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Deflation on the prowl as Bernanke shuts down his printing press

carolt
Posts: 8,531 Forumite
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7553511/Deflation-on-the-prowl-as-Bernanke-shuts-down-his-printing-press.html
Not sure I agree with all of this, but there is some interesting food for thought there.
Not sure I agree with all of this, but there is some interesting food for thought there.
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Comments
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It stimulates thought, thats the most important thing. My view is that QE is just delaying the time bomb.:exclamatiScams - Shared Equity, Shared Ownership, Newbuy, Firstbuy and Help to Buy.
Save our Savers
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Deflation :rotfl:inflation is alive and well where i am0
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Deflation I think is when we have too much supply and prices keep falling while companies chase the customers attention
But we import alot of our goods & energy and our currency is weak so that means we dont have the excess supply, prices will rise as we compete with demand from other countries and inflation is the most likely event even while we are poorer
Government actions are secondary to the real economy, articles like the above are real disappointing to continually read. Im waiting for the reported tone to change some day0 -
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7553511/Deflation-on-the-prowl-as-Bernanke-shuts-down-his-printing-press.html
Not sure I agree with all of this, but there is some interesting food for thought there.
I doubt it. RPI is currently 3.7%, well above the BoE's target rate of 2%. Quantitative easing was a totally misconceived idea and will backfire, and the maintenance of below inflation interest rates can only fuel inflation further. I don't know why there is such a fear of deflation - why is it so bad? It makes debts go down faster, does it not?0 -
sabretoothtigger wrote: »Deflation I think is when we have too much supply and prices keep falling while companies chase the customers attention
But we import alot of our goods & energy and our currency is weak so that means we dont have the excess supply, prices will rise as we compete with demand from other countries and inflation is the most likely event even while we are poorer
Government actions are secondary to the real economy, articles like the above are real disappointing to continually read. Im waiting for the reported tone to change some day
Valid point about the weak Pound. We are now in a high risk of 'stagflation' - meaning a stagnant economy combined with high inflation. This is the big risk, and the reason why interest rates must rise!0 -
The money supply isn't just the amount of money that is out there, it is also a function of 'velocity of circulation', ie how often it is circulated.
Traditionally, economics assumes that velocity is constant for 2 reasons:
1. It makes the theory too complicated if you don't
2. Empirical studies have shown that it is normally constant
However, normally isn't the same thing as always. As demand for debt is falling/failing to increase (see the BoE's credit report for details), the banks can't increase the money supply in the normal way.
If consumers don't start to consume, deflation is the logical outcome.0 -
He would also have avoided his catastrophic error in the early summer of 2008. Robert Hetzel, chief economist at the Richmond Fed, writes in Monetary Policy In The 2008-2009 Recession that central banks themselves triggered the crisis by failing to cut rates fast enough as the economy tanked from March to July 2008.
So you allow a storming credit bubble, weak regulation, sub-prime and all the high risk derivatives packaged on at ever higher prices, to enable house prices/real estate to double and treble in 10 years, in many areas. Have businesses build their trade around this new paradigm of loadsamoney to spend.
Then believe after it's reached extremes and the money has run out, the flawed game exposed, people beginning to nurse big losses, that lowering interest rates will simply avoid all the nasty consequences of recession/depression and deflation from the corrupt boom party time.0 -
I doubt it. RPI is currently 3.7%, well above the BoE's target rate of 2%. Quantitative easing was a totally misconceived idea and will backfire, and the maintenance of below inflation interest rates can only fuel inflation further. I don't know why there is such a fear of deflation - why is it so bad? It makes debts go down faster, does it not?
It is bad for those who have debts. In a deflationary environment it is likley wages would be cut, however the debt you have isn't cut and it gets harder to service that debt.0 -
stueyhants wrote: »It is bad for those who have debts. In a deflationary environment it is likley wages would be cut, however the debt you have isn't cut and it gets harder to service that debt.
True, but the flip of deflation is the base rate will be very low (like now).
So debt also get cheaper to service.0 -
I doubt it. RPI is currently 3.7%, well above the BoE's target rate of 2%. Quantitative easing was a totally misconceived idea and will backfire, and the maintenance of below inflation interest rates can only fuel inflation further. I don't know why there is such a fear of deflation - why is it so bad? It makes debts go down faster, does it not?
Its the way the fractional reserve system works. The money supply is based on debt. If you arent endlessly borrowing new money the supply contracts.
Take some coins out of your pocket, put them on the desk. Have a good look. They're 'yours' arent they?
Actually they only exist because someone else, somewhere else, originally borrowed them from somewhere and hasnt paid them back yet.
And what happens when this someone pays them back; what happens if they dont, and where do they get the extra coins from to pay the interest they owe?
Well thats simple enough, they just need to get some extra coins from someone whose already borrowed some and hasnt paid them back and...0
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