Interest rate rise benifits

StevieJ

Thrugelmir wrote: »

We are undergoing a monetary contraction. So those that will benefit are those that invest for a cash return on a longer term basis. Financial engineering based on leveraging up with debt and inflation providing a return are over.

Sounds good but what does that mean?

Kennyboy66

ILW wrote: »

In the South of England in the 30s, wages stayed constant, employment was high and deflation raised living standards considerably. Different in the North though.

UK deflation was really a feature of the 1920's not the 1930's (prices rose from 1934 onwards, prices fell in every year bar 1 between 1921 and 1934). In fact UK prices were the same in 1939 as 1930.

It was only when the UK abandoned the gold standard in 1931, which decreased the value of sterling by 25% that the South of England started to grow (mainly due to house building in the home counties, due to low interest rates once gold standard abandoned).

The devaluation effectively got rid of the deflation.

It was not deflation that raised living standards in the south, but economic growth generated by low interest rates and a competitive exchange rate.

Funnily enough this is roughly what the BoE is trying to achieve now despite the 'inflation nutters'.

Kennyboy66

StevieJ wrote: »

Sounds good but what does that mean?

Don't invest in airy fairy companies.

Just buy shares in tobacco, energy generation, supermarkets (high margins in UK, unbreakable oligopoly, prices exactly same in Asda as Tescos).

Maybe.

And funeral companies - great margins, people tend not to shop around.

there you have it, fags and funerals.

Thrugelmir

StevieJ wrote: »

Sounds good but what does that mean?

Take a longer view of building a business. Organic growth, reinvesting profit. Reward will come in time with hard work.

The old adage. " "You can't eat your cake, and have it too". Sums up much of the past couple of decades.

Many people now expect to make a return with neither hard work or risk taken on their own account. .

StevieJ

Thrugelmir wrote: »

Take a longer view of building a business. Organic growth, reinvesting profit. Reward will come in time with hard work.

The old adage. " "You can't eat your cake, and have it too". Sums up much of the past couple of decades.

Many people now expect to make a return with neither hard work or risk taken on their own account. .

I pretty sure the early BTL adopters still thought they were taking a risk, hindsight = 20/20 vision

Le_Chuck

RenovationMan wrote: »

Not much chance of this happening at the moment during this period of austerity, fiscal tightening and tighter credit conditions.

I take you dob't read the news
http://www.bbc.co.uk/news/business-16963116

RenovationMan

Le_Chuck wrote: »

I take you dob't read the news
http://www.bbc.co.uk/news/business-16963116

I take it you missed this in your own link:

"It added that without another stimulus from QE, inflation was likely to fall from its current 4.2% to below its 2% target, as rising unemployment and falling import and energy prices fell away, and as the VAT increase from 17.5% to 20% last January also dropped from the annual comparison."

Le_Chuck

RenovationMan wrote: »

I take it you missed this in your own link:

"It added that without another stimulus from QE, inflation was likely to fall from its current 4.2% to below its 2% target, as rising unemployment and falling import and energy prices fell away, and as the VAT increase from 17.5% to 20% last January also dropped from the annual comparison."

nope that proves my point

Generali

ILW wrote: »

I still cannot figure out why a little deflation is such a terrible thing. Surely this whole site is about consumers trying to drive prices down.

There isn't anything wrong with deflation. The problem is that people associate it with 1930s America and 1990s Japan.

The UK had 'good deflation' in the 1870s caused by importing the US system of manufacturing so goods cost less to make. Later in the 1870s the UK experienced 'bad deflation' caused by a banking crisis.

IMHO, the UK should have allowed 'good deflation' in the early part of this century caused by India and China joining the Capitalist club and the Internet driving down the cost of information. Instead interest rates were kept low leading to a credit bubble and the current FUBAR situation.

ruggedtoast

I lived in Japan for a while around 04 - 05 and they were some way into a long cycle of deflation. In general people delayed buying big ticket things as they assumed that if they left if longer they would get cheaper.

Few bank accounts paid more than a fraction of a per cent interest and most people could barely remember the last time they had a payrise. Nevertheless their savings and their salary was in an appreciating currency so their standard of living (if you had a job) was rising; it just didnt feel like it to a lot of people.

The real negative side of deflation as far as the system goes, is that it stops people borrowing, which reduces the available money supply from within the system. Fortunately for Japan they are an export economy whereas we aren't.

Every now and again the BOJ has to do some weird contortionism to keep things going, whereby it dumps Yen and buys dollars . This weakens the Yen and strengthens the dollar which makes Americans "richer" so that they can buy Japanese products. Unfortunately they buy them in dollars which the Japanese then have to convert back to yen.

It also p's off the Americans who then find it harder to export their own products.

Anyway, we aren't in that game and the only chance we have of paying off our debts is by inflating them away; it would be nice if wage inflation was a factor in Cameron's strategy as well but it doesnt seem to be.

Does anyone remember when £30k a year was a good wage? It wasn't that long ago when petrol cost £1 a litre and a pint of beer was £2.50, let alone the cost of rent and housing) . We have all the downsides of a Japan style economy with none of the upsides.