The 08-?? Depression

[Snods Shinpad 2]

See any sign whatsoever over the last generation that bond rates go up as debt goes up?

See any sign that Austerity made a big effect on the bond rates?

Sorry if already covered, but as far as I understand it governments have been buying up their own bonds (QE) meaning that bond rates have been artificially inflated. Take the BOE/ central bank manipulation out of the bond market and I suspect rates will go sky high.

[BillyStubbsTears]

Bond yields have been depressed by QE, no doubt about that. But the consensus is that the effect is probably no more than 1-2%. Look at those graphs again - bond yields have been coming down for a generation (well before the widespread use of QE which begain in Japan in ~2002 and in the UK/USA in 2008/09). There is something else afoot in the global markets that has meant that the bond markets have been prepared to lend to Governments at ever lower rates, pretty much independently of the Governments' debt levels.

The point is that this entirely skewers Osborne's argument. He regularly claims that we in the UK have low bond rates BECAUSE of the Austerity package being sufficient to convince the markets. Those graphs on the previous page show that this is utter nonsense. There is no cause-and-effect between Austerity and low bond rates. Austerity is happening because the Tories want it for ideological reasons, to reduce the role of the State. That is a perfectly acceptable thing to argue for. But they never have argued for it. They are introducing it by the back door, and in the meantime, our economy has stalled for 2 years as a direct consequence.

[big fat yorkshire pudding]

And you assume reducing the role of the state is a bad thing - it isn't for many reasons.  Our economy was the thing artificially inflated by the last government that's for sure.

As for Mick's arguments on deflation, it just isn't going to happen, in fact we'll probably see a small increase in inflation now the economy's picked up a bit and organisations bump up prices knowing disposable income is increasing again.

[BillyStubbsTears]

BFYP

There is a perfectly rational argument to be had on the role and size of the state. I have no problem with that. I have my own opinions. You have yours. They are just that - opinions.

The point is that an entirely spurious economic argument is being made to justify the reduction in the size of the State.
I am simply pointing out the fact that we have entirely thrown out the possibility of using Keynesian Govt spending to jump start the economy on a myth. The myth that we MUST bring the Govt debt down or the Bond Markets will punish us. The argument is demonstrably wrong - the graphs on the previous page demonstrate that. I really can't see how anyone can argue with that if they are prepared to look at those graphs dispassionately.

If you agree that the State should be reduced in size, argue that case on its merits by all means (although you'd better have a strong argument for how a country can grow it's way out of a demand-slump depression without Keynesian pump-priming.)

If you think that the Bond Markets MAY turn on us in future, argue that case too by all means (although you'd better have a really good explanation for why the Bond markets haven't turned on Japan in 20 years of spiralling debt, and why the bond rates collapsed at precisely the time that our debt was doubling.)

Argue away.

As for Mick's argument on deflation, I couldn't give two tosses. He'll change his mind later anyway, so why bother listening? Three months ago, he was adamant that inflation was the biggest threat to the global economy. Now he has read something that has changed his mind exactly 180 degrees. Give him enough time and he'll spin round sufficiently often to drill himself into the ground and do us all a favour.

My take is that you, BFYP are being grossly optimistic. There is no evidence at all that disposable income is rising quickly enough to make a difference, if at all. The jobs market is also still very weak and as a result, there is little chance of wages increasing rapidly. And to cap it all, as the BRICS countries weaken, there is likely to be little inflation due to global demand for commodities.

Personally, I would be astonished if inflation reached 4% this side of the Election, and outright deflation is not out of the question - whether it comes depends on whether the Central Banks manage to convince the markets that they will do (as Ben Bernanke said) whatever it takes to get economies moving again. In the USA's case, Bernanke has said this means making a pledge to continue QE for as long as it takes.

[BobG]

What we all need is a good war!

It's worked before when economically illiterate politicians wedded to dogma refuse to see what's in front of their eyes.

BobG

[BillyStubbsTears]

Bob.

Interesting that it took WWII to get politicians to properly embrace a Keynesian approach to getting out of the Great Depression.

In the mid to late 30s, it was just accepted by policy makers that nothing could be done to bring back full employment. But of course they were wrong. Once the chips were down and the American & British Govts had to pour money into making guns, battleships and bombers, both countries had full employment within months.

Hitler already knew that. His rise to power was primarily due to his promise to bring back Govt-funded economic prosperity after the chaos of Heinrich Bruning's massive austerity drive crippled the German economy and brought democratic politics into disrepute.

It is a supreme irony that Germany is insisting that Greece (and, God forbid, maybe Spain and Italy to come) follow policies very similar to Bruning's. And with the same likely outcome, that democratic politics will be shattered there.

[mjdgreg]

Time to explain my position on deflation. The first reason we are headed for deflation is that every major debt bubble in history has always been followed by deflation. In 2008 the latest debt bubble peaked and history tells us that deflation will inevitably follow.

The second reason is demographics. Consumer spending makes up nearly 70% of GDP and due to an ageing population, consumers will be spending less than before and this will slow the economy down. Think about it. Old people spend less than middle aged people and because there are more and more of them there will be less consumer spending. They prefer to save not spend.

The government thinks it can inflate the economy by creating debt via quantitative easing but it will fail. Public sector debt is only a third of the size of private sector debt so what happens in the private sector has far more impact on the economy. Unfortunately for the government the private sector is deleveraging as fast as it possibly can and it always wins the inflation/deflation battle.

Don't believe me? Just look at what has happened to Japan. I rest my case.

[Glyn_Wigley]

And how, oh wise one, would you avoid it?

[The L J Monk]

Don't believe me? Just look at what has happened to Japan. I rest my case.

Billy - why have you never mentioned Japan?

[mjdgreg]

And how, oh wise one, would you avoid it?

I'm afraid we can't. It's not just us that are going to be affected, it's most of the developed world. Demographics is the most powerful economic force there is and it is often overlooked by economists and lefties like Billy. Check this out. Which countries suffer the most from inflation? It's the emerging economies that have got youth on their side. Say no more.

[mjdgreg]

Billy - why have you never mentioned Japan?

Where have you been? He's mentioned them loads of times. Unfortunately he's missed the biggie. Japan's demographics  are horrendous. You'd have thought Billy would have mentioned that wouldn't you? Demographics are the main reason Japan has deflated over the last 2 decades.

[Glyn_Wigley]

Check this out. Which countries suffer the most from inflation? It's the emerging economies that have got youth on their side. Say no more.

Yes, but which of the three causes of inflation would you say fuels it?

And why do you say 'suffers' from inflation? Inflation is good when managed properly.

[BillyStubbsTears]

LJ
Some fell on stony ground eh?

Ni mind. Let's sit back and marvel at Mick's public education.  Having insisted 3 months back that inflation was the biggest threat to our kids, apparently that is now no longer the case because we don't have enough kids.

He's on catch up. A fair way to go yet, but give him time.

PS: with his current obsession about demographics, Mick has caught up with Thomas Malthus from 200 years back. Malthus was wrong because he underestimated the power of human ingenuity to find solutions to the big issues. Doubtless Mick will tell us that lessons from Malthus's day are irrelevant. Just like he was saying 3 months back that lessons from Japan in the 90s were irrelevant.

[mjdgreg]

Yes, but which of the three causes of inflation would you say fuels it?

And why do you say 'suffers' from inflation? Inflation is good when managed properly.

Not sure what you are on about but I do know what causes inflation. It's young people. They impose a very high cost on society and produce nothing.

Why do you think we had high inflation in the 1970s? It was because the Baby Boomer generation were in education, spending their parent's money. It is no surprise that the 1970s were the lowest productivity decade in the 1900s.

In the 1970s we had worsening recessions as the older generation began to save more while the Baby Boomers entered the economy in huge numbers. This cost a great deal of money as it is very expensive to raise them and then bring them into the workforce.

Inflation only started to fall when these young people became productive members of the workforce which enabled the economy to grow.

It's very simple. When there is a huge influx of young people into the economy this causes inflation. Once people get past their mid forties and stop spending as much this is deflationary. Our population is ageing so work it out.

[Glyn_Wigley]

Not sure what you are on about but I do know what causes inflation.

Anyone with the slightest knowledge of economics knows what I'm talking about, it's O-level stuff.

[Glyn_Wigley]

Why do you think we had high inflation in the 1970s? It was because the Baby Boomer generation were in education, spending their parent's money. It is no surprise that the 1970s were the lowest productivity decade in the 1900s.

And that is the biggest load of b*llocks you've come out with yet. It was OPEC policy that caused the high inflation of the 70s, it caused it all across the industrialised western world.

And how exactly do kids in education spend their parent's money? And even more incredibly, how does it drive up inflation when the RPI isn't based on the stuff kids buy?

[mjdgreg]

And that is the biggest load of b*llocks you've come out with yet. It was OPEC policy that caused the high inflation of the 70s, it caused it all across the industrialised western world.

And how exactly do kids in education spend their parent's money? And even more incredibly, how does it drive up inflation when the RPI isn't based on the stuff kids buy?

I'm afraid you demonstrate a complete lack of knowledge of the situation. You fall for the politician's argument that the symptoms are the problem and totally miss the point of what is really going on. OPEC only got away with what they did because there was a large influx of young people into the economy. If this didn't happen then they couldn't have done what they did. OPEC was only one of the symptoms of the problem.

Have you ever had children? They cost their parents a fortune. The average cost of bringing up a child until they are 21 is £218,000 according to an article in the Guardian. This ignores any increased housing costs because you need a bigger house when you've got kids than when you haven't. Once the kids are off your hands a lot of older people downsize which is deflationary. Saying that the RPI isn't based on the stuff kids buy is laughable. Of course some of it is and you completely ignore what they have cost their parents. This is why the Baby Boomer generation caused inflation in the 1970s.
 
I'd go back to debating with GCSE students if I were you. You are way out of your depth in this debate.

[Glyn_Wigley]

OPEC only got away with what they did because there was a large influx of young people into the economy. If this didn't happen then they couldn't have done what they did.

Once the kids are off your hands a lot of older people downsize which is deflationary.

I'll let those two gems stand. I don't need to comment on them, they do it for themselves.

[BillyStubbsTears]

Eeh you have to admit, he's good comedy value when he gets all mono-maniac on the latest thing he's read and lapses into his Sanjeev  "Indian" Bhaskar mode.
Inflation in the 70s. "Baby Boomers"
England losing to Poland at Wembley in 1973. "Baby Boomers"
Assassination of Archduke Franz Ferdinand. "Baby Boomers"

So in the 1970s, we ignore OPEC quadrupling oil prices. We ignore the inflationary effects of the massive US spending on the Vietnam War. We ignore the collapse of the Bretton Woods currency system and the floating of currencies. We ignore the massively inflationary mistake of the Barber Boom in the UK.

Nope. It's all down to baby boomers.

Forget the fact that there was a huge baby boom in the early to mid 1920s. So those kids reached economic maturity in the late 40s/early 50s. When inflation was falling for a decade. Forget the fact that there was a huge drop in births in the Great Depression. But when that generation came to maturity in the late 50s, early 60s, inflation was pic whining a 2 decade-long rise.

No. Some has told Mick that the Great Inflation of the 70s coincided with the baby boomers starting work. So that must be the cause and effect and any other explanation is rejected.

Tell you what. When Rovers beat Reading 7-5, it was cloudy. Apparently it's going to be cloudy on Saturday. I bet we win 7-5.

Old Mick's arguments are so 1-dimensional, they'd make a line from a 2H pencil feel fat.

[The L J Monk]

I think he might have been reading this:

http://www.forbes.com/sites/greatspeculations/2012/09/19/demographics-to-blame-for-inescapable-deflation/

[Glyn_Wigley]

Of course he has. All the sites coming up with this crackpot theory are American, which is why the factors don't match the UK economic, political and demographic history and situation. And none of them have any solution to the problem, which is why Mick hasn't got one either.

[BillyStubbsTears]

LJ.

You're forgetting his photographic memory.

Mind, when he then introduces that  text with the comment "Time to explain my position on deflation," he clearly forgets that plagiarism is plagiarism, even if it is photographically recalled.

By the way, in that Forbes article, Harry Dent conveniently starts his graph showing the coincidence between Labour force growth and inflation at 1953. I wonder why that might be?
http://blogs-images.forbes.com/greatspeculations/files/2012/09/Inflation-Indicator.jpg

And of course, this is the same Harry Dent who, in 1999 and for many years afterwards, loudly proclaimed an analysis that predicted that the Dow Jones would hit 40,000 by 2010.

Yeah, well. Thank goodness I don't put money into his investment company eh?

[BobG]

I'm gobsmacked tbh. That anyone, anyone! could put forwards that drivel about baby boomers, while ignoring the factors you pointed out Billy, is just beyond belief. The bloke's a crack pot. I detect quite a number of neuroses actively at work actually.

BobG

[MachoMadness]

This thread is hilarious. It's like watching a dribbling delinquent on Jeremy Kyle get battered around by him and his audience. I remember learning about the Great Depression/Weimar Germany when I was at school and often wonder what my history teacher would write on poor old Mick's essays.

I do like these threads for more wholesome reasons though, I've learned a lot from them about an area I'm far from an expert on.

[mjdgreg]

I do like these threads for more wholesome reasons though, I've learned a lot from them about an area I'm far from an expert on.

Stick with it and you'll learn a lot more from me as I am an expert.

[mjdgreg]

Those of you that think Billy is an economic God are very sadly deluded. He throws a few graphs in now and then and makes statements that bear no resemblance to fact and you all bow at his altar. In fact I find it very funny that his views are taken so seriously.

It's obvious that his supporters are all lefties and don't want to face the unpalatable truth that lies ahead. How anyone that espouses spend spend spend by our useless politicians can be taken seriously is totally laughable.

[Glyn_Wigley]

Aw bless, he's like a puppy that just wants to be loved.

[mjdgreg]

Aw bless, he's like a puppy that just wants to be loved.

lol. You couldn't be more wrong (as usual). Now if you'd been talking about Billy.....

[Glyn_Wigley]

Oh look, he's chewing my slippers.

[mjdgreg]

So in the 1970s, we ignore OPEC quadrupling oil prices. We ignore the inflationary effects of the massive US spending on the Vietnam War.

I haven't got the time to pull apart all of your ludicrous arguments, but I'll still do the odd one so you don't have a free run at brain-washing all your leftie friends. OK, so if we accept that the Vietnam war caused high inflation (obviously I don't) then why didn't the same thing happen when the US waged war on Iraq and Afghanistan? What about when oil went to over $90 a barrel? According to you inflation should have took off. It didn't. Why?

I'm not holding my breath for a sensible answer, just more leftie spend spend spend proposals for which you are happy for future generations to pick up the bill.