Deflation - Inflation - Hyper Inflation & Interest Rates Questions?

zagfles

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Another_Saver

If you'll watch that talk by Willetts in one of my previous posts, on measures from lifetime earnings to lifetime net state benefits contributions/drawings, housing affordability, cost of living, living space, proportion of the generation renting and how long before buying, lifetime carbon usage (factoring in that subsequent generations must necessarily use less), social mobility, geographic mobility, earnings growth, income security, pensions... Boomers, by being such a big generation have done far, far better than any before or since.

Edit for clarity: in relative terms

I love hearing Boomers going on about how hard they've had it 

itwasntme001

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

coastline

Don't think the living conditions were that appealing to many people years ago. I know lads now who are aged 60 ish and they went " down the backyard ". That's before we start on central heating and double glazing.
Working has always been " split ". Some do well and others no so well. The 70's even the 80's as stated was a period of high inflation . Those lucky enough to buy homes saw their investments grow rapidly and wage increases to match in many cases. The percentage of mortgage repayments became less by the year and many had spare cash as a result. Just one of those things really.
Regarding pension there's a table in the link below and shows average DB pensions. As you can see they aren't exactly rolling in it. 
UK Civil Service - Pensions (civilservant.org.uk)
OECD finds UK pensions amongst lowest in world - BSNEWS
A view of earlier years.
Economics Essays: The Economy of the 1970s (economicshelp.org)

zagfles

itwasntme001 said:

zagfles said:

itwasntme001 said:

Linton said:

itwasntme001 said:

It does seem like the last 4 decades have truly been a goldilocks period of disinflation, asset price (and therefore wealth) appreciation, low cost of capital (financial and human) etc.  Unlikely to repeat again.  It would be incredibly disingenuous to think that the boomer generation had it anything but easy.  It is very unlikely to repeat for younger generations unless some major advancement in tech is achieved such as robotics and AI that sees galloping leaps in productivity.

How can people be so stupid on these forums and elsewhere to think that 8-10% GARs, inflation linked DB pension annuities, state pensions, low house prices relative to earnings, rapid wage inflation, cheap emerging market labour resulting in cheaper and cheaper goods are not at all hugely beneficial to the boomers???????????????????????????????????????????????????

Yes but it was only the past 15 years or so that hands on investing was available to most people.  Many people did not have a DB pension and if they did, it may well not have been inflation linked.   In fact many people did not have an employers pension at all.  That was why SERPs was introduced. When I started work as a computer programmer with a degree (which only about 5% of people leaving school were able to get, most leaving any form of eductaion at 15-16) a pension was a management perk.

Dont confuse the lucky few with how the vast majority of the population fared.

You will of course get many people who did not benefit.  The point is much more did benefit in your generation compared to the younger generation.  Even without inflation linkage, there were still generous high rate annuities available such as GARs.  My father has one taken out at a rate of 10%.  No degree.  Average intellect.  Worked in average jobs.  Highly risk averse.  But wealth wise has done incredibly well.  Savings at high real rates (RISK FREE) of interest and buying homes when they were cheap makes a massive difference.

The young now, even with lower than average intellect have to go to uni to do pointless crappy degrees like media studies because of social pressures and every job pointlessly requires a degree.  That too saddled with £50k of debt....

DB pensions in the 70's and 80's are nowhere near as generous as their equivalents today, which is why they hardly exist in the private sector any more. No inflation protection, imagine leaving a job in the mid 70's and having your pension frozen at the level you left and seeing it plummet in value with the high inflation of the time, so by the time you draw it it is worthless. Companies used pensions as golden handcuffs to stop staff leaving.

Re student loans - Martin has tried to educate people on this, they can't be considered as normal debt. They are repaid according to income, it's a graduate tax in all but name, an extra 9% tax on income over about £26k. When I graduated in the mid 80's, I had zero "debt", but the basic rate of income tax was 29%. Now when students graduate, they pay 20% tax plus 9% student loan repayment. So pretty much the same. In fact, less now because the income tax personal allowance is higher in real terms and the student loan repayment threshold is much higher.

Houses were of course a lot cheaper, that's the main financial problem faced by the young today, but at least they don't have to contend with the 15% mortgage rates I did when I bought my first house.

Pensions - your point is irrelevant.  It is exactly why DB pensions existed in their form in the 70s and 80s that is one of the many factors for the boomer generation having such an advantage compared to the younger.  DB pensions originated back then assuming the providers were able to REINVEST at high rates of return.  No one had the foresight to see that interest rates were about to begin a secular downtrend resulting in lower and lower REINVESTMENT rates of return.  In hindsight those massively generous rates should never have been offered.  Unfortunately due to this bad judgement on interest rates, nations, municipalities and corporations are all suffering from these increasing liabilities, much of which is unfunded.  It will be the younger generation that will have to pay for this unless there are defaults on these obligations.

Student loans - your point is irrelevant.  Back in the 70s/80s less than 20% went to university.  Everyone else got jobs at age 16.  Now the vast majority go to university and I would say at least 60-70% of degrees are an utter waste of time and the debt is just a total waste (in reality it is a transfer of wealth from the taxpayer to universities and HMO landlords).  Then these graduates enter the workforce at age 22.  That's a full 6 years after the boomer generation would have.  Time wasted doing BS instead of gaining on the job skills to move up their respective professions and gaining more earning power - you earn more as you become more productive, universities for the majority DO NOT make you more productive.  Imagine 60-70% of the current massive sized student debt being a total waste compared to nearly 0% of the much smaller sized student debt being a waste in your generation.  A huge misallocation of capital and completely nonsensical giving boomers a massive productivity advantage over the current young, that too with much less debt.

Houses - your point is irrelevant.  The boomer generation had wage inflation as well and it was only a brief period of very high interest rates that you would have to suffer from.  But the nominal debt would have been much smaller.  It remains to be seen what combination of wage inflation and interest rates the young will have to contend with in the coming decades.  But certainly a lot less are able to afford as FTB than your generation.

Pensions - you think it's irrelavant that some could leave a job with 20 years service, and a deferred pension of 20/60th of their final salary, and then see inflation reduce that to a third or quarter or less of its real value. OK....

Student loans - they are not real debt. They are a graduate tax, with total taxation including them less than they were in the mid 80's. That is relevant. Decent degrees still get you decent jobs, you don't need a degree for a minimum wage job paying £18k a year today. In the 80's there was no minimum wage, my first job was £1.15 an hour.

Houses - yes this is the main issue. But there is no benefit to people like me whose house has gone up in value. Housing is a cost of living, so that's increased the same as my asset. I'd prefer it if housing was the same real value as when I bought in the late 90s. There was also negative equity people in the 90's had to contend with, the first house I bought in the early 90's had gone down in value when I sold it in the late 90's, I sold for less than I bought. For people with high LTV mortgages, this was a big problem.

There's also a lot of non financial benefits now too. Life expectancy has increased. Diseases like AIDS are no longer a death sentence. You are allowed to be gay, or trans now, with far more rights and far less bigotry. You weren't living with the constant threat of nuclear war that lots of people were convinced was imminent in the 70's and 80s. Technology is now way better, the idea that everyone has a mobile phone was a fantasy in the 80's, also the www, the idea that you can research just about anything from home rather than have to go to a library, even be able to have the debate, in the 80's it would have been letters to a magazine with a 2 month delay between replies! The idea of stuff like video calls, satnavs etc. Safety is much improved in nearly everything, cars didn't even have seat belts in the back seats in the 70's and 80's.

So in terms of quality of life overall, it's far better for kids these days IMO.

Another_Saver

This is so interesting, a proper good old debate.
I want to say something controversial just to keep it going.

zagfles

Another_Saver said:

This is so interesting, a proper good old debate.
I want to say something controversial just to keep it going.

Well go on then! Here's a few options:

1) There is no intrinsic human right to be better off than your parents

2) Nor to be better off than your kids

3) Everyone alive in the UK today is better off than 99.9% of all humans who ever existed.

4) It's pretty pathetic to be jealous of the 0.1% of people better off than you. Even if they are your parents.

zagfles

Just watched the Willets lecture posted above. Well worth watching and some good stuff, although very little on the solution which seems to be a couple of half baked ideas about tweaking care costs and giving people a "citizen's inheritance" of £10k at age 30, paid for by higher capital taxes.

This is probably the sort of thing a lot of families are doing voluntarily anyway, ie parents giving their kids that sort of amount or more towards a house deposit. Or as I've mentioned here before, the idea that property inheritance should go to those without property, so I've suggested my parents bypass their kids (ie me and my siblings) and leave their property direct to their grandkids. So those who benefitted from high house price inflation pass to those who get screwed it, so it evens out.

The stuff about carbon seemed to overlook the fact that today it's much easier to live a low carbon lifestyle, eg no need to travel to meetings when you have Skype/fast broadband/video conferencing, availability of low energy lightbulbs, electric cars, clean public transport, better insulated houses, recycling collections etc. So lower carbon doesn't mean lower quality of life.

The graph at 29:25 was quite telling though, it seemed to go against the whole thrust of the lecture in that it shows almost everyone is better off than the previous cohort, and the worst case was just 1% worse off. The rest of the lecture would lead you to believe younger groups are significantly worse off than previous cohorts but this graph shows most are better off than previous cohorts and those worse off are only very slightly worse off. The point of it seemed to be to show that boomers are much better off than their predecessors, which is true, so perhaps they should be more concerned about their elderly parents (if still alive) rather than their kids! As that's the biggest wealth gap!

Another_Saver

zagfles said:

Another_Saver said:

This is so interesting, a proper good old debate.
I want to say something controversial just to keep it going.

Well go on then! Here's a few options:

1) There is no intrinsic human right to be better off than your parents

2) Nor to be better off than your kids

3) Everyone alive in the UK today is better off than 99.9% of all humans who ever existed.

4) It's pretty pathetic to be jealous of the 0.1% of people better off than you. Even if they are your parents.

Nothing I have said has expressed envy, entitlement or a lack of gratitude. My point is that when boomers say they've worked for what they have - it has been easier for Boomers to do that in relative terms than any generation before or since. It is a moot point, a nonsense please, itself an expression of entitlement, itself ignorant of the facts and history.

Much economic and social policy is based on a growing economy.

The idea of growth, progress, that things get better - if that isn't what capitalism is for then what is there? It is the promise from one generation to its children, it is the hope and optimism that makes people save and buy houses and join trade unions and vote in elections and care about the world they're in because they believe it can get better, and take away the least bad way we have of measuring that - real earnings growth - and it's easy to see how and why more extreme politics that offers alternatives to the neo-liberal status quo is/was/has been on the rise.

Generational equity in developed economies is still relevant - my life as a Millennial is affected by the world Boomers have created in their self-interest, which my generation will not have the economic or voting power to do until Boomers start dying off in the 2040s and 50s.
Boomers have taken the economy from activity supported by 3 times as my much wealth to activity supported by 7 times as much wealth, yet the taxes coming from wealrh are the same and there are no apparent plans to raise them. The peak birth years for the 60s Boomers were the early-middle of the decade, so by 2030 ish a majority will be claiming the state pension,

and a life expectancy of 85 puts the peak death year at 2050 ish (also the age when helathcare costs spiral),  2030-2050 is when we're going to have to figure out how to make all this work - how to support the biggest retiring generation ever. 

Uxb1

Lifespan's were also less in the 1970's and 1980's.
It was common at work to hear that X, who had retired in the traditional way that you did then at 65, had died and they would only have lasted another maybe 5 years maximum into retirement.  The increase in life expectancy trashed the concept of DB pensions: paying in for 40 years to support 5 years of retirement became trying to support 25 years of retirement.
I expect means testing for the state pension to come in  at some point.