2011

[CaerMyrddin]

Well pessimism is on the rise around here, isn't it?

I guess high inflaction is a likely scenario, but if we look carefully at it, it will come with some advantages, like lowering importations from China thus lowering unemployment in Europe and correcting excessive consumption?

China that keeps growing and is keeping the world economy alive, let's not forget that.

It would be interesting to know Peter's opinion on how to protect assets from the inflaction's devaluation process, should this scenario arrive...

[Iron]

Well pessimism is on the rise around here, isn't it?

I prefer to think of it as realism, although I hope events prove me wrong and that a recovery is just around the corner.

I guess high inflaction is a likely scenario, but if we look carefully at it, it will come with some advantages, like lowering importations from China thus lowering unemployment in Europe and correcting excessive consumption?

Unless Chinese-produced goods become more expansive relative to home produced goods, I don't think inflation would mean that we consume more domestically-produced goods.

As for excessive consumption, that might be part of what caused the current mess, but what the global economy needs IMHO is for people to start spending.

It would be interesting to know Peter's opinion on how to protect assets from the inflaction's devaluation process, should this scenario arrive...

IMHO, a big part of the reason that gold has skyrocketed in price is because it's seen as a safe haven instrument. Ditto the Swiss franc, and, until recently, the Yen.

Jeff

[Euler]

I must admit I don't subscribe to the gloom and doom stuff. It's not a blinkered approach, it's just a state of mind. Life is challenging and presents many difficulties but overcoming them is the key and capitalism is very good at that.

The mistake I made when I was young was worrying about what could go wrong. I slowly learnt that in fact, good things as well as bad happen at random so I became more relaxed about things going wrong. I became more focused on jumping on things that went right and trying to find them.

That shouldn't stop you examining things that could go wrong though as finding these will help you eliminate errors. The last article I wrote for a financial publication talked about derivatives and how they were almost inevitably an unquantifiable risk for banks. Published well before the financial crisis broke. I could see it about to happen, but just couldn't tell you when. So it's worth knowing systemic risk but it's not worth worrying about everything that could go wrong. Just be aware of it.

[Euler]

Gold is a good place for people to hide if you think the world economy is about to go AWOL as it holds it value across borders. As a long term investment though it is terrible as there is no yield.

Can't understand why the UK applies VAT to gold sales!

[Iron]

I agree about the futility of worrying.

I do economic analysis not because I'm worried about what might happen, but because the economy is a constantly unfolding drama, and I find it interesting to consider what might happen next.

Jeff

The mistake I made when I was young was worrying about what could go wrong. I slowly learnt that in fact, good things as well as bad happen at random so I became more relaxed about things going wrong. I became more focused on jumping on things that went right and trying to find them.

[hgodden]

I agree. General living standards are better in the vast majority of places in the world than they ever have been at any point in human history, yet people talk as if this is the most chaotic and insane time that mankind has ever known! IMO the biggest problem is the psychological landscape that we find today, particularly in the west, of enormous fear, pessimism and restlessness. Not that I'm blaming people, it's amazing how catching other peoples attitudes are, but that doesn't mean it reflects reality

[Iron]

Perhaps.

But contrast that with a few years ago, when we wasted something like a billion pounds on the Millenium Dome, and people bought houses at 5 times their salary, thinking the good times would never end.

Until such time as human nature changes, people will make irrational choices based on fear and greed, and will blindly follow the crowd, whether that involves reckless spending or excessive caution...

Jeff

IMO the biggest problem is the psychological landscape that we find today, particularly in the west, of enormous fear, pessimism and restlessness. Not that I'm blaming people, it's amazing how catching other peoples attitudes are, but that doesn't mean it reflects reality

[CaerMyrddin]

Unless Chinese-produced goods become more expansive relative to home produced goods, I don't think inflation would mean that we consume more domestically-produced goods.

You missed my point, but I wasn't vey eloquent I'm afraid?

The likely depreciation of euro/pound/dolar vs yuan will drive inflaction, as chinese-made products get more expensive and we consume a lot of those. It will make home made products more competitive. Maybe a rise in oil will help this trend too?

I don't like the anti chinese production speech, as it only focus on unemployment on Europe and the US and forgets it gives us more for less money, with personal sacrifice from the chinese. It will stop eventually and we will have to expend more money to afford our life-style or simply lower it.

I'm a very frugal person myself, so I think it's for the best.

Just my five cents about pessimism/optimism/realism?

Tipically a pessimist will tell you he's only being realistic.

But no offense Jeff

My grandmother was in London when you guys were being bombed by the germans and she always told me that although she was frightened and hungry all the time, life always continues and it does get better, unless you die, in which case you just don't have to worry. We shouldn't get too worried with trivial things and must always put thing into perspective.

[Iron]

Here's a news story for the optimists:

http://www.bbc.co.uk/news/business-12074311

That said, a cynic might say that it's just a QE-fuelled bubble that's waiting to burst!

Jeff

Just my five cents about pessimism/optimism/realism?

Tipically a pessimist will tell you he's only being realistic.

[Euler]

Here is an interesting peice on the 'great' depression.

http://www.bbc.co.uk/blogs/thereporters ... r_70s.html

[Euler]

This was a link in the comments section: -

http://pragcap.com/sectoral-balances-an ... ted-states

[Iron]

Interesting.

The crux of the argument seems to be summed up in this sentence:

'The most important reason the UK avoided a US-style fall in output in the early 1930s was that it avoided lasting deflation.'

I think that's a moot point. You could argue that deflation was a symptom of America's problems, not the cause.

Also, I imagine that, in 1929, a higher proportion of the population in the US owned shares than in the UK. Partly because America was wealthier, so people had more income to invest. And partly because of the American culture of entrepreneurialism. If that is the case, you'd have expected a global stock market crash to have had more of an impact in the US.

Jeff

Here is an interesting peice on the 'great' depression.

http://www.bbc.co.uk/blogs/thereporters ... r_70s.html

[Iron]

If you don't want your Xmas festivities spoiled by yet more negative predictions, don't read this article!

http://www.telegraph.co.uk/finance/comm ... ottle.html

[davy]

15 years ago I owned a company with 37 staff. Not a day went by without me having something to moan about. One day I was having a rant to a business friend, after listening for 10 minutes he said, will it matter in 100 years time. I said of course it won’t. He said well then, why does it matter now.

I didn’t think anything of it at the time, but I’ve thought a lot about it since and agree with what he said.

Michelle Obama was once quoted as saying, I never worry about things I cannot affect, Couldn’t agree more Michelle.

Let’s deal with whatever comes when (and if) it gets here guys.

[CaerMyrddin]

I've got to agree too. One has to put things into perspective all the time