Here we go again...

[Iron]

http://www.bbc.co.uk/news/business-11884132

[Euler]

You have to think that printing money is only going to result in much higher inflation in the future. But, that said, it didn't solve Japan's problems.

I keep looking at Japan and trying to work out why they never came out of their slump despite keynesian type economics. There seem to be lots of answers but there is a broader question of whether any of these will replicate in the western economies.

http://www.google.com/publicdata?ds=wb- ... PN:GBR:USA

[Iron]

You have to think that printing money is only going to result in much higher inflation in the future.

Indeed.

Perhaps it's worth it if it prevents deflation. If you look at America's inflation figures (http://inflationdata.com/inflation/infl ... lation.asp), inflation was in negative territory for several months last year. And it's possible that it would still be there were it not for the so-called economic stimulis package, which will not be renewed under a Republican House of Representatives.

That said, inflation could be the worse of the two evils. And if interest rates have to rise as a result of inflation, that could constrict the money supply and lead to deflation anyway!

I keep looking at Japan and trying to work out why they never came out of their slump despite keynesian type economics.

The liquidity trap might explain why QE didn't work in Japan - see http://en.wikipedia.org/wiki/Liquidity_trap.

And I'm not sure fiscal Keynesianism works; it certainly doesn't appear to have done much good in the USA in the past couple of years. And it in effect says to the people:

'We the government think you should be spending more of your money to stimulate the economy, even though you think it's wise to save right now. So we'll tax you (or issue bonds and tax your children), so we can spend more money on the civil service. It might kickstart the economy, or it might just be a short-term tonic that adds to personal and sovereign debt. But we know best...'

But I'm not sure that the people who played such a big part in getting us into this mess do know best! I think the free market is far more efficient than any government body at distributing wealth!

Jeff

[Euler]

If there is a lot of money pumped in one side they will have to slam on brakes pretty sharpish if inflation comes to the fore. I suggest that they will err on the side of higher than average inflation as that will deflate the debt mountain and generally prove popular. Deflation would be a nightmare with some of the debt levels out there. But if you are in cash it isn't a bad thing at all!

I always like being contrary so I suspect that as inflation expectations are at historic lows then it makes sense to look at outside chances that will yield big returns if inflation takes off. Bonds are way too low at the moment for something that only has a nominal yield.

[Iron]

I suggest that they will err on the side of higher than average inflation as that will deflate the debt mountain and generally prove popular.

Possibly. But doing so may entail raising interest rates, to compensate bond holders.

And for countries like the UK, where people are up to their eyeballs in debt, raised interested rates are the last thing we need!

Deflation would be a nightmare with some of the debt levels out there. But if you are in cash it isn't a bad thing at all!

The risk with deflation is that it can end up costing businesses more to make their products than they can sell them for. If that happens, we could all be in trouble!

I always like being contrary so I suspect that as inflation expectations are at historic lows then it makes sense to look at outside chances that will yield big returns if inflation takes off. Bonds are way too low at the moment for something that only has a nominal yield.

My understanding of QE is that it raises the demand for (and therefore the price of) bonds, even though the nominal interest rate remains unchanged. That causes people to put their money into equities and assets rather than bonds, which can in turn lead to bubbles. So I would agree.

Jeff

[Iron]

Maybe copper is the way to go: http://www.telegraph.co.uk/finance/news ... arket.html

Jeff

I always like being contrary so I suspect that as inflation expectations are at historic lows then it makes sense to look at outside chances that will yield big returns if inflation takes off. Bonds are way too low at the moment for something that only has a nominal yield.

[Euler]

And I'm not sure fiscal Keynesian-ism works; it certainly doesn't appear to have done much good in the USA in the past couple of years. And it in effect says to the people:

I think it's been misapplied to be honest. About 15 years ago I went through my Keynesian spell and read as much as I could on him and even went to the British Library to dig out some obscure work by him to really get inside his head, rather than the watered down drivel that is out there.

One problem with his original policy suggestions was that the economy was different then. In that artificial demand would feedback into the local economy. I think the wrong stimulus now just leaks out to countries via a trade deficit/surplus. All we do is fund the demand and export the benefit. I was very critical of the stimulus this time around as it just propped up demand rather than achieved anything. I think Keynes idea was "lets use the money on a major infrastructure upgrade that creates jobs and a legacy for the future". Rather than just tip it into a hole and get nothing in return. My view is that a stimulus is correct but only when used properly.

While nobody is a fan of the mess the banks made, they did need bailing out because the consequences are unthinkable, much worse than the great depression. The thing that astonished me is that I was debating the problems in 2004, a full four years before it happened. If I and others could see it coming its really shows up how shoddy the regulatory system had got.

The problem we have now is a socio-economic problem. The masses don't want to accept the mess that everything is it. Without rolling up our sleeves and getting on with it, I think countries will slip into a prolonged recession / slow growth. Countries that effectively deal with the socio-economic issues will be the ones that win from here on in.

One of the wider issues is the shift east. The crisis was just another sign of the weakening west, even if it is relative. There is a clear way out and I am sure we will reach it, but there are likely to be quite a few bumps along the way.

[Iron]

One problem with his original policy suggestions was that the economy was different then. In that artificial demand would feedback into the local economy. I think the wrong stimulus now just leaks out to countries via a trade deficit/surplus.

I think another problem - then and now - is that it's just a temporary solution.

An economy can only grow through exports or innovation. Pumping money into the economy doesn't help with either, so the fundamental problem still remains.

I think Keynes idea was "lets use the money on a major infrastructure upgrade that creates jobs and a legacy for the future". Rather than just tip it into a hole and get nothing in return.

In fairness to the Obama stimulus package, I think it does focus on infrastructure projects.

The thing that astonished me is that I was debating the [banking] problems in 2004, a full four years before it happened. If I and others could see it coming its really shows up how shoddy the regulatory system had got.

Indeed. Gordon Brown should have foreseen the storm that was brewing, and taken action.

But why risk upsetting voters who might be thinking of buying a house at 5 times their salary, or appearing to be anti-business by taking on the banks?

The irony (which I'm sure is not lost on Mr Brown) is that, had he done the right thing, he'd have probably won the last general election!

The problem we have now is a socio-economic problem. The masses don't want to accept the mess that everything is it.

Indeed.

And I think one issue the government needs to really get to grips with is illegal immigration.

I'm sure there are many, many immigrants who work hard and just want to build a better life for their families. In a time of economic boom, when there are more vacancies than people to fill them, they are a real asset to the country. But when we have British people who are able and willing to work, but can't find a job, then serious measures need to be taken.

Oh, and IMHO we should get out of the EU! We pay billions of pounds a year for membership of a club whose unelected bureaucrats impose laws on us! I call that bad value for money!

One of the wider issues is the shift east.

I agree. If you were a manufacturer, why would you build a plant in the UK or the USA when countries like India and China have hard working and increasingly educated workforces who work on a tenth of the wages?

Jeff