Exporters must do more

HAMISH_MCTAVISH

Graham_Devon wrote: »

You can't force people to spend. ..

Sure you can.

All you have to do is create an environment where people know that the cost of something will be more tomorrow than it is today, and make saving hoarding money a losing proposition through increasingly low returns.

Merv has successfully prevented a return to the disastrously high savings rates of the 90's through such monetary policy.

But I'll be willing to bet Carney can do better....;)

Thrugelmir

Graham_Devon wrote: »

You can't force people to spend. Just as you can't force people to borrow.

The fact we have an economy that can't function if people save just 7% of their income says a lot about either the state of our economy, or the the foundations on which it is built.

Lack of pension provision will be the next crisis.

moneyinmypocket

Are whole model/way of life is geared towards consuming - when that suddenly stops it causes problems, we have to get back to spending as when someone spends someone else benefits, eventually we all benifit.

Graham_Devon

HAMISH_MCTAVISH wrote: »

Sure you can.

All you have to do is create an environment where people know that the cost of something will be more tomorrow than it is today, and make saving hoarding money a losing proposition through increasingly low returns.

Merv has successfully prevented a return to the disastrously high savings rates of the 90's through such monetary policy.

But I'll be willing to bet Carney can do better....;)

OK. So let's take such a scenario, and let's suggest families cut down their saving to say 2% of their income instead (just as an example).

How do they pay for the next unknown item of expenditure? Things such as car repairs?

And how does this fit in with saving for pensions, something you often talk about?

And as a secondary point, how does this enhance the families lives?

HAMISH_MCTAVISH

Graham_Devon wrote: »

OK. So let's take such a scenario, and let's suggest families cut down their saving to say 2% of their income instead (just as an example).

How do they pay for the next unknown item of expenditure? Things such as car repairs?

And how does this fit in with saving for pensions, something you often talk about?

And as a secondary point, how does this enhance the families lives?

Drop the savings rate from the current 8% to more like 4%, and the economy immediately goes into growth.

Which has a number of positive effects for society....

-Businesses regain their confidence to invest.

-Jobs are created and unemployment falls.

-Wages start to rise

-The welfare bill is reduced, and tax revenues increase

-State borrowing falls as a result

-The tax burden can then reduce

Leading to more people having more money to either save or spend as they see fit.

It's the virtuous cycle of economic growth, Graham, and it all starts with forcing people to spend.

Graham_Devon

Is there any evidence of any of this though, as it appears not to make any sense at all.... and certainly not long term.

All evidence seems to point to the obvious....that is, as people feel threatened, they retreat more, spend less, and save more (what we are seeing now).

Your idea, I believe, is to add more stimulus (maybe QE or other intervention) which is inflationary, and let inflation go.

This will simply mean that anyone on a fixed income see's the price of their staple goods go up. Therefore they have to spend more of their income on the same goods, meaning cutting back on other goods, which means fewer goods are sold.

It's also most likley (as evidence suggests) to increase saving, as they retreat further and brace themselves for times ahead.

I really don't see how your scenario of "stripping people to the bone" and letting staple prices increase would increase confidence amongst the general public and get them spending more on stuff they don't neccesarily need.

Were going through an adjustment at the moment. People are cutting back on none essentials to make way for the essentials. What's more, we appear to be buying more premium type goods, which last a long longer, which is fantastic for the environment and also smaller producers.

wotsthat

Graham_Devon wrote: »

OK. So let's take such a scenario, and let's suggest families cut down their saving to say 2% of their income instead (just as an example).

How do they pay for the next unknown item of expenditure? Things such as car repairs?

And how does this fit in with saving for pensions, something you often talk about?

And as a secondary point, how does this enhance the families lives?

That's taking the argument to the extreme. It's not being suggested that, for the good of the economy, everyone spends all their savings leaving them at risk if an unexpected expenditure arises. Nor is it being suggested that money being saved for retirement should be spent instead.

When people are nervous about the economy, like now, they tend to save more. It's an interesting paradox that despite reductions in household incomes saving rates increase during a recession i.e. they are saving, not just for the next car repair, but because they are fearful. If the savings attributable to the 'fear factor' could be unlocked they could be spent in the economy.

wotsthat

Graham_Devon wrote: »

Were going through an adjustment at the moment. People are cutting back on none essentials to make way for the essentials. What's more, we appear to be buying more premium type goods, which last a long longer, which is fantastic for the environment and also smaller producers.

Can you see the paradox?

We hear a lot on this forum about how skint everyone is. However, despite having to cut back on non-essentials just to make ends meet they're also buying more premium goods and saving more?

Skint people don't buy premium goods. They buy goods with a low price point which in the long run may prove to be more expensive i.e. 16 bog rolls are cheaper than 2 but it's not much help if you can't afford the outlay for 16.

We're in a fortunate position in the UK because essential spending is such a small percentage of income. This means that during a recession we can still afford products which represent longer term good value but may have a higher initial price point.

Graham_Devon

You've just claimed that I took the argument to the extreme, and have then come back with the suggestion that skint people can't buy premium goods.

Firstly, no where have I mentioned skint people. Secondly, my point was as a whole.

Premium products are increasing. British products appear to be making a little comeback. I'm sure the recent horsemeat issue will increase british based food sales.

These are classed as premium products. I never referenced skint people buying these. Rather as a whole, these products are seeing an increase in sales.

All my point started out with is that if inflation keeps increasing, people will be able to buy fewer products or make their money go as far.

I personally don't believe there is any evidence that if you punish people for saving, they will go out and spend more in the economy. I've asked for that evidence, yet none has been bought forward.

I believe that the more people feel threatened by inflation, the more they will reign in spending. At least theres outright evidence for that.

HAMISH_MCTAVISH

wotsthat wrote: »

Can you see the paradox?
.

Why is it always so difficult with this one?