The case for deflation

[BillyStubbsTears]

Those assets Mick? Maybe you can find them under that "astonishing evidence" that you never managed to put your hands on.

[BillyStubbsTears]

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.

Mick. We can simplify the entire discussion

I believe, based on straightforward economic theory and historical precedent, that very large debts can be brought under control over a generation by economic growth. Economic growth can be, indeed in a liquidity trap depression can ONLY be fostered by Govt spending. The long run effect of that additional Govt borrowing would be long term decrease in debt.

You believe, with no support from either economic theory or historical precedent, (although, admittedly with some "astonshing evidence" apparently) that none of this is possible and that the only way out is for us to effectively tip the entire world economy into the abyss.

I think sums up 6 months of argument in a nutshell.

[wilts rover]

BST, it pains me to do this but I am afraid I have to come up in support of mjdgreg this time in that there is historical precedence for his course of actions. It is of course the sack of Rome by the Barbarian tribes in 410AD, due to the Romans not being able to pay their mercenary soldiers (defaulting on debt) and high taxation on the ordinary people of the provinces to keep the corrupt central government in place (re-banking & finance institutions of the day). The result being the collapse of western civilization for 1000 years, reduction in life expectency, black death, etc, etc..

I didn't say it was a good or positive precedent - but I in my opinion its the closest to what he is suggesting.

[mjdgreg]

mjdgreg. We can simplify the entire discussion

I believe, based on straightforward economic theory and historical precedent, that very large debts can be brought under control over a generation by economic growth. Economic growth can be, indeed in a liquidity trap depression can ONLY be fostered by Govt spending. The long run effect of that additional Govt borrowing would be long term decrease in debt.

You believe, with no support from either economic theory or historical precedent, (although, admittedly with some "astonshing evidence" apparently) that none of this is possible and that the only way out is for us to effectively tip the entire world economy into the abyss.

I think sums up 6 months of argument in a nutshell.

Can't you read? THE NATIONAL DEBT IS GOING TO DOUBLE OVER THE COURSE OF THIS PARLIAMENT. Cuts, what f.....g cuts. They are spending as much in 5 years as all the other governments from the last century put together. The government is doing exactly as you want them to. It is not, I repeat, not solving the problem. There is no historical precedent of a nation being in so much debt (not just f......g government debt) ever avoiding total economic melt-down. You really make my piss boil by only ever going on about government debt.

We are in so much debt that government spending won't make a blind bit of difference. All it will do is make matters worse. We can't keep on doubling the National Debt every 5 years. Spare a thought for future generations for a change and stop being so selfish.

[mjdgreg]

BST, it pains me to do this but I am afraid I have to come up in support of mjdgreg this time in that there is historical precedence for his course of actions. It is of course the sack of Rome by the Barbarian tribes in 410AD, due to the Romans not being able to pay their mercenary soldiers (defaulting on debt) and high taxation on the ordinary people of the provinces to keep the corrupt central government in place (re-banking & finance institutions of the day). The result being the collapse of western civilization for 1000 years, reduction in life expectency, black death, etc, etc..

I didn't say it was a good or positive precedent - but I in my opinion its the closest to what he is suggesting.

Another one with his head stuck in a history book and can't see what's in front of his nose. The government is currently DEFAULTING on its debt. Its just hoping no-one will notice and judging by the total lack of intelligence on this forum I'm not surprised they're getting away with it. You will all rue the day you ignored my excellent advice.

Hang around for a state pension. Believe that you're going to get an inflation-linked public sector pension for life when you retire. Believe you're going to get a free bus pass and a winter fuel allowance. Believe health-care is going to remain free at the point of use. Believe in housing benefit etc.

The welfare state is going to be severely cut back. It's plain to see that we are no longer able to afford it and so you better start preparing for a totally different life than you were expecting. Thank you Gordon Brown, never in the course of human history have so many lives been ruined by one man. 

[BobG]

Are you suggesting that we, as individuals, all default on our own debts then Mick?

Also, when I was student, if my overdraft reached a hundred quid. I'd really start to panic. Now, years later, I earn more, own a chuff of a lot more and each pound is worth less. So my current debt of several thousand actually means f**k all to me. see? That's what Billy is trying to get through your myopia.  Debt as an absolute really don't matter two hoots. US government debt makes ours look sodding pygmy. Their absolute debt is massively more than ours. So why aren't you panicking about the size of their debt? It's far worse than ours.

My debt today is not large when compared to the assets I hold. Even if I did absolutely nothing except gently increase that debt, it would, in any sane world,  matter less and less, and be worth less and less  as each year passes by. Inflation is a wonderful thing Mick sometimes. Absolutely wonderful. I loved the early 80's. Bought my first house and lo: my mortgage debt related to my pay shrank hugely every single year. So less and less pay had to be devoted to servicing the debt. That's what we should be doing now. economic stimulus, and inflation.

BobG

[mjdgreg]

Bob,

I'll get to all your points when I've got a bit more time. For now I'd just like to point out something about 'stimulus'. Billy keeps arguing for it all the time and it seems he has convinced many people that this is what is needed. All I would say in part to destroying that argument is that the government is going to double the National Debt during the five years of this parliament. Never has so much money been spent in such a short time (not even by Labour). If this isn't stimulus then I don't know what is.

Why isn't it working as Billy says it should?

[Glyn_Wigley]

I thought you understood economics? This is so basic - it's because the money is being chucked away on tax cuts for those for whom it's not going to increase consumer demand by any significant amount instead of it being spent on capital investment that would result in employing people who can't spend money because they don't have it earning money, increasing their disposable income and therefore their consumer demand, with the concomitant benefits of removing them from the benefit expenditure, increasing the tax revenue, and still having a capital investment infrastructure product with the economic benefit it garners at the end of it.

[wilts rover]

For the half a dozen people who are actually interested in the topic, here's an article from the Huffington Post's (tory) economist, reproduced in full so Mick can pull it pieces, hope the HP dont mind:

Finally! Exposed! The Deficit Myth! So, David Cameron When Are You Going to Apologise?
"A lie gets halfway around the world before the truth has a chance to get its pants on"
 - Winston Churchill

As a Conservative I have no pleasure in exposing David Cameron's deficit claims. However, as long as the party continues to talk down the economy via the blame game, confidence will not be given an opportunity to return. For it is an undeniable and inescapable economic fact: without confidence and certainty there can be no real growth.

Below are the three deficit claims - the mess. The evidence comes from the IMF, OECD, OBR, HM Treasury, ONS and even George Osborne. The claims put into context are:

CLAIM 1
The last government left the biggest debt in the developed world.

After continuously stating the UK had the biggest debt in the world George Osborne admits to the Treasury Select Committee that he did not know the UK had the lowest debt in the G7? Watch: Also, confirmed by the OECD Those who use cash terms (instead of percentages) do so to scare, mislead and give half the story.

Its common sense, in cash terms a millionaire's debt would be greater than most people. Therefore, the UK would have a higher debt and deficit than most countries because, we are the sixth largest economy. Hence, its laughable to compare UK's debt and deficit with Tuvalu's who only have a GDP/Income of £24 million whilst, the UK's income is £1.7 Trillion.

Finally, Labour in 1997 inherited a debt of 42% of GDP. By the start of the global banking crises 2008 the debt had fallen to 35% - a near 22% reduction page 6 ONS Surprisingly, a debt of 42% was not seen as a major problem and yet at 35% the sky was falling down?

CLAIM 2
Labour created the biggest deficit in the developed world by overspending.

Firstly, the much banded about 2010 deficit of over 11% is false. This is the PSNB (total borrowings) and not the actual budget deficit which was -7.7% - OBR Economic and Fiscal Outlook March 2012 page 19 table 1.2

Secondly, in 1997 Labour inherited a deficit of 3.9% of GDP (not a balanced budget ) and by 2008 it had fallen to 2.1% - a reduction of a near 50% - Impressive! Hence, it's implausible and ludicrous to claim there was overspending. The deficit was then exacerbated by the global banking crises after 2008. See HM Treasury. Note, the 1994 deficit of near 8% haaaaaah!

Thirdly, the IMF have also concluded the same. They reveal the UK experienced an increase in the deficit as result of a large loss in output/GDP caused by the global banking crisis and not even as result of the bank bailouts, fiscal stimulus and bringing forward of capital spending. It's basic economics: when output falls the deficit increases.

Finally, the large loss in output occurred because the UK like the US have the biggest financial centres and as this was a global banking crises we suffered the most. Hence, the UK had the 2nd highest deficit in the G7 (Not The World) after the US and not as a result of overspending prior to and after 2008- as the IMF concur.

CLAIM 3
Our borrowing costs are low because the markets have confidence in George Osborne's austerity plan and without it the UK will end up like Greece.

Yes, the markets have confidence in our austerity plan and that's why PIMCO the worlds largest bond holder have been warning against buying UK debt.

The real reason why our borrowing costs have fallen and remained low since 2008 is because, savings have increased. As a result, the demand and price for bonds have increased and as there is inverse relationship between the price of bonds and its yield (interest rate) the rates have fallen. Also, the markets expect the economy to remain stagnate. Which means the price for bonds will remain high and hence, our borrowing costs will also remain low.

Secondly, the UK is considered a safe heaven because, investors are reassured the Bank of England will buy up bonds in an event of any sell off - which increases the price of bonds and reduces the effective rate. Note, how rates fell across the EU recently when the ECB announced its bond buying program. Thirdly, because, we are not in the Euro we can devalue our currency to increase exports. Moreover, UK bonds are attractive because, we haven't defaulted on its debt for over 300 years.

David Cameron would like people to believe the markets lend in the same way as retail banks lend to you and I.

Overall, when the facts and figures are put into context these juvenile deficit narratives and sound bites ("mere words and no evidence") simply fail to stand up to the actual facts. The deficit myth is the grosses lie ever enforced upon the people and it has been sold by exploiting people's economic illiteracy.

So, David Cameron when are you going to apologise?

Cameron is playing the blame game to depress confidence and growth to justify austerity. Secondly, to use austerity as justification for a smaller state to gain lower taxes. Thirdly, to paint Labour as a party that can not be trusted with the country's finances again. Therefore, we Conservatives will win a second term because, people vote out of fear. The latter strategy worked the last time in office (18 years) and will work again because, in the end, elections are won and lost on economic credibility. Hence, as people believe Labour created the mess they won't be trusted again.

Finally, as the truth is the greatest enemy of the a lie I urge you to share this on Facebook, Twitter, blogs, text and email etc etc. So the truth can be discovered by all. Finally, have no doubt, people have been mislead by the use of the following strategy:

"If you tell a lie big enough and keep repeating it, people will eventually come to believe it" Joseph Goebbels

http://www.huffingtonpost.co.uk/ramesh-patel/growth-cameron-austerity_b_2007552.html?ncid=edlinkukhpmg00000082

[mjdgreg]

I thought you understood economics? This is so basic - it's because the money is being chucked away on tax cuts for those for whom it's not going to increase consumer demand by any significant amount instead of it being spent on capital investment that would result in employing people who can't spend money because they don't have it earning money, increasing their disposable income and therefore their consumer demand, with the concomitant benefits of removing them from the benefit expenditure, increasing the tax revenue, and still having a capital investment infrastructure product with the economic benefit it garners at the end of it.

As far as drivel goes, this really does take the biscuit. All going on tax cuts!!! pmsl. You're embarrassing yourself (again).

Also, if you're going to post, please use a few full stops in future. It's bad enough reading drivel without having to put up with bad punctuation as well.

[mjdgreg]

wilts rover, that article is unbelievable. I'll guarantee you that even Billy will have no truck with it. I thought Glyn_Wigley had taken the biscuit with the drivel he posted, but this article has to go down in history as the biggest load of hogwash that has ever been posted on this forum. 

You've obviously not read BST's most recent thread 'The importance of checking your facts'.

[mjdgreg]

After two piss poor posts by wilts rover and Glyn_Wigley, I'll ask again in the vain hope that I might get a sensible answer.

Why isn't it working as Billy says it should?

[mjdgreg]

Are you suggesting that we, as individuals, all default on our own debts then mjdgreg?

No. You should only default on your debts if you can't pay them back.

Also, when I was student, if my overdraft reached a hundred quid. I'd really start to panic. Now, years later, I earn more, own a chuff of a lot more and each pound is worth less. So my current debt of several thousand actually means f*** all to me. see? That's what Billy is trying to get through your myopia.  Debt as an absolute really don't matter two hoots. US government debt makes ours look sodding pygmy. Their absolute debt is massively more than ours. So why aren't you panicking about the size of their debt? It's far worse than ours.

Have a look at a graph in the link BST posted not so long ago. It can be quite easily seen that in relative terms the UK is the most heavily indebted country in the G10, closely followed by Japan. The US debt does give me great cause for concern but it is much less than ours.

My debt today is not large when compared to the assets I hold. Even if I did absolutely nothing except gently increase that debt, it would, in any sane world,  matter less and less, and be worth less and less  as each year passes by.

Possibly. Depends on the value of your assets. They could (and probably are) declining in value and the interest you pay could increase putting you in a worse position as time goes on.  Compounding is not a wonderful thing when you are in debt. The debt would also not get less and less if and when deflation takes hold.

Inflation is a wonderful thing mjdgreg sometimes. Absolutely wonderful. I loved the early 80's. Bought my first house and lo: my mortgage debt related to my pay shrank hugely every single year. So less and less pay had to be devoted to servicing the debt.

Inflation is a good thing if it decreases your debt. It is also a bad thing in many other ways, and overall, high inflation is best avoided.

That's what we should be doing now. economic stimulus, and inflation.

If only it were that simple. As I said earlier, we are doubling the National Debt during the lifetime of this parliament. This is the most any government has ever spent in such a short space of time. You've got your stimulus already. It isn't working because the overall debt in the economy is too great and house prices are falling.

Inflation is currently reducing the debt, but unfortunately we are borrowing far more than the reduction in debt this gives us. So our debt carries on rising exponentially. Things are going to get worse once deflation gets going.

[Glyn_Wigley]

I thought you understood economics? This is so basic - it's because the money is being chucked away on tax cuts for those for whom it's not going to increase consumer demand by any significant amount instead of it being spent on capital investment that would result in employing people who can't spend money because they don't have it earning money, increasing their disposable income and therefore their consumer demand, with the concomitant benefits of removing them from the benefit expenditure, increasing the tax revenue, and still having a capital investment infrastructure product with the economic benefit it garners at the end of it.

As far as drivel goes, this really does take the biscuit. All going on tax cuts!!! pmsl. You're embarrassing yourself (again).

Also, if you're going to post, please use a few full stops in future. It's bad enough reading drivel without having to put up with bad punctuation as well.

Yep, just as expected. You haven't got an argument against the economics so you attack the man not the ball in order to avoid doing so.  10 out of 10 from Troll School.

[wilts rover]

wilts rover, that article is unbelievable. I'll guarantee you that even Billy will have no truck with it. I thought Glyn_Wigley had taken the biscuit with the drivel he posted, but this article has to go down in history as the biggest load of hogwash that has ever been posted on this forum. 

You've obviously not read BST's most recent thread 'The importance of checking your facts'.

Thanks for that insightful post - would you mind pointing out WHY it is the biggest load of hogwash? I am sure you will have no problem pointing out the mistakes and errors of Mr Patel.

[mjdgreg]

Yep, just as expected. You haven't got an argument against the economics so you attack the man not the ball in order to avoid doing so.  10 out of 10 from Troll School.

Look, do yourself a favour and leave well alone. To say that it is all going on tax cuts for the wealthy is just such an incredibly stupid thing to say. I'm just trying to save you from further embarrassment.

[Glyn_Wigley]

Yep, just as expected. You haven't got an argument against the economics so you attack the man not the ball in order to avoid doing so.  10 out of 10 from Troll School.

Look, do yourself a favour and leave well alone. To say that it is all going on tax cuts for the wealthy is just such an incredibly stupid thing to say. I'm just trying to save you from further embarrassment.

I didn't say that it is ALL going on tax cuts for the wealthy and it's an incredibly stupid thing to assume that I did. I'm not in the slightest bit embarrassed about you not being as literate as you think you are.

[mjdgreg]

Thanks for that insightful post - would you mind pointing out WHY it is the biggest load of hogwash? I am sure you will have no problem pointing out the mistakes and errors of Mr Patel.

I'd be there all day. I've got better things to do. You must be really naive to fall for that one. It's so obviously a wind up. Trust me, I know what I'm talking about.

[mjdgreg]

You said, 'it's because the money is being chucked away on tax cuts for those for whom it's not going to increase consumer demand by any significant amount'. If I misunderstood you then I would be grateful if you could explain what this statement means. I would also be grateful if you didn't use pigeon English this time.

[Glyn_Wigley]

Thanks for that insightful post - would you mind pointing out WHY it is the biggest load of hogwash? I am sure you will have no problem pointing out the mistakes and errors of Mr Patel.

I'd be there all day. I've got better things to do. You must be really naive to fall for that one. It's so obviously a wind up. Trust me, I know what I'm talking about.

6 out of 10. Must try harder.

[Glyn_Wigley]

You said, 'it's because the money is being chucked away on tax cuts for those for whom it's not going to increase consumer demand by any significant amount'. If I misunderstood you then I would be grateful if you could explain what this statement means. I would also be grateful if you didn't use pigeon English this time.

That statement means exactly what it says and no more. If you can't help reading extra meaning into it it's your problem.

[BillyStubbsTears]

You said, 'it's because the money is being chucked away on tax cuts for those for whom it's not going to increase consumer demand by any significant amount'. If I misunderstood you then I would be grateful if you could explain what this statement means. I would also be grateful if you didn't use pigeon English this time.

Mick

You have surpassed yourself in your use of rapier-like irony.

I wonder if you even realise what you have done.

I could explain, but I'd be there all day. I've got better things to do. It's so obviously a wind up. Trust me, I know what I'm talking about.

I wonder if YOU do?

[mjdgreg]

Right, the gloves are off. So far I've been very patient and put up with a lot of unfounded, outlandish statements. All those of you that argue against 'austerity' need to explain yourselves. What is your 'evidence' for austerity?

How on earth can doubling the already massive National Debt be described as 'austerity'? I'm waiting. If no-one answers this question properly, then there can be no doubt that Billy's solution to our problems is nothing more than a load of leftie hot air.

[mjdgreg]

mjdgreg

You have surpassed yourself in your use of rapier-like wit and irony.

I wonder if you even realise what you have done.

Of course I do. It would seem that your humour by-pass operation has not been as successful as I first thought.

[BillyStubbsTears]

Mick

The answer is extremely simple for anyone who has spent any time looking into the fundamental economic theory.

Depressed economic output, by definition, is economic output which is lower than that which would be produced if the economy were firing on all cylinders.

Economies fail to fire on all cylinders because there is a lack of demand from private (business and individual) economic agents.

In such a case, a Govt fiscal stimulus basically fills the gap of demand by injecting demand into the economy. If total aggregate demand remains weak, it is because Govt spending is not high enough. That is precisely the case that we have had since 2010. In 08-10, the Labour Govt supplemented aggregate demand by their fiscal stimulus. The result was a very strong rebound in growth. In 2010, this Govt cut the stimulus and growth collapsed. I really don't see how you can argue against that.

Actually, I DO see. It's because you have no comprehension what a fiscal stimulus is. You think Govt borrowing equals fiscal stimulus.

What is happening at the moment is that Govt borrowing is very high because tax receipts are in a long term slump. That is precisely the root of the deficit problem. Whilever private business is depressed and the economy is running below potential, tax receipts will be depressed. So, the only way that Govt borrowing can come down is by huge Govt spending cuts. But huge Govt spending cuts would remove still more demand from the economy (by putting more people on the file and removing more contracts from companies). So the economic slump will go on and tax receipts will go still lower. Round and round and round. A bit like arguing with you Mick.

Now, one of the reasons why this Govt has been particularly economically illiterate is that the cuts they HAVE introduced in the first 2 years have been almost entirely in big infrastructure investments. One of the first things they did was to pull £4bn of school building jobs. Madness. Apart from creating long term problems in the quality of school infrastructure, this also led directly to a crippling collapse in the construction sector, putting more people on the dole and pulling yet more demand out of the economy.

So, the simple answer to your ignorant question Mick, is that what we have at the moment is categorically NOT a fiscal stimulus. The Govt is spending on day-to-day stuff (pensions, NHS, dole money, running schools) but it doesn't have enough tax coming in to pay for it. (Which is why it has to borrow.) A fiscal stimulus would be DISCRETIONARY spending on long-term infrastructure projects over and above this day-to-day stuff, filling in for the things that the private sector is too scared to invest in. Or it would include massive inducements to companies to expand. Things like abolishing NI contributions on new recruitments. Or subsidies for companies to buy new plant and facilities. Govt subsidised encouragement for companies to expand. On a massive scale, with the intention of getting unemployment down by 1.5 million in 18 months. A fiscal stimulus would entail a much bigger increase in Govt spending. Another £50bn or so right now.

Clear enough argument for you Mick.

[BillyStubbsTears]

mjdgreg

You have surpassed yourself in your use of rapier-like wit and irony.

I wonder if you even realise what you have done.

Of course I do. It would seem that your humour by-pass operation has not been as successful as I first thought.

Go on then. What was it?

Simple answer for once Mick. No bluff and bluster. Tell us what your deliberate irony was.

[mjdgreg]

Go on then. What was it?

Simple answer for once Mick. No bluff and bluster. Tell us what your deliberate irony was.

You obviously spotted it but couldn't work out if it was humour or not. I have no wish to patronise the readers of the forum who I'm sure got the joke straight away. Those that didn't get the joke will not find it funny if it is explained to them so it is best to leave them in the dark. As they say, ignorance is bliss.

[Glyn_Wigley]

As they say, ignorance is bliss.

You must be in a state of permanent orgasm then.

[BillyStubbsTears]

Like I say Mick. Good job you don't play poker because your bluffing is shite.

You haven't the first idea what I am talking about.

I've now got a list of 12 separate occasions where you have graciously declined to expand on a topic when you have been directly challenged.

You are an embarrassment.

Anyway, I've already PM'd the regulars on this thread to point out your wit, so you'll not be patronising anyone by explaining it.

[mjdgreg]

Like I say mjdgreg. Good job you don't play poker because your bluffing is shite.

You haven't the first idea what I am talking about.

I've now got a list of 12 separate occasions where you have graciously declined to expand on a topic when you have been directly challenged.

You are an embarrassment.

Anyway, I've already PM'd the regulars on this thread to point out your wit, so you'll not be patronising anyone by explaining it.

Actually poker is one of my pastimes and I am very good at it. Of course I know what you are on about. I don't think the people you have PM'd will be very happy with you though. It's like your saying they are too thick to get the joke so you felt the need to explain it to them because you are more intelligent than them. That's quite patronising in my book.

It seems you are just trying to wind me up. Trust me I know what I am talking about.