Monday, June 9, 2008

Inflation not to be allowed to take off?

Federal Reserve and ECB are in no mood to save us from the consequences of our debt

Fetch your tin helmets once again. The European Central Bank is opting for a monetary purge. So too is the US Federal Reserve, now ruled from Dallas.

Posted by holding out @ 09:42 AM (1054 views)
Please complete the required fields.



10 thoughts on “Inflation not to be allowed to take off?

  • Talk is cheap, central banks are very good at saying one thing and doing another, even if they do raise rates it will be at a quarter point at a time and they’ll take their sweet time about it. Were already in the middle of a Dollar crisis and their hardly rushing to raise rates.

    Reply
    Please complete the required fields.



  • last_days_of_disco, I hope you are right about cash, but I fear the Badger and his ‘city experts’ may try to sway the BoE MPC, leading to another rate cut, devaluing of the pound and higher inflation leading to savings being worth even less, just to re-inflate a bubble that is well past its ‘sell by’ date and keep their fetid hands on the reigns of power

    Reply
    Please complete the required fields.



  • Nevermind the tin hat.. pampers all round.

    Reply
    Please complete the required fields.



  • theboltonfury says:

    god, i hope so

    Reply
    Please complete the required fields.



  • last_days_of_disco says:

    The reality is the Fed and BEO can’t control deflation. If you define money to include debt. And a humongous chunk of that debt goes bad, then that money has just disappeared forever. That means there is less money to go around. That means money gets worth *more*, not less. Hence its deflation.

    The Fed can’t print enough money, even in this electronic age. The Fed is reaching, or has reached the political limits of what it can do. The BOE has the same problem. That limit is enforced by inflation of basic goods. These bankers are not as bullet proof as the conspiracy theorists make out. They can’t survive in a world where *everybody* is out to get them. Hence they are changing their policy stance. Lets not get murdered by random Joe policy, is what they are following now, or soon will be ;-).

    The good news, or shall I say the silver lining is that democracy means we all have to take responsibility for our folly. Hence while we may be angry, deep down we know we were to blame too. And I hope that that will enable us to get through the storms ahead. We have no one to blame but ourselves. At least the inflation thing is helping to focus the minds of the bankers on the fact that the game is up. Time for deflation.

    Will it crash or be a gradual decline? Um, er, I think we know the answer to that one! This is not Japan.

    Just don’t show off too much about the good choices thanks to HPC otherwise you may suffer the ire of your family, friends and colleagues. Hopefully nothing worse.

    Reply
    Please complete the required fields.



  • last_days_of_disco says:

    I am making the assumption that the current inflation is a hump before the deflation of commodities, etc kicks in. The problem is the banks are trying to hide that deflation is happening. by printing money but they are fueling temporary inflation on commodities. Timing is everything. I don’t think the western banks have the power to hyper-inflate (thank God, and I mean that with respect).

    Those who hold onto cash are going to start getting happier.

    I am betting on deflation.

    Reply
    Please complete the required fields.



  • @ldod,

    Which cash? In which currencies?

    Reply
    Please complete the required fields.



  • LDOD – does that mean you do not think that gold is a good place to be?

    Reply
    Please complete the required fields.



  • last_days_of_disco says:

    No, gold is a great place to be! If you have it. Gold is better than cash, but cash is better than debt. Because as deflation bites, your debts effectively start growing. Going into the crash gold is great, especially if you have it where you can get at it. Sovereigns are going to really come back with a bang (gold is tax free for some arcane reason in the UK, I love that about being British)! And silver currency too, but I digress. After the initial crash, I would get out of gold into cash of one form or another. In fact after a crash, debt is probably not so bad either, once the goolies and ghosties have worked their way out of the system.

    The next best thing to gold in a crash is cash. Keep a stash, if it becomes worthless, oh well, use it as toilet paper. But I think it won’t in England. Its quite unlikely. As for other countries that may be a real problem.

    Lets talk about your debt a bit:

    The most pertinent example of this is housing prices. Say you can make your payments on the flat you bought for 100k in a cheaper area. As deflation bites, you are in negative equity, your now 50k flat is just drifting along at the same value in a not so great at all area now that things have gone wrong.

    You can’t move and your debt effectively mushroomed. You lost your job in the crash as many many people will but hey presto, when you look for a new one with your current CV you discover the jobs out there are for 10-15k less than you were earning before (deflation in action). You can still pay your mortgage because you were careful, but your debt has just grown in effective value because you earn less.

    In deflation the problem for businesses will be to reduce pay packets without running foul of silly one way social contract laws. They have to cut back on the magically increasing renumeration problem somehow or go bust and then you are free to find a new job for less money — but it would probably be better for everyone if companies could decrease pay packets. The problem with deflation is it just sweeps away the whole way a generation has learned to think about the economy. And laws that were essential suddenly become ridiculous.

    Expect an arms race between the government and businesses as businesses find ever more creative ways of circumventing these rules (some of the legislation going through parliament at the moment is about making contractors into permanent employees and other such socialist drivel).

    Thankfully more by luck than good judgment we are probably going to end up with the Tories in charge. I can’t help myself, can I, always end up back on politics.

    Reply
    Please complete the required fields.



  • Cheers LDOD – I appreciate the response

    Reply
    Please complete the required fields.



Add a comment

  • Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
  • Please note that any viewpoints published here as comments are user´s views and not the views of HousePriceCrash.co.uk.
  • Please adhere to the Guidelines

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes:

<a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>