FED cuts by 0.5%

WTF?_2

purch wrote: »

See posts #44, #68 and #71

:cool: That was before the "slanging match" took over the thread.

Point. Counterpoint.

Sorry if you think it's eclipsed your stunning contributions though.

StevieJ

Hey you two, stop this slanging match.

WTF?_2

StevieJ wrote: »

Hey you two, stop this slanging match.

Stop slanging us

setmefree2

!!!!!!? wrote: »

Firstly, you think the extent of inflation is going to be exactly equal to that needed to counteract credit availability-led deflation?

Sadly, I don't understand this

Secondly, when you make more money out of nothing (no useful product created) you devalue existing money, irrespective of whether than money goes into refloating the banks.
I disagree with this - how can money that never finds its way into the real economy be inflationary, especially if it ends up being paid back to the governement in a few years?

It just means that we'll likely get biflation with essential stuff getting more expensive but not a lot more money around in the general population to pay for it. ie. We'll all get a lot poorer. If we plebs are 'lucky' and the general population get to see some of that nice warm freshly printed billions we may well see very strong inflation indeed and then all bets are off as to just how disastrously it will all end.

I agree we will all get alot poorer but this is because of deflation. If you are in debt you will get very poor because of the debt-deflation-trap

In general (not just on MSE;)) there seems to be no real agreement on what the problem is TBH - deflation or inflation? and now you've introduced biflation into the mix. LOL. Why do you think there will be an increase in the price of commodity items?

"Biflation is preceded by an overabundance of money placed in circulation within the population by a central bank. Since commodities (such as food, energy,clothing) are essential and are in high demand, the purchase price for them rises due to the increased money available to buy them. This increasing purchase amount is Price Inflation.". None of the money given to the banks will end up in circulation, it's to strengthen their balance sheets and improve their capital ratios.



Let's say the problem is deflationary, then I think:-

1)an interest rate cut is necessary - to 0% if required. However, because of the pressure on sterling I don't think this will be possible as, I think we agree about this, a falling £ will be inflationary. I therefore think that interst rates should be dropped in small cuts.

2)an increase in public expenditure on capital projects is necessary, but again there is a limit to what the UK can do in this area because increasing the UK deficit further may weaken the pound and may cause inflation. I think bringing forward capital projects already budgeted for won't do any harm, IMHO.

I think that the government should do whatever it can. Are the deflationary pressures so big from the contraction in money supply that the inflationary pressures from a falling £ won't matter? I suppose that is the million dollar question.

StevieJ

setmefree2 wrote: »

In general (not just on MSE;)) there seems to be no real agreement on what the problem is TBH - deflation or inflation? You seemed to think the problem was inflationary so I just wondered why you thought this.

Let's say the problem is deflationary, then I think:-

1)an interest rate cut is necessary - to 0% if required. However, because of the pressure on sterling I don't think this will be possible as, I think we agree about this, as a falling £ will be inflationary. I therefore think that interst rates should be dropped in small cuts.

2)an increase in public expenditure on capital projects is necessary, but again there is a limit to what the UK can do in this area because increasing the UK deficit further may weaken the pound and may cause inflation. I think bringing forward capital projects already budgeted for want do any harm, IMHO.

I think that the government should do whatever it can, again it's just my humble opinion.;)

How can you say that the problem is deflation, then say you don't want to cut rates agressively because it is inflationary. Sounds confused.

setmefree2

StevieJ wrote: »

How can you say that the problem is deflation, then say you don't want to cut rates agressively because it is inflationary. Sounds confused.

Because when you cut interest rates - IF sterling falls this makes imports more expensive (particularly oil) and that is inflationary. We are caught between a rock and hard place.

StevieJ

setmefree2 wrote: »

Because when you cut interest rates - IF sterling falls this makes imports more expensive (particularly oil) and that is inflationary.

I am aware of the effect of interest rates, but if commodities are falling faster (due to recession) this is more than negated. This is why the authorities are reasonably comfortable about dropping interest rates at this time.

setmefree2

StevieJ wrote: »

I am aware of the effect of interest rates, but if commodities are falling faster (due to recession) this is more than negated. This is why the authorities are reasonably comfortable about dropping interest rates at this time.

True;) - so you'd go the whole enchilada would you?:D

StevieJ

setmefree2 wrote: »

True;) - so you'd go the whole enchilada would you?:D

I am not working the controls, I will leave that to the people who have the full facts and figures about the economy at their fingertips.

setmefree2

StevieJ wrote: »

I am not working the controls, I will leave that to the people who have the full facts and figures about the economy at their fingertips.

The one's who got us into this mess;), you mean?