Print money and create inflation?

tomstickland

What do you reckon to this analysis, nicked from a blog?

Of course there will be inflation, lots of it.
First, we have a state debt of over a trillion pounds when you add the "off balance sheet" PFI liability, currently hidden using exactly the same methods Crash Gordon decries when banks do it. Apparently it's ok when he does it, though. And that's before the bailout.
Second, you have half a trillion added to this in contingent liability for bailing out the banks, most of which I expect will be used soon enough. THere may be more to come.
Third, you have a massively over-valued housing stock. Even with the falls to date, it's probably still at least 30% overvalued, and this must (and will, one way or another) reduce.
Fourth, we have no money set aside by the state during Prudence's boom, and nor do we have meaningful reserves of bullion or foreign currency.
So how is this debt to be paid? There are several ways, some less palatable than others:
Debt can be repudiated. This will lead to an instant and savage devaluation of Sterling and loss of state credit rating, so is not that likely. Recall the Argentine default.
Taxes can be raised. They are already high. Trying to take much more from the higher marginal rate payers simply reduces state income because it becomes cost effective for them to pay accountants to save them tax. Trying to take more from the middle and working classes exacerbates the financial pressure they are already under, leading to either greater welfare payments, social unrest or both. This is politically "courageous", as Humphrey Applebly would say.
Spending can be cut radically. This is the sensible option, but goes against the grain of Labour and its belief in the merit of state expenditure. It also means significant numbers of people lose their less than productive public sector jobs, so it's not so appealing.
Money can be printed. This will of course cause inflation. It's painless in the short term, however destructive it may be in the longer term. It has some immediate political advantages, though, in that the real value of personal debt decreases (partially offset by the necessary higher interest rates on that debt). This is a way in which the housing market correction can be assisted. It's very likely this is what will be done.
Some more hysterical bloggers are predicting Weimar levels of inflation, which I think is unlikely. But I do expect we will get up to over 20% inflation in the near enough future. This will need much higher interest rates, a tightening of the money supply, large scale cuts in government expenditure and significant economic dislocation. History never repeats exactly, but broad trends do given similar starting circumstances, and we are now where we were in the mid-1970s, and for much the same reasons - government spending large amounts of money it doesn't have on things which make no difference. The remedies will be similar, too.
I expect Crash to call an election well before May 2010, unless he really does have the psychological defects which have been alluded to numerous times. If he has any sense, he will seek to limit the scale of Labour's pretty much inevitable defeat by bailing out before it gets really bad, or when he might actually think he still has a chance to turn it around (he hasn't, these things are bigger than Prime Ministers).
The next government is going to have to deal with the mess, just as Churchill's did with Attlee's mess in 1951 and Thatcher did with Callaghan's in 1979. There will, I expect, be high inflation, high unemployment, high interest rates, severe and possibly prolonged recession, a more monetarist policy, massive cuts in public expenditure and ultimately probably Britain joing the Euro to avoid a repetition of this entirely unnecessary fiasco wrecking the country under the next Labour government. This assumes the Euro itself survives the recession, which it may not.
And anyone who says it's not a political problem, or is a failure of capitalism, is deluding themselves. There is generally an economic correction every 10-15 years, but this one was made far worse by Clinton's administration pressing the banks to lend to the !!!!less in the interests of "fairness" and Blair's government following suit here. As a result, we all lived on credit and a delusion that we could keep selling houses to each other at ever-increasing prices because the banks wouldn't say no to absurd loans, because they were under a great deal of political pressure.
Labour has, yet again, screwed the economy and made everyone poor in the attempt to make everyone richer. The Conservatives will, yet again, have to pick up the pieces and gain a reputation for nastiness by forcing people to face up to the reality that there are always losers to go with the winners.
And then we'll either go around again, or we'll be under the control of the Bundesbank and hopefully avoid it.
Well done, Crash Gordon.
EG

http://www.guardian.co.uk/commentisfree/2008/oct/12/inflation-economy

Voyager2002

The analysis is reasonable, although I expect inflation to be nearer to ten per cent than twenty. And if things work out well, as they just might, the banks will return to profitability and the shares in them that the government is buying with our money will turn out to be a good investment.

tomstickland

I'm considering phoning up a broker this week and sticking my max ISA allowance into an investment trust. Convert cash to stocks and work on the principle that we're be near the bottom of the market some time soon.

turbobob

I've been putting in small amounts of money into funds on days when there has been big drops. I don't think anyone can call the bottom of the market, but I am hopeful that we are nearing it!

PasturesNew

I'd like to buy shares. But I really don't know what the methods are.

I know I'd not trust a company/IFA, you'd never know if they were good until it were too late.

I'd LIKE to do some online trading, just a smidge. But don't know the best/easiest/cheapest way to do that.

That's the trouble with having a few bob - beyond sticking it in the bank everything else is so complex... and even sticking it in the bank hasn't seemed too bright lately.

tomstickland

You can use money supermarkets like Hargreaves Lansdowne. Read Martin's ISA guide.

Personally I'd use unit trusts. ie: buying a whole portfolio of shares lumped together.

misskool

PasturesNew wrote: »

I'd like to buy shares. But I really don't know what the methods are.

I know I'd not trust a company/IFA, you'd never know if they were good until it were too late.

I'd LIKE to do some online trading, just a smidge. But don't know the best/easiest/cheapest way to do that.

That's the trouble with having a few bob - beyond sticking it in the bank everything else is so complex... and even sticking it in the bank hasn't seemed too bright lately.

Not sure what offers are about but financial spreadbetting companies often have sign-up bonuses. Natwest offered £100 when you deposited £200.Hargreaves Landsdown offered £50 no deposit. They are probably expired now though

there is an introductory guide to spreadbetting on the GIOL board if you're interested. Most of the companies offer online tutorials and free classes (not sure which parts of the country though)

kennyboy66_2

tomstickland wrote: »

What do you reckon to this analysis, nicked from a blog?

What do I reckon?

Complete rubbish.

the_worried_one

PasturesNew wrote: »

I'd like to buy shares. But I really don't know what the methods are.

I know I'd not trust a company/IFA, you'd never know if they were good until it were too late.

I'd LIKE to do some online trading, just a smidge. But don't know the best/easiest/cheapest way to do that.

That's the trouble with having a few bob - beyond sticking it in the bank everything else is so complex... and even sticking it in the bank hasn't seemed too bright lately.

I've found share.com is quite useful to have a look through.

They also have practice accounts for you to test out the riskier deals! Can be very frustrating when you've made a good call but it's not your real money! My practice account is currently down about 40% overall though, so I'm now happy, lol.

Generali

My advice if you want to buy shares is to buy a fund like tomstickland suggests.

The cheapest and best IMO is to but a tracker. That is a fund that will track a particular index rather than paying people to try to pick shares.

The lowest risk thing to do is to pay in a certain amount of money each month.

Sir_Humphrey

The "analysis" is completely idiotic. The money being put into the system is to help avoid deflation.

Cutting government spending is also idiotic in a recession. This is really basic stuff. Thankfully, economists and decision makers seem to have finally dusted off their Keynes. As Bootle says in the Telegraph today,

And there is another feature of the Japanese scene with which we may yet become acquainted. Still you hear people worrying about the inflationary dangers of the current situation.
They should be locked up and force-fed the collected works of John Maynard Keynes. In case you missed it last time, I’ll say it again: if there is to be a significant price danger over the next few years it comes not from inflation, but from its equally sinister twin – deflation.

http://www.telegraph.co.uk/finance/comment/rogerbootle/3185317/This-is-no-time-to-worry-about-moral-imperatives.html