Inflation and Exchange Rates

WTF?_2

The only thing that's going to prompt deflation is if the banks are forced to take their losses/ go bust.

There is boatloads of cash sloshing around out there 'in the wild' as it were,as a result of the inflationary policies of most of the last decade. When someone defaults on a debt to a lender, that should cause considerable deflation since even though the loaned money is still in the system, the capital base of the bank has been reduced and that has a leveraged effect on their ability to lend and create new credit.

However; As long as the central banks keep giving the commercial banks short term 'liquidity' loans to counteract their losses this deflation won't be realised. On the contrary, the loan will get punted into an asset bubble like oil or food and cause further price increases in the name of 'recapitalising' the bank.

This is a deliberate policy. The decision has been taken to keep the financial system afloat by preventing bank insolvencies. This can be achieved either by generous cash handouts funded by taxpayers or by inflating the money supply. They have gone for the latter, it's a lot less controversial than tax increases and allows the government to plead 'global factors' for the inflation being visited upon the population. In fact, most of the inflation has been created since 2001 as a matter of policy and current policies are aimed at keeping things inflated.

As long as the public stays generally ignorant (and it will), expect this sleight of hand to continue.

fc123

Alan_M wrote: »

Ahh right, this explains how the luxury goods market marches on seemingly without issue, well, relatively.

So deflation makes all the things that we historically see as assets actually into liabilities, albeit temporarily.

Well, right now that means I should be investing in Louis Vuitton Handbags and Jimmy Choo's instead of buying more containers of granite in

I'm in that sector, but at a lower price level and niche but I wouldn't swap granite for Choos right now either.
Businesses that I see coping OK for the next few years (just from my immediate experience) would be anti ageing services (of any type), creative recycled / remade products and 'experience' type services; whether that be hang gliding lessons or spending an hour in a chic, chocolate specialist cafe / shop.

However, my industry has just been thrown a little lifeline with the Panorama expose on Primark. If attitudes change, even just for a few, could mean a few more crumbs of sales in my till instead.

WTF?_2

fc123 wrote: »

However, my industry has just been thrown a little lifeline with the Panorama expose on Primark. If attitudes change, even just for a few, could mean a few more crumbs of sales in my till instead.

Shock, horror! 5 quid pairs of Jeans and 1 quid T-shirts come from exploiting poor people in the third world! Who could have guessed :rolleyes:

They'll be telling us next that our cheap flatscreen tellies and DVD players come from placing Chinese peasants in appalling working conditions and totally disregarding pollution and safety concerns.

I wonder if this will make any difference at all to the buying habits of the public. My guess is that there will be a short blip from the highlighting of something shameful and then people will greedily return to their 'cheap cheap cheap' shopping mantra. Especially as money gets tighter.

Generali

!!!!!!? wrote: »

Shock, horror! 5 quid pairs of Jeans and 1 quid T-shirts come from exploiting poor people in the third world! Who could have guessed :rolleyes:

They'll be telling us next that our cheap flatscreen tellies and DVD players come from placing Chinese peasants in appalling working conditions and totally disregarding pollution and safety concerns.

I wonder if this will make any difference at all to the buying habits of the public. My guess is that there will be a short blip from the highlighting of something shameful and then people will greedily return to their 'cheap cheap cheap' shopping mantra. Especially as money gets tighter.

My feeling is that there is a market for clothes made for the richer Guardianistas - made in England from English cloth by people operating under rich country working practices.

Look at what happened to the fur coat. In 1975 you could have a woman wearing one in an advert, by 1985 you couldn't keep one in the back of your wardrobe in case someone found it. It would be relatively simple to do a similar thing to the cheap 3rd world T-shirt. There are several US manufacturers that operate a similar marketing policy I believe.

lostinrates

Superb thread. Thanks Generali. I've got lots to read up about from this.

I've seen the light: until March we were in the inverse position to you (earning in Euros and living both in Ialy and UK). It was fascinating to make week by week comparisons on what a £ would buy compared to a Euro and what cost what where. We also have a smaller US account. I have even considered putting a little more into dollars now in the hope of gaining on a future US recovary, but its to scary a game for me. We have a big ayment in Euros in December (the last big one) and I'm praying the Euro stays strong against the pound.

Re Luxury goods: close relative works in very high end retail and sales are UP. The euro strength brought unexpected Euro money in, the Easern money and Russian money is also bringing lots into the high end shops in Knightsbridge, Chelsea and Bond Street a I undertand it.

tradetime

Generali wrote: »

My feeling is that there is a market for clothes made for the richer Guardianistas - made in England from English cloth by people operating under rich country working practices.

Look at what happened to the fur coat. In 1975 you could have a woman wearing one in an advert, by 1985 you couldn't keep one in the back of your wardrobe in case someone found it. It would be relatively simple to do a similar thing to the cheap 3rd world T-shirt. There are several US manufacturers that operate a similar marketing policy I believe.

The main reason fur coats took a kicking was that they belonged to the rich, so the cause appealed to all those people who couldn't afford a fur coat anyway. Essentially two options were put in front of the masses...

1. Campaign against the fur trade and forego your furs (cudly cute animals, nice cause).
2. Quietly ignore the fur trade and enjoy your furs.

For the masses option 2 wasn't an option at all, since most couldn't afford real fur anyway. Subsequently one major high profile group who could afford real fur, but only by virtue of the fact that they made money off the back of public popularity quickly saw the benefit of joining the anti-fur campaign, the celebrity.
A number of celebrities have campaigned against cheap labour through the years, cheap labour is not a new phenomenon, not one the masses can pretend they didn't know about. But the options in front of them are different and the cause will cost the masses.

1. Campaign against cheap labour and pay for it
2. Quietly ignore it and save money

The world has enjoyed low inflation off the back of cheap labour for a decade or more now, but as wages rise in Asia and they demand better quality foods and more luxuaries that is coming to an end. My guess is the masses are simply hoping big business will do their dirty work for them and find another source of cheap labour so they can enjoy the high life for the next decade or two. Possibly Africa.

pamaris

OK, all I want to know is, why are cheap jeans £12 and ethically produced jeans are £120? It's scandalous. I can't afford "ethically produced" clothing, and I don't believe Primark is any worse than Marks, Topshop or any other high street retailer.

I don't endorse child labour or anything of the sort but I honestly believe the retailers are as bad as each other.

Generali

pamaris wrote: »

OK, all I want to know is, why are cheap jeans £12 and ethically produced jeans are £120? It's scandalous. I can't afford "ethically produced" clothing, and I don't believe Primark is any worse than Marks, Topshop or any other high street retailer.

I don't endorse child labour or anything of the sort but I honestly believe the retailers are as bad as each other.

This is exactly my point. You've identified a gap in the market that needs filling and I reckon could be filled very profitably. I bet loads of people would spend £10 or £20 on a decent T-Shirt that they could be pretty certain hadn't been made by kiddies in China or Vietnam or something.

pamaris

Generali wrote: »

This is exactly my point. You've identified a gap in the market that needs filling and I reckon could be filled very profitably. I bet loads of people would spend £10 or £20 on a decent T-Shirt that they could be pretty certain hadn't been made by kiddies in China or Vietnam or something.

Absolutely. I'd pay £35-40 for decent, "ethically produced" jeans. Not cheap but not expensive either.

lostinrates

I was fairly certain there used to be a tool comparing one's own income with the nation average, but cant find it now. Google is only helping me find comparisons within job title/sector.

In anycase, I remeber doing this earlier in the year and was shocke that DH's wage came out in a higher bracket percentage of earners in UK. Yet his addres is his in laws house, lol.

BUT thinking about this, considering the pot IS limited, it kind of has to be middle to middle-high income earners who'll have to suck up the effective pay cut of below inflation rises won't it? after all, lower income earners simply don't have it to give (sky tv arguments put aside) and the fantastically rich will always find ways to evade, ooooooooops, I mean of course avoid, taxation. So, beaing in mind that these lower wage increases ar elikely to be spread fairly evenly across middle and higher middle England, why should the civil service etc etc etc be excluded from this? The only other answer it would seem is to cut even more civil service jobs to spread the exhaustive pot between fewer? It seems almost all sectors will suffer similarly in the not too distant future, if not already.

Again, its not a prospect I relish or look forward too.