The case for deflation

[Glyn_Wigley]

Why hasn't the already large amount of QE not already meant we've got high inflation?

Because it's being done by people who actually know about economics and not by an internet gobshite who regurgitates other peoples words and pretends he understands them. Sorted.

[Glyn_Wigley]

Talk about not learning from history. 1923, No more clues.

 

You'll be waiting a long time if you expect a correct answer without any more clues from this lot. I'll put everyone out of their misery.

Weimar crisis. Sorted.

I know, and it's you that's not learning from history.

[wilts rover]

So you'd have unlimited QE? But if the result of that is to debase the currency, it will lead to inflation and hence cause the bond markets to up the rates.

You are forgetting my deflationary view. QE will not change that no matter how much we do. Deflation not inflation is going to be the order of the day. Why hasn't the already large amount of QE not already meant we've got high inflation?

You also forget that I only want to introduce this policy when we no longer need to borrow any more money due to cutting back the welfare state. You just can't ever envisage us not needing to borrow money can you. Wouldn't it be nice if one day we actually lent money to other countries.

Oh dear, you dont actually know anything at all about government debt do you? Go on, admit it, you just copy and past various bits from right-wing economists without actually having a full grasp of what it is you are talking about.

Just over 30% of our national debt/gilts are held by overseas institutions, the rest by domestic investors. In addition Britain is also a large international lender. For instance, we hold £196 billion of US debt (2009 figures).

[BillyStubbsTears]

Wilts

Aye. It'd be f**king brill if the UK Govt defaulted then, eh?

[mjdgreg]

Why hasn't the already large amount of QE not already meant we've got high inflation?

Because it's being done by people who actually know about economics and not by an internet gobshite who regurgitates other peoples words and pretends he understands them. Sorted.

pmsl.  What a piss poor answer. If you think the BoE is competent then that just shows how much of a fool you are. The idiots actually raised interest rates just as the financial crash was happening. Just shows they didn't have a clue.

I notice Billy has no response because he has been totally exposed as not having a clue about what he's on about. Game set and match.

It would also be nice if you didn't regurgitate my words and pretended you understood them because you clearly don't. Sorted.

[Glyn_Wigley]

It would also be nice if you didn't regurgitate my words and pretended you understood them because you clearly don't. Sorted.

I can't regurgitate something I can't swallow in the first place.

[BillyStubbsTears]

I notice Billy has no response because he has been totally exposed as not having a clue about what he's on about. Game set and match.

If it makes you feel good Micky boy. You're welcome to it. I lost interest somewhere about the point that you were saying we should be defaulting but not having any idea which creditors we'd be short changing.

[mjdgreg]

If it makes you feel good mjdgregy boy. You're welcome to it. I lost interest somewhere about the point that you were saying we should be defaulting but not having any idea which creditors we'd be short changing.

Isn't it obvious? We'd be short changing all of them. They've lent the money, they take the risk. They're already being short changed by accepting less back than they are currently 'investing'. My plan is already being implemented (sort of) in case you hadn't noticed.

No, you've lost interest because I've exposed the fallacy of your statements that bond investors only invest to get a real return on their investments and that QE causes high inflation. This has sunk your argument without trace.

[BobG]

Give up Mick. You've gone way way beyond looking a plonker. It's plain cretinous now.

I think I'll default on a few of my debts. Reckon the credit card should come first. Way too expensive. Won't matter though. They can afford it. And it won't have any impact elsewhere will it?

BobG

[mjdgreg]

Another reason deflation is on the way.

The banks still need to raise more capital as protection against possible future losses. So they aren't going to start lending again any time soon. The main reasons are as follows:

1) They are under-estimating the potential losses on loans to financially challenged borrowers, households and businesses, especially loans in forbearance (loans where the banks have temporarily eased cash payments). If we'd raised interest rates earlier like I said we'd now be over this problem instead of dragging it out for years.

2) Banks may be hurt by further big fines or compensation payments relating to their past sins (the mis-selling of PPI or alleged LIBOR rigging, as just two examples).

3) Big banks' discretion to set their own risk weights for different categories of loans under the Basel rules may mean they have systematically understated the riskiness of entire categories of lending.

http://www.bbc.co.uk/news/business-20544433

[mjdgreg]

Another reason deflation is on the way.

QE will not be able to stop the process. We just have far too much debt (and I'm not just talking about government debt). If you look at the graph on the following link you can see how badly we are drowning in overall debt.

We have easily the highest debt of the G10. Government debt is absolutely horrendous but is only about 10% of the problem. I've done a back of the fag packet calculation and we currently owe about £340k for every person in employment. I've arrived at this figure by dividing the total amount of debt by the number of people in employment. I'd be grateful if someone could explain how all this debt (which is still rising) can ever be paid back. No wonder defaulting on the debt is the only solution:

http://smashabanana.blogspot.co.uk/2012/01/socialism-is-destroying-nation-states.html

[BillyStubbsTears]

Mick.

Is that debt net or gross? As in: do the debtors have no collateral to offset against that debt?

[mjdgreg]

mjdgreg.

Is that debt net or gross? As in: do the debtors have no collateral to offset against that debt?

Obviously it's gross. I'd have thought you'd have been able to work that one out. I'll give you a hypothetical example. Say a householder has debt of £340k but has a house with £100k equity in it. Then their gross debt is £340k but their net debt is £240k. However if they lose their house to pay down their debts, that then means they don't have anywhere to live any more. Due to welfare claims and being given a council house etc. they actually cost the country more in the long run than their gross debt that they started out with!

So don't give me any of that net debt nonsense to try and make the figures look better.

[BillyStubbsTears]

Right. And? Expand...

[mjdgreg]

What do you think I've just done?

[Filo]

Do the UK have a house, or are we homeless? ;-)

[mjdgreg]

Do the UK have a house, or are we homeless? ;-)

Could you please re-phrase your question. I'm not very good at understanding pigeon English.

[wilts rover]

Missed the reasons why the global banking crises happened in 2008 and the measures that various international governments have put in place to address it since?

[Filo]

Do the UK have a house, or are we homeless? ;-)

Could you please re-phrase your question. I'm not very good at understanding pigeon English.

Not not very good at understanding most things!

[BillyStubbsTears]

No Mick. You haven't expanded.

If the debt figures are gross, then, in isolation they are utterly meaningless.

Consider. If I have a gross mortgage debt of £200k, but a house worth £2million, I am in a damn sight better off position that someone with a mortgage of £100k and a house worth £80k.

The gross debt data is meaningless without some discussion of the assets that are held by organisations in each of these countries.

And by the way, that Morgan Stanley data on that website that you linked to - the one that discusses the issues in such a careful and balanced way - is considered highly questionable by most economists. They make some very sweeping and unjustified assumptions. The McKinsey data is considered to be the gold standard - go have a look http://www.mckinsey.com/~/media/McKinsey/dotcom/Insights%20and%20pubs/MGI/Research/Financial%20Markets/Debt%20and%20Deleveraging%20-%20Uneven%20path%20to%20growth/MGI_Debt_and_deleveraging_Uneven_progress_to_growth_Executive_summary.ashx
It's still a pretty bleak picture, for sure, but nowhere remotely close to the silly stuff talked about on your swivelled-eyed right-wing nutter site.

You might also want to have a look at what the McKinsey report suggests for ways out of the debt crisis. And compare them to what i have been saying these last few months.

You might also want to do a search for the term "default" in that report.

And finally, you might want to think about who the UK debtors owe money to, and what would the effect of their defaulting be. Surely you've considered this Mick? You HAVE haven't you?

[mjdgreg]

If the debt figures are gross, then, in isolation they are utterly meaningless.

Utterly meaningless!!! Are you having a laugh?

[mjdgreg]

Consider. If I have a gross mortgage debt of £200k, but a house worth £2million, I am in a damn sight better off position that someone with a mortgage of £100k and a house worth £80k.

What a very realistic example. pmsl.

[mjdgreg]

And by the way, that Morgan Stanley data on that website that you linked to - the one that discusses the issues in such a careful and balanced way

Morgan Stanley are a major respected company. How you can dismiss their data in such an off-hand way is amazing. Your preferred company still have our overall debt at 507% of GDP. This figure is absolutely astounding. What they don't include are unfunded liabilities which the other company does. That's why there is a difference. However this is just arguing over semantics. At 507% we are still way past the point of no return. 

[mjdgreg]

And finally, you might want to think about who the UK debtors owe money to, and what would the effect of their defaulting be. Surely you've considered this mjdgreg? You HAVE haven't you?

I know who the money is owed to and of course I've considered the effect of defaulting. The plain fact is that if you invest money you are putting it at risk. It doesn't matter what the rights and wrongs are. We have so much debt that the ONLY solution now is to default.

If people are still daft enough to lend us more money then they deserve all they get. I'll be getting as much of my private pension (which I now have 100% invested in gold) out as soon as possible. If you're daft enough to wait until you are 65 then you deserve all you get especially after all my excellent advice.

[mjdgreg]

Missed the reasons why the global banking crises happened in 2008 and the measures that various international governments have put in place to address it since?

Have you? You must lead a very sheltered life. You sound like a person who likes to bury his head in the sand and then hope the problems will just magically go away on their own.

Briefly what happened was that Gordon Brown didn't regulate the banks and let them know that whatever huge gambles they took the taxpayer would bail them out. He also vastly increased government spending which was used for consumption and not investment. He abolished 'boom and bust' so everyone went on a spending spree due to the housing bubble that the BoE allowed to happen because they didn't use interest rates correctly.

Now we are far and away the most indebted nation in the G10 with no sign of this situation improving. In fact it's getting worse by the day.

[BillyStubbsTears]

Mick

You remember a week or so back, I patiently explained to you the importance of checking your sources?

Here's a challenge for you. Go and dig out the ORIGINAL report that presented that Morgan Stanley graph.

Go on. Go and find it. Personally, I wouldn't wipe my arse on something presented by that website you linked to. But if you can find the original report, we can see how they compiled their data and we can come to a rational conclusion about its accuracy.

See, anyone could post a link to ravingnutter.com which claims to have definitive proof that the moon is made of monkey spunk because they claim that Neil Armstrong said so.

[mjdgreg]

Semantics Billy, semantics. There's no need for me to bother. Why anyone would decry a website that is anti socialist is beyond me.

I'm prepared to accept your source that says it's only 507% even though this is a very rose tinted view of things and puts the best gloss on figures from cooked books. Only 507%!!! When you are dead you are dead. Even at 'only' 507% we are well and truly dead as an economy. I've done another back of the fag packet calculation and at 507% every working person 'only' owes £192k. Only £192k!!! Even at this 'low' figure we are still dead. Dead, dead, dead. Got it, get it, good.

[BillyStubbsTears]

I know who the money is owed to and of course I've considered the effect of defaulting. The plain fact is that if you invest money you are putting it at risk. It doesn't matter what the rights and wrongs are. We have so much debt that the ONLY solution now is to default.

I do sometimes feel a bit guilty about all this Mick. It is a bit like taking the piss out of the thick kid at school who doesn't realise he's having the piss taken out of him because he's too thick. But I can't help it. You DO keep setting yourself up.

You clearly do not know who UK debt is owed to, or you wouldn't consider the rank stupidity of default to be a solution. It would be the road to utter and permanent economic catastrophe. Here's why.

Around 75% of UK debt is owed to UK companies. Banks borrowed from UK companies to finance lending. Now, if we as a nation defaulted on that debt, it would destroy the balance sheets of the companies who lent the money. That would rip through the entire world economy. Look at the effect that the collapse of ONE financial company (Lehman Brothers) had in 2008. That was the catalyst for the whole credit crunch as the world financial system froze up because everyone suddenly became terrified of lending.

And you, Mick the economic genius, reckon that the UK defaulting on trillions if dollars worth of debt would just be shrugged off by the rest of the world. Aye alright lad.

The solution, as it always is in such a situation, is to have GDP growth with moderate inflation. Over a 20+ year period. Just like we did after WWII. Just like the way that every major country has got out of huge debt problems. So that debt as a proportion of GDP falls over time.

We went through this months ago Mick, when you were refusing to take lessons from history. Now that you ARE taking lessons from history, you might be prepared to listen.

In 1945, our Govt debt to GDP ratio was 250%. By 1975 it was 40%. But that didn't happen by Govt debt reducing. Govt debt increased in 24 of those 30 years. Debt fell as a proportion of GDP because the economy grew. That is the way out now, just as it was then.

And THAT is why the policies currently being employed, which have destroyed growth for 2 years or more are almost the epitome of imbecility. I say "almost" because the only things more imbecilic than Osborne's economic policies are the ones that you keep dredging up from FarRightSwivelledEyedLoony.com

[BillyStubbsTears]

Mick. It's not semantics. It's about whether we can ever trust anything you post. You are a serial poster of "facts" that turn out not to be "facts".

But anyway. Back to the earlier question. What are the assets held against those debts?

[mjdgreg]

I do sometimes feel a bit guilty about all this Billy. It is a bit like taking the piss out of the thick kid at school who doesn't realise he's having the piss taken out of him because he's too thick. But I can't help it. You DO keep setting yourself up, so I'll have to carry on taking the piss.

God you talk a load of old drivel. How many times are you going to just bang on about government debt and ignore the other debt in the economy that totally dwarfs the humongous government debt?

If we just talk about the National Debt, this is going to double over the life-time of this parliament. How much more money do you want them to borrow? To listen to you you'd think they were doing the opposite. They're doing exactly as you want and it's getting us nowhere. Stop being so thick.