Saturday, January 23, 2010

There isn’t enough money

UK Hits Worst Deflation on Record

Broad money shrank last month despite all efforts. "he UK couldn't settle its obligations today, not even if every saver agreed to give up their cash. Because the total volume of debt is greater by almost one-third than the actual volume of Sterling currently held here in Britain. " Or as Merv the Swerve pointed out, we need to concentrate a tad on exports. There was a nice report I read recently which pointed out that the countries dependant on resurgent exports are 70% of the global economy (i.e. impossible for everybody to be a net exporter). "UK deflation at home is guaranteed," . Hold onto your pants people!

Posted by stillthinking @ 02:35 PM (2777 views)
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30 thoughts on “There isn’t enough money

  • The UK couldn’t settle its obligations today

    No problem. Let’s have some more QE.

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  • stillthinking said, ‘Hold onto your pants people!’

    I’m holding on to my shorts and long johns mate. I don’t do pants.

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  • Don’t worry its only numbers innit, real money has ceased to exist!

    Billions, Trillions, Shmillions, who cares it’s all meamingless anymore, just loads of zero’s on computers.

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  • Yeah and we’ve still got to face up to our housing demons too. Which ever way you slice it the UK’s future isn’t looking bright!

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  • Stillthinking you might want to read this

    http://www.ritholtz.com/blog/2010/01/thoughts-on-the-end-game/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

    HPW will you ever post anything that indicates a level of analysis, learning or comprehension. You read like a virus that replicates the same off pat comments. I honestly don’t know how you can be f**ked

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  • HPW will you ever post anything that indicates a level of analysis, learning or comprehension. You read like a virus that replicates the same off pat comments. I honestly don’t know how you can be f**ked

    Clearly my comments irritate you, but I have no intention of allowing myself to be censored. Please keep comments like the above to yourself.

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  • “…the problems we face all across the developed world…” (Bellwether’s link)

    Are people commenting only on the developed world because that’s where they are, or because the undeveloped nations are somewhat removed from the chaos they’ll escape the worst destined for the developed nations?

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  • stillthinking says:

    I read that article, very interesting. I think the problem with QE is that it only creates the initial spend and there is no secondary spending, it cannot create virtuous circular chains of economic activity. It is a mere palliative which doesn’t address the underlying problem . For the Japanese government, deficit spending created temporary demand but the money ended up as corporate saving, and for the UK deficit spending appears to put money in the hands of the people who need it but actually just flows abroad. The cash for clunkers mainly benefiting German manufacturers being a case in point. So although QE looks as though it is a sure fire debasement inflation inducer, actually it doesn’t get around the problem that Peter has the debt, its Peter who has no funds, but the already wealthy Paul ends up with the fresh funds. It can’t be channelled correctly basically.
    One thing that is interesting for Japan is that the governments debt is held purely within its taxable base. Ours on the other hand is not.
    What I see as unavoidable is a rise in VAT, for revenue and the best way of locking the UK consumer out of imports, while not crippling us with expensive “good” imports (food,raw materials etc). But this is a bad move though, because this will be seen as inflationary (I don’t see the government taking wealth as inflationary personally) but it will jeopardise the position with the soon to be skinned public sector because certainly of course things become more expensive, while simultaneously tamping down overall demand.
    The UK needs to shift several million workers into different jobs, which don’t exist, the population will eventually twig that the immigration over New Labours time has been on top of a decline in the real economy and the resultant unemployment could be quite severe.
    As the year progresses the dire straits of the UK will become clearer and really, house prices are the very least of our problems because labour will be decimated.

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  • stillthinking says:

    As in the workforce will be decimated .

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  • Worringly little about this in the mainstream media …

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  • Any time scale to “hold on to your pants” – reasonable question to all!

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  • tenyearstogetmymoneyback says:

    I’ve got a good idea. Lets sell off our food manufacturers. Someone miust want to buy the Chocolate makers etc.

    Whoops. I think that one has already been thought of.

    Seriously I wonder if we DO have enough assets (Vodafone etc) to pay off our debts.

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  • stillthinking says:

    I think the timescale will be for things to start to get worse from mid 2010. The government has a plan, wait for sustainable growth to occur in the private sector, when that occurs then they can cut public sector staff, who they hope will move into the private sector. This will allow a gradual shift and keep unemployment down. But, there is no growth in the private sector, and the amount of workforce that needs to be shifted around is too large anyway because actually includes that area which is regarded as private but dependant on government spending. If cuts of 20% are needed that will chop 1 million off the direct state, and you can speculate another million/2 million of dead private sector to go along with it (wild guess). There is no way that in the next 5 years we can add on a few million jobs in the export/private sector. There is no addional demand. Chicken and egg. The government wants to fake the demand with debt.

    But they don’t have the money to do the plan. There is not going to a “double dip”, just the original dip won’t be masked. I think the Tories don’t see the plan as working, and don’t see the point of paying for jobs now that can’t possibly exist in the future. This is why Brown is so mentally continuing the borrowing, when that stops all will become clear. The tories have no need to smooth out any adjustment, and think (as i do myself coincidentally) that we may as well get it out the way now. Which means no more borrowing and very high unemployment. Leading onto snake bite two, when the resultant bank losses get passed onto the taxpayer. I am sure this will be visible before 2011. We are going to be in the poop for a decade.

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  • stillthinking says:

    Also, the pain won’t be evenly distributed. Mainly all the job losses, loss of income, rebates what-have-you are all in the group of people who typically tend to vote New Labour i.e. electoral wipe out. If you live in a New Labour strong hold which has been “rewarded” with 60% of the local economy being dependent on the state then that area is finished, the houses won’t have any residual value at all. I think this is a lot of the North of England.

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  • We’ll be returning to the traditional North-South divide in house prices. It’s going to be an interesting year or two methinks.

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  • @smugdog

    To start, I’d say that most of the property bears in the media have been far too early in their predictions for a HPC (me too) so I’d have to start by saying that the property bear’s club timing has been a bit off so far.

    I’m going to start by borrowing Nadeem Walayat’s recent inflation forecast because my track record is so poor in comparison: small increases starting between summer and autumn 2010 (actually Walayat says July 2010) leading to about 3% by mid 2011. So will 3% interest rates in mid summer 2011 be a “hold on to your pants” moment? No.

    Unless our next government shows unusual intelligence and courage, I suspect that the debt problem will be allowed to slowly fester followed by another stimulatory binge for the 2015 election … at which point the gilts market will finally lose patience with us.

    So there you are. It’s 2015.

    I have no doubt I’ll be wrong again but at least this might give some of us a laugh.

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  • I hope you’re right on 2015

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  • mark wadsworth says:

    There is some truth in what ennui says.

    These money supply figures only look at one side of the equation, i.e. money assets but not money liabilities. As the two can only grow in line, they always net off to nil, and it is the net figure that is important.

    i.e. if my wife has £1m in the bank and I have a £1m mortgage on my house, if she withdrew her £1m and gave it to me to pay off my mortgage, money supply appears to contract by £1m but actually not very much has changed.

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  • Problem is, this will result in another stimulus. They are not ready to take down the economy. Why? Because they need a new system. We were going to swap to a global government, Copenhagen Agreement system, but this was shot down, so they do not have the systems in place. I don’t think they ever will, but they know that too many people are waking up to tyranny, so they may try to create one or two more bubbles. Next, they will try to bail out the bond market, which is 10’s of times bigger than the stock market, then, they have the derivatives market, which is probably 100’s of times bigger than the bond market. They are in big trouble, and we had better move out of the way, because like any fire, when it gets too big, you have to step back and let itself burn out, there’s nothing more than can be done. But you have to educate the survivors so that this clunk of a system is replaced with liberty and not something far worse than we have, because look at the third world, things can be much worse.

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  • mountain goat says:

    MW I would say the example you give is severely deflationary.

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  • HPW I have no wish to censor you, quite the opposite in fact, I would actually like you to say more about a perspective which could be interesting beyond the soundbites.

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  • Belwether – yes, as you say HPW would do well to actually say SOMETHING. HPW a leaf out of Still Thinking’s excellent book would serve you well.

    HPW you are just frustrating as you seem to want to keep your powder dry …. for what exactly?? Really I think neither B/wether or I are being confrontational, its really a shame you see it that way.

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  • Really I think neither B/wether or I are being confrontational, its really a shame you see it that way.

    Bellwether’s comments seem rather agressive to me.

    Moreover, I don’t accept the deflationist argument, it simply isn’t viable in any major way.

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  • A line that bears repeating from the original article is ” … deflation (technically defined as a contraction in the money supply, rather than a drop in shop prices as the press seems to think)”.

    I don’t know about “technically” – that’s what it is. And to the press I’d add about 99% of the population (including a good few on this site, judging by some of the comments over the last couple of years).

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  • “Moreover, I don’t accept the deflationist argument, it simply isn’t viable in any major way.”

    Well thats it then HPW! Your “argument” is that you dont accept it! So why exactly dont you accept it? We (yourself and myself) have had these discussions before. I can give you all sorts of support for my position, as i normally do… but your position is just “i dont accept it”. Now i am not saying that you dont have a supportable position, you may have – its just i dont agree with it and would like to see how you support it.

    Hardly an endearing position on a discussion blog!!

    Dogett – “I don’t know about “technically” – that’s what it is. And to the press I’d add about 99% of the population (including a good few on this site, judging by some of the comments over the last couple of years).”

    Well i DO know and technically its exactly that. The question then becomes “so what – if i can see prices in the shops going up then surely thats inflation, so whether technically thats right or wrong it makes no odds to me, because based on WHAT I BUY – which reflects what most others buy then there is inflation”. But the answer to your question is it WILL make a difference for all sorts of reasons.

    A good few people on this site have said that there will be deflation (including b/wether MG and yours truly), and technically there has been. For example does it make a difference? Lets look at Oil and Gold – now if there is deflation the price of commodities in what they are traded (eg dollars) will go down. You may say the price of £s may go down more – thats possibly true BUT if thats your belief i would suggest you just buy dollars!

    Of course you could just say well i dont want to own any Gold or oil either so thats of no consequence. It was just an example. At the end of the day what you spend your money on may cost you more, and yes you will see that as inflation – and as i have always said the basket is a basket case.

    An example would be if say you spent all your money on Orange Juice, and because there was a severe frost in Florida the cost of OJ went through the roof. That however is not inflation,. although it would feel that way to you.

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  • Well thats it then HPW! Your “argument” is that you dont accept it! So why exactly dont you accept it? We (yourself and myself) have had these discussions before. I can give you all sorts of support for my position, as i normally do… but your position is just “i dont accept it”. Now i am not saying that you dont have a supportable position, you may have – its just i dont agree with it and would like to see how you support it.

    Oh god, calm down…….

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  • calm down? Couldnt be calmer HPW – or more confident in my stance and beliefs. Thats why i can back them up with pithy argument. I just wonder what happens if there is deflation in a “major way” based on whatever your definition is (and again you dont support what you mean)?

    I know its ok because you wont accept it – fingers in yr ears and go la la la la. That sounds like a responsible adult to me. Personally if i am wrong – and i “accept” that i may be, then i can easily change tack to take advantage. I just dont “accept” that there is any evidence that we are about to enter rampant inflation or even hyper inflation at THIS STAGE. Further out thats not to say we wont.

    You seem a bit confused dot com to me.

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  • 27. techieman said…

    You seem a bit confused dot com to me.

    Reasonable deduction, but I read it more as simply dim dot com

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  • @ Techieman

    You misunderstood what I intended to say (not surprisingly, since I didn’t express myself very clearly).

    The intention was merely to say that I thought the use of ‘technically’ was unnecessary, since inflation IS an increase in the money supply. However, on reflection I suppose that we’re now more or less obliged to use it, so widespread is the assumption that ‘inflation’ is synonymous with ‘rising prices’.

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