Tuesday, September 21, 2010

UK has a contracting economy

Blow for King as money supply falls

Inflation or deflation? It seems to be a hot debate on the forum. Here's some fuel to tip on the fire....

Posted by chrisch @ 09:16 AM (1658 views)
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10 thoughts on “UK has a contracting economy

  • mark wadsworth says:

    Money supply is a meaningless figure and could easily be going in opposite direction to economy, i.e. economy could be growing and money supply decreasing because all the people who were in debt pay get jobs and pay off those debts. It’s only Home-Owner-Ists who obsess about money supply because it helps blow house price bubbles.

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  • ontheotherhand says:

    A huge increase in money supply throughout the ‘Goldilocks’ years did not lead to inflation, and the postrationalisation is that we were able to import compensating deflation from China – nobody could put prices up or raise wages so long as their capacity came on stream, especially since the pound was so strong.

    I’ve seen arguments that the reverse could be true now. The Chinese workers are getting pay increases and so we could be importing their compensating inflation, especially because of our weak pound.

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  • A huge increase in money supply throughout the ‘Goldilocks’ years did not lead to inflation,

    The money is just sitting with the banks and has yet to make it out into the wider economy. The inflation will come later.

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  • When will the penny drop? This is about global dynamics not so much about money supply.

    Strong Inflation, for another year at least in the UK.

    Hyperinflation waits in the wings for Americans.

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  • I read that the banks are ‘rebuilding their balance sheets’ with high interest rates and charges for borrowers. Sounds as if they’re stockpiling money, if so for what? The Basel rules are not only pathetic but way off in the future. Are they getting set to start another housing bubble or reinflate this one with reckless lending? If so, would the government be inclined to stop them this side of a general election? A fresh round of HPI would suit the banks, would suit the government too.

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  • HPW: “The money is just sitting with the banks and has yet to make it out into the wider economy. The inflation will come later.”

    That ‘money’ has been there for years. How much longer do you give it until we have hyper inflation? Another five years?

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  • What kind of inflation are you talking about?

    Price increase inflation?
    Wage inflation?
    Non-productive asset bubble inflation?

    What if the Government spent money to develop infrastructure and put people in work. Does that create inflation?

    What if Government releases more money into Bank reserves. Does that create inflation?

    Answers on a postcard please.

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  • @mark
    disagree about money supply being “meaningless”…
    the point is that m4 hardly ever falls, and when its growth slows to nothing it usually means we are deep in recession. M4L, the “lending counterpart” of M4 (actually where >95% of M4 comes from) fell for the first time *ever* in 2010, since they released the series in 1963, and if I understand correctly the only reason published m4 did not tank was some novel adjustments for securitisation – bringing things on balance sheet that were previously left off. i.e. undermining the comparability of the figures.
    Nick

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  • I think I shall keep my own counsel on tnis one particularly since you cant have de flation in a fiat money system.

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