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Is rising inflation looming?

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TheMotorcycleBoy
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Re: Is rising inflation looming?

#378756

Postby TheMotorcycleBoy » January 20th, 2021, 5:26 am

NeilW wrote:
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

I'm confused, I'm interested in Economics/Finance but neither an expert, nor one sold on any particular viewpoint.

However, in my naive view, and in recent experience in the case of furloughing the work force at my wife's place last year, wasn't the printing of money last year a reaction to 100s of 1000s not having any money?

My wife's workmates seem to mostly be on tax credits and frequently borrowing from each other to fill their cars up, so they most certainly cannot be classed as people saving in the denomination. So whilst I understand why QE will encourage spending, but definitely not as a reaction to people saving.

Matt

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Re: Is rising inflation looming?

#378763

Postby GoSeigen » January 20th, 2021, 7:00 am

TheMotorcycleBoy wrote:
NeilW wrote:
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

I'm confused, I'm interested in Economics/Finance but neither an expert, nor one sold on any particular viewpoint.

However, in my naive view, and in recent experience in the case of furloughing the work force at my wife's place last year, wasn't the printing of money last year a reaction to 100s of 1000s not having any money?

My wife's workmates seem to mostly be on tax credits and frequently borrowing from each other to fill their cars up, so they most certainly cannot be classed as people saving in the denomination. So whilst I understand why QE will encourage spending, but definitely not as a reaction to people saving.

Matt


Matt, inflation and government default are about the market and/or population losing confidence in the credit of a state debtor. If the UK government loses the confidence of its investors it will default or suffer inflation of its currency.

Money printing is a misnomer and misunderstood. Try reframing your thinking about it as the market/public investing in government monetary liabilities. When they think those liabilities are uninvestable there will be the same inflation as seen with the bank shares ten years ago.


GS

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Re: Is rising inflation looming?

#378772

Postby TheMotorcycleBoy » January 20th, 2021, 7:44 am

NeilW wrote:
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.

Ok. Fair enough. But isn't the nub of the argument down to a weakness in the whole concept of fiat money? Isn't that at the bottom of the likes of johnhemmings, BoEs, GS, Dealtn etc. etc. criticism. BTW I'm not backing any kind of claim that fiat money is inherently wrong, just that it "isn't perfect".

In other words, yes you are right on a balance sheet, each debt is balanced by an asset. However that asset is a virtual asset, since it's not backed up by anything real, e.g. gold, corn, or exported cars etc. And ultimately that is why there is always the fear that people will lose confidence in a currency.

Matt

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Re: Is rising inflation looming?

#378779

Postby Bubblesofearth » January 20th, 2021, 8:11 am

NeilW wrote:


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.


The Government borrows because tax receipts don't cover expenditure. The alternatives are higher taxes or reduced expenditure, neither of which is usually palatable. However, at some point the borrowing could become unsustainable, i.e. not realistically covered by future tax receipts. Those on the asset side could lose confidence in the real value of that asset which could cause the value to fall leading to inflation (through FX) leading to a further fall in confidence and so on.

Incidentally, only about 50% of gilts are held by the UK private sector.

BoE

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Re: Is rising inflation looming?

#378792

Postby NeilW » January 20th, 2021, 9:37 am

Bubblesofearth wrote:The Government borrows because tax receipts don't cover expenditure


It doesn't. There is a 155 page document explaining in great detail why that isn't the case here. https://gimms.org.uk/2020/12/26/accounting-model-uk-exchequer/

The government spends by ordering the Bank of England to make issues under section 15(3) of the Exchequer and Audit Department Act 1866, after authorisation of the expenditure by Parliamentary vote.

Whatever doesn't come back as taxes will by default end up as a balance on the government's Ways and Means Account at the Bank of England, unless government *chooses* to do something else as a matter of policy.

Ordering a bank to issue money on terms you dictate isn't "borrowing" in any sense an ordinary person would understand it. Particularly not at a bank you own and control.

There is no operational connection between the Supply Acts and the Finance Acts. They run on completely separate physical channels, only coming together at the last minute when they all end up in the Consolidated Fund pot.

Taxes for Revenue is a myth. A fictional belief. A fairy story.

NeilW
Last edited by NeilW on January 20th, 2021, 9:45 am, edited 4 times in total.

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Re: Is rising inflation looming?

#378794

Postby NeilW » January 20th, 2021, 9:39 am

TheMotorcycleBoy wrote:In other words, yes you are right on a balance sheet, each debt is balanced by an asset. However that asset is a virtual asset, since it's not backed up by anything real, e.g. gold, corn, or exported cars etc. And ultimately that is why there is always the fear that people will lose confidence in a currency.

Matt


How can you lose confidence in something you need to pay your tax bill? All you need to do to balance that is put fixed taxes up and the interest rate down - which rapidly drains liquidity from the system. In other words you convert the voluntary taxation that is saving to compulsory taxation - at the point you need to, not before.

In that situation how are you going to pay your tax bill, or your mortgage?

You need to get some, or you lose everything - including your liberty. What does that do to demand for the currency?

Generally that is done via the automatic stabilisers - which is what the furlough scheme and percentage taxation on income and employment are.

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Re: Is rising inflation looming?

#378800

Postby dealtn » January 20th, 2021, 9:46 am

NeilW wrote:
TheMotorcycleBoy wrote:In other words, yes you are right on a balance sheet, each debt is balanced by an asset. However that asset is a virtual asset, since it's not backed up by anything real, e.g. gold, corn, or exported cars etc. And ultimately that is why there is always the fear that people will lose confidence in a currency.

Matt


How can you lose confidence in something you need to pay your tax bill? All you need to do to balance that is put fixed taxes up and the interest rate down - which rapidly drains liquidity from the system. In other words you convert the voluntary taxation that is saving to compulsory taxation - at the point you need to, not before.

In that situation how are you going to pay your tax bill, or your mortgage?

You need to get some, or you lose everything - including your liberty. What does that do to demand for the currency?

Generally that is done via the automatic stabilisers - which is what the furlough scheme and percentage taxation on income and employment are.


Not everyone that owns a £ asset will ever have a £ tax bill. If those holders lose confidence they might/will sell that £ asset to someone else. The act of such selling, due to lack of confidence, might/will reduce the relative value both of that £ asset but also the relative value of £ against other currencies. And we all know your reluctance despite being asked numerous times to accept that (even small) moves in the £ FX rate have price implications for goods priced in £ and bought by UK consumers.

Not a single change in the number of £s in the system, all accounting identities remain, yet inflation/deflation occurs.

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Re: Is rising inflation looming?

#378802

Postby dspp » January 20th, 2021, 9:47 am

NeilW wrote:
How can you lose confidence in something you need to pay your tax bill? .


Confidence generally goes slowly at first, then all at once.

It is the nation state equivalent of bankruptcy. Many countries & their currencies have gone there, indeed few haven't. I suspect that rather like political careers, they all ultimately end in failure.

The trick is not to engage in behaviour that brings about their premature demise.

regards, dspp

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Re: Is rising inflation looming?

#378803

Postby johnhemming » January 20th, 2021, 9:47 am

NeilW wrote:How can you lose confidence in something you need to pay your tax bill?

You are saying this to a forum which has a lot of private investors who can decide how much they invest into securities denominated into different currencies. You only need the tax currency to the size of the tax bill.

Also if you think the tax currency is inflating you will wait until the latest point before changing currency.

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Re: Is rising inflation looming?

#378857

Postby Charlottesquare » January 20th, 2021, 11:38 am

johnhemming wrote:
NeilW wrote:How can you lose confidence in something you need to pay your tax bill?

You are saying this to a forum which has a lot of private investors who can decide how much they invest into securities denominated into different currencies. You only need the tax currency to the size of the tax bill.

Also if you think the tax currency is inflating you will wait until the latest point before changing currency.


I think(am not sure) the MMT argument being proposed,and I am not sure the theory itself supports this interpretation, I would need to sit down for six months in a darkened room with a damp towel on my head and a pile of textbooks, is that all you own is effectively tax at some point in the future, it all returns to the issuer, whilst right now it may be captured in say bricks and mortar that is not its eternal state. Whilst an economist might think this (though most do not) I am pretty certain an individual does not think this and as his/her behaviour is predicated on his/her beliefshe/she does not behave the way described.

The problem with most economic theories is their exponents seem to push them too hard, they ought not to be all or nothing, aspects of Keynesian economics and monetary theory can and do subsist together and overlap, certain aspects clash. MMT is slightly new to me, in the early 80s it was Keynesian analysis head to head with Chicago school exponents, but notwithstanding there were overlaps, or the same manifestation seen from a different angle and explained in a different way.

(Now I will go away for six moths and do some revision, maybe a bit of IS/LM to start ) :D

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Re: Is rising inflation looming?

#378879

Postby Bubblesofearth » January 20th, 2021, 12:32 pm

NeilW wrote:Taxes for Revenue is a myth. A fictional belief. A fairy story.

NeilW


So why impose taxes at all? Why not just print whatever is required to satisfy public sector spending? Getting rid of the tax system would certainly eliminate a huge amount of bureaucracy!

BoE

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Re: Is rising inflation looming?

#378883

Postby dealtn » January 20th, 2021, 12:40 pm

Meanwhile ...

https://www.bbc.co.uk/news/business-55729988

... latest number shows inflation is low, but rising. It will get a bit more interesting in a few months when last year's plunge in Oil and Energy drops out of the rolling 12 month period.

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Re: Is rising inflation looming?

#378896

Postby NeilW » January 20th, 2021, 12:58 pm

Bubblesofearth wrote:So why impose taxes at all?


It reduces people's spending, which reduces the demand for resources in the economy, which makes them unemployed or underused, and the government can then purchase that spare real capacity for the public use.

However if the resource is already free (ie. there is plenty of unemployed) then people's spending doesn't need to be reduced to make space for public purchases. They can just be bought 'for free' essentially.

Which then leads to the limit of government purchases. They must not bid up prices. If they don't get the price or quantity they require then they *must* increase taxation *in a targeted manner* to release those resources they require for their public programme. And until then the spending must not happen. Government is a big beast. What it buys and the price it demands directly feeds into inflation.

When you hear the "new Green deal" crowd crowing about how much money they are going to spend, ask them where the roofers to put the solar panels up are coming from, not where the money is coming from.

NeilW
Last edited by NeilW on January 20th, 2021, 1:03 pm, edited 2 times in total.

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Re: Is rising inflation looming?

#378897

Postby NeilW » January 20th, 2021, 1:01 pm

Charlottesquare wrote:, maybe a bit of IS/LM to start ) :D


Hopefully not. Even Hicks dismissed IS/LM as a 'classroom gadget'.

I accordingly conclude that the only way in which IS-LM analysis usefully survives—as anything more than a classroom gadget, to be superseded, later on, by something better—is in application to a particular kind of causal analysis, where the use of equilibrium methods, even a drastic use of equilibrium methods, is not inappropriate…(Hicks 1980-1981)


Hicks, J. (1980-1981). “IS-LM: An Explanation.” Journal of Post Keynesian Economics, v. 3: : 139–155

TheMotorcycleBoy
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Re: Is rising inflation looming?

#378904

Postby TheMotorcycleBoy » January 20th, 2021, 1:21 pm

NeilW wrote:
TheMotorcycleBoy wrote:In other words, yes you are right on a balance sheet, each debt is balanced by an asset. However that asset is a virtual asset, since it's not backed up by anything real, e.g. gold, corn, or exported cars etc. And ultimately that is why there is always the fear that people will lose confidence in a currency.

Matt


How can you lose confidence in something you need to pay your tax bill?......

I don't the issue is initially in UK taxpayers. The issue is in the money markets, that will lose confidence in the UK economy, and if/when they mark down Sterling, then the price of imported goods will rise, and then inflation will happen.

johnhemming wrote:
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.

I think that the problem with this argument is semantic. You don't need to possess something to lose confidence in it. That is, is it not the influence of foreign participants, who may start to lack confidence in a country's economy/currency that is at stake here?

Matt

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Re: Is rising inflation looming?

#378905

Postby GoSeigen » January 20th, 2021, 1:23 pm

TheMotorcycleBoy wrote:
NeilW wrote:
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.

Ok. Fair enough. But isn't the nub of the argument down to a weakness in the whole concept of fiat money? Isn't that at the bottom of the likes of johnhemmings, BoEs, GS, Dealtn etc. etc. criticism. BTW I'm not backing any kind of claim that fiat money is inherently wrong, just that it "isn't perfect".

In other words, yes you are right on a balance sheet, each debt is balanced by an asset. However that asset is a virtual asset, since it's not backed up by anything real, e.g. gold, corn, or exported cars etc. And ultimately that is why there is always the fear that people will lose confidence in a currency.


This isn't the point. The point as I tried and failed to explain is that the creditors and debtors are different entities. You can get bad debtors and screwed creditors. Who are the debtors and who are the creditors? That is the question. And who will the losers be?

The issues for inflation are velocity (roughly people's desire to spend rapidly) and production, which needs to keep pace with money growth multiplied by velocity.

People like me are beginning to worry that all three quantities may deteriorate simultaneously: tikunetih linked to a chart showing historical velocity which is concerning to the likes of me...

If NeilW is so sanguine about gilts and inflation does he hold a large position in UK govt bonds????

GS

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Re: Is rising inflation looming?

#378910

Postby GoSeigen » January 20th, 2021, 1:27 pm

dspp wrote:
NeilW wrote:
How can you lose confidence in something you need to pay your tax bill? .



What a hilarious question.

Who wants to pay tax? I want to eat. Then I want clothes. Then I want a place to live. Then I want some furniture. Then I'll care how I'm going to pay my taxes!

GS

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Re: Is rising inflation looming?

#378924

Postby Bubblesofearth » January 20th, 2021, 2:11 pm

NeilW wrote:
It reduces people's spending, which reduces the demand for resources in the economy, which makes them unemployed or underused, and the government can then purchase that spare real capacity for the public use.



NeilW


But aren't interest rates the main tool for moderating people's spending? And far easier to implement than taxation. The tax system is a very resource intensive system by comparison. It strikes me that if it's not required as a revenue stream then it's a rather clumsy tool for reducing spending.

Also we always hear from the Government about the need to raise taxes to pay for increased public sector debt levels. At least that's the only reason given. We never hear about the need to raise taxes to crimp private sector spending. Are they lying about this or deluded?

I'm honestly puzzled by what seems to be a very alternative way of looking at the economy.

BoE

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Re: Is rising inflation looming?

#378938

Postby NeilW » January 20th, 2021, 2:46 pm

Bubblesofearth wrote:But aren't interest rates the main tool for moderating people's spending?


Haven't you noticed over the last decade or so that they don't actually work? Every peak is at a lower level and now we're at the end of the road.

You don't tend to need to increase tax rates, tax amounts increase as activity increases because that's how percentages work. Instead you tax by withdrawing spending - as will happen with the furlough scheme when people go back to work.

It's better if it is done by automatic stabilisers which respond far faster and more precisely than men in ivory towers doing a Wizard of Oz routine whether in Parliament or Threadneedle Street.

Also we always hear from the Government about the need to raise taxes to pay for increased public sector debt levels. At least that's the only reason given. We never hear about the need to raise taxes to crimp private sector spending. Are they lying about this or deluded?


They are deluded and they are lying about it. There is absolutely no need to increase taxation to deal with 'increased debt levels' and those that are saying that want to make all of us poorer for no good reason - simply to prop up their failing belief system. The necessary tax will be raised when the savings (which is what the 'debt' is) are spent at some point in the future - if they are ever spent at all.

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.

NeilW

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Re: Is rising inflation looming?

#379353

Postby TheMotorcycleBoy » January 21st, 2021, 2:03 pm

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


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