Ze, 'Ow you say, Deflation Watch. Eurozone edition

Graham_Devon

Kennyboy66 wrote: »

Why not offer to take a pay cut then, surely the price of labour falling would be good ? No ?.

Well, I have, in effect, just like millions of other have, taking no rise at all, or rises far below inflation.

I can see the issues, but with Generali's point, bar the wages, all other costs would also be falling...so if the person makes widgets and his widgets fall in price due to deflation, so does the cost (bar wages) of all the materials, power etc to make the widgets.

The general public in normal day to day jobs have had pay cuts in real terms for a good few years now. Indeed, many have taken REAL pay cuts.

I'm not currently seeing many downsides of inflation for your everyday average joe.

If the downside is for those with debts reliant on inflation to pay them back - well, I understand that, but again, why should your average joe being paying the price of the indebted reliant on inflation?

The prospect of falling wages in a deflationary environment is a very real prospect. We are accepting little or no pay rises in an inflationary environment, so I see little reason why we would accept falling wages after a period of deflation (dependant upon what deflates of course).

Sounds very much like another house of cards created by massive debt? Deflation, inflation, it's all bad for those with debts, and the economies seem unable to cater for these debts, with every result, bar more debt, being bad.

ILW

Allowing deflation may focus minds on building businesses and and economy on increased productivity and innovation rather than increased debt.

purch

ILW wrote: »

Allowing deflation may focus minds on building businesses and and economy on increased productivity and innovation rather than increased debt.

Deflation is not so easy to control as Inflation. Once it starts it becomes much harder to stop the cycle than Inflation.

Generali

purch wrote: »

Deflation is not so easy to control as Inflation. Once it starts it becomes much harder to stop the cycle than Inflation.

I think it's easy to forget how bad inflation was in the late 70s. Ask Volker and Thatcher/Howe (or indeed manufacturing workers) how easy it was to drive inflation out of the economy.

ILW

Generali wrote: »

I think it's easy to forget how bad inflation was in the late 70s. Ask Volker and Thatcher/Howe (or indeed manufacturing workers) how easy it was to drive inflation out of the economy.

Or pre war Germany.
Explains Germany's aversion to inflation (which appears to have served them well economically)

Thrugelmir

Seems to be a broad concensus developing that debt levels in Europe are unsustainable. Spain, Greece, Ireland will never reach a position of repaying their debts. So write off's are the way forward. Quite how this can be managed no one has figured out yet. Perhaps nationalisation of the entire European banking system is one option. With shareholders and bondholders taking the full brunt of the cost.

michaels

Thrugelmir wrote: »

Seems to be a broad concensus developing that debt levels in Europe are unsustainable. Spain, Greece, Ireland will never reach a position of repaying their debts. So write off's are the way forward. Quite how this can be managed no one has figured out yet. Perhaps nationalisation of the entire European banking system is one option. With shareholders and bondholders taking the full brunt of the cost.

But doesn't Cyprus show that often wiping out bondholders and shareholders is no where near enough and that depositors and/or taxpayers (although we know that in general they can not afford it) are going to have to lose out too.

Thrugelmir

michaels wrote: »

But doesn't Cyprus show that often wiping out bondholders and shareholders is no where near enough and that depositors and/or taxpayers (although we know that in general they can not afford it) are going to have to lose out too.

Very true. Debate I listened to didn't have the answers. As the impact of defaults will spread far and wide. Requiring an adjustment in peoples expectations ie. standard of living, pensions, welfare benefits.

One theme that came through. Was that as at the times have become difficult. People are increasingly becoming entreprenurial again. Survival instinct. So despite the bad news there is signs of change at grass roots level.

michaels

Using the UK as an xample the extent to which we are 'living beyond our means' probably apporxiamtely euqates to the trade deficit so a couple of percent of GDP. However the dislocaton resulting from a govt/banking default would knock GDP by a lot more than this and thus result in a permanent loss of output so it doesn't feel like the right way forward.

Look at 'poster-child' Iceland and the total amount they have produced/consumed over the last 5 years, it is far below what they would have done if they had stagnated at the pre-crash levels over the same period.

antrobus

tomterm8 wrote: »

No, that's not true. Ireland, latvia, japan and many more have been in deflation in recent times or are in deflation now.

What's not true? I never said that deflation hadn't happened at any other time anywhere else in the world.

tomterm8 wrote: »

Japan's GDP is still nowhere near where it was twenty years after the start of its deflationary depression.

Another argument entirely.

I think you need to expand your knowledge of economics. Try the following article for starters - http://eh.net/encyclopedia/article/siklos.deflation