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Is rising inflation looming?

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1nvest
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Re: Is rising inflation looming?

#379620

Postby 1nvest » January 22nd, 2021, 1:02 pm

NeilW wrote:Ask those who believe in "reducing the debt" how many personal cheques they have sent to the Donations and Bequests account at the Commissioners for the Reduction of the National Debt and to what value. Then you'll find out whether they really believe it is necessary, or have other motives.

Just been reading yet more 'PANIC' type articles throwing out figures of the UK debt now being £2T+ and near 100% of GDP, the highest since .... etc. BUT that debt is secured largely at a fixed rate over many years/decades, and at pretty low levels of interest rate. 2T at 2% is no better/worse to service than 1T at 4%, and whilst more to eventually pay back much will be eroded by inflation.

The risks are primarily that of too little inflation (not enough debt erosion) along with higher interest rates at the time each Gilt matures when that might have to be rolled into another replacement Gilt, or be repaid/wiped-out. But where that risk is spread out over many many years (timepoints). Japan is doing fine with Debt/GDP north of 200%. If the UK doubled up its 2T debt to 4T at perhaps a fixed rate cost of 2%, and invested that additional 2T at a 4% rate of return (sort of Sovereign Wealth Fund), then the entire debt would be costing nothing.

Debts at very low fixed (long) term interest rates can actually be a asset. Where paying debt down instead of debt expansion is akin to giving a asset away.

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Re: Is rising inflation looming?

#379702

Postby Charlottesquare » January 22nd, 2021, 4:33 pm

TheMotorcycleBoy wrote:Will tax increases result in inflation? It seems like "stealth inflation" to me....i.e. I effectively need to earn more gross pay to buy the same quantity of "stuff" as before.

Can tax rises thus increase inflation while the work force demand higher paying jobs, forcing producers to charge more etc. etc?

Matt


In traditional economic theory no, it is initially the opposite, tax reduces the money that is chasing the basket of goods that is the measure of inflation, in the short term it damps. What you are describing is , if I remember correctly (and that might be optimistic) ,what was thought to happen further out, depressed spending power leaves individuals asking for more pay or moving jobs and over time employers may push up what they offer their staff to retain them, thus the arguments in economics over whether inflation is price led or wage pulled. To me the idea that increased production costs (wages) make suppliers charge more seems logically false, if I seek profits I do so irrespective of my cost base, I charge what the market will bear at that time irrespective if I pay you £30,000 or £35,0000, why would I not seek to make the largest possible profit at any point in time?

Then again I am to economics a dinosaur, economic theories change, but in my opinion all are mere theories which apply to a greater or lesser degree at particular points in time and depending upon particular circumstances, to me the biggest sin in considering economics is speaking with any kind of dogmatic certainty.

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Re: Is rising inflation looming?

#379779

Postby NeilW » January 22nd, 2021, 7:32 pm

1nvest wrote:
Debts at very low fixed (long) term interest rates can actually be a asset. Where paying debt down instead of debt expansion is akin to giving a asset away.


There is no paying down of the debt because it isn’t debt as you understand it. It is just a variation on money with a different interest rate.

It is never paid back, never will be and can’t be without confiscating financial assets from people.

All gilts issues are essentially perpetual with set points when the rate is reset.

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Re: Is rising inflation looming?

#379780

Postby NeilW » January 22nd, 2021, 7:35 pm

TheMotorcycleBoy wrote:Will tax increases result in inflation? It seems like "stealth inflation" to me....i.e. I effectively need to earn more gross pay to buy the same quantity of "stuff" as before.

Can tax rises thus increase inflation while the work force demand higher paying jobs, forcing producers to charge more etc. etc?

Matt


Inflation in economics isn’t retail prices going up.

It’s a general rise in the price level.

This is another of those terms that is different in the science than the vernacular - like “theory”

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Re: Is rising inflation looming?

#379819

Postby ursaminortaur » January 22nd, 2021, 9:15 pm

NeilW wrote:
1nvest wrote:
Debts at very low fixed (long) term interest rates can actually be a asset. Where paying debt down instead of debt expansion is akin to giving a asset away.


There is no paying down of the debt because it isn’t debt as you understand it. It is just a variation on money with a different interest rate.

It is never paid back, never will be and can’t be without confiscating financial assets from people.

All gilts issues are essentially perpetual with set points when the rate is reset.


There have been times when the absolute national debt figure has gone down (as opposed to the national debt just falling as a percentage of GDP) most recently under chancellors John Major and Gordon Brown. However governments using surpluses to reduce the national debt in that way generally only last for a few years and in both the above cases the government then went on to increase the national debt again during the remainder of their term.

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Re: Is rising inflation looming?

#379938

Postby 1nvest » January 23rd, 2021, 1:22 pm

NeilW wrote:
1nvest wrote:
Debts at very low fixed (long) term interest rates can actually be a asset. Where paying debt down instead of debt expansion is akin to giving a asset away.


There is no paying down of the debt because it isn’t debt as you understand it. It is just a variation on money with a different interest rate.

It is never paid back, never will be and can’t be without confiscating financial assets from people.

All gilts issues are essentially perpetual with set points when the rate is reset.

Good point. Debit IS money. Surprising is that so many accept/use money. Used to be backed by something tangible, not no more. Much is based on faith/trust, but where increasingly that trust is lacking. Pushed too far and that is when inflation can rage and 'over-stretched' debt may be a trigger for rapid loss of faith (self sustaining/rapid rush to exit a currency).

The EU have printed trillions of Euro's. Post 2009 financial crisis and massive German bets (debts) backfired and were swapped over to the ECB (rest of EU) who in turn had to print trillions. Nice that so many EU nations provided such massive German bailout. Odd that they couldn't offer to do the same for Greece, but hey-ho, that's the EU for you, predominately steered by Germany and at risk of being steered to a repeat of Weimar (hyperinflation).

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Re: Is rising inflation looming?

#379953

Postby NeilW » January 23rd, 2021, 1:52 pm

ursaminortaur wrote:There have been times when the absolute national debt figure has gone down (as opposed to the national debt just falling as a percentage of GDP) most recently under chancellors John Major and Gordon Brown. However governments using surpluses to reduce the national debt in that way generally only last for a few years and in both the above cases the government then went on to increase the national debt again during the remainder of their term.


Yes. Running a surplus in a net importing nation will rapidly lead to a recession. The net flows show it clearly. What happens is the private sector is driven heavily into debt and they quickly run out of collateral at the banks.

https://new-wayland.com/blog/uk-sectoral-balances/
Last edited by NeilW on January 23rd, 2021, 2:03 pm, edited 1 time in total.

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Re: Is rising inflation looming?

#379957

Postby NeilW » January 23rd, 2021, 2:02 pm

1nvest wrote:[ Pushed too far and that is when inflation can rage and 'over-stretched' debt may be a trigger for rapid loss of faith (self sustaining/rapid rush to exit a currency).


Which is a bit of a myth. A rush to exit a currency needs somebody coming in the other direction, or you can't rush to the exit - because there are no market makers in FX. If there is somebody coming in the opposite direction, what do they know that's different? Good assets become cheap in alternative currencies and the flow reverses. The market does its job - getting rid of those who don't understand how money works and giving the assets to those that do.

Faith is irrelevant when there are tax bills to pay and debts to service - both of which need a particular currency or else. All you need to do with any dissaving event is put taxes up and make the currency more difficult to obtain (ie you drop interest rates to zero and stop paying it). Both of these are contrary to received wisdom which does the opposite and then wonders why there is inflation (as there is in Zimbabwe - again).

The process we are operating at the moment is one of automatic stabilisation. The furlough scheme is maintaining people and will automatically back off as things recover, at the time that taxes increase. Both of those have a natural disinflationary bias.

As to the Euro, those holding the savings have no choice but to hold those savings, or fundamentally change their industrial policy away from export-led growth. Hell will freeze over before the Germans do that.

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Re: Is rising inflation looming?

#380160

Postby dealtn » January 24th, 2021, 9:34 am

NeilW wrote:
1nvest wrote:[ Pushed too far and that is when inflation can rage and 'over-stretched' debt may be a trigger for rapid loss of faith (self sustaining/rapid rush to exit a currency).


Which is a bit of a myth. A rush to exit a currency needs somebody coming in the other direction, or you can't rush to the exit - because there are no market makers in FX. If there is somebody coming in the opposite direction, what do they know that's different?


Simply not true.

I have worked with, and continue to know, many FX market makers and liquidity providers. The people coming the other way need to be attracted too. What they sometimes know is they have bought the unwanted currency, at a (slightly) lower price than was available before the seller decided to exit.

Over meaningful enough timeframes, and significant (net) sales, the price of the currency can, and does, fall. Maybe 1%, 5%, 10%. That makes the price of (imported) goods more expensive. Now if enough (cheaper) exports can be sold to reverse this trend, a new equilibrium price can be established, or the trend even reversed so the currency begins to appreciate once more.

But these are real transactions making real changes to relative prices of (at least) 2 currencies, which feed into the inflation calculation.

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Re: Is rising inflation looming?

#380164

Postby johnhemming » January 24th, 2021, 9:48 am

NeilW wrote:Faith is irrelevant when there are tax bills to pay and debts to service - both of which need a particular currency or else. All you need to do with any dissaving event is put taxes up and make the currency more difficult to obtain (ie you drop interest rates to zero and stop paying it). Both of these are contrary to received wisdom which does the opposite and then wonders why there is inflation (as there is in Zimbabwe - again).


There is a sort of ideological position that people have. Politically I consider myself centre left in that I am quite positive about the state acting to assist people on lower incomes and maintain standards (including things like minimum wages and health and safety stuff). Generally people who are more left wing will tend to see state action as being good and people on the right be a bit more sceptical.

You can see this on the debates on online fora. In the end, however, on many of these issues there are practical consequences.

Now it is nice to think that the state has total control over the fiat currency including control as to what citizens or people outside the country will exchange for the currency. However, the evidence on a practical basis is that it doesn't.

King Cnut got a bad press over the years for failing to hold back the tide
https://en.wikipedia.org/wiki/King_Canute_and_the_tide

However, what he was actually doing was warning that there are limits as to what government or states can do.

States have printed money. If they printed a lot it was devalued. "Independence" was created for central banks to give people more confidence that they were not just printing money for the elected officials to disburse (inter alia). That has an effect in bringing down the rent of money (we an argue whether that is positive or not I am generally in favour of lower interest rates).

We are in an era where the western worlds (cyber) printing presses are working overtime generating lots of electronic credits.

There is a limit. The limit is when CPI goes up. If they can keep it out of inflating the CPI they will be doing well. When CPI starts going up they will need to stop. I don't at the moment know if we are going to have to go cold turkey or not on this.

The currency to a great extent is worth what people think it is worth.

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Re: Is rising inflation looming?

#380307

Postby 88V8 » January 24th, 2021, 3:55 pm

dealtn wrote:....these are real transactions making real changes to relative prices of (at least) 2 currencies, which feed into the inflation calculation.

Wislon trid to pretend otherwise....'the pound in your pocket'.

And currently, N Korea, Venezuela and Rhodesia are demonstrating that currencies, deficits and inflation are not self-balancing.

V8

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Re: Is rising inflation looming?

#380357

Postby NeilW » January 24th, 2021, 6:12 pm

johnhemming wrote:There is a limit. The limit is when CPI goes up. .


And yet that has been debunked across the world for over ten years. CPI isn't going up. (CPI isn't economic inflation btw. If it doesn't feed through to wages, then it is just a transfer. You need actual inflation before you hit a limit - and that generally means you've run out of unemployment).

What you believe isn't the case. The problem is excess saving which is showing up as largely reduced credit held by individuals. That necessarily impacts the government balance since it is the flow counterparty of that mechanism (neoliberalism tries to push credit to hide the quantity of personal savings). To fix it you have to remove savings or push more credit onto individuals. Why do you want to do that when higher savings are inert and act like a voluntary tax.

If you look up the series LPMZ598 and LPMBZ2B at the BoE you'll see the effect. There is a smaller one to LPMZ597 which is corporate financial holdings - and the one that negative interest rates would target if they were ever to occur.

NeilW

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Re: Is rising inflation looming?

#380358

Postby NeilW » January 24th, 2021, 6:14 pm

dealtn wrote:I have worked with, and continue to know, many FX market makers and liquidity providers.


And are they required by law to make markets and liquidity in all market conditions come what may? If they aren't then they aren't the market makers I'm talking about - the one that always provides the bid no matter what. Like GEMMS are required to do in Gilts.

But you already knew that didn't you.

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Re: Is rising inflation looming?

#380361

Postby dealtn » January 24th, 2021, 6:30 pm

NeilW wrote:
dealtn wrote:I have worked with, and continue to know, many FX market makers and liquidity providers.


And are they required by law to make markets and liquidity in all market conditions come what may? If they aren't then they aren't the market makers I'm talking about - the one that always provides the bid no matter what. Like GEMMS are required to do in Gilts.

But you already knew that didn't you.


So I am (we are) supposed to guess at what you are meaning instead of the "wrong" meaning you provide in your original statement "...there are no market makers in FX"?

I might be many things, but that is beyond me.

No I didn't know that!

Besides the FX market is by many degrees more liquid, and supported by market makers, than the Gilt market is. I can't remember a time in the FX market (for £ at least) where it wasn't possible to obtain a quote, and the worse would have liquidity such that the next available price is well with 0.1% of the last one.

GEMMs, despite your claim, do not have the obligation to make markets and liquidity in all market conditions. There have been many occasions where I "declined to quote", and many times when I would have made a price > 2% bid-offer.

Regardless in either market such quoting by market makers is far from static, and price moves of 1-2% in a day are not uncommon. For the FX market should such a move become permanent enough to affect the consumer price of imports, that will be reflected in the inflation rate (up or down), something you have had the opportunity to admit on numerous occasions to date on this thread, but somehow failed to do so.

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Re: Is rising inflation looming?

#380363

Postby johnhemming » January 24th, 2021, 6:32 pm

NeilW wrote:
johnhemming wrote:There is a limit. The limit is when CPI goes up. .


And yet that has been debunked across the world for over ten years. CPI isn't going up. (CPI isn't economic inflation btw. If it doesn't feed through to wages, then it is just a transfer. You need actual inflation before you hit a limit - and that generally means you've run out of unemployment).

What you believe isn't the case. The problem is excess saving which is showing up as largely reduced credit held by individuals. That necessarily impacts the government balance since it is the flow counterparty of that mechanism (neoliberalism tries to push credit to hide the quantity of personal savings). To fix it you have to remove savings or push more credit onto individuals. Why do you want to do that when higher savings are inert and act like a voluntary tax.

If you look up the series LPMZ598 and LPMBZ2B at the BoE you'll see the effect. There is a smaller one to LPMZ597 which is corporate financial holdings - and the one that negative interest rates would target if they were ever to occur.

NeilW


What I believe is based upon evidence from what has happened previously. My point is that when CPI goes up it need to stop.

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Re: Is rising inflation looming?

#380452

Postby GoSeigen » January 25th, 2021, 6:23 am

NeilW wrote:Faith is irrelevant when there are tax bills to pay and debts to service - both of which need a particular currency or else. All you need to do with any dissaving event is put taxes up and make the currency more difficult to obtain (ie you drop interest rates to zero and stop paying it). Both of these are contrary to received wisdom which does the opposite and then wonders why there is inflation (as there is in Zimbabwe - again).


I don't think NeilW understands inflation. Inflation is paying what you owe the government (tax) with its own funds (i.e. demanding they give you the money with which to service your tax bill). Inflation is making your debt irrelevant by devauling the currency to the extent that the debt no longer matters. The MMT fantasy is only "working" at the moment because there is no inflation, Neil W is unwittingly perpetuating a circular argument (there will be no inflation because there is no inflation).


GS

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Re: Is rising inflation looming?

#380454

Postby NeilW » January 25th, 2021, 7:01 am

GoSeigen wrote:I don't think NeilW understands inflation. Inflation is paying what you owe the government (tax) with its own funds (i.e. demanding they give you the money with which to service your tax bill). Inflation is making your debt irrelevant by devauling the currency to the extent that the debt no longer matters. The MMT fantasy is only "working" at the moment because there is no inflation, Neil W is unwittingly perpetuating a circular argument (there will be no inflation because there is no inflation).


GS


Inflation is a persistent rise in the price level, as defined in economics. And there isn't one of those, and you have no mechanism by which it can come about due to excess savings.

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Re: Is rising inflation looming?

#380455

Postby NeilW » January 25th, 2021, 7:06 am

johnhemming wrote:
What I believe is based upon evidence from what has happened previously. My point is that when CPI goes up it need to stop.


It will stop since there will be a reduction in sales due to increased prices and no change in wages. What you then get is a drain to savings with no spending offset and that causes a demand collapse. At which point you have to start cutting prices, or go bust. Follow the money around the circuit.

The evidence from a man in a straitjacket is no use in explaining how the arms move. You may as well try to fly a helicopter using evidence from bus drivers.

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Re: Is rising inflation looming?

#380457

Postby NeilW » January 25th, 2021, 7:12 am

dealtn wrote:GEMMs, despite your claim, do not have the obligation to make markets and liquidity in all market conditions


GEMM Obligations
Firms endorsed by the DMO as GEMMs agree to meet a number of obligations on a continuous basis. The obligations are as follows:
A. Participation in primary issuance
1. GEMMs are expected to play an active role in the issuance, distribution and marketing of UK government debt.
2. GEMMs should aim to purchase at least 2.0% of issuance by sector – conventional and index-linked - on a 6-month rolling average basis.
3. GEMMs are expected to participate in every operation for which they are a designated market maker.
B. Market making
1. GEMMs are committed to make, on demand and in all conditions, continuous and effective two-way prices to their customers, in all gilts in which they are recognised as a market maker.
2. GEMMs must aim to achieve and maintain an individual secondary market share of at least 2.0% on a 6-month rolling average basis, in the sectors for which they are a designated market maker.


https://www.dmo.gov.uk/media/15088/guidebook160316.pdf

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Re: Is rising inflation looming?

#380458

Postby johnhemming » January 25th, 2021, 7:13 am

NeilW wrote:The evidence from a man in a straitjacket is no use in explaining how the arms move. You may as well try to fly a helicopter using evidence from bus drivers.


We must live in different realities. Our models as to how things actually work don't seem to connect. I continually test my own model against evidence and it fits with the evidence.


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