How panic-y have you got ?

Glen_Clark

grey_gym_sock wrote: »

what causes inflation is when the public and private sectors between them attempt to buy more than the total capacity of the economy can produce.

True and thats what we have got - a Current Account Deficit (the most important statistic and the one they don't like to mention) of over 5% :eek:
But because house prices are being driven up by foreign dirty money launderers buying up London properties (because they have seen the Government will do all in its power to inflate house prices despite what they say) people think the economy has recovered. They even talk as though we can afford to maintain the highest military spending in Europe and further increase our stockpile of nuclear weapons.
Yes QE is being counted as debt, but what is not being counted is the massive PFI commitment, and pensions liabilities :eek:
Looking at the size of the National Debt and off balance sheet liabilities makes me believe the Government will hold down interest rates as long as possible, and try to default through inflation. Although external events, like commodity prices, have held down non property inflation temporarily. So I have most of my savings in diversified foreign equities.

Thrugelmir

grey_gym_sock wrote: »

absolutely.



i don't think the national debt has much to do with how much inflation we should expect.

despite all the bluster about the national debt being at crisis levels, i don't think there's any problem with it. (that's just osborne's excuse for cutting public services, which he wants to do anyway.)

the national debt to GDP ratio is not at all high by historical standards. and the official figure is overstating the debt because they are still counting the £375bn of gilts which the bank of england bought back in the QE programme (you can't owe money to yourself!).

the effect of QE was that there is an extra £375bn of bank reserves (i.e. cash) in place of the £375bn of gilts. a lot of people thought that creating that extra cash would cause inflation, but it's not happening!

basically, neither the outstanding national debt nor outstanding amount of cash seem to cause inflation. what causes inflation is when the public and private sectors between them attempt to buy more than the total capacity of the economy can produce.

we don't have much inflation now because there is plenty of unused capacity: there is still high unemployment + under-employment (i.e. part-time workers who want to work full time or for more hours; and many ppl who've become self-employed only because they can't find anything better, or because the benefits system is pushing them that way, and who aren't actually doing much work).

if too much demand leads to high inflation, and too little leads to high under-employment, then i think we're clearly on the "too little" side.

Suggest you read " How an Economy Grows and Why It Crashes: Two Tales of the Economy" by Schiff and Schiff. A very readable book which explains clearly post war economic policy. Without using jargon or facts and figures.

"This straightforward story of fish, nets, saving, and lending exposes the gaping holes that lie hidden in our global economic conversation. With wit and humor, the Schiffs explain the roots of economic growth, the importance of trade, savings, and risk, the source of inflation, the effects of interest rates and government stimulus, the destructive nature of consumer credit, and many other economic principles that are so frequently discussed and so poorly understood."

grey_gym_sock

Glen_Clark wrote: »

grey_gym_sock wrote: »

what causes inflation is when the public and private sectors between them attempt to buy more than the total capacity of the economy can produce.

True and thats what we have got - a Current Account Deficit (the most important statistic and the one they don't like to mention) of over 5% :eek:

the current account deficit is a bad sign - mainly, a sign of a failure to invest in the UK manufacturing sector.

however, as long as the rest of the world is prepared to let us import more than we export, the UK can consume more than it is producing without that leading to high inflation. a more accurate statement (than my statement quoted above) would be that you get high inflation when total demand - meaning: public sector demand + private sector demand + net exports - is greater than the capacity of the UK economy. and while we're running a current account deficit, net exports is a negative figure.

also, whilst we are consuming more than we produce, are we in fact consuming more than the productive capacity of the UK economy? that's not so clear, given the large unused capacity in the UK economy. we are, to a large extent, running a current account deficit while many ppl in the UK remain idle, when we could be investing in UK manufacturing, which would reduce both the current account deficit and under-employment in the UK.

so, this is a very important issue, but not much to do with the threat of high inflation.

But because house prices are being driven up by foreign dirty money launderers buying up London properties (because they have seen the Government will do all in its power to inflate house prices despite what they say) people think the economy has recovered. They even talk as though we can afford to maintain the highest military spending in Europe and further increase our stockpile of nuclear weapons.
Yes QE is being counted as debt, but what is not being counted is the massive PFI commitment, and pensions liabilities :eek:

the capital spending element of PFI should be added back in to national debt. i believe that's about £70bn.

ppl sometimes quote higher figures which include the service element of PFI - but that is future current spending, spread over decades. it's not debt, and we don't pay interest on it.

(both elements of PFI are a huge waste of money, and they should be bought out. but that's another issue.)

pensions are just future current spending. it's not debt, and there's no interest paid on it. pensions will turn out to cost more than was once expected, due to greater life expectancy. that needs to lead to changes in spending priorities, but then it is doing (e.g. raising the state pension age). so there may be difficult decisions to be made (that dreadful phrase, which politicians use when they're doing something that will hurt ppl other than themselves or their friends), but it doesn't turn pension liabilities into debt.

so my conclusion is that the national debt is the official figure minus £375bn for QE plus £70bn for PFI. which makes debt-to-GDP 60-something % - not very high historically.

Looking at the size of the National Debt and off balance sheet liabilities makes me believe the Government will hold down interest rates as long as possible, and try to default through inflation. Although external events, like commodity prices, have held down non property inflation temporarily.

i agree that that sort of thing can happen. i just don't think we're anywhere near it now. partly because i don't think government debt is very high now. but also because there first need to be inflationary pressures, and there aren't - we're on the verge of deflation.

if you exclude the effects of commodity prices - which is in some ways more informative, given their volatility, and because they have little to do with what's going on in the UK - then there's still minimal inflation. and it's clear why: the balance of power between workers and employers is firmly on the side of employers. there is on-going high under-employment, and a larger pool of workers who are often in work, but never in work that isn't very low-paid and insecure.

falling real wages lead to weak household spending. at the same time, public spending is being held down (vicious cuts in some areas; in other areas, they can't avoid spending more; overall, total spending may be edging up, but not fast enough). exports are unlikely to boom while most other parts of the world economy are in trouble, as they are (and the investment in manufacturing, which isn't happening in the UK, would take longer to bear fruit). and given that all other sources of demand (viz. households, government, exports) are weak, business confidence is naturally low, so business investment is also low. overall, there's weak demand from all sectors, therefore low inflation.

property inflation is a different matter, as you say.

So I have most of my savings in diversified foreign equities.

well, that's fine, so long as you can stick with your investments for the long term.

i am 50% or so in equities (a lot of which - perhaps too much - is in the UK, but it is mainly in relatively defensive UK companies - so that's a bet on the UK economy ticking along, not on it growing strongly).

however, i'm not worried about holding 40-odd% in sterling (in bonds + cash).

grey_gym_sock

Thrugelmir wrote: »

Suggest you read " How an Economy Grows and Why It Crashes: Two Tales of the Economy" by Schiff and Schiff. A very readable book which explains clearly post war economic policy. Without using jargon or facts and figures.

it would be more constructive if you contributed to the discussion in this thread, instead of just citing a whole book. presumably you think something's wrong or missing from the discussion here, but you haven't explained what.

Glen_Clark

grey_gym_sock wrote: »

the current account deficit is a bad sign - mainly, a sign of a failure to invest in the UK manufacturing sector.

however, as long as the rest of the world is prepared to let us import more than we export,

As long as we continue to import more than we export the National Debt will keep growing, UK credit rating will keep falling, which won't end well....

Failure to invest in the UK manufacturing sector is inevitable when Government policy (dominated by landlords) makes buy to let of existing property more profitable than manufacturing. High rent is a further tax on industry, as well as taxpayer funded housing benefit

Thrugelmir

grey_gym_sock wrote: »

it would be more constructive if you contributed to the discussion in this thread, instead of just citing a whole book. presumably you think something's wrong or missing from the discussion here, but you haven't explained what.

I merely made suggested a book that may broaden your outlook should you wish to read it. More constructive than simply being dismissive. However being non political it may not be to your taste.

george4064

FTSE 100 drops below 6,000 mark, first time since February 2016. Whilst German Bund yield pushes into negative territory.

Personally I feel the worst has just come, so its too late to try anything!

Shmo

The US market failing to set a new high will probably be seen as a bad sign for future returns and with it just sitting below the record there's a long way it could fall in which event it would certainly take global markets down with it along the way. It feels like the stage has been set for big dip but without a catalyst to set it off then I guess things just carry on as they have been.

As a dividend investor it's all fairly inconsequential. There's plenty of cheap yield around on the UK markets right now. For instance, Marks & Spencer yielded 7% this year on current price and they don't appear to be hurting for cash right now, and Shell is about the same as it has yet to announce a dividend cut.

So I feel that there's definitely worse to come but I'd rather be invested and reaping the dividends rather than sitting on cash and waiting for the sky to fall.

bigfreddiel

I'm piling cash into the market right now, and more as BREXIT comes nearer. Basically the sales have started, and everything is getting cheaper and cheaper, great innit!

Pincher

Sold a lot of Royal Dutch Shell B at £18.09, and made over a years worth of dividend in capital gains. If I buy back within 30 days, the anti bed and breakfast matching rules will mean the capital gains is wiped clean. It's so obliging, and went down to £17.34 already.

Ideally, I want it to go down to £15, in the next 25 days, so I an snap them up again.

So, let's sink the western economy, just so I can buy RDSB cheap.

Dive sucker, dive!