Massive bailout for banks: Get ready for inflation.

carolan78

Mmmm thanks for your explanations !!!!!! seems no matter which route is taken we're going to take a huge hit in the pocket if things do get worse. Good old Labour what a great job they have done for the working classes...not.

PasturesNew

kingkano wrote: »

salaries linked to inflation would go up too yes?

Where's the money coming from to pay the increased salaries?
Companies can't afford to pay it. They'd have to lay people off or close.

Salaries pay out what can be afforded and no more.

WTF?_2

Treadmill wrote: »

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

I think I'll bullet-point my reply lest you try to obfuscate things any more.

* The theme of the discussion is basically 'trouble on the way'.

* You asked when the recession was going to be starting and cited present high levels of employment and growth: The implication being that things are just hunky dory thank you very much.

* I've provided you with the info that employment only starts to drop after we are in recession and proof that growth forecasts for the economy have been slashed, indicating that things aren't so hunky dory as you have tried to paint.

* So now you try to change tack.

Why am I not surprised? :rolleyes: Maybe one day you'll actually be able to have an honest debate. That would be surprising.

WTF?_2

PasturesNew wrote: »

Where's the money coming from to pay the increased salaries?
Companies can't afford to pay it. They'd have to lay people off or close.

Salaries pay out what can be afforded and no more.

That's it exactly.

In the seventies a lot of jobs were in industries exporting to the rest of the world. The pound plummeted so they got a lot more pounds for the goods they sold abroad. This enabled them to pay the workers at home more, keeping them competitive.

Today the balance of trade has swung in the other direction and the sort of businesses which generate the bulk of GDP have changed. A hell of a lot of people are employed in retail selling imported goods (getting more expensive) or various services (often only viable because people are flush with spare cash) to other British people. People who will be paying in pounds which are depreciating, not foreign currency which is appreciating. And who will be finding spare cash hard to come by as the cost of living (ie the essentials) rockets.


Bye bye standard of living.

carolan78

!!!!!!? wrote: »

Maybe one day you'll actually be able to have an honest debate. That would be surprising.

Too few around here are capable of that and prefer to flame people for their opinions. I don't understand why some people think we all have to have the same opinion or an opinion that opposes theres is just wrong. These boards could be a asset to many but too few feel they can post their own thoughts (I did for a long time due to been quiet shy in rality, found my virtual confidance now though :rotfl: )

I do have opinions but they are not always right! (may make that my sig :rotfl: )

Dan:_4

The government will intervene and do everything in its power to save the economy and the housing market - inflation is a second priority now.

WTF?_2

Dan: wrote: »

The government will intervene and do everything in its power to save the economy and the housing market - inflation is a second priority now.

It looks that way.

Except that inflation will come back and 'bite them in the behind' and saving the housing market (if it's even possible, which I doubt) only forestalls the problem and makes it even bigger.

Priority should be given to stopping systemic collapse of the banking system in a way that minimises inflationary side effects. The housing market has to be allowed to go to the wall if necessary.

Not a palatable decision but if you've ever woken up in the middle of the night feeling nauseous you'll know that the best thing to do is chuck up so you can get back to bed and get some sleep, not try to hold it all down hoping the queasiness goes away.

dopester

The Government will try a few actions to reinflate, but will eventually have to give in to deflation in my opinion. Show me one Western economy which has ever chosen hyperinflation over deflation. Why do you think Japan had to accept deflation?

If hyper inflation doesn't cause absolute misery, why have countries at war often resort to counterfeiting each others currency and feeding it in to the enemy's money system. The US, and the UK in my opinion, have too many financial assets at risk of being wiped out to bail out UK property.

This is looking at it from the US position, but the UK position is not too dissimilar and is from a financial analysis paper of some 15 years ago.

Printing press money sounds like a trick that could keep the price of real estate high, and erode the value of insurance obligations, credit guarantees, and debt outstanding.

Most people would assume that government will step up to bail out large debtors, an assumption that is closely linked to the assumption that debts will be wiped away by inflation. It is certainly possible the Treasury would seek to cover its liabilities with Argentine money. They could seek to offset deflation of collateral by printing cash to buy back T-bonds from the market. Such gestures would show up immediately in the Federal Reserve reports.

To holders of trillions in bonds, the threat of inflation devaluing their assets would be real. The market would adjust by demanding higher rates. Bond prices would fall. The economy would risk slipping into a deeper stall.

Wealth would be driven into forms like coin hoards and gold that are not subject to repudiation by politicians. The net result could be to make things worse. For the Treasury to persist in inflating its liabilities in the face of troubles it will face in the downturn would amount to a conscious choice of inflation at Latin American levels. That is possible, but we have already indicated why the probabilities favour a deflationary solution to the debt crisis.

Pez2

kingkano wrote: »

Without resorting to being called an HPI cheerleader, stupid, thick, etc etc as is want on this board.....

can someone explain why slightly higher inflation would be a bad thing? Im not talking 15% or anything just maybe relaxing it to 5% or so? I know it makes the prices of things go up. But salaries linked to inflation would go up too yes? and isnt that how our parents and grand parents really afforded houses?? within 5yrs of buying due to inflation their mortgage payments hit their pockets alot less. 10-15yrs later it was peanuts in comparison - right? Or am I silly?

It'd be alright if your earnings were directly linked to inflation, but for most people that's not the case. Everyone else would be reliant on getting pay rises at or above inflation. Anyone on a fixed income would be screwed.

danm

!!!!!!,

im not sure why you assume that this will lead directly to an increase in inflation.

As far as i can tell all the BoE are trying to do is 'unclogg' the system by helping banks free up capital.
At no point does it say this will be pumped out to borrowers for example.

The Fed and the ECB have been doing this for the last year or so.

I agree that inflation is unwelcome, but i think a full recession brought about through the collapse of the housing market is the worse of the two evils.

i think this is a stability play, and a welcome one at that