In the year to April 2015 Britain entered into a period of deflation. Over the last year retail prices have fallen by 0.1%. This is not such a bad thing provided the deflation is not deep and long lasting. You may well ask why £385 billion of quantitative easing or money printing did not create inflation. Well it did; it inflated the price of houses, commercial property and stocks and shares. Of course, when the price of baked beans goes up it is a bad thing as far as economists are concerned but when house prices go up it is a good thing.
House prices going up is a good thing if you already own a house but it is not so good if you are a young couple paying £1,000 a month for a grotty flat because you can't afford to get on the bottom rung of the housing ladder.
House prices going up can also be a bad thing if they create a property bubble which when it bursts causes distress selling and repossessions. A property bubble could also bring on another financial crisis. Private borrowing to fund housing stands at almost £2 trillion. This level of debt is becoming unsupportable. We could be heading for trouble.
The causes of retail price deflation are a reduced oil prices, supermarket competition and the high level of the pound which reduces the price of imports. If deflation gets out of hand it will be difficult for the Bank of England to use the traditional policy of reducing interest rates to create inflation as rates are at an all time low. Perhaps some more money printing will do the trick but this time the money should be given to the non-banking sector. The non-banking sector will spend the money on investment and purchases rather than property. Prices will then go up in the retail sector.
We need a bit of deflation in the property market and a little inflation in the retail market. The financial authorities should act now to achieve this. Inflation at 2% will help to relieve the debt burden for all of us.
Tuesday, 19 May 2015
Thursday, 7 May 2015
UK 2015 General Election - 35% won't vote but who can blame them?
This has been the most dreadful and arid general election campaign that I have ever experienced. The only thing that the politicians want to talk about are unrealistic promises and the budget deficit.
With regards to the budget they seem to be acting like amateur bookkeepers. None of the politicians have talked about using national funds to improve the economy to help the incomes of the majority of our citizens.
Any economy must be a mixture of both capitalist and social enterprise. We need capitalism to generate wealth and we need social enterprise to provide the best infrastructure of transport, health and education to support wealth generation. There seems to have been no debate whatsoever on how this can be achieved.
There has been no debate on the best methods of distributing the national income or the economics of how to do this. It is apparent that in the last 30 years income has trickled up from the poor and the middle classes to the very rich in a form of reverse economic communism. There has been no real attempt to regulate this. Neo-classical economic thinking has become entrenched within the thinking of all political parties. This form of economics of "laissez-faire" thinking has failed us completely. The efficient markets hypothesis has almost led us into economic oblivion just as surely as it did in 1929. Our politicians have nothing to offer us as an alternative. There has been no public debate.
The British economy is progressing towards another property asset bubble. UK individual private debt is approaching 2 trillion pounds this sum is greater than government debt. Add to this another 2 trillion of corporate debt and the economy looks weaker. The UK banks are exposed to about 6 trillion pounds of above the line debt with possibly another few trillion pounds of below the line debt. All this adds up to the possibility of the UK economy crashing again if there is another financial crisis.
The 2008 financial crisis was not caused by government debt it was caused by Banks being unable to fund their debts because their counter balancing assets were mostly junk. Since 2008 the situation for Britain has hardly improved. The public are blissfully unaware of this and the politicians have buried their heads in the sand and are living in hope. They have no plan to improve the private balance sheet of UK incorporated. They can only talk about a couple of billion here or there on the government accounts.
The 350 billion pounds of quantitative easing spending which was not voted for by anybody has been used by the Banks to invest in property and the stock market and this is creating new asset bubbles in both markets.
In the 1960s the two major parties boasted about their house building programmes and vied with each other to build more houses. They actually achieved this.
In the 1960s the balance of payments was a key issue in the election. No party would have dreamt of allowing the means of industrial production to be relocated overseas; both parties would have seen the danger of this but of course neo-classical economics was not so prominent.
In the lead up to the UK joining the Common Market we saw discussion of the pros and cons in every election campaign. When we joined the EU no one worried about free movement of labour or immigration. We were a much more generous minded society then even though we were not as rich.
In the elections during the 60s and 70s foreign policy was high on the agenda; we thought carefully about going to war or bombing another country to achieve a diplomatic aim. Both the Conservative party and the Labour party kept us out of the Vietnam war and our country was the better for it.
In the 1960s and 1970s our country would not have supported an extreme right wing government in the Ukraine without full discussion and the approval of the British people. The memory of the second world war was still too painful.
The newspapers , media and the political parties seem to be frightened to talk about foreign policy and Britain's future relations with the World and Europe. All they want to talk about is their obsession with budget deficits.
Large swathes of our youth live in a country which cannot provide them with any sort of decent home or a steady job. They face living with their parents for extended periods or flat sharing in poor quality and expensive private housing. Their future looks bleak but where is the plan to get them out of this predicament? There isn't one and no one is talking about it.
Millions of people are relying on food banks or loans (gifts) from their family and friends to help them get by - what sort of future do they have? This is not up for discussion in the election.
Not even the Green party has talked about climate change and if this issue is not tackled by all of us then any talk of the economy and bookkeeping is academic. There will not be an economy.
35% of people won't vote in the 2015 election can you blame them? The politicians have failed us but worse of all we have failed ourselves.
With regards to the budget they seem to be acting like amateur bookkeepers. None of the politicians have talked about using national funds to improve the economy to help the incomes of the majority of our citizens.
Any economy must be a mixture of both capitalist and social enterprise. We need capitalism to generate wealth and we need social enterprise to provide the best infrastructure of transport, health and education to support wealth generation. There seems to have been no debate whatsoever on how this can be achieved.
There has been no debate on the best methods of distributing the national income or the economics of how to do this. It is apparent that in the last 30 years income has trickled up from the poor and the middle classes to the very rich in a form of reverse economic communism. There has been no real attempt to regulate this. Neo-classical economic thinking has become entrenched within the thinking of all political parties. This form of economics of "laissez-faire" thinking has failed us completely. The efficient markets hypothesis has almost led us into economic oblivion just as surely as it did in 1929. Our politicians have nothing to offer us as an alternative. There has been no public debate.
The British economy is progressing towards another property asset bubble. UK individual private debt is approaching 2 trillion pounds this sum is greater than government debt. Add to this another 2 trillion of corporate debt and the economy looks weaker. The UK banks are exposed to about 6 trillion pounds of above the line debt with possibly another few trillion pounds of below the line debt. All this adds up to the possibility of the UK economy crashing again if there is another financial crisis.
The 2008 financial crisis was not caused by government debt it was caused by Banks being unable to fund their debts because their counter balancing assets were mostly junk. Since 2008 the situation for Britain has hardly improved. The public are blissfully unaware of this and the politicians have buried their heads in the sand and are living in hope. They have no plan to improve the private balance sheet of UK incorporated. They can only talk about a couple of billion here or there on the government accounts.
The 350 billion pounds of quantitative easing spending which was not voted for by anybody has been used by the Banks to invest in property and the stock market and this is creating new asset bubbles in both markets.
In the 1960s the two major parties boasted about their house building programmes and vied with each other to build more houses. They actually achieved this.
In the 1960s the balance of payments was a key issue in the election. No party would have dreamt of allowing the means of industrial production to be relocated overseas; both parties would have seen the danger of this but of course neo-classical economics was not so prominent.
In the lead up to the UK joining the Common Market we saw discussion of the pros and cons in every election campaign. When we joined the EU no one worried about free movement of labour or immigration. We were a much more generous minded society then even though we were not as rich.
In the elections during the 60s and 70s foreign policy was high on the agenda; we thought carefully about going to war or bombing another country to achieve a diplomatic aim. Both the Conservative party and the Labour party kept us out of the Vietnam war and our country was the better for it.
In the 1960s and 1970s our country would not have supported an extreme right wing government in the Ukraine without full discussion and the approval of the British people. The memory of the second world war was still too painful.
The newspapers , media and the political parties seem to be frightened to talk about foreign policy and Britain's future relations with the World and Europe. All they want to talk about is their obsession with budget deficits.
Large swathes of our youth live in a country which cannot provide them with any sort of decent home or a steady job. They face living with their parents for extended periods or flat sharing in poor quality and expensive private housing. Their future looks bleak but where is the plan to get them out of this predicament? There isn't one and no one is talking about it.
Millions of people are relying on food banks or loans (gifts) from their family and friends to help them get by - what sort of future do they have? This is not up for discussion in the election.
Not even the Green party has talked about climate change and if this issue is not tackled by all of us then any talk of the economy and bookkeeping is academic. There will not be an economy.
35% of people won't vote in the 2015 election can you blame them? The politicians have failed us but worse of all we have failed ourselves.
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