Massive bailout for banks: Get ready for inflation.

BobProperty

carolan78 wrote: »

So in theory your pension could be worthless unless it rises with the rate of inflation but that then brings further burdens on financial institutes or am I way off the mark? Could this in theory be the start of a vicious circle we will struggle for years to get out of as a country?

In a word, yes. Back to my recollections of the 70s, civil servants who had index linked pensions (and that's index linked to wages IIRC) were getting paid more in their pension than they'd earned as a wage a few years earlier, in money terms. Pensioners on fixed incomes were stuffed. One other thing, again IIRC, mortgage rates went as high as 18% at one point. :eek:
If you get high inflation and your pension fund doesn't keep up with it, you are losing out as you suggest.If we have a re-run of the situation in the early 70s then the best action is, in fact, to mortgage yourself to the hilt and buy a big property.

WTF?_2

carolan78 wrote: »

So in theory your pension could be worthless unless it rises with the rate of inflation but that then brings further burdens on financial institutes or am I way off the mark? Could this in theory be the start of a vicious circle we will struggle for years to get out of as a country?

Inflation means more money in the system chasing the same amount of goods and services. This puts upward pressure on prices, hence your money is worth less than before as a result of the monetary inflation.

So if your weekly shop costs you 50 quid today, it could be 60 quid in a year's time.

The 'buying power' of your money has been reduced.

Therefore all your savings are instantly worth less than they were before. Unless of course the interest paid has caused them to go up to 60 quid of course. In practice, this never happens.

Also, your monthly wage buys you less. Equivalent to a pay cut.

So workers demand more money - which puts prices of the goods they produce up even more - vicious circle.


The thinking this time around is that wage increases will be constrained. Therefore the govt. is gambling that inflation won't spiral too badly. Instead, the the plan is that people will be conned into accepting lower standards of living.

I don't think this will work. Higher pay is merely one of the factors that drive inflation, though governments like to tell the public that it's the main factor for obvious reasons. As long as there's a loose monetary policy in operation by the authorities the excess money supply will find a way to force prices higher.

Of course, certain asset classes tend to be effected even more than others. For example: We have had massive house price inflation over the last 7-8 years but other prices haven't risen (like food) or even fallen (imported electronic goods and clothes).

With a new wave of money coming in we will see it filter into other 'asset classes' than housing -and right now those look like being soft commities (food) and energy (oil, gas). This is going to push prices of these essentials up whether or not pay rises are controlled.

Also, the policies being pursued by the govt are pushing down the value of the pound vs other currencies - so more price rises coming on anything imported too. And these days we import more than ever before, including lots of food. A double whammy on food and oil.

carolan78

BobProperty wrote: »

If you get high inflation and your pension fund doesn't keep up with it, you are losing out as you suggest.If we have a re-run of the situation in the early 70s then the best action is, in fact, to mortgage yourself to the hilt and buy a big property.

Great if you can get on the ladder, at these prices I would be lucky to get a shoe box :rotfl: We weren't planning on buying for another few years anyway but this whle situation makes you reassess everything and look at your financial situation as a whole not just seperate pots.

WTF?_2

Treadmill wrote: »

When is this recession starting ? I keep hearing that its already started but growth and unemployment figures etc would suggest otherwise.

Employment is a lagging figure. The job losses start once the s**t has already hit the fan.

As for growth, I suggest you ask the IMF who forecast a large reduction in UK growth in the coming year.

http://www.moneyweek.com/file/45348/why-the-imf-was-right-to-slash-us-growth-forecasts.html

2007 Forecast: 2.7%
2008 Forecast 1.6%

carolan78

So if the government didn't bail out the lenders what implications could this have (sorry for been a pain in the **** I'm just trying to get a clearer understanding of how much this government are screwing us over!

fc123

Trollfever wrote: »

Just testing my new signature.:hello:

again???:rotfl: :rotfl: :rotfl:

WTF?_2

carolan78 wrote: »

So if the government didn't bail out the lenders what implications could this have (sorry for been a pain in the **** I'm just trying to get a clearer understanding of how much this government are screwing us over!

The implication is that many banks are insolvent without a massive bailout and if they don't get this help the financial system will implode.

That means many big name banks going bust, taking people's life savings with them (Don't believe that the FSCS 'first 35k' compensation scheme will make a bean of difference in a systemic collapse).


I suspect a more pressing concern for Brown is that since mortgage lending has dried up he wants to avert a house price crash and all the political and economic problems what would bring him.

Easier to just go the inflationary route and blame the resulting price increases on the world economy. "Look at how the global price of food and energy has risen! Lucky our economy has been stable with low inflation and we can ride it out if peope put their heads down and don't demand inflationary wage rises" :rotfl:

fc123

tomstickland wrote: »

I think the government will do anything such is the fear of a crash and their reelection hopes. That's one way of looking at it; the other is they can't let the system come crashing down for "the good of the country".

Not necessarily. Didn't the Conservatives hope to lose in the early 90's and let Labour mop up the mess? Except they won again.
GB may want to spend time with his young family.

Treadmill

!!!!!!? wrote: »

Employment is a lagging figure. The job losses start once the s**t has already hit the fan.

As for growth, I suggest you ask the IMF who forecast a large reduction in UK growth in the coming year.

http://www.moneyweek.com/file/45348/why-the-imf-was-right-to-slash-us-growth-forecasts.html

2007 Forecast: 2.7%
2008 Forecast 1.6%

Thats still growth, I was under the impression a recession was when the economy was contracting.

MissMoneypenny

carolan78 wrote: »

So if the government didn't bail out the lenders what implications could this have (sorry for been a pain in the **** I'm just trying to get a clearer understanding of how much this government are screwing us over!

My first thoughts on this is, massive loss of jobs and a massive loss of tax revenue for the government and strain on the already overly burdened welfare system. Those jobs generate real money for the country and they pay for the state workers. Those banks that survive will take their business (and jobs and taxes revenues) to other countries.