Britain faces deflation !!!

worldwheeler

Incisor wrote: »

The gov't borrows the money from the banks. They seem to have come into billions lately, so I am sure they can help out, by charging a higher rate than they are being charged for the money they have.

As far as I understand it the government does not borrow from retail banks? The US system the government borrows from the federal reserve bank. This federal bank is a cartel of private bankers. The government requests the funds it needs and issues bonds (promises to pay back with interest by income TAX the amount borrowed) to the federal bank.The Fed then either print the dollars and send them to the government or enter data figures on computers to credit the government accounts. The US TAX payer is now indebted to pay interest on money that was simply created out of thin air.The Federal bank can then use this debt owed to them as an asset and lend 10x the total to corporations in a similary creative way. This means goods and services from corporations have to be sold to reflect the interset charge on the bank loans. The end result is the public via their labour have to pay this pyramid of tax. Remember this is interset repaid via income TAX on money? which was made from thin air.
I wondered if the UK has a similar system? But, with the global financial system being interweaved around the globe the largest economy has a massive effect on every country. This effect can easily be used to lever and engineer control???

baby_boomer

FT-European states struggle to raise extra money to cover bank debts

"Spain failed to launch a bond last week, while Belgium and Finland were having difficulty attracting investors for debt offerings after governments set aside billions to recapitalise their banks and guarantee their debt."

Perhaps there are upper limits on government debt. Darling's attempt at Keynesianism may cost more than he thought, if he can start it at all with a sliding £ .

BACKFRMTHEEDGE

http://www.thisismoney.co.uk/news/article.html?in_article_id=455343&in_page_id=2

Thought some posters who contributed to this thread might be interested in the aboce - article entitled

Don't panic! Every crash has a silver lining

Willian Rees-Mogg,


13 October 2008

baby_boomer

Thanks for that. Quite a long article with only one mention of the d word, which he doesn't really go on to explore in any detail as a possibility.

"..Few people now think governments can stabilise a deflated economy by deflating still further. Both Keynes and Friedman stressed the need to avoid a contraction of the money supply.."

baby_boomer

There are certain anti-inflationary movements around at the moment.

Miners suffer as copper goes below $4K a tonne

Plunge in agricultural commodities hits Bunge

Opec looking to stabilise the falling oil market

Not to mention house prices :rotfl:

baby_boomer

Great Telegraph article

Who knew, apart from Generali , that the Wizard of Oz was all about the deflation debate :eek:

"...a political allegory of America's entry on to the gold standard in 1879. The strictures of sound money coincided with a vibrant post Civil War economy. The result was deflation: prices fell by 1.7pc pa between 1875 and 1896. The farmer, as depicted by the scarecrow, was held captive by falling agricultural prices and mortgages owed to the big banks, the wicked witch of the east. The spell of tight monetary policy cast a pall over the poor tin woodsman: every time he swung his axe, he chopped off part of his body. It was a depiction of the economy's shuttered and rusting factories. The easy-money crowd, Bernanke and Greenspan's great grandfathers perhaps, argued the responsibility for the economy's woes lay with an insufficient monetary response. The gold market had a scarcity that choked the US economy into serfdom.

Instead, the populists' manifesto called for the readmission of more plentiful silver coinage into the system – a point captured by Dorothy's silver slippers (Hollywood changed them to ruby) as she skipped along the yellow brick road (the gold standard). Print more money and remove us from penury. Consecutive presidential elections were contested on such a return to bimetallism in 1896 and 1900. Surprisingly, the easy-money crowd, proved unsuccessful; they were defeated by powerful bankers such as JP Morgan. However, the story ends with the good witch of the south (the populace) prophesying that Dorothy's silver slippers (easy-money policy) are so powerful they can fulfil her every wish. This utopia was made possible just 13 years later with the formation of the Federal Reserve. The tin man and the scarecrow would have a more forgiving lender of last resort after all and 71 years later the wizard, called Nixon, went one step further and abolished the need for gold and silver ounces (Oz) when the US reneged on its Bretton Woods commitment to sound money.

Of course, today we could be watching a comparable parable unfold. The past 30 years of economic history may have produced a daunting sequel. I would suggest tomorrow's fiction will prove much darker, perhaps in the image of Goethe's Faust.

The story would feature an apprentice printer called Bernanke. Encouraged by a wicked wizard, Greenspan, he toils at his printing press night and day producing reams of paper money. At first his monetary accommodation seems to bring unbridled prosperity. Boom follows boom, as the business cycle is seemingly abolished, house prices grow to the sky and his political stock rises. In time, the scarecrow is bought-off by crop subsidy; the tin man vacations in Vegas, having refinanced his mortgage for the 13th time. And the sorcerer's apprentice is promoted to top wizard.

However, Greenspan, now in retirement, finally reveals his scheme has brought only "bogus riches". The printing presses have created a "zero-sum game" where dollars lose their purchasing power against God's brew of precious metals. The populace begins to save. Spending is reined in. Even the corporate sector suffers. With consumers no longer spending, there are no profits. Shares slump and the fiat kingdom collapses in anarchy.
And that is pretty much where we are today.

I withdrew my hard-earned money from a bank this summer. But it may surprise you to learn that I bought government bonds of long duration....."

Mr_Matey

In my world deflation has already happened in the last few months. It may not be true of the entire economy, but my money sure goes a lot further these days than even 2 months ago.

A few examples:
* Lower petrol prices
* House prices falling
* Rental prices falling (although not for me)
* All the shops are desperately offering massive discounts - I've bought quite a bit of stuff lately! This includes grocery stores.

(edit) Oh and forgot to mention the reduction in VAT.

The only worry is the falling pound. Please recover before I go on holidays. I'll be ever so good... :A

BACKFRMTHEEDGE

Mr_Matey wrote: »

In my world deflation has already happened in the last few months. It may not be true of the entire economy, but my money sure goes a lot further these days than even 2 months ago.

A few examples:
* Lower petrol prices
* House prices falling
* Rental prices falling (although not for me)
* All the shops are desperately offering massive discounts - I've bought quite a bit of stuff lately! This includes grocery stores.

(edit) Oh and forgot to mention the reduction in VAT.

The only worry is the falling pound. Please recover before I go on holidays. I'll be ever so good... :A

You forgot mortgage rates have fallen - 3%;) Child benefit is going up too:D

I've never had it so good:j

Mr_Matey

BACKFRMTHEEDGE wrote: »

You forgot mortgage rates have fallen - 3%;) Child benefit is going up too:D

I've never had it so good:j

Hi Back,
An increase in benefits isn't really deflation, I'd think of it more like a pay rise. If you start talking about cash inflows then a lot of people would be saying they expect to earn less money, through job and pay cuts.

The mortgage rates are good - same product but costs less. I wonder how many people this applies to. Only those on tracker rates I imagine?

Some things have gone up, eg electricity/gas and train fares will, but it's peanuts compared to house prices, rent and the others.

Times are good for me too! :beer:

baby_boomer

Telegraph

Deflation virus moves beyond the 1930s

"Debt deflation is tightening its grip over the entire global system. Interest rates are creeping towards zero in Japan, America, and now across most of Europe.

We are beyond the extremes of the 1930s. The frontiers of monetary policy are being pushed to limits that may now test viability of paper currencies and modern central banking.

You cannot drop below zero. So what next if the credit markets refuse to thaw? Yes, Japan visited and survived this policy Hell during its lost decade, but that was a local affair in an otherwise booming global economy. It tells us nothing.

This time we are all going down together. There is no deus ex machina to lift us out. Certainly not China, which is the most vulnerable of all.

As the risk grows, officials at the highest level of the British Government have begun to circulate a six-year-old speech by Ben Bernanke – at the time of its writing, a garrulous kid governor at the US Federal Reserve. Entitled Deflation: Making Sure It Doesn’t Happen Here, it is the manual of guerrilla tactics for defeating slumps by monetary means.

“The US government has a technology, called a printing press, that allows it to produce as many US dollars as it wishes at essentially no cost,” he said........"