plainservice
Activist
Posts:139
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| 21/07/2009 8:49 AM |
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The simple fact is that the world's economies are deep in debt. The only way the governments will probably have to deal with this huge debt without trying to find the extra cash from teh economy is to create 'inflation'. So if the UK has £850bn of debt, they could blow it by creating inflation.
Not sure what happens to house prices or wages. But if someone had a £200k mortgage, that would be worth a lot less with inflation?
Reminds me my grandparents bying their home for £2.5k in early 1970s! Today that home would cost £340k...
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slicedcake
Activist
Posts:467
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| 21/07/2009 11:21 PM |
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| This debt thing is strange. How can everyone in the world be in debt? When I think of debt, I think of debtors and creditors. |
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barry37
Concerned Citizen
Posts:36
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| 22/07/2009 1:36 AM |
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I hope to God you are wrong although I wouldn't put anything past this ridiculous government! High inflation would be a disaster both for people on a personal level and the economy as a whole. The government would be rewarding excess by reducing people's debt and punishing those who have been prudent by eroding savings. On top of this I bet pensions and benefits wouldn't match inflation so the old/poor would be punished again. For the economy as a whole there could be a host of disasters (frightened investors? uncompetitive exports or ccy devaluation?)
I'm afriad what the country needs is huge public expenditure cuts - it will hurt but we need a government with the courage to be very unpopular. Someone like Mrs Thatcher dare I suggest??? |
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slicedcake
Activist
Posts:467
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| 26/07/2009 9:51 AM |
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The connection between exchange rates and the relative level of inflation in different countries is puzzling. Are the two directly linked? It seems as though it may not be quite that simple, but I think that they are linked to some extent.
When inflation was higher (e.g. in the seventies and eighties), I vaguely remember savings rates being a couple of percent over the inflation rate. If a similar thing happened again, then savers might be OK. Pensions may be OK if they are index linked (but which index? RPI/RPIX/CPI?
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barry37
Concerned Citizen
Posts:36
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| 27/07/2009 5:47 AM |
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According to the simplest theory I think its mainly down to purchasing power. If you have rampant inflation then the power of your currency to buy goods reduces and as such other currencies become worth more relatively. If inflation erodes the value of the currency then what you have today won't buy the same next week (unless interest rates negate the inflation) - so if you are an investor you look for a safe haven by selling sterling and buying something which holds its purchasing power.
Another thing to consider is that the two factors can feed off each other. If you have inflation confidence in your currency falls as explained. The exchange rate worsens and this can lead to even more inflation because you import goods which are relatively more expensive thus stoking inflation further....a vicious circle..... |
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plainservice
Activist
Posts:139
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| 03/08/2009 7:20 AM |
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Well my feeling is the the UK, US and Europe will let inflation rise. So it will be a global inflation to kill off global debt. That is probably the only way to deal with the moutain of debt.
Yes, interest rates have generally been kept higher then inflation, this is to preserve the value of savings. But I doubt they will do it this time, as the economy is too fragile. So they rather inflation rise and keep interest rates tagging below.
Again, I am no expert, but I believe this is what happened in the 1970s when the country was in debt. There was high inflation and people's saving where being eroded.
It wasn't until the 1980 when Margaret Thatcher came in that she put a stop to it...
Like I say, I am no economist... but I have heard Alan Greenspan, Vince Cable all say inflation will rise.... but never quite understood why....
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barry37
Concerned Citizen
Posts:36
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| 05/08/2009 6:50 AM |
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Agree that I think the americans could well do this and I think if Gordon Brown got in again it would be a racing certainty that he would. But I'm not sure if the same would be true if a Tory government were elected (which it will be let's face it) - do you think they would do something as irresponsible? Also I'm not sure if they will do this in Europe. My hunch is the Germans and French are far too cautious to take such a cavalier approach and that unlike here, where people have gone debt crazy, this policy wouldn't be anywhere near as popular there.
But to be honest you could be right - if so I can watch my hard graft building a nest egg systematically destroyed by governments that couldn't give a s**t!  |
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slicedcake
Activist
Posts:467
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chefdave
Activist
Posts:486
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| 05/11/2009 1:42 PM |
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The only sort of inflation we need is wage inflation to incentivise people into acting productively.
Wages are the forgotten victim in all this financial chaos though, seen as the legitimate revenue for landlords and governments to take as much as they like from without stopping to think of the consequences. This is nothing short of tragic IMO as costs outstrip earnings and workers have to suffer lower standards of living and reduced opportunity as a result.
We need a new workers party to with the sole aim of protecting the wage.
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slicedcake
Activist
Posts:467
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| 07/11/2009 9:49 AM |
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If UK inflation is higher than inflation in the countries that the UK borrows money from, then will the debt actually stay the same? To whom is all this debt owed?
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