Euro crisis faces another stage?

Generali

Graham_Devon wrote: »

Same can be said for inflation outstripping wages, and people cutting back and recessions in general.

Same can also be said, and has been said by Carney last week, warning that as people get themselves into ever more debt to buy a house, they have less to spend in the economy.

It's not something unique to deflation.

See no one is stating what THEY would refrain from buying should deflation take hold. Easy to say people will refrain from buying stuff, but harder to come up with what that "stuff" is due to it possibly being cheaper at a later point.

What do you want, a list? I'm putting you on ignore, discussing anything with you is pointless.

Bantex_2

CLAPTON wrote: »

The issue seems to be to being discussed the 'wrong' way round.

The issues isn't the consequences of deflation as such but the causes and then the consequences.

In the EU the primary cause of deflation isn't cheap energy or a flood of cheap goods from the far east (as per 2000s) but the lack of demand in the EU.

That lack of demand for goods and services means there is no incentive for producers to invest or take on more staff; indeed the opposite happens; to reduce the amount of staff, reduce hours and reduce hourly rates of pay.

Clearly those in secure jobs who maintain their income are better off.
However those with insecure or no jobs will become increasingly worse off and demand will fall further.

Unemployment will increase and GDP will fall further.

For people with declining incomes then their debt burden will increase.

At a country level, declining GDP will increase the tax burden and will increased the debt repayment burden.

IT has (for example) dropped massively in price over the last decade or so and this has caused a massive increase in demand. Sort of contradicts things a bit.

wotsthat

Graham_Devon wrote: »

Granted. If and might.

But what do you assume people will defer buying?

Gas? Food? Electric? Petrol? Medicines?

Maybe a fridge? But if your fridge is broke, what you gonna do? What a a couple of years for the deflation to feed through and save you £10 in the meantime making a trip to the shop everyday to buy fresh food?

You gonna put off the car repairs and do without the car as it might be cheaper to repair it next year?

You gonna defer the holiday? To when? You only have four to six weeks holiday a year, and if you have kids, a narrow window to take the holidays in, so what do you plan to do?

Maybe people will defer buying a computer. Flaw in that is that they would continually defer purchases as computers are continually falling in price, as is all technology.

Defer the kids school uniform? Defer the school trip? Defer the swimming lessons for the kids? They gonna walk around in rags as next year clothes may be a bit cheaper?

So what do you believe people will refrain from buying that they wouldn't currently refrain from buying today?

The reverse of the situation you describe is that people are jumping in today to buy stuff due to it being more expensive next year..... so I guess were all stockpiling?

In a true deflationary environment where there's downwards pressure on wages as well as goods people will wish too and, importantly, have to defer spending - even on what may seem to be essentials.

The reverse isn't a stockpiling effect but inflation ensures your money will be worth less tomorrow than today so why put off a purchase - you know it's only going to get more expensive.

Graham_Devon

wotsthat wrote: »

In a true deflationary environment where there's downwards pressure on wages as well as goods people will wish too and, importantly, have to defer spending - even on what may seem to be essentials.

Agreed.

I'm not sure we'll see downward pressure on wages though, at least not for people already earning a set wage. Certainly possible for new jobs to be priced at alower rate - but we already see that happening today. Too many political motivations to let people with an income of say 20k see wages cut.

It's a bit like the Greece issue, no matter what the fundamentals are, we'll bail them out time and time again as politics are involved.

CLAPTON

Bantex wrote: »

IT has (for example) dropped massively in price over the last decade or so and this has caused a massive increase in demand. Sort of contradicts things a bit.

I'm not sure what you mean


a reduction in the price of imported goods and services by and large makes us richer as we can afford to buy more for the same money.


so yes a decrease in price (all other things being equal) will lead to an increase in demand.


however, deflation doesn't mean the reduction in price of a few goods; it means that the overall country wide prices for good and services are reduced: this reduction has been caused by the lack of demand as discussed in my last post.

Thrugelmir

Graham_Devon wrote: »

It's a bit like the Greece issue, no matter what the fundamentals are, we'll bail them out time and time again as politics are involved.

Ultimately Greece will find it's own level again. There's no endless money bucket. Like the UK and the NHS. Eventually choices will have to be made.

michaels

Hmm - why is there such a lack of demand in Europe - perhaps because the Germans who some admire so much turn out to have the most unequal economy in Europe - something we should all aspire to?

http://www.bbc.co.uk/news/magazine-28472884

The figures show that private wealth in Germany is more unevenly distributed than in any other country in the eurozone. While the richest 1% have personal wealth of just short of one million euros on average, a quarter of adult Germans have no wealth or even owe money.

My theory is that the 2008 crisis like the 30s had as its root cause an increased inequality in income and wealth leading to the asset rich underpricing risk in search or return and the income poor taking advantage to borrow to consume....

Thrugelmir

michaels wrote: »

My theory is that the 2008 crisis like the 30s had as its root cause an increased inequality in income and wealth leading to the asset rich underpricing risk in search or return and the income poor taking advantage to borrow to consume....

Don't have the figures to hand, but the growth in global credit compared to global trade makes interesting reading. More money chasing less investable assets.

Estimate is that banks generated £50bn of profit from selling PPI. Taking Lloyds latest provision into account £24bn will now be refunded. And the music hasn't stopped yet either......

padington

michaels wrote: »

My theory is that the 2008 crisis like the 30s had as its root cause an increased inequality in income and wealth leading to the asset rich underpricing risk in search or return and the income poor taking advantage to borrow to consume....

Bad accounting by accountants and good accounting drunks.

TickersPlaysPop

What will happen to interest rates if this deflation happens?