UK Heading For Deflation?

purch

Generali wrote: »

fixed income products

You may need to think of new name for those :eek:

Thrugelmir

Generali wrote: »

The problem is that business debts don't fall along with prices so they end up going bust and not employing you and me.

With low interest rates. It's cheap for Companies to borrow long term money. So cheap in fact some are borrowing money and buying back equity. As it's cheaper to service the debt than pay a dividend to shareholders.

The world has gone upside down. Going to take a long long time for normality to return.

modsandmockers

topcat007 wrote: »

You have blown my mind no idea this could happen!

Now the difficult decision if to take mortgage now or wait!!:rotfl:

Thrugelmir wrote: »

The world has gone upside down. Going to take a long long time for normality to return.

It's yet another ocean of uncharted waters with fickle headwinds.

Normality doesn't come and go, it just changes.

The power of changing interest rates seems to have been sidelined since 2007/8, and maybe a more useful tool would be to play games with VAT rates - natural price falls could easily be countered by artificial increases in taxation, and, as a bonus, we would all potentially benefit from the higher tax take.

Generali

globalds wrote: »

Isn't that more a problem with the business model ?

Like saving to buy a sofa or using credit ..

Any business has a choice about borrowing and it's ability to pay it's debts.

I'm all in favour of creative destruction but the entire system of trade is, by necessity, based on credit. If I buy a load of potatoes from you I have to finance them in some way before I sell them. Similarly you have to finance the seed, fertiliser, wages etc of the potatoes as they grow.

I struggle to see how you do that without debt. Maybe the debt can come from somewhere other than a bank but the debt is fundamental to any system where you don't simlly make everything yourself.

jayson043

Let's see what pay rises we get in April, if they start falling the deflation spiral will begin.

Generali

jayson043 wrote: »

Let's see what pay rises we get in April, if they start falling the deflation spiral will begin.

Not true.

The pivotal point is in about a year or two when oil price falls drop out of the inflation figures. For just the same reason that one off increases in the price of commodities wasn't inflation, one off decreases in commodity prices isn't deflation.

jayson043

Generali wrote: »

Not true.

The pivotal point is in about a year or two when oil price falls drop out of the inflation figures. For just the same reason that one off increases in the price of commodities wasn't inflation, one off decreases in commodity prices isn't deflation.

How can a proposal not be true? If pay settlement start to fall why would that not lead to lower increases or declines in aggregate demand?

CLAPTON

jayson043 wrote: »

Let's see what pay rises we get in April, if they start falling the deflation spiral will begin.

difficult to correlate a rise in pay, whether small or large, with a deflation spiral;

what does that mean?

globalds

Generali wrote: »

I'm all in favour of creative destruction but the entire system of trade is, by necessity, based on credit. If I buy a load of potatoes from you I have to finance them in some way before I sell them. Similarly you have to finance the seed, fertiliser, wages etc of the potatoes as they grow.

I struggle to see how you do that without debt. Maybe the debt can come from somewhere other than a bank but the debt is fundamental to any system where you don't simlly make everything yourself.

Yeah but that is the whole nature of the market ..It is like an design tester, something will work Just the conditions determine which one.
Either the farmer who put some stuff away for a rainy day will kick himself for having saved when lending to grow his next years crops was so cheap he could have his stuff for next to nothing ...Or He will be much richer as he will be the only guy at the market come autumn as his competitors can't afford the new real cost of what they borrowed.

It is not a case of no debt ...It is maybe that the true cost of debt has changed.

Generali

globalds wrote: »

It is not a case of no debt ...It is maybe that the true cost of debt has changed.

Maybe. Deflation does effectively increase your interest rate just you pay most of the extra cost at the end as the principle sun is effectively higher.

If we get deflation rather than a short period of negative inflation/disinflation then I wouldn't be surprised to see QE being used to shave a bit off the principle sum outstanding of debts. It's the obvious solution for me at least.