Depression in the UK. Is it really that bad?

[Dieselman]

I thought that is exactly what banks do: create money. That's how the system works isnt it?

Only for the last 37 years or so, before that it was tied to gold in asset value.
Now everyone is in debt upto their eyeballs it will be interesting to see what transpires as a banking system that relies on an ever expanding economy is going to feel a massive pinch.

The current financial crisis has been making me think about how investment companies operate.
I've come to the conclusion all investments are really operate on Pyramid selling and currency devaluation.
Unless Governments sell worthless bonds and print money there is no more money in circulation, so therefore for every winner there has to be a loser.
In addition when you pay your money to a provider they spend some of that on wages/commission/costs, so there isn't the original value to invest. They can only recover that value, and hopefully more, from another 'punter'.

Interesting times ahead as people and Countries run out of money.

 

[gIzzE]

I've come to the conclusion all investments are really operate on Pyramid selling and currency devaluation.

Isn't that how it always works though, it builds up and up until it topples and then we start again.

Interesting times ahead.

 

[crockers]

In addition when you pay your money to a provider they spend some of that on wages/commission/costs, so there isn't the original value to invest. They can only recover that value, and hopefully more, from another 'punter'.
.

Fund should be transparent so you can see the annual costs from which the above is paid. What people don't realise is that if a company (life company) is successful and writes lots of business there is a new business strain to suffer that has to be funded from capital from the shareholders. This has then to be recouped from the annual management charge over around 7-10 years.

All funds should publish their total cost ratios

 

[Dieselman]

Sorry Crockers, I didn't make myself clear.
What I meant was that unless there is additional paper money printed by Government banks then without more investors being drawn into the schemes the company can't recover all the original fund because some of it has already been spent on wages, etc.

Due to the economic outlook and incredible national debts, Governments can't print any more worthless bonds to add funds into the economies.

 

[crockers]

Sorry Crockers, I didn't make myself clear.
What I meant was that unless there is additional paper money printed by Government banks then without more investors being drawn into the schemes the company can't recover all the original fund because some of it has already been spent on wages, etc.

Due to the economic outlook and incredible national debts, Governments can't print any more worthless bonds to add funds into the economies.

You're therefore assuming that there is no growth in the shares in which the fund invests..?

In the UK the investments are governed by strict trusts that are policed and therefore they can not be used to pay wages etc......there is a fee applied - say at 1.5% p.a. and this is usually covered by the dividends being received so the capital shouldn't be touched.....therefore there is no reliance on fresh monies coming in to repay investors. They get back the bid or sale value of their units - obviously if there is a run on the fund the value will drop as a "forced sale" can be at a price less than anticipated....

So to recap - there is no need for fresh investors or new monies to protect the investor ....but then anyone investing in a fund who doesn't understand and appreciate the risks involved in equity ownership - should steer well clear.

 

[Dieselman]

You're therefore assuming that there is no growth in the shares in which the fund invests..?

Funds can only grow either at the expense of another investment loss or due to inflation.
Inflation is caused by Governments printing money against worthless bonds and building up a debt.
One cannot just create extra real wealth, just paper money.

The problem now is that the paper money supply has come to an end and we are likely to see deflation.

 

[crockers]

Funds can only grow either at the expense of another investment loss or due to inflation.

Not 100% sure I agree with you - but I see where you're coming from. But you also need to factor in supply and demand .... greed.

Oh and Tulips....

Sad thing is that no-one has experiences real deflation and usually the best investment to safeguard oneself is ,,,,,,,,,,,,,Govt Bonds..

Deflation is a far worse thing than inflation.........

 

[Dieselman]

Sad thing is that no-one has experiences real deflation and usually the best investment to safeguard oneself is ,,,,,,,,,,,,,Govt Bonds..

Deflation is a far worse thing than inflation.........

Depending on which inflation figures and GDP you take we are pretty close to deflation right now, aren't we. I believe USA has been on the verge of it for about 12 months.

Re Govt. bonds. Do you really think they are a good idea and what would happen if the Govt. couldn't support it's bonded debt? Would the bonds be worthless/devalued.?

 

[timskemp]

Deflation is a far worse thing than inflation.........

In trading terms it is yes, but coupled with interest rates being terrible it's not bad for your savings.

 

[hawk20]

Sorry Crockers, I didn't make myself clear.
What I meant was that unless there is additional paper money printed by Government banks then without more investors being drawn into the schemes the company can't recover all the original fund because some of it has already been spent on wages, etc.

Due to the economic outlook and incredible national debts, Governments can't print any more worthless bonds to add funds into the economies.

Governments print money all the time. Big dollops of it in our case and the figures for the money supply are regularly published.

You say govts can't print any more worthless bonds. Our govt is issuing new debt in huge quantities as outlined in the PBR (pre budget report). At least £100 billion in the year to come. And govt debt will double in the next 5 years on their own figures.

They are not worthless bonds by the way. They pay interest and are generally rated as safer than company debt.

BTW gold did not give a constant money supply because new gold kept being found --like the California gold rush --but it wasn't as easy to find as paper money which can be printed in vast quantities with ease.

 

[hawk20]

The current fear of deflation is slightly odd. For centuries in Britain prices fell -- but gently. Wages stayed pretty constant and extra productivity led to falling prices. The falling prices gave people an increase in standard of living. Good.

Falling fuel prices have not caused me any problems. I look forward to more falling prices. The govt says if prices start falling we will all delay purchases and make a recession worse. Well I haven't delayed any fuel purchases. And if prices fall reasonably gently most people will buy the goods they need when they need them. If prices were falling only by 1 or 2 per cent per annum most would hardly notice the changes.

 

[hawk20]

The current financial crisis has been making me think about how investment companies operate.
I've come to the conclusion all investments are really operate on Pyramid selling and currency devaluation.
Unless Governments sell worthless bonds and print money there is no more money in circulation, so therefore for every winner there has to be a loser.
In addition when you pay your money to a provider they spend some of that on wages/commission/costs, so there isn't the original value to invest. They can only recover that value, and hopefully more, from another 'punter'.

.

Thoughtful point but there do not have to be losers for investors to gain. Thinking of a primitive economy often helps to gain clarity. All those who plant wheat can gain as seed produces more wheat than the planter plants. And nobody has to lose. Next year we all have more to eat.

If the simple economy is using money, then if the money supply grows in line with output, prices can stay constant.

If there is no increase in the money supply then prices will fall so that the extra output can be bought with the same money supply. (This happened often when Britain used gold instead of paper money).

 

[crockers]

In trading terms it is yes, but coupled with interest rates being terrible it's not bad for your savings.

Then imagine the following scenario

Boss calls his staff together -- he has good news and bad news..

Good news is that deflation is running at 4% BUT he is only cutting your wages by 3% so you have in real terms a 1% pay rise.
Bad news is that people are no longer buying the number of goods you produce as they are only replacing what "dies" as prices are dropping...Therefore half the workforce are made redundant...

That is spectre of deflation.......

So yes it is ok for savers WHO have a job or are retired....but noone else...

But then if you save in a bank that pays you 0% interest rate -- you are making money in real terms.....until the banks start applying transaction fees etc ....(as they did in Japan in the early '90s)...

 

[crockers]

The current fear of deflation is slightly odd. For centuries in Britain prices fell -- but gently. Wages stayed pretty constant and extra productivity led to falling prices. The falling prices gave people an increase in standard of living. Good.

Falling fuel prices have not caused me any problems. I look forward to more falling prices. The govt says if prices start falling we will all delay purchases and make a recession worse. Well I haven't delayed any fuel purchases. And if prices fall reasonably gently most people will buy the goods they need when they need them. If prices were falling only by 1 or 2 per cent per annum most would hardly notice the changes.

An interesting point ...all I can say is look to Japan in the early '90s they suffered deflation.....

 

[crockers]

Re Govt. bonds. Do you really think they are a good idea and what would happen if the Govt. couldn't support it's bonded debt? Would the bonds be worthless/devalued.?

If we defaulted on sovereign debt..... then what you have seen over the past few months would pale into insignificance...look at Argentina in the past....

 

[Dieselman]

Governments print money all the time. Big dollops of it in our case and the figures for the money supply are regularly published.

You say govts can't print any more worthless bonds. Our govt is issuing new debt in huge quantities as outlined in the PBR (pre budget report). At least £100 billion in the year to come. And govt debt will double in the next 5 years on their own figures.

They are not worthless bonds by the way. They pay interest and are generally rated as safer than company debt.

BTW gold did not give a constant money supply because new gold kept being found --like the California gold rush --but it wasn't as easy to find as paper money which can be printed in vast quantities with ease.

Paper money is devalued as a result of printing more and printing more leads to inflation.
Is inflation good for an economy?
Yes and no.
It gives the feeling of apparent wealth increase as people borrow money at a certain rate and pay back with their new income which is higher. The problem is that the new monoey isn't worth as much so you need more of it.

To keep printing money is a short sighted way of keeping an economy 'growing' because eventually the currency is worthless.

As you correctly say the Govt intends to increase our debt severely. Bear in mind that this increase in debt is exponential, so doubling in 5 years, then doubling again in another five and so on.
Just who do you think is going to pay it all back, and will GDP actually be able to pay it back at all.
That is the time when we will fully understand the value of oversupply of money.

The largest currency in the world, US$, was pegged to the gold asset value until c1971. I think that was well after the Californian gold rush which is immaterial anyway as it actually made the US genuinely more wealthy as they had more gold. The paper money supply only matched the gold asset value.

Our debt is already supposed to be £1.3 Trillion. Does anyone think it is a good idea to double that to £2.6 Trillion in five years, then to £5.2 trillion in another five, etc...?
Bear in mind that £1.3Trillion is already higher than our GDP.

I know the Govt says our debt is £487 Million but that doesn't take into account public sector costs.
http://www.dailymail.co.uk/news/article-418774/National-debt-times-higher-Government-claims.html
(Note the reference is from the 'bible' so there should be no arguments. )

Who will accept our Govt bonds for us to be able to continue printing more paper money.??
It's money oversupply that has caused the current crisis.

Lets not forget that we are also reaching/at peak oil. Why is that an issue.? Becuse energy costs will increase dramatically as cheap energy reduces globally.
Are we at peak oil..?? Apparently peak oil follows ~44 years after peak finds, which were in ~1964. There have been no decent sized finds in recent years and demand has gone up. The cost of pumping oil in both financial and energy cost is much higher than it used to be.

We are seeing a reduction in demand at present due to the sudden slowing of the economy, but will that continue.?

 

[Dieselman]

If we defaulted on sovereign debt..... then what you have seen over the past few months would pale into insignificance...look at Argentina in the past....

I agree, but that doesn't mean it couldn't happen.

Will anyone actually buy bonds we cannot possibly pay back?

 

[Dryce]

The current fear of deflation is slightly odd. For centuries in Britain prices fell -- but gently. Wages stayed pretty constant and extra productivity led to falling prices. The falling prices gave people an increase in standard of living. Good.

Deflation is a different animal.

'Extra productivity led to falling prices' is not economic deflation. It's increased productivity in the economy which in principle increases the value of the economy as a whole.

Deflation isn't about falling costs it's about falling demand and falling value and reduction in investment and output.

 

[st4]

Paper money is devalued as a result of printing more and printing more leads to inflation.
Is inflation good for an economy?
Yes and no.
It gives the feeling of apparent wealth increase as people borrow money at a certain rate and pay back with their new income which is higher. The problem is that the new monoey isn't worth as much so you need more of it.

To keep printing money is a short sighted way of keeping an economy 'growing' because eventually the currency is worthless.

As you correctly say the Govt intends to increase our debt severely. Bear in mind that this increase in debt is exponential, so doubling in 5 years, then doubling again in another five and so on.
Just who do you think is going to pay it all back, and will GDP actually be able to pay it back at all.
That is the time when we will fully understand the value of oversupply of money.

The largest currency in the world, US$, was pegged to the gold asset value until c1971. I think that was well after the Californian gold rush which is immaterial anyway as it actually made the US genuinely more wealthy as they had more gold. The paper money supply only matched the gold asset value.

Our debt is already supposed to be £1.3 Trillion. Does anyone think it is a good idea to double that to £2.6 Trillion in five years, then to £5.2 trillion in another five, etc...?
Bear in mind that £1.3Trillion is already higher than our GDP.

I know the Govt says our debt is £487 Million but that doesn't take into account public sector costs.
http://www.dailymail.co.uk/news/article-418774/National-debt-times-higher-Government-claims.html
(Note the reference is from the 'bible' so there should be no arguments. )

Who will accept our Govt bonds for us to be able to continue printing more paper money.??
It's money oversupply that has caused the current crisis.

Lets not forget that we are also reaching/at peak oil. Why is that an issue.? Becuse energy costs will increase dramatically as cheap energy reduces globally.
Are we at peak oil..?? Apparently peak oil follows ~44 years after peak finds, which were in ~1964. There have been no decent sized finds in recent years and demand has gone up. The cost of pumping oil in both financial and energy cost is much higher than it used to be.

We are seeing a reduction in demand at present due to the sudden slowing of the economy, but will that continue.?

For once I agree with you. I am not comfortable with this increased level of borrowing and the idea that we can "spend our way out this recession". The money will need repaid @ some point, its just delaying a very nasty problem a bit longer, and for a future government.

The last sentance is particularly interesting. Perhaps a better question would be, What will stop the slowing down of the economy? Go on, think of an answer

 

[crockers]

Perhaps a better question would be, What will stop the slowing down of the economy? Go on, think of an answer

If domestic demand isn't there hopefully with a weak £ exports become more realistic......... just trying to think what we manufacture D ) that other countries want...