Deflation

NorthFin

michaels wrote: »

Don't think so - in as much as the fall in food and fuel prices is as a result in a change in global prices so the terms have trade have altered in favour of the UK, given that we are a net importer of both, so actually real incomes and thus the ability to service debts are improving.

Real income may be improving in a deflationary situation, because units of currency are going up against anything else you measure them against. But this means the units of currency in mortgages are also going up.

If there was the big inflation people were talking about then yes being in debt would be great, unfortunately for mortgage holders the opposite is now the case.

Graham_Devon

NorthFin wrote: »

Just reading in the paper how fuel and food prices are coming down in this deflationary spiral.

What people forget is how it is going to hurt all those in debt as the value of their debt is going up against everything else, including the UK's national debt.

In terms of household budgets, this is only the case if wages decline.

It could be said wages have indeed declined, but falling food and fuel prices, even with static wages should enable people to divert money they would have spent on fuel into paying down debts.

Whether they do or not is another matter.

purch

This drop in Oil price could quite easily be the kick in the pants the World economy needs to get growth started.

Generali

NorthFin wrote: »

Real income may be improving in a deflationary situation, because units of currency are going up against anything else you measure them against. But this means the units of currency in mortgages are also going up.

If there was the big inflation people were talking about then yes being in debt would be great, unfortunately for mortgage holders the opposite is now the case.

Debt is measured in nominal terms: you promise to repay an amount of money not a value.

If real incomes rise then there is more cash available to service debts. The problems only occur if there is a real deflation as happened in the latter part of the 1870s and the 1930s where incomes fell along with prices via the mechanism of unemployment. That leaves less cash to service debts and other fixed liabilities such as rent or taxes. That's caused by an excess of supply however, not by the POO falling.

Generali

purch wrote: »

This drop in Oil price could quite easily be the kick in the pants the World economy needs to get growth started.

I honestly believe that it is.

The gain to consumers in the US alone, a quarter of the world's economy lest we forget, is massive. A trillion bucks by 2020 if prices stay about where they are according to one very excitable writer I read.

The-Joker

In a deflation savers win debtors lose.

Inflation debtors win and savers lose.

We are in deflation now and it looks to be getting worse.

Pay down your debts and save cash ready for more deflation in 2015

Generali

The-Joker wrote: »

In a deflation savers win debtors lose.

Inflation debtors win and savers lose.

We are in deflation now and it looks to be getting worse.

Pay down your debts and save cash ready for more deflation in 2015

A one off repricing of oil isn't deflation even if you really wish it is.

You guy (s) really are dumb.

The-Joker

You can't have it both ways, some were shouting big inflation is coming so take on debt. Now we are in deflation people are saying no its just food and fuel in deflation, its not real deflation.

OK lets see what next year brings. I predict 2015 will see even more deflation and savers building up cash at 5% will benefit (like me) Debtors who have big mortgages will not notice (maybe) but the value of their debt is going up measured again real things that are going down in the deflation.

Lets hope debtors really so stupid that nominal numbers are all they care about.

purch

The-Joker wrote: »

some were shouting big inflation is coming

Yes you were.

So we will take your predictions for what they are worth

The-Joker

NorthFin wrote: »

If comodities including oil stay low or go even lower then we are looking more like in a deflationary spiral.

Inflation means debtors win and savers lose.

At the moment we are in deflation where debtors lose and savers win. 2015 will see more deflation as more debt is written off or bailed out than is being created. Wait for QE7 or whatever we are unto now, but they need to create a lot of currency to match what is being bailed out or defaulted on.