What it all means to me!

WTF?_2

baby_boomer wrote: »

Deflation?

Given the worldwide shortage of natural resources and food?

Monetary deflation would naturally tend to follow a boom where the money supply was being inflated like crazy. As it collapses, capital in the banks is destroyed leading to deflation.

Deflation doesn't mean that everything gets cheaper - it's entirely possible that some things get more expensive, typically the essentials of life.

It also doesn't have to be bad, but in this case it is.

The alternative is that the central banks try to fight it by pumping the money supply as they are doing. This runs the risk of eventually producing a highly inflationary spiral.

I would say that the common-sense-defying rises in the stock markets at the moment are due to much of this newly created money finding its way there. That, and things like soft commodities and energy. By and large the money isn't getting to the man on the street - hence dropping house prices and retail sales.

ianmr65

baby_boomer wrote: »

Deflation?

Given the worldwide shortage of natural resources and food?

Well the fact that prices are rising doesn't mean there is a shortage. The Uk chucks out $2bn pounds wotrth of edible food every year, alone.
And a large proprtion of the rises are coming about through speculation.

Should there be a slump, then demand for most things would plummet. Oil, and food as well as everything else. People aren't going to be chucking much out if they can't afford to live.
As demand falls so growth falls, so unemployement rises, so industries fold, so prices drop even more and so on.

Every depression, and there's been about 5 since the 1700's has been preceeded by periods of recession, stability, inflation (in our case house, credit, and derivate), and bubbles. Like the south sea one. During those periods no one belived that depressions were possible.
That prices would always go up, that resources were in short supply, and that the bubbles would never burst. They were wrong then and they are wrong now.

The generational theory says that depressions or slumps happen once evry 2-3 generations, when the last people to remember the last one die. People stop saving, stop living prudently, and invest in stupid, speculative instruments. Thats now. In the west epsecially in the US and the UK. And we have been bank rolled by the east. That's about to stop too.

The K-wave theory predicts cyclical peaks and throughs, and from where i'm sitting all the factors are in place for a huge k-wave down turn. The difference now is that the world has many more people, and we are facing global warming.
So the impact is liable to be a great deal more far reaching and horrible than the last one in 1930.

mr.broderick

Austin_Allegro wrote: »

Carolan, at least you're being realistic and are considering the possibility of a downturn. Preparation, even if only mentally, is important.

The problem with the UK is that people have been on a credit fuelled binge for so long they have forgotten what even minor cutting back involves, and this is causing people to panic.

Remember that Britain has been through hard times before. In the last century we had two world wars, a great depression, and several smaller recessions, but we pulled through. Remember that only 15 years ago we were in the middle of a recession and a house price crash and society didn't commit suicide en masse! It's even possible that recession could be beneficial in some ways - people and families pull closer together, people relearn that the best things in life are free.

So all I can advise is don't worry too much, save as much as you can, and read the Old Style pages on here for advice - they've helped me a lot.

Not entirely bad for the economy.

ianmr65

!!!!!!? wrote: »

Monetary deflation would naturally tend to follow a boom where the money supply was being inflated like crazy. As it collapses, capital in the banks is destroyed leading to deflation.

Deflation doesn't mean that everything gets cheaper - it's entirely possible that some things get more expensive, typically the essentials of life.

It also doesn't have to be bad, but in this case it is.

The alternative is that the central banks try to fight it by pumping the money supply as they are doing. This runs the risk of eventually producing a highly inflationary spiral.

I would say that the common-sense-defying rises in the stock markets at the moment are due to much of this newly created money finding its way there. That, and things like soft commodities and energy. By and large the money isn't getting to the man on the street - hence dropping house prices and retail sales.

The optimist deflationary theorist. :T :T

Gonzo

...my head hurts....

*stares blankly*


Right. Should I sell my premium bonds or not then?

baby_boomer

Ian has presumably moved most of his moolah into fixed rate government bonds. Premium Bonds, however, are on a variable rate.

ianmr65

baby_boomer wrote: »

Ian has presumably moved most of his moolah into fixed rate government bonds. Premium Bonds, however, are on a variable rate.

No i don't trust the BoE or the fed. Sold my house in london, cut my mortage by two thirds, and bought a big 350 year old house, which i plan to die in - with its own walls in a village, - up north - last july. it'll look lovely with barbed wire : current ltv 20%.
Oh and gold too.
So by the time the 0.7% above repo cap finishes dec 2009, i'm hoping to be able to be close to mortgage free, especially if the BoE rate drops significantly, which looks likely -and unless my BS welches on the cap.

Oh and i'm getting into the security business.

WTF?_2

ianmr65 wrote: »

The K-wave theory predicts cyclical peaks and throughs, and from where i'm sitting all the factors are in place for a huge k-wave down turn. The difference now is that the world has many more people, and we are facing global warming.
So the impact is liable to be a great deal more far reaching and horrible than the last one in 1930.

Just to add to the cheer, we're also facing 'peak energy' (at least with our main existing sources: oil and gas) around now too.

Oil hitting $100 a barrel was a milestone that has taken many years to come about. In the last few months it has increased by 15% over that. We have massive additional demand from China and India on top of increasing demand around the rest of the world just at the time when most of the big producers are seeing their output tail off.

I saw a pretty scary article that shows that many of the big oil producing countries in the Middle East are now consuming ever more of their oil output themselves, just to meet their electrical power needs. It puts the decision of Iran to develop nuclear power into a rather different light than we are used to hearing on the news.

Bear in mind that every calorie of food that we grow requires something like 10 calories of energy from fossil fuels and you can see that this is more than just about 'dearer petrol'. :eek:

http://www.energybulletin.net/281.html

In their refined study, Giampietro and Pimentel found that 10 kcal of exosomatic energy are required to produce 1 kcal of food delivered to the consumer in the U.S. food system.

baby_boomer

!!!!!!? wrote: »

Monetary deflation would naturally tend to follow a boom where the money supply was being inflated like crazy. As it collapses, capital in the banks is destroyed leading to deflation.....

....The alternative is that the central banks try to fight it by pumping the money supply as they are doing. This runs the risk of eventually producing a highly inflationary spiral.

That's not very clear.

But elsewhere you seem to argue strongly for an inflationary effect on this board when you started a thread on the government's proposed backing to UK mortgages.

On that thread you warn readers about the negative impact inflation will have on people who hold cash in the bank

!!!!!!? wrote: »

Deflation doesn't mean that everything gets cheaper - it's entirely possible that some things get more expensive, typically the essentials of life.

You could be right. But in the last deflation in the 1930s food and housing [the two key essentials] both fell in value - remember the Californian fruit being destroyed in the Grapes of Wrath? So what "typical" deflation do you have in mind?

WTF?_2

baby_boomer wrote: »

That's not very clear.

But elsewhere you seem to argue strongly for an inflationary effect on this board when you started a thread on the government's proposed backing to UK mortgages.

On that thread you warn readers about the negative impact inflation will have on people who hold cash in the bank

The credit crunch is deflationary.

The attempts (by governments/central banks) to combat it are inflationary.

Three things can happen:
A. The governments/CBs get it wrong and pour too much money in causing inflation
B. The governments/CBs get it wrong and pour too little money in and we get deflation
C. They governments/CBs get it exactly right.

I don't know for sure which will happen but I'll bet it's not C.
I'd say A. is the most likely myself.

Inflation will indeed devalue your savings but if the thing you were going to use them for (an expensive house for example) is coming down in price that's not a total disaster.

I've said it before: I think that people set to jump into the market with a large deposit will need to time it well. It'll be a mixture of trying to buy as close to the bottom as possible given that interest rates will be low but set to rise and inflation will be taking off.

You could be right. But in the last deflation in the 1930s food and housing [the two key essentials] both fell in value - remember the Californian fruit being destroyed in the Grapes of Wrath? So what "typical" deflation do you have in mind?

I'm just saying that biflation is entirely possible.

http://en.wikipedia.org/wiki/Biflation