Deflation

CLAPTON

michaels wrote: »

This is where we come on to what I and Janet Yellen have been saying, the increasing inequality of incomes is resulting in a lot of income ending up with people who simply can not spend it all and thus end up saving a lot.

All this saving drives down interest rates but is not triggering investment because there is insufficient demand and thus the return on investment is even less than the low interest rate (and now we are into the dangers of deflation, interest rates can not be negative)....this same insufficient demand is because of the unequal distribution of income.

Prior to the crash this issue was circumvented by those on lower incomes borowing to consume rather than invest - all seemed to work, the excess savers were earning nice returns and those on low incomes were maintaining a lifestyle by running up debts

But of course this is not a model where exponential growth can continue indefinitely, eventually the 'borrow to consume' group can no longer afford the interest on their debts and the whole scheme collapses (see GFC)

So now post GFC borrowing to consume (except by those govts with debt less than 100% of gdp) is ruled out due to prudential regulation/self interest and thus interest rates are low but this is still failign to discourage saving or boost investment, the only rate low enough would be negative...and we are back to the assymetry that rates can not go negative and hence the danger of a deflation trap.

so that leaves


- massive increase in taxation on the rich : that is easy 60% income tax, mansion taxes , increase in capital gains


- massive increase in inflation to reduce the 'real' level of savings of the rich: not so easy unless the government borrows/ prints lots more money

UserJong_2

The Euro is the weakest link in this Global System. They have one currency and not a unified government to run things. This coming Sunday will see the results of the ECB’s stress tests.Eagerly awaited by some, feared by othersBank Of England’s Weale talked of rate rises being delayed but at the expense of sharper rate rises, “when they come”! Rumors of Pimco troubles. Dow sliding lower. Gold bouncing again off that support.

Generali

UserJong wrote: »

The Euro is the weakest link in this Global System. They have one currency and not a unified government to run things. This coming Sunday will see the results of the ECB’s stress tests.Eagerly awaited by some, feared by othersBank Of England’s Weale talked of rate rises being delayed but at the expense of sharper rate rises, “when they come”! Rumors of Pimco troubles. Dow sliding lower. Gold bouncing again off that support.

PIMCO is just an asset manager, that people are moving their savings to another asset manager is immaterial to the wider economy.

Gold had tracked straight down in price since the 8th.

You should check your sources before you copy and paste.

Crashy_Time

UserJong wrote: »

ch4 news last night openly talking bout the D word.

they said falling prices are a good thing I tend to agree as long as you dont have mortgage or any debt.

Many on here won`t want to talk about deflation too much in that case.

UserJong_2

Crashy_Time wrote: »

Many on here won`t want to talk about deflation too much in that case.

Very true, many on here hold large mortgages and debt so its understandable they are worried about deflation.

Crashy_Time

UserJong wrote: »

Very true, many on here hold large mortgages and debt so its understandable they are worried about deflation.

The more worried they get the nastier their little playground attacks get. This place is definitely the HPI bunker of last resort.

ukcarper

Crashy_Time wrote: »

The more worried they get the nastier their little playground attacks get. This place is definitely the HPI bunker of last resort.

You really don't have an idea do you.

Crashy_Time

ukcarper wrote: »

You really don't have an idea do you.

:money:
And you do?

ukcarper

Crashy_Time wrote: »

:money:
And you do?

Well it depends what you are talking about if you mean I don't know where house prices will be this year next year or the year after I don't. The difference between me and you is I know I don't know while you think you do know.

Crashy_Time

ukcarper wrote: »

Well it depends what you are talking about if you mean I don't know where house prices will be this year next year or the year after I don't. The difference between me and you is I know I don't know while you think you do know.

All I claim to know is that the bankers exploited the money system to create the sentiment to borrow very large sums (from them) on property. It wasn`t sustainable and the banks had to be bailed out. It still isn`t sustainable, and property prices (based on the availability of credit) are in the process of correcting. We can argue about the detail, but there is very little argument that can be put forward that says the UK property market is healthy?