Eurozone debt crisis

[Euler]

that's the argument but we've had deflation in consumer electronics for the past 30 years and it didn't stop anyone buying (and it's been a very successful sector).

That's because it's new technology, it's additive to peoples lives. That fact aside prices of new technology generally rise but the way it's added to inflation figures doesn't make sense. Nobody uses tapes any longer because they were replaced by CD's. CD players deflated dramatically but only because they were replaced with newer technolgy. As so on. All of which isn't automatically included in any inflation figures despite the replacement cost being high because of frequent changes in technolgy. It only seems to make it into the figure when it starts to date and fall in value as new items replace it.

[superfrank]

hyperinflation frank are u for real? there is no demand for credit in the economy, people are too busy paying down their debt. look at the velocity of money.....there cant be hyperinflation unless the money printed actually finds itself out into the economy.

Look at the effects of debt deflation policies in the eurozone. House prices down over 50%, markets capitulate, pensions wiped out, social fabric becomming frayed at the edges, household wealth and societal destruction on a massive scale.

and you are suggesting deflation will allow people to buy cheaper houses when the property market crashes.....with what money when unemployment will be over 20% and banks are wiped out of existence to lend money.

what you are suggesting with ensure we end up right back in the 1930s except this time on a worldwide scale.

hyperinflation is not an extension of inflation.

inflation is rising prices.

hyperinflation is a collapse in confidence in a currency. the best way to achieve that is to have more in supply than can be justified by real wealth/growth/production etc., i.e. by printing it.

yeah the Eurozone is getting wiped out because they were living in a fantasy land of growth achieved by rising asset prices and credit expansion. the same thing happened here but we're only delaying the inevitable reset (and risking a truly horrendous situation) by printing money. it won't solve the problems by a simple bout of inflation and then everything goes back to normal as you seem to think/hope.

we hit the limits of credit expansion, and we are still at those limits.

if debt is the problem then surely repayment is the solution, not more debt.

[Euler]

I agree, you need to resolve the debt issue whether that be by force or crisis. It needs a reset and risk needs to be re-introduce into the system. But you shouldn't let the fractional reserve system grind to a halt or else it won't be debt you will be worrying about.

[mulberryhawk]

so suicidal economic policy is the answer just like in the 1930s.

inflation is the only solution. zero bound interest rates and debt mutualisation in the eurozone will support peripheral govts, allowing them to make the necessary fiscal adjustments in a more realistic timescale.

asset prices and household wealth is therefore supported enabling aggregrate demand to recover thus gdp and growth will return. inflation at 3%+ will both erode the overall debt burden and as long as wages can rise by a similar ammount then people will not suffer to drastic a change in their living standard.

I understand your point of view frank, i know its morally questionable to inflate away the debt, but unfortunately the whole western world is in a similar situation and so it is the only viable solution.

ps. dont spend too much time on zerohedge

[superfrank]

That's because it's new technology, it's additive to peoples lives. That fact aside prices of new technology generally rise but the way it's added to inflation figures doesn't make sense. Nobody uses tapes any longer because they were replaced by CD's. CD players deflated dramatically but only because they were replaced with newer technolgy. As so on. All of which isn't automatically included in any inflation figures despite the replacement cost being high because of frequent changes in technolgy. It only seems to make it into the figure when it starts to date and fall in value as new items replace it.

maybe not a great example, but the idea that people stop buying things as they get cheaper is incorrect.

if petrol, houses, rent, food gets cheaper do people stop buying? no. and i fail to see why inflation is a good thing... except for those with huge debts or lots of overpriced assets.

[superfrank]

so suicidal economic policy is the answer just like in the 1930s.

inflation is the only solution. zero bound interest rates and debt mutualisation in the eurozone will support peripheral govts, allowing them to make the necessary fiscal adjustments in a more realistic timescale.

asset prices and household wealth is therefore supported enabling aggregrate demand to recover thus gdp and growth will return. inflation at 3%+ will both erode the overall debt burden and as long as wages can rise by a similar ammount then people will not suffer to drastic a change in their living standard.

I understand your point of view frank, i know its morally questionable to inflate away the debt, but unfortunately the whole western world is in a similar situation and so it is the only viable solution.

ps. dont spend too much time on zerohedge

i haven't been on there for months!

printing + inflation won't work - it just transfers money from poor to rich and shifts the problems elsewhere. there can be no real growth until the problems are tackled the hard way, i.e. governments and people living within their means and accepting that debt-based growth via consumer spending and rising house prices is not a sustainable way to run an economy.

[Euler]

I agree that the core debt issue needs to be addressed. But deflation wont help, it will increase debts. If I was a policy maker I'd err on inflationary measures.

Also people defer investment in deflationary environments and that's the key issue. If I buy something now that will be cheaper in six months time, I'll hold onto my cash. If I offer you the chance to investment in my business for £200k, why do that knowing that it will be £175k in six months time.

If you look at retailers they work from a high fixed cost based and deflation has slaughtered them. That generally happens to the economy as well, unless people want to see falling wages to match the falling profits from business. It's a vicious cycle.

[superfrank]

true but inflation has it's own different problems.

that's my point, there is no magic bullet or quick fix to the problems. we should have never been in this position but the idiots in charge believed that the boom was being achieved by real growth, when it wasn't.

@mulberryhawk, my favourite economic quote once again!...

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved".

- Ludwig Von Mises (Austrian School economist), 1949.

[Euler]

that's my point, there is no magic bullet or quick fix to the problems. we should have never been in this position but the idiots in charge believed that the boom was being achieved by real growth, when it wasn't.

I can't argue with that.

[Iron]

If I buy something now that will be cheaper in six months time, I'll hold onto my cash.

Not everyone is as rational as you are. Some people aren't into delayed gratification, and sometimes it's worth paying extra to own something now rather than later. I need a new car, as my current one has just failed its MOT big time, and I wouldn't be prepared to wait for 6 months if I thought the price of cars was about to fall.

Also, let's imagine that British businesses and the British people were to experience a sudden and miraculous surge in confidence. On the one hand, the fact that firms were investing might benefit our economy (if we could produce widgets at a lower cost due to better technology, increasing our global competitiveness, for example). But that could be more than offset by the fact that, every time we buy an imported product, wealth leaks out of the economy. So I'm not sure extra spending by consumers and businesses is the way forward...

Jeff

[Euler]

The most urgent thing to be done at the moment is to restore confidence. So many businesses are adopting a wait and see approach at the moment but if they had confidence politicians were going to do something with conviction they would probably invest now.

[Iron]

New Democracy are at 1.36 to win in Greece tomorrow. The price has steamed in heavily, presumably due to a poll which suggested that they'd win by a couple of points. However, a critical analysis of that poll suggests that it is unreliable: http://teacherdudebbq.blogspot.gr/2012/ ... inion.html.

Therefore, perhaps New Democracy are a value lay at that price. IMHO, it's impossible to say whether the Greek people will opt for the devil, or decide they prefer the deep blue sea...

Jeff

[Iron]

Viewpoint: Why the young should welcome austerity - By Prof Niall Ferguson

http://www.bbc.co.uk/news/world-18456131

'Western democracies are going to carry on in their current feckless fashion until, one after another, they follow Greece and the other Mediterranean economies into the fiscal death spiral that begins with a loss of credibility, continues with a rise in borrowing costs, and ends as governments are forced to impose spending cuts and higher taxes at the worst possible moment.'

Jeff

[andyfuller]

New Democracy are at 1.36 to win in Greece tomorrow... perhaps New Democracy are a value lay at that price. IMHO, it's impossible to say whether the Greek people will opt for the devil, or decide they prefer the deep blue sea...

Jeff

Good call Jeff, very close on the exit polls, price is now 1.62 having hit 1.7.

3rd Election anyone? Will some parties join up?

[Iron]

Thanks Andy.

Jeff

Good call Jeff, very close on the exit polls, price is now 1.62 having hit 1.7.