Deflation Watch pt 152

purch

Any proof/links for that? How could that be true when the US$ is the worlds reserve currency?

http://sdw.ecb.europa.eu/reports.do?node=100000141

http://www.federalreserve.gov/releases/h6/current/

NB: I said in circulation.

sabretoothtigger

That is why Im thinking any sell off in UK or USA bonds is what realises the inflation, it will enter the money supply at this point and may be used to buy highstreet goods

The BOE does not monitor inflation in high value assets, finance or bonds apparently?
So it does not exist on the radar, its an iceberg! :eek:

Yet again we have a highest ever price for a painting just recently. Its not that surprising that massively priced items are showing inflation first. Similar is true in classic car markets I believe, there is no CGT for these and those who deal are likely closely exposed to bond prices and so QE

It was doomed to fail, mainly because it was not designed to cope with the increased globalisation of the world economy, and I doubt that any workable system could be put in place currently or in the future.

I think we a victim of our own success. This is way too negative, even on average modern people have become incredibly rich and it is benefit partly from this easier trade. Scales of economy and comparative advantage and all that. The flaw I see is a political bias in paper that favours the west

If you desire a return to "sound" money, the only real answer is for a nation to renounce globalisation, renounce trade and retreat within it's own borders and fend for itself.

I dont see how we can ship things half way across the world without a stable currency.
Maybe money should be tied to oil because that is the fuel used to transport or even make the goods.
Good arguments for gold Ive heard is because it is not used for much else, because it is recycled not consumed. Its very stable, barely any supply compared to population growth.
Also extremely compact and per dollar very light to transport itself, obviously paper can beat gold here but as the numbers and time grow so theres strain to remain rigid through a contract term.

Paper is failure because we couldnt resist bending it to our own will, the cart is leading the horse. So gold is a step back to medieval times? I dont see that, you can transfer a gold balance virtually & instantly

So I see no reason why modern and old cant enable better trade, stability and resistance to volatility are important in manufacturing production lines so they can plan ahead.
Nobody really cares about politics, ego and high ideas of men in suits their utility is poor right now so I dont think that type of any nation will lead the way forward.

purch

I dont see how we can ship things half way across the world without a stable currency.
Maybe money should be tied to oil because that is the fuel used to transport or even make the goods.
Good arguments for gold Ive heard is because it is not used for much else, because it is recycled not consumed. Its very stable, barely any supply compared to population growth.

It pains me to say it, but the problem with the idea of a Gold Standard currently is that Gold is now a heavily speculated commodity, and it would be impossible to use it as a Standard to tie a currency to, as it is open to speculation and manipulation.

Again with Oil, would you really want to tie your currency to a commodity which involves so much political instability/risk and possible manipulation ?

Generali

purch wrote: »

It pains me to say it, but the problem with the idea of a Gold Standard currently is that Gold is now a heavily speculated commodity, and it would be impossible to use it as a Standard to tie a currency to, as it is open to speculation and manipulation.

Again with Oil, would you really want to tie your currency to a commodity which involves so much political instability/risk and possible manipulation ?

IMHO, the only real advantage of a Gold Standard is that it stops Central Banks setting interest rates freely. The same advantage could be given to the fiat money system by preventing Central Banks intervening to set interest rates.

That would do a lot to prevent asset price booms as the borrowing that inevitably comes with a bubble would push up the price of money and take a lot of the profit out of asset speculation.

Thrugelmir

Conrad wrote: »

Very wrong. Americans would dust themselves off and start over just as they did following WW2, just as Germany and Japan did.

USA was not impacted by WW2.

However if the Battle of Medway had been lost. Then history may have run a totally different course.

Generali

Thrugelmir wrote: »

USA was not impacted by WW2.

Really...?

WW2 led to a huge expansion in both the level of US Government spending and its scope; it led to a reopening of the US economy to international trade; capital flight from Europe prior to WW2 ended both deflation and the Depression in the USA; and GDP more than doubled in real terms during WW2.

sabretoothtigger

Thats about the first time Ive heard why WW2 could be a positive despite all those people dying which obviously is not. Some people said Japan was better off after its Tsunami :eek:

http://en.wikipedia.org/wiki/Parable_of_the_broken_window#The_cost_of_special_interests_and_government

the problem with the idea of a Gold Standard currently is that Gold is now a heavily speculated commodity, and it would be impossible to use it as a Standard to tie a currency to, as it is open to speculation and manipulation.

I dont think its perfect but its not the weakest link in maintaining tradable wealth so it will grow in use as or if paper money becomes less able to keep value

As some point we either decide the price of gold by how many dollars its worth or the price of dollars by how much gold its worth.

I think its already true that gold is more reliable in determining value over time but overnight who cares about long term and USA is financed short term on a cycle of a few years.
I imagine there is a tipping point where gold being solid and restricted does matter and is far more useful to the market.

You say its manipulated but apparently supply increased by 1% last year only so we are talking about leveraged dollar contracts for supply.
Dollar itself is massively open to speculation and the open supply is gigantic. How can it stay a currency if so uneven, without demand to match it is more easily manipulated (in the majority not subject to real dynamics or trade) then gold is, so which of the two is the weakest link here.

The fulcrum for the leverage in dollar contracts if becoming less stable is eroded, it will fail to matter what dollar does at some point because it is not solid enough to move gold prices.
Or if we forget gold, just general trade matters more then just one currency so dollars are just a means to an end following not determining the markets

Generali

sabretoothtigger wrote: »

That's about the first time Ive heard why WW2 could be a positive despite all those people dying which obviously is not. Some people said Japan was better off after its Tsunami

There were many things that resulted from WW2: positive, negative and neutral.

That Hitler was in some ways responsible for the VW Beetle doesn't make Adolf a decent man or the Beetle a bad car.

The Parable of the Broken Window is very interesting, economically speaking. I'm surprised that people don't extend it to Government spending via borrowing: if the Government borrows to spend then it raises GDP today but that doesn't necessarily mean we get richer, it's just a transfer of income.

Generali

http://www.bankofengland.co.uk/statistics/Documents/fm4/2012/apr/Sectoral%20breakdown%20of%20aggregate%20M4%20and%20M4%20lending.pdf

M4 down 3.8% year-on-year. Up 1.1% in April.

Most of the rise seems to have been driven by the shadow banking system. Inflows of cash from the Eurozone perhaps???

michaels

Interesting to see the discussion of 'rip of Britain' again, seems the BoE can't understand how the money supply and effective demand can be below forecast but prices above.

I still think there is a bit of 'pushing on a piece of string' situation with ever looser monetary policy, consumers don't want to borrow however cheap you make the money, companies don't want to borrow as consumers aren't spending however cheap it is for them to do so. Plus of course the increasing bank capital rules which are driving the increasing divergence between BoE base and effective short term borrowing and lending rates.