Friday, November 30, 2007

Stagflation?

BoE Governor's stark picture of UK economy

""There is certainly a risk, particularly given the elevated level of inflation expectations, that [the BoE Monetary Policy Committee] will not be able to keep inflation close to the target in the wake of these further increases in commodity and energy prices," Mr King said."

Is he paving the way for inflation like in the US? Get ready for GBP to tumble

Posted by sold 2 rent 1 @ 05:41 AM (3483 views)
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7 thoughts on “Stagflation?

  • I don’t wish to worry people but I had a quick look on property snake yesterday and it looks as if the properties are staying on after they have sold. I looked at a property and then searched for it on rightmove only to find that it had been sold. Hope this is not the norm!

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  • “Economists are divided over whether it will cut rates by a quarter point or leave them on hold next Thursday.”

    In my opinion all pointers are skyward, I think rates should go up but I am a VI really, I have savings.

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  • Stagflation is the precursor to deflation. It’s the spike before the plummet.

    Deflation is really nasty for an economy though. In a healthy economy, it’s a fundamental concept that costs will rise, and the price manufacturers can get for their goods will go up and up – one of the tenets of capitalism.

    But when manufacturers know they will get lower prices next month for goods they are producing now, then why invest in new capital machinery? – you’ll be sending good money (for the capital outlay) after bad (the market price for the finished article). Interest rates eventually go to zero, as banks try to jumpstart the economy, but then there’s no such thing as negative interest rates, so the economy languishes.

    I think no-one really understands what deflation means in the UK. Japanese people have a good idea of course.

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  • “Stagflation is the precursor to deflation”
    Nicely put Paul.

    Ben Bernanke understands deflation very well which is why he will try and go for the hyper-inflation route. I think he has left it too late though.

    Smart business people who have made a pile of money during the boom will just close their businesses down rather than lose money year after year.
    I saw this happen in 2001-2 but it will be much worse this time. Unemployment will shoot up.

    This boom has been so long (15 years) that it will leave a generation of business owners in their 30s, 40s and 50s with enough money to retire early. As soon as the quarterly losses roll in they will close the doors. They will know that this recession will not be a short one.

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  • As an FX trader the pound looks ripe for a big dip in the new year even against the USD.
    Does not look good. EURO is alot stronger.

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  • Paul

    I cannot agree more. I must mention Japan at the moment is somewhat similar to the UK in early 1980’s in its stagnated atmosphere. And now UK’s turn again and its economy seems to be treading precisely the same path as that of Japan.

    I visited local Tesco-Metro last evening, to find myself the only customer in some 600 Sq meter premises, a rather scary or even surreal experience. I could almost see the letters “TO BE MADE REDUNDANT SOON” on the face of the cashers doing nothing. And I bought a few packets of pasta now carrying the price tag more than trebled since last year, which however was nicely cancelled by the 20% discount voucher! This is how retailers and other businesses must shed their profit, taking down the economy as a whole, a spiral thereafter.

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