Wednesday, September 14, 2016

Maybe not inflation

Why is the UK's money supply surging?

Article suggests that the sudden growth of the money supply will result in inflation, and that the BoE rely on consequences of Brexit instead of rate rises. However, imo, " But they suddenly engaged in a reverse ferret, increasing their holdings of cash by an annualised 70pc over the past three month" the dash to cash by fund managers, or this kind of static creation of cash from financial instruments, could also mean that people are getting ready for an across the board drop in prices and want to be ready. As has been reported generally, the BoE is running out of easing measures. Anyway I don't know but it looks like whichever one we end up with of the two alternatives is coming up soonish.

Posted by stillthinking @ 03:31 AM (8260 views)
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11 thoughts on “Maybe not inflation

  • Inflation is their only hope to get rid of the debt.

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  • Buying Sterling is now a hedge against a disorderly breakup of the European Union.

    It’s become the Nordic Swiss Franc, only with a bigger economy, the world’s language, the world’s pop culture, the world’s favourite legal system and close ties to the English-speaking world and Commonwealth.

    What other country has any of those, let alone all of them?

    I voted Remain but never feared Leave for all of these reasons.

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  • techie – Armstrong is a charlatan fraudster. “Marxist-Keynesianism” indeed. A crucial difference between M and K, relevant to Armstrong’s contention, is that K held to a variant of the Savings = Investment formula. In the medium term this is held to work by non-M economists because when the two diverge they are re-balanced by invisible hand mechanisms like interest rate adjustments. K’s variant of this was that IRs don’t always work, so governments must intervene to borrow the ‘idle’ savings for public works. M, otoh, showed that the error here was to regard all of the economy as the ‘real’ economy. He distinguished ‘real’ productive capital from ‘fictitious’, unproductive, speculative finance capital. (One way of looking at the difference is that we’re four times wealthier than we were 15 -20 yrs ago because our houses are worth four times as much – if this were so, why aren’t we living it up?) If the monetary sum of wages, profit, interest and rent is much greater than the real value produced there will be bubbles and crashes. For mainstream economists there’s no such divergence because each of the ‘factors’ of production (labour, capital, managers, landlords) gets an appropriate income because it is market-determined (by each factor’s contribution at the margin to production or income). But profits can come from trading in financial claims existing only on paper, from borrowing not backed up by tangible assets to engage in speculation etc.

    This distinction between real and fictitious capital is absent in most economics. And getting back to Armstrong, the difference between money supply leading to inflation and to deflation depends on whether that money is invested in real or fictitious capital.

    The Fed did not use the $4 trillion it printed to spend into the real economy. It gave it to the banks to lend out – and create $4 trillion more debt. More cheap money for mortgage loans to boost property prices to save the banks from the consequences of liar/junk loans, or for corporate raiders to buy out industrial corporations or to companies to buy back their own stock. Result – debt deflation.

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  • Meant to add to that first paragraph – unlike Keynes, for whom there was always a way of closing the gap between capital (including speculative finance capital) and productive investment, Marx had it that the divergence between the two could persist and widen, as in the case of financial bubbles, ‘credit swindles’ or asset-price inflation, where you get a giant bubble of fictitious values on a narrow base of real values. Any outflow from production to finance capital does not tend towards re-stabilisation as in conventional economics.

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  • Techieman, that article is really good. I wonder if all the money comes out in a flood as well. More to the point though for me, I was working in the uk and moved back to japan with japanese wifey. I didn’t vote but wanted a brexit, but the dramatic collapse in the pound (does it ever do anything else) will cost me dear. I have been delaying doing the change because i think there must be some kind of bounce back but I starting to doubt it now.
    Because I have believed in a deflationary outcome for almost a decade now I am so heavily invested in one particular opinion I wonder if I have gone one track about whats going to happen. I don’t believe the government will allow a deflationary collapse, even though its best in the long run (imo) which must mean that we go down the inflationary route. I think in the case of japan starting to run up against monetising everything you have to wonder whats going to happen when inflation does return.
    When I was first on this site and had an interest in uk house prices which is no longer relevant for me, I was struck by how slow economic events are like watching grass grow.

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  • I think other nations will follow the UK out. Thats when you may see the pound bounce back. Like you say though, the pace is slow

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  • This article is all hot air. It boils down to this:
    >The 14.7pc rate of increase is a new record for this statistical series, launched in 2009.
    The series is er, 7 years old. There was a 15% increase in M4ex – it doesn’t even say compared to what. Is it just a puff piece for higher interest rates? Which is of course what the generally older and richer Torygraph readers would want to hear.
    N

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  • Does it matter if the money supply surges if that co-incides with a surging population?!

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  • Libertas,
    I think you will find scant evidence of a commensurate “surge” in population to that being claimed here (on the basis of very little) for the money supply.
    N

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  • A surging population may increase notes and coins in circulation (or maybe just velocity) – but that accounts for just 2% of money supply.

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