How risk averse are you?

masonic

economic wrote: »

i wouldnt be so sure that goverments default through inflation - in weimer republic and zimbabwe yes however in major economies like US and UK (much like ancient Rome did) they will msot likely default by deflation. which is far far worse. they will raise taxes more and more and hard default on certain or all liabilities.

Inflation means that goods and services are getting more expensive in £, while deflation means that they are getting cheaper. Raising taxes would therefore tend to increase inflation.

Printing money involves expanding the money supply. It is creating money out of nothing, so existing money is worth less. That's inflationary.

Inflation means that borrowers end up paying back less in real terms than they borrowed. That's good for those with lots of debt, whereas deflation would mean that the real cost of those borrowings will be higher, which is bad for borrowers.

If the UK defaulted on its debt, then sterling would fall in value relative to other currencies. Interest rates would rise as borrowers demand higher returns for the higher risk they are taking buying sterling debt. That's inflationary.

So I don't see how deflation would help the Government with its debt problem.

economic

masonic wrote: »

Inflation means that goods and services are getting more expensive in £, while deflation means that they are getting cheaper. Raising taxes would therefore tend to increase inflation.

Printing money involves expanding the money supply. It is creating money out of nothing, so existing money is worth less. That's inflationary.

Inflation means that borrowers end up paying back less in real terms than they borrowed. That's good for those with lots of debt, whereas deflation would mean that the real cost of those borrowings will be higher, which is bad for borrowers.

If the UK defaulted on its debt, then sterling would fall in value relative to other currencies. Interest rates would rise as borrowers demand higher returns for the higher risk they are taking buying sterling debt. That's inflationary.

So I don't see how deflation would help the Government with its debt problem.

that is all nice and well in theory. however that does not mean goverments will print willy nilly. in fact governments/CBs printing money has shown it does not work as they cant control the demand side which is equally important. we are still in deflation - just look at rates expectations and even some governments thinking of negative rates. this is all highly deflationary.

masonic

economic wrote: »

that is all nice and well in theory. however that does not mean goverments will print willy nilly. in fact governments/CBs printing money has shown it does not work as they cant control the demad side which is equally important. we are still in deflation - just look at rates expectations and even some governments thinking of negative rates. this is all highly deflationary.

I agree we are in a deflationary environment. I disagree that it is helping the Governement with its debts. The Government needs inflation. However, the factors that have led to this low inflation environment are largely beyond its control.

economic

masonic wrote: »

I agree we are in a deflationary environment. I disagree that it is helping the Governement with its debts. The Government needs inflation. However, the factors that have led to this low inflation environment are largely beyond its control.

i never said deflation is better. inflation is favourable to governments highly indebted. however they can not control this. in fact they tend to make thigns worse.

we are in a deflationary cycle and its very very hard to see when we start a new inflation cycle. if you look at the trends you will see taxes are rising and whilst unemployment is at its lows now there will be a point when this will start to rise again. if we do get a reession, taxes will only rise further (making recession worse). and what will happen to government debt? it will rise much more. its a trap.

that is why i would be heavily weighted towards owning cash, well located property (in areas of limited supply) and blue chip stocks mainly US stocks.

Glen_Clark

Deflation means falling overall prices. When did Britain ever have that?
Many of Britain's stately homes were built for a few £thousand, which gives some idea how much inflation we have had. We just haven't had so much of it lately which has led some people into a false sense of security. They are in for a shock when history repeats itself again.
The people who lose most are those who can least afford to - those holding cash because they thought it was safe

Glen_Clark

The number of people counting their house as wealth, even though they can't sell it, shows the trick that is being played on them. The Government can manipulate the housing market to increase housing costs, and con people into thinking they are better off. They are even counting rising house prices as 'Growth' and 'Recovery' as though it is industrial output that can pay off their debts!!!!.

bowlhead99

BananaRepublic wrote: »

bowlhead99 wrote:

That sounds like you are confusing the total cost of providing a service with the take-home pay of employees and coming up with a sensationalist answer.

No. That is an absurd remark.

...And yet a bottom-of-the-pay-scale nurse or teacher might only get £60 a day gross pay. This doesn't mean it would be scandalous or shameful for someone to need to pay several hundred or several thousand pounds for an operation any more than it would be scandalous for someone to need to pay several hundred or several thousand pounds for tailored financial advice for the circumstances in which they find themselves with more money than they understand how best to spend.

That is an absurd comparison. Anything used in an operation costs a fortune because it must be certified for use in that scenario. If you don't know how much surgical grade items cost, do some research. Surgeons and anaesthetists cost a fortune because they went through a 6 year medical training, followed by years of apprenticeship to gain their skills and knowledge.

You said that the hourly rates for using an IFA were 'shameful' considering what nurses earn.

As you have explained, much as the total cost of providing a medical service should not be described as 'shameful' simply because it exceeds the hourly rates paid to nurses - because the cost is driven primarily by infrastructure, certification, compliance, training, experience of the senior people involved etc - the total cost of a financial advisory service should not be described as shameful simply for exceeding the payrate per hour of the receptionist and the practitioner who provides the advice.

Both nurses and IFA receptionists may find it expensive to afford keyhole surgery followed by ongoing physiotherapy, much as they may find it expensive to get tailored investment advice on a £50k inheritance followed by ongoing monitoring and servicing. One solution would be to publicly fund both products. As it is, the former is made available on the NHS so the customer doesn't directly have to pay its high price - and the latter isn't, so you do. That doesn't mean the price is 'shameful'.

chucknorris

Glen_Clark wrote: »

The number of people counting their house as wealth, even though they can't sell it, shows the trick that is being played on them. The Government can manipulate the housing market to increase housing costs, and con people into thinking they are better off. They are even counting rising house prices as 'Growth' and 'Recovery' as though it is industrial output that can pay off their debts!!!!.

But I can sell half of it (to my wife) she is as wealthy as I am, and we agreed that I would buy the house for us to live in (back in 2010), and she would let her mother live in her house until she passed away (which she did a couple of months ago).

Also I would add that when I bought my house I bought it for cash, are you really saying that I am no better off than someone who bought it with a 90% mortgage? Obviously not, so it is actually part of my wealth ( I accept that in some cases equity doesn't necessarily equate to wealth, but in some cases it certainly does).

grey_gym_sock

Glen_Clark wrote: »

Yes we are at a low in the commodity cycle, thats my point - prices will inevitably rise = inflation.

eventually, at some unspecified time in the future, there will be non-trivial positive commodity inflation. of course. but that's not saying much.

and that does seem a long way off. given that demand is persistently weak in developed countries generally (not just in the UK). and demand in emerging markets doesn't look that great, either.

Just because the official inflation statistics are still low does not mean the Government is not setting us up for another bout of high inflation in the future. Its the only way they can deal with their debts.

define high. 2% inflation would be plenty to keep the UK government's debt falling in real terms.

IMHO, the deficit that we should worry about is the trade deficit, not government debt. this is related to the government's approach of pumping up house prices, instead of backing manufacturing (which i agree is a huge blunder). in so far as the trade deficit is funded by foreigners buying up london property, pricing locals out of the market, it has an obvious harmful effect. in so far as it's funded by foreigners buying gilts, paying 1% or 2%, in a currency they don't control, it's much less harmful. but in either form, there may be a limit to how long it can continue.

if and when foreigners don't want to fund such a large UK trade deficit any more, we could easily end up with sterling falling against other currencies. which would give us some inflation in imported goods - though that's as a 1-off, not year after year. it would definitely be helpful to be holding a good chunk of overseas equities if that happens. (though holding overseas equities is not just a specific bet on that scenario: it's generally a good way to diversify your risks.)

so that's 1 possible source of inflation. but domestic demand in the UK remains weak (and would weaken further in the trade deficit crisis / sterling devaluation scenario). and (as i said) global commodity inflation seems to be a good way in the future. so i'm struggling to see where much inflation is coming from in the near to mid future.

can house price inflation lead to rises in other prices? well, it is probably leading to rises in rents now, in that people who can't afford to buy have no choice but to pay whatever rents are charged. but i don't see it leading to other price rises in the current environment.

that can happen in some circumstances: rising house prices can make people feel richer, so they spend more, and if that makes total demand high enough, that can lead to higher prices. but currently total demand isn't high enough for a small boost in demand to give us inflation. and people whose real wages are falling tend not to feel richer, even if their house is worth more, so not many people are feeling richer.

BananaRepublic

bowlhead99 wrote: »

You said that the hourly rates for using an IFA were 'shameful' considering what nurses earn.

As you have explained, much as the total cost of providing a medical service should not be described as 'shameful' simply because it exceeds the hourly rates paid to nurses - because the cost is driven primarily by infrastructure, certification, compliance, training, experience of the senior people involved etc - the total cost of a financial advisory service should not be described as shameful simply for exceeding the payrate per hour of the receptionist and the practitioner who provides the advice.

Both nurses and IFA receptionists may find it expensive to afford keyhole surgery followed by ongoing physiotherapy, much as they may find it expensive to get tailored investment advice on a £50k inheritance followed by ongoing monitoring and servicing. One solution would be to publicly fund both products. As it is, the former is made available on the NHS so the customer doesn't directly have to pay its high price - and the latter isn't, so you do. That doesn't mean the price is 'shameful'.

Take a look at what an IFA earns, compared to other professions, that is the bottom line.