Is this a bear market?

kuratowski

Let's agree to disagree.  In my view the Bank of England and the Treasury would be not teaming up to apply such radical and far-reaching stimulus if they did not foresee an acute deficiency in demand.

I'd prefer to describe it as anti-deflationary as opposed to inflationary.

Eco_Miser

EdGasketTheSecond said:

 Ultimately people can only pay their bills by hard work, not government hand outs.

I've managed to pay my bills without either. I doubt I'm the only one.
At the other end of the scale, people have been living off government hand outs for years.

bowlhead99

EdGasketTheSecond said:
Maybe not immediately but it will indeed be inflationary. Do you think money can just be conjured from thin air and handed out freely with no consequences? Ultimately people can only pay their bills by hard work, not government hand outs. There will be a reckoning coming.

Pumping out free money will, ceteris paribus, result in more money being ascribed to the price or value of different things, causing inflation.

However, that assumes all other things remain equal. An external economic shock is an example of all other things not remaining equal. Where people don't have jobs or the appetite to lend or invest, markets and economies are less buoyant, citizens less wealthy, consumption is lower because we can't all buy yachts because the stocks we own are not booming and the free government money is maintaining basic subsistence rather than causing people to add lots of new demand. We have had lots of QE and super-low interest rates over recent years and world governments have still struggled to hit their inflation targets. So, the 'reckoning' may be quite along way from being around the next corner. 

By the time the 'reckoning'  ultimately comes, you will probably have got bored of holding your mountains of silver and invested it in something productive.  

EdGasketTheSecond

Eco_Miser said:

EdGasketTheSecond said:

 Ultimately people can only pay their bills by hard work, not government hand outs.

I've managed to pay my bills without either. I doubt I'm the only one.
At the other end of the scale, people have been living off government hand outs for years.

Don't be silly. If you and some people can live without hard work then it is only because other people are working doubly hard to support that. Yes there are career welfare claimants but these are only supported by the work of current workers and their children in the future. You cannot have people sitting around idly while creating currency and throwing it at them without a severe economic cost at some point in the future.

kuratowski

Money is created every time a bank advances a loan, and money is destroyed every time that loan is repaid.  On its own this does not inevitably mean excess inflation; as @bowlhead99 says, you have to look at the entire situation, not just one piece of it. In my view, the shock to demand from the covid-19 crisis is so profound as to outweigh the risk of excess inflation.

Nonetheless, there is a strong case that central banks do need to tread carefully, and avoid monetising government debt. Of this they are well aware, but I suppose it would be possible to lose sight of it in the current firefighting phase.  Also, based on past experience, we've seen that inflation is far from biddable; the decisions central banks make to "influence" inflation are not at all mechanistic, and the outcome is always uncertain (so indeed are the inputs to their decisions - the state of the current economic variables is also uncertain).

So, no one can say for sure that there cannot be an accident, that we're not going to get runaway inflation.  However, the orthodox view is that excess inflation is unlikely to be caused by the current crisis measures, and that they are worth taking to try to alleviate the crisis.

bowlhead99

kuratowski said:

So, no one can say for sure that there cannot be an accident, that we're not going to get runaway inflation.  However, the orthodox view is that excess inflation is unlikely to be caused by the current crisis measures, and that they are worth taking to try to alleviate the crisis.

I suppose the purpose of a democracy or a discussion forum is to allow the sharing of a range of views which don't accord with the orthodox views, otherwise there would be no contrarians or progress or open markets, we would all just do what we were told was right. 

Still, I would agree that some views might be more likely to be right than others

AlanP_2

Don't forget that the government support is capped at £2.5k a month and that it is taxable (and NI as well I think).

So £30k pa Gross less £12.5k personal allowance = £17.5k @ 20% = £3.5k going back to Gov.

Add NI and let's say it's £300 per month in gov deductions = £2,200 per month nett, less any pension deduction. 

And that is for the highest paid workers, a significant number will not have been earning anything like £30k when on 100% salary.

I can't see this as being particularly inflationary and will depress the price of investable assets in my view whilst it is in place. The value of monthly pension investments, S&S ISAs, LISAs etc. etc. will be much lower than "normal".

Once some kind of "normal" returns then there will be a period when individuals as well as companies rebuild their balance sheets before they start on discretionary spending again.

Eco_Miser

EdGasketTheSecond said:

Eco_Miser said:

EdGasketTheSecond said:

 Ultimately people can only pay their bills by hard work, not government hand outs.

I've managed to pay my bills without either. I doubt I'm the only one.
At the other end of the scale, people have been living off government hand outs for years.

Don't be silly. If you and some people can live without hard work then it is only because other people are working doubly hard to support that. Yes there are career welfare claimants but these are only supported by the work of current workers and their children in the future. You cannot have people sitting around idly while creating currency and throwing it at them without a severe economic cost at some point in the future.

Don't you be silly!  I never said I didn't work productively for a living, merely that I didn't work hard.

DuffHead

QE has massively pumped up assets. Funding for lending was 80bln given to banks which wiped out savers into long term -ve returns.   Everything is still priced to perfection - look at Unilever at 35+ P/E - the SP500 is only 20% off its highest ever peak. EVERYTHING depends on assets prices and debt issuance. Seems to me a recession is on its way and the cure will be inflationary helecopters. 

torrence

US markets are not going to fall dramatically on the bad employment data due later today. So still nothing pushing markets to the previous low.