While we're obsessing about Europe...

[BillyStubbsTears]

...the world economy is going to hell in a hand cart. Just like some people predicted it would do if we obsessed over deficits and ignored growth.

We're now 7-8 years into the worst recovery from recession that there has been in 200 years. And you will struggle to find a serious economist now who doesn't say that the big problem is deficits. It's not. As it never was. It is lack of demand across the world.

Here's three recent pieces from economists who are a long way from being pinko lefties. All saying the same thing. Govts MUST start spending more or we are in the most serious shit imaginable.

https://www.project-syndicate.org/commentary/monetizing-fiscal-deficits-benign-by-adair-turner-2016-03

https://www.project-syndicate.org/commentary/monetary-policy-limits-fiscal-expansion-by-barry-eichengreen-2016-03

http://www.ft.com/cms/s/2/9986e20e-e211-11e5-9217-6ae3733a2cd1.html#axzz42c8JqIOE

And yet next week, we're going to hear Osborne once more insisting that it is all about the deficit...

[Glyn_Wigley]

It's because the Tories and their ilk look at the economy through an accountant's eyes instead of the eyes of an economist.

[BillyStubbsTears]

No Glyn

It's because, in the long run, the people who pay for deficits are the richest in society. The way that you deal with deficits is by having a prolonged period of higher than average inflation. And inflation hits those with assets.

They know exactly what they are doing as a policy. When Cameron said that it wasn't fair to our children to leave them to sort out the deficit, he really DID mean "our" children. The children of him and his class. He didn't mean everyone else's children. They are already the ones who are paying, through poor job opportunities, removal of decent pensions and trebling of tuition fees. 

[Glyn_Wigley]

I disagree. You tackle the deficits by economic growth; by investing in infrastructure, thereby employing more people, thence increasing economic activity, and therefore increasing demand and creating more jobs etc. - which does produce a certain amount of inflation but ideally only about 2% for the best chance of growth; if there is too much inflation can be dealt with by increasing taxation, which then helps tackle the deficit along with the already increased tax revenues and decreasing welfare costs.

Inflation only hits those with their assets wholly in cash, or on fixed incomes. You just have to look at the Great Inflation of 1923 Germany - it was the middle class that suffered. The upper class (Cameron's echelon) have their assets in land, goods, or more likely overseas; the lower class have nothing to start with to lose. The middle class has money in the bank and/or fixed incomes (such as pensions) which disappeared down the plughole.

[BillyStubbsTears]

No, I disagree on a few of those points Glyn.

The wealthy generally have huge investments in stock. Land, yeah, but we're not talking, generally about large swathes of agricultural land being where the money is. More, property.

From 1960-the mid 80s, we had an era of high inflation in the western world. From the mid-80s to the Great Recession, we had a big fall in inflation.

Look what happened to stock market prices (use the Dow Jones cos I can't find UK data back to 1960).

1960-1980. Inflation trebled general prices. Stock prices went up about four-fold. So they just popped inflation. Wages went up much more strongly, so the workers effectively caught up some of the ground against those whose income came from stock investments.

1985-2005.  Inflation went up 50%. Stock prices went up 10 fold. Wages more or less followed inflation.

In the era of high inflation, the rich did relatively poorly. In the era of low inflation, they did spectacularly better than the rest.

Similar story with housing. (UK data this time because I have it). Since 1960 house prices have doubled roughly every 8-9 years. Sometimes a bit more, sometimes a bit less, but iron out the peaks and troughs and that's a rough guide. But our inflation pushed general prices up five-fold from 1960-1980 and only double from 1985-2005.

Same story again. If you invested in property, you did far better in the low inflation times than in the high inflation ones.

That's why the Right are so committed to painting the high inflation 1970s as the worst time ever. It was. For them.

[Glyn_Wigley]

Inflation is the rate at which a currency loses it's value: it does not affect the value of physical assets. Comparing stock market values to inflation is extremely simplistic when you ignore the much bigger influences on stock values, especially during the latter 20th century when - in this country especially - old industries suffered because they didn't modernise due to lack of foresight and/or trades union intransigence.

[BillyStubbsTears]

Glyn

Yes, inflation is the rate at which currency loses value. But if the nominal value of an asset changes at a rate different to the inflation rate, then implicitly, the existence of inflation changes that something's "value". If a house keeps a nominal constant value of £100k over a period when inflation doubles, then its real value has halved. That applies to any anything that has nominal monetary value, be it property, land, stock, commodities or wages. Through the era of high inflation in the 60s-early 80s, stocks and property increased their nominal value less rapidly than did wages. So, relatively, you were better off being a worker than being an asset owner. And with a vengeance, the opposite has been true during the era of low inflation.

Co-incidence does not imply causality of course. And I'm certainly not talking about hyper-inflation, where of course, anyone holding money is crushed, whereas people holding assets that have an intrinsic value will come through relatively well.

My original point was that, realistically, you deal with debt most effectively by gently eroding its value through mild inflation over a long period. And you have mild inflation by having polices that support demand. And policies that support demand lead to a strong jobs market and wage growth. Otherwise, demand isn't there because consumers don't have the available cash to keep demand high.

Plus, the really big point is: who does the Govt owe money to? It's not the poorest people in society who own Govt debt. It is mainly big financial institutions which are owned by the wealthiest. So it is very much NOT in their interests to see their debt's value whittled away through inflation. Unless they receive a big interest payment. They want the interest rate to be higher than the inflation rate. But keeping interest rates high relative to inflation suppresses demand.

Eh well. Beats having think about our shower of shite today.

[Glyn_Wigley]

Glyn

Yes, inflation is the rate at which currency loses value. But if the nominal value of an asset changes at a rate different to the inflation rate, then implicitly, the existence of inflation changes that something's "value". If a house keeps a nominal constant value of £100k over a period when inflation doubles, then its real value has halved.

Now you're looking at it as an accountant and not an economist. A house's value is based on what it does, ie house a certain number of people at a certain level of comfort. That is it's economic value. No matter what the currency is worth that you value it by, that economic value remains the same as it can house no more people at the same level of comfort whatever the monetary value placed on it.

As for your economic plan, it's exactly what I was saying, you get rid of the deficit by investing and creating demand. You originally said that you do it by creating inflation, which you can do in more than one way, and much more effectively by printing money but which wouldn't heal the economy. You weren't being very clear with how you put it.

[BillyStubbsTears]

Glyn

1) I might be misunderstanding you, but a house doesn't have a fixed, intrinsic value. In the limit, if a virus killed everyone on earth, houses are useless and worthless. (For a more realistic example, see Detroit.)

2) But that's just an academic indulgence. We were talking about the monetary value. At least I was. The intrinsic "worth" of a house is entirely irrelevant to the discussion of the monetary value of a house to someone's financial wealth.

3) Agreed I wasn't being clear. Inflation whittled away debt. And mild inflation should go hand in hand with an environment where demand is deliberately fostered. We will eventually shed the madness of tight fiscal policy. And we probably will do it by printing money and effectively monetising the debt. It'll come when we hit the up coming recession and we're left with the unarguable fact that monetary policy on its own has shot its bolt.

[Glyn_Wigley]

Glyn

1) I might be misunderstanding you, but a house doesn't have a fixed, intrinsic value. In the limit, if a virus killed everyone on earth, houses are useless and worthless. (For a more realistic example, see Detroit.)

2) But that's just an academic indulgence. We were talking about the monetary value. At least I was. The intrinsic "worth" of a house is entirely irrelevant to the discussion of the monetary value of a house to someone's financial wealth.

You're confusing loss of value due to a change in the demand curve (which affects value as represented by a monetary expression) with a perceived loss of value when a currency loses value, which doesn't affect the nature and economic worth of an item at all.  In your instance of a virus, the 'value' of a house is altered not by inflation but by a change in the demand for houses. Even in that instance, the house has not altered in what it is able to do economically as it can still house just as many people as it did before - that is it's economic worth as economics is all based upon the mechanism of how finite resources are used and distributed and not upon fiscal values.

[BillyStubbsTears]

Glyn

I'm not quite sure how we got to this point. I was not talking AT ALL about the economic value of anything. I was talking purely about the monetary value of assets to the asset holder. The utility of the asset to a user or to a society is essentially irrelevant to that discussion. All that matters is the monetary value of the asset when owner decides to cash in the asset.

As I said earlier if the nominal (monetary) value of an asset increases at a more or less fixed rate over time, but the inflation rate has very different rates during that period, then it is axiomatic that the real [1] (monetary) value of the asset is affected by inflation.

The rate of increase of nominal monetary house prices has been roughly constant for 50 years. But for the first half of that period, the inflation rate was high and in the second half it was low. Which means that (relative to the value of the currency) people who owned property as an investment did better in the second period than in the first. Far, far better

Which was the point I was making. Nothing more or less, and I honestly can't see any logic in arguing against that.

[1] I'm using the term "real" here as I did before, to mean "inflation adjusted" monetary value.

[Sammy Chung was King]

They have let cheap chinese steel be imported into the country, at a cost that puts our factories out of business. Now i don't believe that the quality of their product is as good as ours, our steel has always been respected as if not the best then one of them.
Our country doesn't sell things as much, smaller businesses have been pushed out of the way, because they can't compete because these countries pay their people such low wages.
The country needs to get back to manufacturing more of our own goods, if the government has to help for the first few years, why not?.
In each local village it needs a wide range of different shops, and with smaller businesses a start up help from the government, just give them a chance to grow is needed.
It needs to go back to where people can get most of their shopping in their local area, the country needs building village by village, boost the local economy, and it has a knock on effect on the national situation!.

[Glyn_Wigley]

They have let cheap chinese steel be imported into the country, at a cost that puts our factories out of business.

Which is exactly what happened to the coal industry. Laissez-faire capitalism is all very well as a concept, but just like Communism it doesn't work unless everybody else is dong the same thing. When you let other countries state intervention subsidise their coal and steel industries but refuse to do the same at home because of ideology but instead let your home industry crumble because of cheap imports, you're betraying your own country.

[BobG]

Stand by for another deep and meaningful betrayal on Wednesday chaps. He's already talking about the need to cut lots and lovely lots more.

Bobg

[BillyStubbsTears]

The global economy is tipping towards recession. So we cut Govt spending.

2/10 for effort Osborne.In mitigation, you did study History, rather than Economics. But even then, you should know from history what happens when you cut Govt spending as the economy is tanking.

You Kitson.

[Sammy Chung was King]

The government need to show ''We are all in it together''!, and take a 25% wage cut . The ex mayor Doncaster promised to take a cut if he got in and stuck to his word.
All the perks mps get at the minute, second homes, money to clean their pool need stopping.
They should be paid a flat wage, and they should take their travel expenses out of that, if the normal working man or woman has to do it why can't they?.

They need to be going after the big companies for taxes not the ordinary man. We need as i said before to build village by village, the government needs to give a start up help cover their rent for so long to encourage entrepreneurs, make each area a success.
 Then money gets spent in that area, and it spreads into the next area.
Employ people who have experience of road surfacing to cover their own village, this will inturn create jobs for local people and encourage pride in the area they live.

Get young kids just out of schools who don't know what to do with themselves, tidying the area they live for a wage. Use retired people with skills like motorcycle repair or car repair experience to learn the kids, give them enough to rent a workshop and pay them a wage to learn and also give the experienced teacher a wage.
This will encourage greater respect of their elders, the older guy or woman, gets a bit of part time work, and the whole area benefits from no kids hanging around at a loose end.
Plus they will have money in their pocket that will again get spent probably in the local area.

This government is so short sighted, growth in all sectors is needed, but they have to risk a bit of money to get the country moving, it's flat lining at the minute!.

[BobG]

Maybe - to some of that Sammy, but the 'ordinary man', if he has even a little bit of brain can exploit the tax system just as effectively as those with millions. I'm almost ashamed to say it, but my tax bill for this FY is going to be £1,200.89 on a taken income of £46,080.06. That is an effective tax rate, on income taken, of 2.6%. If you strip out this years personal tax allowance of £10,600 the effective tax rate becomes 3.38% on taxable income.

This, btw, completely ignores all the money I've left in my company - upon which, as I've explained previously, the effective tax rate can be reduced to fairly trivial amounts too.

Tory governments ever since the 1980's have created this system where those with a bit of money, or  either brains or enough cash to pay for good advice, can completely ignore the rules that apply to the common man. It's how they get people to join their club and it makes sure that those at the bottom of the pile keep on footing the bill for those with access to silver spoons. we could all do this you know - if only we had the wit and the gumption. And don't say 'I can't contribute a thousand quid'. You don't have to. set up a bloody company as a co-operative venture. All chip in 50 quid. And take it from there.
We have let this system grow and grow and grow. It's about time we started using it just like the Tories do.

Me? I'm a plutocrat me.

BobG

[DearneValleyRover]

I'm with you Bob, I've set up a limited company for the vast amount of £15. Add costs of £300 for the accountant and £500 insurance and I'm quids in.

[NickDRFC]

How big's your penis Bob? Given in the last few weeks I've read about how big your house is and how much money you're taking home, surely a boast about your appendage is the next logical conclusion 😉

[Bentley Bullet]

Reading between the lines the answer to that is hidden in Bob's post, when he points out that you don't need a big endowment to stop the taxman from blowing it.

[BobG]

Yes Nick. You're the only one I can boast to But if you don't want advice, and clearly sound advice at that given DVR's comment, then it's your loss. No skin off my nose.

Cheers

BobG

[tommy toes]

'No skin off my nose'

No foreskin off my huge member, surely 😁

[Snodthegod]

"Tory governments ever since the 1980's have created this system where those with a bit of money ... can completely ignore the rules that apply to the common man". 

Sorry Bob - if you know something is wrong and immoral, it doesn't make it alright to do it just because others are doing it.  A shallow and selfish argument.