Friday, July 20, 2012

UBS issues inflation warning for UK and USA

UBS: The Risk Of Hyperinflation Is Largest In The US And The UK

The morons who are propping up a failed business model have one flaw. If they continue to abuse the monetary unit like this then confidence is lost. Alternatively they can let interest rates rise and we will see free market forces destroy unproductive speculative bubbles and unprofitable business units. Sure, the big corporate monopolies and banks will be broken up, govt will buy less CCTVs but into smaller more nimble units, run by stronger hands and, the economy, free to no longer prop up failing businesses and ponzi scheme speculative bubbles could focus on growth. Alternatively, we can continue down the route of bailouts, interest rate manipulations and nationalizations of banking monstrosities & eventually reach hyperinflation. Will anybody challenge the morons? Answers on a postcard

Posted by libertas @ 12:02 PM (3046 views)
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17 thoughts on “UBS issues inflation warning for UK and USA

  • I’m surprised the IMF are not picking this up. The departure of their economist gives a clue:
    “A top economist at the International Monetary Fund has poured scorn on its “tainted” leadership and said he is “ashamed” to have worked there. Peter Doyle said in a letter to the IMF executive board that he wanted to explain his resignation after 20 years” (BBC). IMF unavailable for comment…

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  • Genius piece of research by UBS. Ignores the fact that money supply in UK has actually been contracting (despite QE) and that £ is at highs against the € our main trading partner.

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  • general congreve says:

    @2 – I would like to belief he is genuine in what he says and it’s not just a case of rats leaving a sinking ship.

    @3 – It is not a prerequisite of our situation, that the traditional running of the presses and exploding money supply takes place, for high/hyperinflation to occur. The real issue is the likelihood of outright and very sudden ‘currency destruction’, destroying the value of sterling via lightening fast devaluation, effectively causing most prices to hyperinflate via the rocketing cost of imports. The rocketing price of oil imports will in turn have a large inflationary effect on most domestically produced products, as we need oil for transport and distribution and agriculture uses oil in many stages of production. Such a scenario could occur pretty much overnight as markets turn on the UK as they suddenly figure out we are a basket case and will ultimately never recover and be good for our onerous debts, even if we are just about squeezing by today.

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  • stillthinking says:

    The UK money supply was expanding at 13% a year at some points during the New Labour administration. So although I think deflation personally, there is and has been inflation as this money has come through. Even as the UK deflates money wise, price inflation is going to come through.

    For all of the talk about the idiot buyers putting down half a million for a flat payable over 25 years, that puts half a million as immediate spending to the seller!

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  • I agree with Bankster. If this is the kind of nonsense thought up at UBS, then they deserve to be bankrupt.

    Having said that the full report might be more nuanced than this article.

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  • general congreve says:

    @5 – Yep, bank lending is inflationary, as it ultimately ends up in someone’s hands as cash to spend in the economy. This is how the banking system creates money. Of course, with new lending falling/credit contracting, it can be argued that money supply is falling, but the previous lending (out of thin air) is already feral and creating inflationary pressures that will be felt for years to come.

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  • Bank lending creates money out of thin air although most of this is then locked into debt based property ownership. Debt based property ownership sucks money out of existence as values falls, but the principal has to be paid back notwithstanding with interest on it.

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  • did UBS manipulate libor too?

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  • general congreve says:

    @8 – Not so. As Stillthinking and I stated above, the new debt money passes up the property chain until it lands in someones hands, i.e. the kids of a recently deceased elderly couple who have sold the family home. That money then passes into the economy.

    The theory goes that as the years go on the equivalent in the loan amount will be paid back to the bank and be vanished into thin air again.

    A couple of problems with this, firstly it takes decades years for that money to be paid back, so there is a massive lag between the inflationary effects of the new money appearing and disappearing, and if the loan is defaulted on it will never be paid back – the new money is then feral and the inflation from that loan is locked in permanently.

    Secondly, do you really believe the banksters vanish the repayments they receive into thin air? The massive expansion in the money supply over the last century tells us otherwise.

    The home value is purely notional, although the debt is real. Debt based property ownership does not suck money out of existence, it just syphons it out of the real economy into banksters pockets via high rents and mortgage costs.

    Agree, on the principal + interest problem, and that is why the banks (and now the government) have to keep expanding the debt bubble to bursting to keep the system running, until they can’t of course, most likely as a result of people and the markets losing confidence in the currency.

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  • “Ignores the fact that money supply in UK has actually been contracting (despite QE)”

    Money supply manipulation anybody?! After Lieborgate, wait for a raft of scandals about govt reporting of stats. Unfortunately we do not have a John Williams here: http://www.shadowstats.com/

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  • “Not so. As Stillthinking and I stated above, the new debt money passes up the property chain until it lands in someones hands, i.e. the kids of a recently deceased elderly couple who have sold the family home. That money then passes into the economy.”

    You’re effectively saying that ALL new debt money ends up in someone’s hands. That’s obviously untrue. Most ends up recycled into other property purchases. Of course some finds it’s way into the economy not everyone who sells buys – especially the recently deceased!

    There was a much more significant expansion of money supply during the boom years as people remortgaged to buy imported goods or holidays or whatever. Most of that money ends up on corporate balance sheets and then stays there.

    There is no need to sacrafice accuracy for ideaology. Libertas is already playing that game.

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  • general congreve says:

    @12 – You’re effectively saying that ALL new debt money ends up in someone’s hands. That’s obviously untrue. Most ends up recycled into other property purchases.

    Yes, there is often a chain, but a new loan goes to first time buyer, that money pay the second time buyer, that money then pays the third time buyer and so on (there will probably be other loans amounts to the other buyers in the chain too), all of which flow up hthe chain until it reaches the end of the chain. Why else would you need to borrow money unless it is to pay the next person in the chain? The person at the end of the chain, be they inheritors, downsizers, builders or property developers, now have the new money, if a loan(s) has been taken out to fund a purchase at any point during the process. So, all of the new money ends up in the economy.

    There was a much more significant expansion of money supply during the boom years as people remortgaged to buy imported goods or holidays or whatever. Most of that money ends up on corporate balance sheets and then stays there.

    As with the new money from home loans, anything on a corporate balance sheet ends up in a bank account, where the bank can then use it to leverage further loans and so on and so forth. So, the process actually creates even more new money. What has happened is we have hit lending limits (because banks realise they have overun the limit of repayment) and now government/BoE is busy pumping more money in via govt. spending funded by QE. Because if they don’t, we get deflation and that kills the debt-based system.

    Trust me, I would LOVE deflation to happen, it would lead to rapid currency destruction and I’d get paid asap. I am not arguing deflation cannot happen, but so far they have not let it happen. They’ll have to print trillions to prevent it though, and I believe that if they do print much more the markets will wake up to the issues at hand and we’ll have a currency crisis/collapse before we enter hyperinflation, which will effectively cause hyperinflation anyway.

    So, deflation or inflation, I’m easy, the outcome is the same.

    There is no need to sacrafice accuracy for ideaology.

    I hope my highlighting helps you to understand why your final point does not warrant further response.

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  • GC your’e missing that home ownership expanded over the term and also that separate from this the population expanded ie more money went into property than came out. Your model only works in the case of static levels of ownership. Yes?

    Money is both conjured out of thin air and vanishes into it, although net more is created hence the reason we live in a constant state of depreciating currencies.

    Can’t be bothered getting into the other stuff. Overdone.

    Incidentally I held a Kruggerand today. I expected to get some sort of thrill but was actually a bit underwhelmed which actually surprised me. An oz of gold seems so negligble and the coin is pretty ugly in the flesh. Not so long ago i bought 5000 tesco share at £3.10 as a long term buy. This buy probably gives me the sense of confidence you get out of gold.

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  • actually i might be wrong on that first point

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  • yeah didn’t get that right. New lending will emerge out the other end and into the economy although only to the extent that the end seller – likely either house builder or recently deceased – is not indebted to the bank. There may be more variables than that eg what happens where within the chain there are transactions happening with buyers and sellers in negative equity.

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  • general congreve says:

    @15 – actually i might be wrong on that first point. yeah didn’t get that right.

    Bloody hell, never thought I’d see the day! A breakthrough of sorts, you’ve made my day BW! 🙂 Who knows, today admitting error on money creation, tomorrow on gold? 😉

    New lending will emerge out the other end and into the economy although only to the extent that the end seller – likely either house builder or recently deceased – is not indebted to the bank. There may be more variables than that eg what happens where within the chain there are transactions happening with buyers and sellers in negative equity.

    Housebuilders, families of the deceased, downsizers (they take a net profit), landlords selling up (this accounts for the best part of increase in owner occupiers), this is where the new money ultimately goes, into these peoples pockets and into the economy. So, the newly created mortgage credit is an expansion of the money supply.

    In the case of negative equity the seller covers the loss, or they are declared bankrupt and the loss in written down, the lent money is still feral though, as it went in someone’s pocket from the time of the original sale.

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  • GC I often question the value of what I say. A rare quality on this site, and you should try it sometime!

    I never suggested that no debt money enters into the economy, I simply said that not all debt money does, and then went onto suggest that debt money only ends up in the economy under certain circumstances eg we have to assume that the person at the end of what may be a very long chain has equity.

    I don’t think that point is really arguable.

    The statement I corrected myself on was stating that the amount that emerged would vary where the market was expanding ie more people getting in than getting out, but then I figured that must be wrong because those getting in have to buy from someone or else have a house built for them.

    I also have no idea what you mean when you talk about lent money being “feral”, and neither do you. Bear in mind also that debt based money coming out the other end only does so because someone has committed their future earnings to debt repayment ie removing money from the economy.

    Overall I’m saying the effect of money expansion due to credit this is under analysed and overstated by you. That is especially the case now in a landscape of falling prices and shrinking credit.

    Note that during the period of loose money, what went up in price was assets and what went down as a result was disposable income. There was no great inflation otherwise caused by the the lose credit.

    I won’t hold my breath for a response that addresses any of this. No doubt you will come back and reiterate previous statements and talk again money going feral. Incidentally who did you nick the phrase from.

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