'The credit crunch and other myths' blog discussion

Former_MSE_Lawrence

This is the discussion to link on the back of Martin's blog. Please read the blog first, as this discussion follows it.

Read Martin's 'The credit crunch and other myths' Blog.

Click reply to discuss below.

dancingfairy

Things are getting hard for a lot of people. But if it means people assess their priorities, cut down on their luxuries, learn to waste less and value resources eg food/clothes/household objects more and tackle bad debts then that can't be a bad thing. Hopefully we will all be a lot more savy consumers when we get an upturn.
Also when I think how poor I am and how I can't afford this that and the other - I'm not as poor as my parents were or their parents- a lot of us have indoor toilets now,we don't sit on fruit crates as furniture and consider it a luxury to have furniture or a house of our own.

vivatifosi

Stagflation - the word that sends shudders down my spine and anyone who remembers the ramifications of the 70s.

I think that the term that isn't being used that's key to all this is inelastic demand. Everything that is going up in price - food, oil, heating - is something that we have to have. Demand for necessities isn't elastic (the price goes up, demand goes down).

Sure, people can cut down on using their cars for some journeys, we can buy slightly cheaper food, and maybe turn down the thermostat one degree when winter comes round. But those bills will still hit the most vulnerable people in our society hard. A much larger chunk of their money goes on those necessities.

I shudder to think what is going to happen to those on low, fixed incomes, in particular benefits, when this really hits in winter. We are lucky at the moment, it's Summer and heating costs are at their lowest point for the year. I am paying about 1/3 more for my shopping this year than last year, it costs £60 instead of £40 to fill up my car. Heaven knows what domestic heating is going to cost this winter for those who can't price fix. And how many people do you know on benefits who are managing to save a tenner a week to cope with future energy costs?

It will be interesting to see if MPs award themselves a big fat pay rise in the coming weeks, only to continue to measure inflation - and therefore keep benefits low - according to measures that mean absolutely nothing to the poor.

ish

Thank You for setting the record straight. A lot of people misconstrue issue so therefore members of the public don't get an objective view of the issue.

Zyyb

Could someone please print this and give it to the media?

PS Vivatifosi, MPs actually voted to freeze their salaries this year, they didn't take the increase

vivatifosi

Hi Zyyb,

I'm on holiday at the moment and not watching the news.

As you've corrected me, can you please send a link? This is not a development that I am aware of and I cannot find reference to this. I am aware that Ministers have had a pay freeze, see: http://www.timesonline.co.uk/tol/news/politics/article4157560.ece and that they may revolt against this, see: http://www.timesonline.co.uk/tol/news/politics/article4159514.ece

Whether or not MP's get an official big increase, they can still award themselves differently structured expenses, which according to the BBC would leave "the average MP £4,500 a year better off" see: http://news.bbc.co.uk/1/hi/uk_politics/7467752.stm

So I really can't see any evidence that they've taken a pay freeze...

Glowboy

Working in the oil industry, I have something of an insider (although not expert) view on the current rise in fuel prices. As consumers are gradually realising, the bulk of the pump price is composed of various forms of tax. But I firmly believe that the increased crude oil prices, which also feed into the pump price, are driven by speculation rather than structural changes in supply or demand.

The proportion of oil being traded by banks has increased significantly in the past year and whilst that doesn't necessarily lead to a higher price, they are only there to add a margin. And why are they in oil? Because they moved away from exotic financial instruments like CDOs, as a result of the credit crunch.

Karmacat

Like vivatifosi, I remember the 70s - no *way* are we suffering from stagflation like we did then! Sorry Martin! Perhaps I should amend that slightly - my personal experience (bearing in mind age, net worth, blah blah) is nothing like it was. Then, it felt like no matter what I did, I couldn't get to grips with things - inflation was 5% or so higher than interest rates, for example. I did manage to buy a flat at the end of the decade, and I *had* saved for a 10% deposit, as one had to do in those days, so I was getting ahead, in reality, but it certainly didn't feel like it. It felt like the end of the world, sort of.

vivatifosi

Hi Glowboy,

I was watching Fox News the other night and it went into a split of the price rises on the US oil market. Can't remember the exact percentages, but part of the rise was due to increased demand, part was due to reduced refining/output capacity (due to incidents like Hurricane Katrina, blowing up pipelines in Nigeria, etc), part was due to speculation, part was due to the decline in the US dollar, part was due to the fact that part of the additional sources of oil were heavier and therefore there was no refining capacity for it as yet, etc.

Obviously the tax take info from the US is radically different. Have you seen any data like that as the numbers were pretty interesting? Would like to hear such numbers as they relate to the UK...

Glowboy

vivatifosi wrote: »

Hi Glowboy,

I was watching Fox News the other night and it went into a split of the price rises on the US oil market. Can't remember the exact percentages, but part of the rise was due to increased demand, part was due to reduced refining/output capacity (due to incidents like Hurricane Katrina, blowing up pipelines in Nigeria, etc), part was due to speculation, part was due to the decline in the US dollar, part was due to the fact that part of the additional sources of oil were heavier and therefore there was no refining capacity for it as yet, etc.

Obviously the tax take info from the US is radically different. Have you seen any data like that as the numbers were pretty interesting? Would like to hear such numbers as they relate to the UK...

I'd be interested to know who came up with the Fox numbers - presumably an analyst's opinion rather than official figures. I haven't seen an equivalent for the UK, although I'm sure someone somewhere has come up with an estimate. You know that fuel duty and VAT would always be a big slice of the price-increase pie chart here.

Nigeria should be a cause of concern for supply, given that that protestors there are
disrupting even offshore operations - and unease about the Iran situation doesn't help either. Traders don't need much encouragement to factor in the possibility of supply problems to the forward price.

Theoretically the falling dollar should make oil cheaper in the UK but apparently hedging activity is having the opposite effect. (I don't pretend to understand how that works.) It's quite true that refinery technology and economics haven't necessarily caught up with some of the newer demands (such as output from oil sands, lower sulphur content, etc). But I don't think demand in China, India and the like has risen as fast as was expected. Certainly I saw a presentation earlier in the year showing a steep anticipated rise and from what I'm hearing it's been close to flat.

It's refreshing to see someone else has an understanding of some of the complexities of the oil market, rather than the simplistic view peddled by the Government and (most of the time) the media.