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Britain faces deflation !!!
luvpump
Posts: 1,621 Forumite
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3218075/Britain-faces-deflation-for-first-time-since-1960.html
Seems Quite Likely to me now !!
Seems Quite Likely to me now !!
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Comments
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I was reading about this the other day.
Basic idea is that banks recalling leveraged credit means that even more money is taken out of the system. Net result unless the govt print loads of money is that it gains value, ie: deflation.
Well, you can. Savings account would charge interest and credit cards would pay interest.The risk is we have a rerun of Japan because you simply can't [cut interest rates] to below zero."
Would be fun.Happy chappy0 -
tomstickland wrote: »I was reading about this the other day.
Basic idea is that banks recalling leveraged credit means that even more money is taken out of the system. Net result unless the govt print loads of money is that it gains value, ie: deflation.
Well, you can. Savings account would charge interest and credit cards would pay interest.
Would be fun.
Deflation is a definite possibility from here although far from being a certainty IMO. It depends on whether businesses start borrowing from banks again to invest and thus employ people, especially in the US.
The Swiss used to charge people to save money when UK marginal tax rates were > 100%.0 -
FT - Watch out for inflation as the government prints money to pay for the bank bail-out and the black hole of public pension liabilities
FT - Public sector debt could rival post-war levels
Deflation? Inflation? Which is it going to be?
It would help any investment / mortgage / retirement annuity / house purchase decision if we knew!0 -
baby_boomer wrote: »
Bottom line is nobody knows. The only thing you can do is to postpone any major financial decisions. However, if everyone does that, then deflation would be inevitable.In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:0 -
Thanks for that, Tom, there are some interesting issues around that!tomstickland wrote: »I was reading about this the other day.
Basic idea is that banks recalling leveraged credit means that even more money is taken out of the system. Net result unless the govt print loads of money is that it gains value, ie: deflation.
I was listening to File on 4 [?] on the radio a few nights back and given the descriptions of some of the deals which were going on, it looks to me as though the present problem is that the banks somehow managed to lend the same money several times over - and to do it in such a away that the discrepancy appeared between balance sheets, not on any one balance sheet.
Now, the net effect is that this leveraged credit is in fact 'money' printed by the banks, which in classic terms is inflation. At the moment, it is stuck in one sector, housing. By taking the leveraged credit out of the system, this may partially rectify house price inflation, but it won't take it all out of the system - the deflation will spill into other sectors and will leave an awful lot of 3 - 4 year standing FTB's locked into their houses - at a time when their age profile means that they should be some of the most mobile people in the economy.
Certainly, in terms of house prices, money has become much more valuable lately - which is what you describe as deflation. The problem for government is that if it prints more money, it may wipe out this deflation, but the effects will not be confined to house prices. The inflation which is already locked in there will have to appear in the rest of the economy.After the uprising of the 17th June The Secretary of the Writers Union
Had leaflets distributed in the Stalinallee Stating that the people
Had forfeited the confidence of the government And could win it back only
By redoubled efforts. Would it not be easier In that case for the government
To dissolve the people
And elect another?0 -
Deflation is a definite possibility from here although far from being a certainty IMO. It depends on whether businesses start borrowing from banks again to invest and thus employ people, especially in the US.
The Swiss used to charge people to save money when UK marginal tax rates were > 100%.
It had little to do with the marginal UK tax rates though. It was done to all non-swiss investors. They accepted this because of the strength of the swiss franc & the fact that other currencies where devaluing against it.
It was to dissuade investors from speculating in Swiss FrancsUS housing: it's not a bubble
Moneyweek, December 20050 -
I reckon inflation, it's the British way.
Darling to fast-track public spending - Plans to fast-track billions of pounds of public spending on building projects such as new schools and hospitals are being drawn up by Alistair Darling (from the FT)
Clown will stoke up inflation bubble already in the system, hitting +10% buy Oct 2009 then lose the election. 'Call me Dave' Dave will then have an austerity budget, with interest rates at 8% in May 2010 to restore sound money. The Tories will slash public spending to built a cash pot for tax cuts in 2013 ready for a Sep 2014 election.0 -
OK, call me dense here... But is deflation a bad thing?
If so, then why is inflation also a bad thing?
Staying still is better?
Help me out here guys... It seems whatever happens is bad news!0 -
Deflation's bad as there's less incentive to spend or invest so the economy grinds to a halt and worse.
Inflation's bad as it undermines individuals' long term saving and financial planning. Pensioners can see everything they've worked for disappear before their eyes.
Controlled slight inflation, were this achievable, is probably as good as it gets. Over the last decade we've been lulled into thinking that it was in our grasp.
Whoever wins the next election is going to be in such a bad way that there won't be any opportunity or appetite for stunts like this.amcluesent wrote: »The Tories will slash public spending to built a cash pot for tax cuts in 2013 ready for a Sep 2014 election.
But let's stay on topic.0 -
That's an inherenet result of fractional reserves. It means that a bank only has to keep a fraction of their lending in reserves. It generates loads of extra money in the system that doesn't really exist.it looks to me as though the present problem is that the banks somehow managed to lend the same money several times overHappy chappy0
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