Rates of Inflation

[Polarbear]

Brought on buy JonB's mortgage thread.....

Can someone xplain to me why inflation is desirable?

I was listening to a political programme where they said Spain would be in negative inflation this year, or deflation if you prefer.

I thought, lucky bastards, everything will cost less, more for your wages which will mean less unrest, no (theoretically) wage rise demands.

Then the politicians/finance people went on that this would be a bad thing for the economy but didn't elaborate why.

What am I missing, why would it be a bad thing for the economy. As far as I can see people would spend more, companies could export more and sell more. Even the government would/should get more with VAT on increased spending.

So whats the catch?
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[N cee thirty]

people holding back on purchases because something might be cheaper tomorrow, so a glut in demand for stuff and thus growth stagnating

so less jobs being created/ needed and less tax being paid , thats the general jist of it
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Jewlio Iglesias wrote: I actually did vote BNP once

[The Artist]

Also debt gets screwed up. Especially long term low interest things like Mortgages. Since our economy is half based on debt, this could cause issues.

Say you are on a 2% interest mortgage and inflations is -2%, you could get a 25 year interest free loan. Obviously the offer would change once we got into negative inflation but a lot of people are on fixed plans.

Personally I think the "People not spending because their money will be worth more tomorrow" train of thought is a bit overblown. Yes it will in some cases be like that but people are not going to wait months/years for single digit % effective discounts. Also, prices would just go up. The only time this isn't effective is when deflation is rapid but that is unlikely.

[Andy_Pagin]

[Itchy]

[Tracey Suntan-King]

I've wondered about this too and read as much press stuff as I can stand to try to understand this.

My conclusion? Deflation is only a bad thing for business and government, not for the man in the street.

Capitalism is based on a need for continuous and constant growth to feed shareholders, company directors and government. Government because deflation has an effect on the cost of the national debt, borrowing may be cheap but the assets it is leveraged against are not increasing in value so debt gearing gets worse. Poor George then has a bigger problem to solve as the national balance sheet weakens......and his tax-take drops or rather doesn't increase as forecast = double whammy.

For consumers, I don't believe people put off major purchases, especially as retailers discount all the time anyway. Also, on a day to day basis, if stuff you need to buy is cheaper, you can buy more of it.

Don't fall for the hype, enjoy!
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Whether you think you can, or think you can't, you're probably right

[The Artist]

[BakesBeans]

Inflation = Money Supply x Velocity

Others have said deflation is bad because it delays spending, and discourages the circulation of money etc etc - which is good in economic theory, but I don't buy that in the UK today.

For example, look at TVs. If I delay buying one for a year, I'll get a much better one for the same price - and that's been going on for years. That didn't stop the economy falling apart now did it!

If you look at the above formula, inflation is simply the increase in money supply - i.e. how much debt is created, whether by the government or private banks, at any given time MULTIPLIED by velocity, which is how quickly it gets repeatedly re-spent.

The money supply has been growing at about 12% per year (that's before the BoE quantitative easing), but the velocity is tiny. Why? Because it mainly went into new mortgage debt, and that alone didn't boost the economy - the fact that you bought a house and the associated purchases did.

In fact, if you measure inflation as the cost of living, e.g. with everything involved we've had inflationary crisis for years - and house prices have proved that. It's just the economists chose to measure inflation as the cost of 'consuming' which is CPI, or the slightly better RPI (which still massively under estimates the cost of a roof over your head).


The big thing that matters is wage inflation.. this needs to continue to go up to 'inflate' the debt, and the public along with the private debt is massive! Any falling in prices, discourages you to ask to be paid more.. and that means the whole economic reality starts to fall apart.
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[Polarbear]

[Ste]

[iooi]

[The Artist]

[Itchy]

[Sun Wukong]

Inflation is something that I find grossly unfair, and I'm amazed it is so readily accepted.

It doesn't surprise me that they push deflation as a negative as well.

Are bank interest rates ahead of inflation yet in England?

[mentalboy]

Inflation exists solely for the purpose of making money from money, without it the market would stagnate and hedge fund managers wouldn't have a job... aaaaw
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Make mine a Corona.

[stevo as b4]

Making money from money? That all sounds very much like what nearly all of London is about TBH!

London's certainly nothing to do with supplying goods and services to the british public that they want& need and making a small profit whilst doing so!

[unitynotsocri...]

high inflation , like in the 70 s was considerd bad news ,forcing up prices and wages but now goverments have printed extra trillions they would welcome massive inflation as it reduces the real value of its debt over the long term .
Unfortunatley we ve got deflation which is really an admission that our currencies were vastly overvalued before the 'crash' ,as they say in insurance circles.......' it was nt an accident , it was a crash'.

the vast overvaluation of property and commodities needs rectifying and four diodes wont do it.

buy potatoes,bitcoin , land, gold and silver .

the bond market id fckled .



p.s. check your pension fund has nt invested in fracking , as its completly uneconomic now .

p.s. Swiss banks have fired the starting gun for the euro collapse , having realised just how many extra hundreds of billions the European central bank wants to print , it decided it would rather untie its currency with the euro . next thursday watch what the Federal reserve does.
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[MarJay]

Deflation is bad for employers as profits are slashed. What is bad for employers is bad for employees.

A lot of people don't seem to get this. They think that workers are all exploited maligned people who deserve to be paid the same as CEO's and so on, but actually with a huge ratio of employees to CEO, the employee wage bill is often thousands of times greater than the boardroom remuneration. Therefore, if a company can't afford to keep going in its current state there are redundancies.

Redundancies mean unemployment which means a shrinking economy. It's bad.
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[The Artist]

[mentalboy]

[The Artist]