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Is rising inflation looming?

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TheMotorcycleBoy
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Re: Is rising inflation looming?

#378521

Postby TheMotorcycleBoy » January 19th, 2021, 8:55 am

NeilW wrote:
johnhemming wrote:
However, there are quite a few capital transactions as well as imports and exports.


Financial transactions sum to zero and are eliminated in economic analysis. Nowhere material uses Sterling other than here.

What about foreign investors buying UK shares?

NeilW
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Re: Is rising inflation looming?

#378529

Postby NeilW » January 19th, 2021, 10:16 am

TheMotorcycleBoy wrote:What about foreign investors buying UK shares?


Secondary market transactions are just swaps. Person A gets what Person B had, person B gets what Person A had. That doesn't change the overall balance sheet.

The Primary market is similar. Company A gets what Person B had, Person B gets a share of Company A that is essentially a receipt for what they had in the first place. Company A's balance sheet expands on both sides. Person B's balance sheet doesn't change. It still all nets to zero.

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Re: Is rising inflation looming?

#378538

Postby dealtn » January 19th, 2021, 10:36 am

NeilW wrote:
TheMotorcycleBoy wrote:What about foreign investors buying UK shares?


Secondary market transactions are just swaps. Person A gets what Person B had, person B gets what Person A had. That doesn't change the overall balance sheet.

The Primary market is similar. Company A gets what Person B had, Person B gets a share of Company A that is essentially a receipt for what they had in the first place. Company A's balance sheet expands on both sides. Person B's balance sheet doesn't change. It still all nets to zero.


In £ terms yes, but if the FX rate moves then you have relative price moves, despite the exact same quantity of £ existing as before - it's an identity after all.

Are you seriously saying that if the FX rate moves it will have zero effect on inflation? Nothing that is imported in the inflation basket?

TheMotorcycleBoy
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Re: Is rising inflation looming?

#378549

Postby TheMotorcycleBoy » January 19th, 2021, 11:03 am

NeilW wrote:
TheMotorcycleBoy wrote:What about foreign investors buying UK shares?


Secondary market transactions are just swaps. Person A gets what Person B had, person B gets what Person A had. That doesn't change the overall balance sheet.

But I surely you've contradicted your earlier one..
Financial transactions sum to zero and are eliminated in economic analysis. Nowhere material uses Sterling other than here.

since Person B, for arguments sake, is in the US, not here?

i.e. we get more $ on our sheet, and the US more £ on theirs.

Matt

NeilW
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Re: Is rising inflation looming?

#378624

Postby NeilW » January 19th, 2021, 4:07 pm

TheMotorcycleBoy wrote:since Person B, for arguments sake, is in the US, not here?


A primary market issue in $ would sit in the US currency zone, not the UK one. And those $ wouldn't get you much labour output in the UK.

The currency zone transcends national borders and includes whoever holds your denomination at the time. Most of us are in several currency zones at the same time. As I said there is no difference between somebody holding Sterling in Birmingham Alabama and Birmingham England. To exchange that holding for real stuff, you will have to buy it from the UK, since we are the only place that tends to price stuff in Sterling, certainly the only place where labour is routinely sold in £s. And that's where the link between money and stuff happens.

The key point is that the Sterling doesn't disappear, and the accounting boundary based on physical borders is illusionary. The money has to come back here at some point. And it all sums to zero because that's how ledgers work.

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Re: Is rising inflation looming?

#378643

Postby Charlottesquare » January 19th, 2021, 4:54 pm

NeilW wrote:
TheMotorcycleBoy wrote:since Person B, for arguments sake, is in the US, not here?


A primary market issue in $ would sit in the US currency zone, not the UK one. And those $ wouldn't get you much labour output in the UK.

The currency zone transcends national borders and includes whoever holds your denomination at the time. Most of us are in several currency zones at the same time. As I said there is no difference between somebody holding Sterling in Birmingham Alabama and Birmingham England. To exchange that holding for real stuff, you will have to buy it from the UK, since we are the only place that tends to price stuff in Sterling, certainly the only place where labour is routinely sold in £s. And that's where the link between money and stuff happens.

The key point is that the Sterling doesn't disappear, and the accounting boundary based on physical borders is illusionary. The money has to come back here at some point. And it all sums to zero because that's how ledgers work.


Maybe in eternity, but in the interim the balances amongst these countries impact the economies of the countries, the prevailing exchange rate is the one today that I need to deal with if I want to buy x that comes from abroad, and that impact, maybe over 2,10,30,100 years (longer than my life) impacts my life. Of course the world double entry ledger squares to zero and will unravel to that at some time (Maybe the Big Crunch x billion years from now) but in the interim, until it does, we require to live with the impact of exchange rates, our propensity to import, our propensity to save, our propensity to consume, and these all impact our lifestyles, our behaviours impact our futures

You appear to view economics as mere company balance sheet, and yes in ways it is, but until the world stops turning there will be debtors/creditors/movements/ebbs/flows and the relationship of these does impact the individual lives we live.

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Re: Is rising inflation looming?

#378651

Postby NeilW » January 19th, 2021, 5:24 pm

Charlottesquare wrote:Maybe in eternity, but in the interim the balances amongst these countries impact the economies of the countries, the prevailing exchange rate is the one today that I need to deal .
.

And the prevailing exchange rate comes from the bidirectional activity that is going on today, which in a world driven by 'export led growth' - which means they have to sell their stuff or things go south. It isn't made up by a market god. You can't look at just one side any more than you can talk about 'debt' without considering the counterparty 'asset' that somebody has to hold. It's an exchange - for something to go out something else has to come in.

There is no 'drain'. It's nothing to do with eternity. It's to do with the natural ebb and flow of trade and exchange, which is just the same market forces externally as internally.

If you're frightened of it, or try to use it to frighten people, it just says you don't understand the process by which it works.

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Re: Is rising inflation looming?

#378654

Postby dealtn » January 19th, 2021, 5:39 pm

NeilW wrote:
Charlottesquare wrote:

There is no 'drain'. It's nothing to do with eternity. It's to do with the natural ebb and flow of trade and exchange, which is just the same market forces externally as internally.

If you're frightened of it, or try to use it to frighten people, it just says you don't understand the process by which it works.


Yes, and that ebb and flow affects the FX rate, and the price of goods and services the UK consumer bears. This thread is about inflation, so again I ask, with floating exchange rates (which you point out is the current norm) are you genuinely trying to say that the FX rate has no bearing on the price a consumer pays at any moment in time? If it does then despite the accounting identity, and even an unchanged quantity of pounds, there could be inflation (or deflation) as those prices change.

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Re: Is rising inflation looming?

#378655

Postby Charlottesquare » January 19th, 2021, 5:40 pm

NeilW wrote:
Charlottesquare wrote:Maybe in eternity, but in the interim the balances amongst these countries impact the economies of the countries, the prevailing exchange rate is the one today that I need to deal .
.

And the prevailing exchange rate comes from the bidirectional activity that is going on today, which in a world driven by 'export led growth' - which means they have to sell their stuff or things go south. It isn't made up by a market god. You can't look at just one side any more than you can talk about 'debt' without considering the counterparty 'asset' that somebody has to hold. It's an exchange - for something to go out something else has to come in.

There is no 'drain'. It's nothing to do with eternity. It's to do with the natural ebb and flow of trade and exchange, which is just the same market forces externally as internally.

If you're frightened of it, or try to use it to frighten people, it just says you don't understand the process by which it works.


Yes, but equilibrium effects are not instant, they unwind over time, why say using fiscal levers has significant delays re their impact, pricing is not perfect in the short term and whilst one is in this slightly "unbalanced" position one pays more or less for an import than in the longer term one might.

All those supply and demand curves and their shifts may often get taught as if (a) follows (b) "just like that" but in reality it does not. The only thing holding UK exchange rates relatively stable is that half the world is pumping out QE (or something similar) at the same time.I accept my economics is very rusty, 38 years with no application makes that inevitable, but just because there is a counterparty to each transaction does not mean these transactions do not impact the other parties not involved, if you take the "macro" to be the entire world of course on that measure there is nothing changing, but we do not, we tend to look at the position for particular individual countries and the impact on same in the short, medium and long term.

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Re: Is rising inflation looming?

#378656

Postby johnhemming » January 19th, 2021, 5:45 pm

The nub of this is that currency has no inherent value. If the government says to the voters don't worry we won't ask for any more tax and we can spend just as much as you would like us to spend we will just print more money then people will lose confidence in the value of the currency.

Once that happens we have problems with inflation. A bit of money printing has gone on for some time. It is now in Spades (or possibly No Trumps).

The only reason there is any public support for the government's detailed policies on Covid (and the funding of those) is that they are getting away with smoke and mirrors on funding it. There will come a point when this stops.

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Re: Is rising inflation looming?

#378662

Postby NeilW » January 19th, 2021, 6:03 pm

Charlottesquare wrote:All those supply and demand curves and their shifts may often get taught as if (a) follows (b) "just like that" but in reality it does not. The only thing holding UK exchange rates relatively stable is that half the world is pumping out QE (or something similar) at the same time.


Which is complete nonsense of course. The UK exchange rate is relatively stable because that's how trade actually works and the fantasies that economists come up with are just that. It's quite amazing that people will cling to a belief in their economic gods and try and come up with excuses when the system doesn't go where they believe it should be going. Rather than doing what is rational and accepting that perhaps it doesn't quite work in the way you believe it does.

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Re: Is rising inflation looming?

#378663

Postby johnhemming » January 19th, 2021, 6:06 pm

NeilW wrote:Which is complete nonsense of course. The UK exchange rate is relatively stable because that's how trade actually works and the fantasies that economists come up with are just that. It's quite amazing that people will cling to a belief in their economic gods and try and come up with excuses when the system doesn't go where they believe it should be going. Rather than doing what is rational and accepting that perhaps it doesn't quite work in the way you believe it does.


I think your difficulty with this is confidence and what people think is true is a key part of the way things work. If the majority of people think that printing masses of money will devalue it then it will. Hence you need to persuade people that removing restrictions on the quantity of money really won't affect its value. I personally think that is a hard sell.

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Re: Is rising inflation looming?

#378664

Postby NeilW » January 19th, 2021, 6:06 pm

johnhemming wrote:The nub of this is that currency has no inherent value.


Currency has a base value because you have to pay your taxes and your debts in that denomination. If you don't then all your real stuff is removed from you by force and you are incarcerated by the authorities. It is that societal violence that backs the currency - nothing else.

You can always offload any denomination to somebody with an unavoidable bill to pay that requires that denomination. It is a sufficient, but not necessary condition for the circulation.
Last edited by NeilW on January 19th, 2021, 6:14 pm, edited 1 time in total.

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Re: Is rising inflation looming?

#378665

Postby NeilW » January 19th, 2021, 6:12 pm

johnhemming wrote:If the majority of people think that printing masses of money will devalue it then it will.


It can't do - because the 'printing masses of money' is a reaction to lots of people saving in the denomination, not spending and not borrowing. Therefore by definition there is a demand for it otherwise you wouldn't need to do so.

If that demand to hold drops away, the monetary expansion stops automatically and it drains away as it is spent to destruction. If everybody shifted their savings to US dollars, the monetary system would quickly move into surplus - since to avoid saving in Sterling in aggregate you have to spend the money - and that causes it to be slowly taxed away.
Last edited by NeilW on January 19th, 2021, 6:17 pm, edited 1 time in total.

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Re: Is rising inflation looming?

#378667

Postby johnhemming » January 19th, 2021, 6:16 pm

NeilW wrote:You can always offload any denomination to somebody with an unavoidable bill to pay that requires that denomination. It is a sufficient, but not necessary condition for the circulation.

However, if you will give them a couple of notes and I will give them a wheelbarrow of notes then they will normally go for the wheelbarrow of notes.

Image
Wheelbarrow of Zimbabwean notes

Image

NeilW
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Re: Is rising inflation looming?

#378670

Postby NeilW » January 19th, 2021, 6:20 pm

johnhemming wrote:[
However, if you will give them a couple of notes and I will give them a wheelbarrow of notes then they will normally go for the wheelbarrow of notes.


Sigh.

Do you also believe that because airplanes crash, that heavier than air flight is therefore impossible? Or is it largely down to bad pilots? Which means you need better trained pilots - preferably those who don't believe they are driving a bus.

And of course if you want to learn how it really happened, here's a full run down on the actual history: https://gimms.org.uk/wp-content/uploads/2020/11/Weimar-Republic-Hyperinflation-through-a-Modern-Monetary-Theory-Lens.pdf

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Re: Is rising inflation looming?

#378679

Postby johnhemming » January 19th, 2021, 6:36 pm

This gives 17 examples of hyperinflation.

https://en.wikipedia.org/wiki/Hyperinflation

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Re: Is rising inflation looming?

#378726

Postby Charlottesquare » January 19th, 2021, 9:07 pm

NeilW wrote:
Charlottesquare wrote:All those supply and demand curves and their shifts may often get taught as if (a) follows (b) "just like that" but in reality it does not. The only thing holding UK exchange rates relatively stable is that half the world is pumping out QE (or something similar) at the same time.


Which is complete nonsense of course. The UK exchange rate is relatively stable because that's how trade actually works and the fantasies that economists come up with are just that. It's quite amazing that people will cling to a belief in their economic gods and try and come up with excuses when the system doesn't go where they believe it should be going. Rather than doing what is rational and accepting that perhaps it doesn't quite work in the way you believe it does.


Which economists, all those that doubt MMT in whole or part? Is MMT your economic god?

MMT appears , from my very quick reading, to be a "Mirror" Keynesian approach, it sees the same/similar outcomes but argues re their causes, it appears to place all emphasis on government spending and does not , insofar as I can see, claim that inflation cannot arise via its deployment. It also does not discount the possibility of exchange rate fluctuation which would , were they to occur, possibly impact the price of 10 widgets paid for by the government upwards or downwards depending upon what government is prepared/required to pay for said 10 widgets, an individual government not being able to control widget market prices worldwide. (In fact maybe the particular country has no home grown widgets and requires to always import same.)

Is that a fair summary? If so you are, I believe, overselling the theory, in essence it is Keynesian economics in a different dress.

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Re: Is rising inflation looming?

#378731

Postby Bubblesofearth » January 19th, 2021, 9:24 pm

NeilW wrote:It can't do - because the 'printing masses of money' is a reaction to lots of people saving in the denomination, not spending and not borrowing.


Or just a few people*. If wealth becomes concentrated within a small fraction of the population and growth no longer supports the associated debt then there will either be mass default or inflationary dilution of the debt. Governments generally seem more worried about default.

*1% of the population can't buy up 99% of products and services.



BoE

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Re: Is rising inflation looming?

#378755

Postby NeilW » January 20th, 2021, 4:08 am

Bubblesofearth wrote:. If wealth becomes concentrated within a small fraction of the population and growth no longer supports the associated debt then there will either be mass default or inflationary dilution of the debt. Governments generally seem more worried about default.


There won't. Because for every debt there is an asset. The debt is in Gilts which are largely held by pension funds, which funds pensioners who tend to spend their income, which supports the investment to provide the output to those pensioners, which provides jobs for those of us producing output to be consumed by pensioners - and ourselves. It's just a roundabout way of providing an enhanced state pension.

The interest paid is spent, and the amount of interest that is paid is a policy variable. The interest is in Sterling which means it has to be spent here in the UK.

And despite that, there is no need to issue Gilts at all which would cause the savings to build up in a different instrument (bank deposits) at a lower interest rate.

It doesn't matter how many billions end up in the hands of "the few". There is no less capacity for investment because money is an elastic concept. It just expands dynamically to deal with whatever is required at the current time. And therefore there is no less capacity for everybody to save whatever amount they want to save to feel comfortable against the winds of the future.

The real question is why you are against saving? (which is what 'debt' is when looked at from the other side of the balance sheet). Obviously we can ban it if we want, but why do you want to restrict financial saving when there is no need?

NeilW


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