-term story on the BRICs is excellent, but I think there's every chance they'll catch a cold in the near future]

[crash2006]

i look at my euros and so far i made 18k tax free in one year if i convert it back to pounds and then add the interest for one year. If the pound drops more against the euro i could see a bigger profit on my money.

[Crash Buyer]

You argument revolves around the assumption that the west is the engine of growth in the world. I will argue that world growth has been transfered to the BRICK nations, so worldwide commodity prices will be driven from them no us. If your argument is correct then I would expect to see sterling strengthen on the M4 data and forecasts for deflation - infact the opposite has happened. As sterling collapses expect to see all commodity driven prices in UK sterling go through the roof. Recent examples are oil at near all time highs in sterling and the same with Gold.

The inflation/deflation argument is not as simple as you are all trying to make it sound. The UK and US will have severe deflation in items fueled by the credit crunch (housing and tat) and severe inflation (even hyperinflation) in all imported items.

Well part of the issue may be that if there is deflation then demand for BRIC goods (apart from oil and gas- i.e. only the R in BRIC) may slump. Given the bubble in the Chinese stockmarket, property, etc., then there could be a sudden slump in growth unless the IC part of BRIC can decouple itself and become focused inwards on Asia. Maybe it can, maybe it can't. We might be about to find out!

The BRIC nations are growing fast and these nations are net savers. Demand locally will cushion the blow of the west going into recession/depression. We are a nation of debtors and our debts are being called in.

The UK / US is tapped out of credit, it has got so bad that our financial institutions are on the brink of collapse. You are seeing the economic balance shift from West to East. This all started about twenty years ago and no-one should be surprised.

Pluto, I agree that Asia is regaining its historical role as the leading economic area, but in the short term, as Wlad implies, no major nation will be insulated from the "western contagion". India will probably fare better than China, with an economy that focuses more on domestic demand and a better banking system.

To illustrate my argument, China exports to the west, its main trading partners are in the OECD (i.e. the US and Europe) and therefore exports will decline, investment will take a hit, so GDP cannot maintain its current growth rates.

Commodity prices cannot remain high when final goods no longer have buyers round the world.

Sterling is falling due to expectations of rate cuts, in turn caused by a weakness of the housing market / real economy. Import inflation will be part of the cycle but in the early 1990s, Sterling dropped sharply without causing hyperinflation. There is an effect (J curve) but we should not overestimate this effect.

[thedebtisreal]

So in order to save or preserve your existing lifestyle, you've had to significantly modify it.

Food, Energy, Oil and all commodities have been rising at a spectacular rate. Oil is up at over 40% since the beginning of the year and has held firm at over $90!

There is absolutely no evidence of price deflation in these areas unfortunately.

If wages stagnate and prices rise, we all get poorer. I'm not sure that's good news for any of us.

Is it Western Consumerism or Eastern Production that drives the world economy? I say former, Schiff says latter (and he's been right about a lot). We're about to find out.

It's exciting in a terrifying way.

I'll say this again, when I say deflation, it is purely wage and credit deflation. Price inflation is influenced by so many things, monetary inflation, monetary volacity, demand, supply, speculation, currency movements, local affects such as demographics, taxes, local laws and human psychology and belief in the value of paper currency. Nothing is 100% correct, guaranteed.

Edited December 20, 2007 by thedebtisreal

[Optobear]

Well yes, but I think there is probably going to be a global deflation problem.

Does the stock market give a clue? Surely deflation and a recession should see it drop off a long way. Conversely inflation would see shares prices rise. The fact that it has stayed roughly constant during the crunch means.

i) either roughly equal numbers of investors subscribe to the inflation or deflation sides.

ii) that the crunch is much less significant than many on here are imagining, and it won't go to either extreme.

iii) something else?

ii) doesn't seem plausible, the events of recent months so dwarfs LTCM that it couldn't be the case.

iii) just there for completeness - that way my list is 100% correct!

So I guess it is i) no one really knows which way it will go.

Optobear

[Guest muttley]

I on the other hand have pretty much fook all in the way of hard cash now, so I can just look at what is happening & make a well informed judgement imo.

a lot of you have a VI in deflation, don't let it blind your opinions. I posted on an earlier post exactly this & got not one response, I wonder why.

Given the choice I would prefer to take financial advice from someone who has loadsa money over some who has "fook all", but as this is an internet forum, and anyone can claim to be a multi-millionaire, I have to judge each poster on what they post. Besides, how do we know you have fook all, GOM?

As for wealthy people having a VI in deflation, well I suppose it's true, but maybe they've positioned themselves that way. If you argued on the Gold thread that the only reason they are arguing for an increase in the price of gold is because they have so much of it, you would be hounded off the thread. Goldbugs hold gold because they think the price of it will go up, not the other way around

Everyone has a VI in their personal finance. Read what people have to say and decide what is best for you.

[Guest grumpy-old-man]

Given the choice I would prefer to take financial advice from someone who has loadsa money over some who has "fook all", but as this is an internet forum, and anyone can claim to be a multi-millionaire, I have to judge each poster on what they post. Besides, how do we know you have fook all, GOM?

As for wealthy people having a VI in deflation, well I suppose it's true, but maybe they've positioned themselves that way. If you argued on the Gold thread that the only reason they are arguing for an increase in the price of gold is because they have so much of it, you would be hounded off the thread. Goldbugs hold gold because they think the price of it will go up, not the other way around

Everyone has a VI in their personal finance. Read what people have to say and decide what is best for you.

Hi muttley,

because I have never told a lie on this site. also, I would take advice of anyone then decide for myself the best course of action. Sometimes it's better to have nothing when making these types of decisions as I can be totally unbiased as I don't really have anything to lose. There are lots of people on here with lots more economic knowledge & cash than me, yet a lot of them have got it wrong in the past, even in the last few months........you can't beat experience, common sense, anecdotal & gut feeling combined with some data/stats & proper economic/financial information. Put this all together & you have a nice balanced pov.

Also to re-iterate my viewpoint, deflation would still suit me better I think, even though I haven't got wads of dosh in the bank, & bearing that in mind I think we are seeing a lot of inflationary worries imo, so I am taking a standpoint on what I am seeing & reading even though it's against what I would prefer as an outcome.

I keep saying, if things change I will change my pov. I will add though, that freetrader and dazed&confused posted about the decrease in M4 money growth & that has made me take a second look at deflation.

I still think though that that the governments will try to inflate their way out of this by any means possible & that's why it probably won't show in the stats until it's too late. iirc haven't the US stopped the stats on M3 ?? (I think it's M3)

I am open minded & will remain BUT have a biase towards high-inflation in some asset's.

to be continued.......

Edited December 21, 2007 by grumpy-old-man

[Guest grumpy-old-man]

Given the choice I would prefer to take financial advice from someone who has loadsa money over some who has "fook all", but as this is an internet forum, and anyone can claim to be a multi-millionaire, I have to judge each poster on what they post. Besides, how do we know you have fook all, GOM?

As for wealthy people having a VI in deflation, well I suppose it's true, but maybe they've positioned themselves that way. If you argued on the Gold thread that the only reason they are arguing for an increase in the price of gold is because they have so much of it, you would be hounded off the thread. Goldbugs hold gold because they think the price of it will go up, not the other way around

Everyone has a VI in their personal finance. Read what people have to say and decide what is best for you.

I forgot to comment on the gold bugs, so because I am a balanced poster I will agree that they could also be wrong.

I have no gold/silver & not much money btw.

so you have either planned for deflation (cash in bank) or planned for inflation (gold/silver in bank/buried in garden )

but doesn't gold do well in both situations whereas fiat (cash) only does well in a deflationary situation ?

If I had a lot of cash I would definetely want to be holding some of it in gold/silver surely to be in the best situation ?

[babesagainstmachines]

I still think though that that the governments will try to inflate their way out of this by any means possible & that's why it probably won't show in the stats until it's too late. iirc haven't the US stopped the stats on M3 ?? (I think it's M3)

I am open minded & will remain BUT have a biase towards high-inflation in some asset's.

to be continued.......

Yes the US have stopped publishing M3 data, which is taken as a sign by many that the Fed is happily churning money out. You must also remember that the one thing that governments fear above all others is deflation, so it's just as likely that they stopped collecting M3 with foresight of what is to come. Maybe they hope of avoiding panic in the markets and early selling of stocks.

A very high proportion of links posted by goldbugs point to sites sponsored by gold traders which makes me question their motives. Remember that if you are invested in a asset class, it is always favourable for others to desire that asset to push up the price. Of course I am not saying that all goldbugs are rampers, most of them are probably fully personally committed to their views just as I am.

You are absolutely right to keep an open mind GoM. That's why I'm watching M4 rather than the "liquidity injection" headlines. I believe its a better indicator of what's in store.

[Guest grumpy-old-man]

Yes the US have stopped publishing M3 data, which is taken as a sign by many that the Fed is happily churning money out. You must also remember that the one thing that governments fear above all others is deflation, so it's just as likely that they stopped collecting M3 with foresight of what is to come. Maybe they hope of avoiding panic in the markets and early selling of stocks.

A very high proportion of links posted by goldbugs point to sites sponsored by gold traders which makes me question their motives. Remember that if you are invested in a asset class, it is always favourable for others to desire that asset to push up the price. Of course I am not saying that all goldbugs are rampers, most of them are probably fully personally committed to their views just as I am.

You are absolutely right to keep an open mind GoM. That's why I'm watching M4 rather than the "liquidity injection" headlines. I believe its a better indicator of what's in store.

do you know what reason they gave for this ?

also, is this the first time in history (or since they started collecting this data) that this has happened ??

If so, you have to ask why, surely...

ps - did we get an 'outcome' from yesterdays discussions as to where that NR liquidity injection went (balance sheet wise) & did it appear on the M4 UK data ? a large drop in money growth whilst NR gets nearly 50-60 million doesn't reassure me to that the stats are telling the truth.

I base this on the current cpi inflation stats, which I'm sure you will agree are not a very good reflection on UK general basic living needs inflation measurements.

edited - I should put a disclaimer on my posts for 'ALL posts edited for sh1te spelling'.

Edited December 21, 2007 by grumpy-old-man

[babesagainstmachines]

do you know what reason they gave for this ?

also, is this the first time in history (or since they started collecting this data) that this has happened ??

If so, you have to ask why, surely...

ps - did we get an 'outcome' from yesterdays discussions as to where that NR liquidity injection went (balance sheet wise) & did it appear on the M4 UK data ? a large drop in money growth whilst NR gets nearly 50-60 million doesn't reassure me to that the stats are telling the truth.

I base this on the current cpi inflation stats, which I'm sure you will agree are not a very good reflection on UK general basic living needs inflation measurements.

edited - I should put a disclaimer on my posts for 'ALL posts edited for sh1te spelling'.

The reason they gave was very half arsed. Something like it's "expensive to collect the data and and not a very good indicator of anything anyway, m2 is better"

Do a google search, there's a lot on the net about it. It's all conspirational

I'm pretty sure M4 includes everything - I'll try and fish it out on the BoE website.

[Guest grumpy-old-man]

The reason they gave was very half arsed. Something like it's "expensive to collect the data and and not a very good indicator of anything anyway, m2 is better"

Do a google search, there's a lot on the net about it. It's all conspirational

I'm pretty sure M4 includes everything - I'll try and fish it out on the BoE website.

I am applying the same methodology as I applied to this years supposed hpi in the UK.

What I was seeing & from what other trustworthy posters were saying about property prices stagnating in 2007, this made me suspect the official UK hpi figures....

I do concede that the leafy SE & Londinium Town have seen some hpi judging by the posts. Very high prices & builders backhanders in the form of discounts, skeewing the figures imo

[ParticleMan]

(*clothes I will give you, fair enough, an essential but the price has deflated, although I think this WILL change due to higher wage inflation in China, resulting in higher clothing costs to come imo)

GOM - there's plenty of room for food deflation too, particularly as you're flying the banner of the general UK population

Food waste is rife. So is overconsumption. As is the purchase of heavily processed junk foods. And there's plenty of room to move to lower order goods too - boiling the chicken, rather than buying chicken stock, etc. The only thing missing, is the (economic) impetus for change.

Obviously not all prices represent synthetic, debt-driven demand. Not all "food" pricing will behave equally under a broad-money-deflationationary stimulus. But there's plenty of scope for (whole-basket) deflationary outcomes.

[Guest grumpy-old-man]

GOM - there's plenty of room for food deflation too, particularly as you're flying the banner of the general UK population

Food waste is rife. So is overconsumption. As is the purchase of heavily processed junk foods. And there's plenty of room to move to lower order goods too - boiling the chicken, rather than buying chicken stock, etc. The only thing missing, is the (economic) impetus for change.

Obviously not all prices represent synthetic, debt-driven demand. Not all "food" pricing will behave equally under a broad-money-deflationationary stimulus. But there's plenty of scope for (whole-basket) deflationary outcomes.

ok ParticleMan, agreed.

I am now watching & waiting & will be still flying the same banner all of next year as well.

[thedebtisreal]

I don't really see myself as a VI. I don't run a money printing business. I've not changed my name to deflationfinger. My ego is not invested in my deflationist predictions. I've not said anything is 100% correct, guaranteed.

However, I believe we will not have hyperinflation. I believe that houses will fall in nominal sterling values, therefore my sterling savings will increase in value like they have over the past few months since housing began it's fall.

If I prove to be wrong, I will change early and convert my cash into assets and admit my mistake rather than hang on to a depreciating money pile like a desperate BTLer "in it for the long term". As far my own personal finance, I am flexible and willing to accept I might be wrong.

But in the course of history a credit crunch has never led to a hyperinflationary environment before. A hyperinflationary happens when everyone rushes to the shops to spend ever last penny they have as soon as possible. Nowadays everyone is just trying to pay down their debts.

[Fancypants]

I don't really see myself as a VI. I don't run a money printing business. I've not changed my name to deflationfinger. My ego is not invested in my deflationist predictions. I've not said anything is 100% correct, guaranteed.

However, I believe we will not have hyperinflation. I believe that houses will fall in nominal sterling values, therefore my sterling savings will increase in value like they have over the past few months since housing began it's fall.

If I prove to be wrong, I will change early and convert my cash into assets and admit my mistake rather than hang on to a depreciating money pile like a desperate BTLer "in it for the long term". As far my own personal finance, I am flexible and willing to accept I might be wrong.

But in the course of history a credit crunch has never led to a hyperinflationary environment before. A hyperinflationary happens when everyone rushes to the shops to spend ever last penny they have as soon as possible. Nowadays everyone is just trying to pay down their debts.

Market forces will crush central bankers in their almighty hands like the puny humans that they are. Hysterical goldbuggers who are fuelled by paranoia and a miscalculation of the powers of any human authority would do well to remember this.

[ParticleMan]

Market forces will crush central bankers in their almighty hands like the puny humans that they are. Hysterical goldbuggers who are fuelled by paranoia and a miscalculation of the powers of any human authority would do well to remember this.

I don't know about that, but I do know that anyone gambling on long-term market volatility reducing is going to have a fairly unpleasant surprise in the year ahead.

The only way is up...

[Sinking Feeling]

M4 reduction -> Asset Price deflation

Rate Reduction -> Weak Pound -> Commodity Inflation

High global demand -> Commodity Inflation

Commodity Inflation -> Essential Retail Product Inflation

What's the paradox?

Asset Prices and Retail Product Prices de-couple.

Why should they move in sync?

However gold isn't a domestic asset price; it is a global commodity; hence it will probably inflate rather than deflate; hence it is protective in this enviroment.

End of. 100% Guaranteed. :-)

Exactly the point I was going to make. There will be huge inflation in commodity and energy prices for at least the first 6 months of 2008, accompanied by falling house prices through to 2011/2012.

[Guest tbatst2000]

I don't really see myself as a VI. I don't run a money printing business. I've not changed my name to deflationfinger. My ego is not invested in my deflationist predictions. I've not said anything is 100% correct, guaranteed.

Well said.

But in the course of history a credit crunch has never led to a hyperinflationary environment before.

The financial history I've read agrees with that statement but I've not yet found a book that claims to be a definitive catalog of credit binges/crunches and their outcomes. I can't say I can see any way this is going to end in hyperinflation either having said that, but it would be interesting to read about any existing counterexamples. Anyone got any (or authoratative proof that there aren't any)?

[Prophet_of_Pwnage]

we are discussing the average persons look at inflation, Basic needs: gas, electric, petrol, insurance, food, clothes*, rent/mortgage costs, council tax. ALL of these have inflated, there can be no dicussion about this surely ????

Indeed utility and gas/petrol etc have inflated but whats the cause? Not an increase in money supply, which I think is what you're implying? Oil and gas prices have gone up because of constantly increasing demand in other parts of the world, and political trouble in the middle east & Russia giving concerns about future supply. That is surely what has caused our utility bills and fuel to go up, not an increase in money supply in this country.

Council tax up? Yes, but I would attribute this largely to local government waste and bureaucracy.

Food? Many things like bread have gone up by a shed load this last year but I though that was attributed to poor harvests etc due to floods and such like.

Edited December 21, 2007 by Prophet_of_Pwnage

[Crash Buyer]

Indeed utility and gas/petrol etc have inflated but whats the cause? Not an increase in money supply, which I think is what you're implying? Oil and gas prices have gone up because of constantly increasing demand in other parts of the world, and political trouble in the middle east & Russia giving concerns about future supply. That is surely what has caused our utility bills and fuel to go up, not an increase in money supply in this country.

Council tax up? Yes, but I would attribute this largely to local government waste and bureaucracy.

Food? Many things like bread have gone up by a shed load this last year but I though that was attributed to poor harvests etc due to floods and such like.

This reflects different theories of inflation.

Monetarists believe that all inflation is caused by increases in the money supply. This is summarised by the quantity theory of money.

Some economists believe that cost-push inflation is caused by rising world demand leading to higher commodity prices and then final goods prices. Money supply does not directly cause this increase in prices.

Like much in economics, both are theories, not laws, and have their supporters.