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Think we all have to be a wee bit careful discussing 'debt' and international finance.

As far as bankers go, let's make a distinction between the retail banks (or the retail arms of some of the big banking firms), who have no more control over interest rates than you or I. It's not really fair to lump them in with the idiots who drove the big banks to insolvency in the last decade when decrying 'the bankers'. Also worth bearing in mind that it was politicians (with the involvement of civil servants) who decided to use public money to bail out banks; no banker has any control over how public money is spent.

If government borrows money, the value of the money it borrows remains the same; a pound will still buy the same amount of goods or services that pound did before the loan was agreed. If a government prints money, there are now more pounds in circulation, but the same amount of goods or services. Thus, more pounds will be needed to buy the same amount of goods or services after money-printing than before; inflation will result from money printing (as it did with QE in the UK). If taken to extremes, you end up with what happened to Weimar Germany between the world wars, or Argentina and Zimbabwe more recently. QE may be a powerful tool for central banks, but it is one with very great risks.

Finally, as far as you or I are concerned, a debt has to be paid back with interest. Anybody who believes that debt is just an illusion should try convincing their bank or mortgage provider, and see how far they get.

As far as saving up for something goes - I agree wholeheartedly! If nothing else, having to save up means you think carefully about what you really need or want, and appreciate it much more when you can finally afford it. I recognise that in these days of 'have it all now', that's a rather old-fashioned concept, but it actually works rather well, particularly if it avoids longer-term large debts!
 
Cheshirechappie":n7kc3f63 said:
If government borrows money, the value of the money it borrows remains the same; a pound will still buy the same amount of goods or services that pound did before the loan was agreed. If a government prints money, there are now more pounds in circulation, but the same amount of goods or services. Thus, more pounds will be needed to buy the same amount of goods or services after money-printing than before;

Surely there will be more pounds in circulation regardless if they are borrowed or printed.


Cheshirechappie":n7kc3f63 said:
Finally, as far as you or I are concerned, a debt has to be paid back with interest.

Yes but where is the interest to come from. Money is issued as debt and must be repaid + interest but the interest is not issued so in the system there must be losers, it's just not possible for all the money to be repaid + interest.
 
Cheshirechappie":2rdawqz1 said:
Think we all have to be a wee bit careful discussing 'debt' and international finance.

As far as bankers go, let's make a distinction between the retail banks (or the retail arms of some of the big banking firms), who have no more control over interest rates than you or I. It's not really fair to lump them in with the idiots who drove the big banks to insolvency in the last decade when decrying 'the bankers'. Also worth bearing in mind that it was politicians (with the involvement of civil servants) who decided to use public money to bail out banks; no banker has any control over how public money is spent.

If government borrows money, the value of the money it borrows remains the same; a pound will still buy the same amount of goods or services that pound did before the loan was agreed. If a government prints money, there are now more pounds in circulation, but the same amount of goods or services. Thus, more pounds will be needed to buy the same amount of goods or services after money-printing than before; inflation will result from money printing (as it did with QE in the UK). If taken to extremes, you end up with what happened to Weimar Germany between the world wars, or Argentina and Zimbabwe more recently. QE may be a powerful tool for central banks, but it is one with very great risks.

Finally, as far as you or I are concerned, a debt has to be paid back with interest. Anybody who believes that debt is just an illusion should try convincing their bank or mortgage provider, and see how far they get.

As far as saving up for something goes - I agree wholeheartedly! If nothing else, having to save up means you think carefully about what you really need or want, and appreciate it much more when you can finally afford it. I recognise that in these days of 'have it all now', that's a rather old-fashioned concept, but it actually works rather well, particularly if it avoids longer-term large debts!

Apologies: I should have made quite clear that I wasn't referring to the good old Mr Mainwaring types who know their clients and run their branches responsibly but rather to the other sort.

As for saving: it's a good habit to get into. I recently emptied my spare change tin (€600, it's a big tin) and was able to buy some tools that I definitely didn't need but simply wanted.
 
artie":yhavgqt6 said:
Cheshirechappie":yhavgqt6 said:
If government borrows money, the value of the money it borrows remains the same; a pound will still buy the same amount of goods or services that pound did before the loan was agreed. If a government prints money, there are now more pounds in circulation, but the same amount of goods or services. Thus, more pounds will be needed to buy the same amount of goods or services after money-printing than before;

Surely there will be more pounds in circulation regardless if they are borrowed or printed.


Cheshirechappie":yhavgqt6 said:
Finally, as far as you or I are concerned, a debt has to be paid back with interest.

Yes but where is the interest to come from. Money is issued as debt and must be repaid + interest but the interest is not issued so in the system there must be losers, it's just not possible for all the money to be repaid + interest.

To the first one - no, governments can only borrow money that is already in circulation. Governments borrow by issuing 'gilt-edged securities' or 'gilts'. They ask you for a sum of money, and promise to pay interest at a set rate at set times for a given period, after which they give you your sum of money back. These are very popular investments for the likes of pension funds, because they are generally regarded as cast-iron certainties that they'll get the interest and the principal back at the end of the agreed term. If there's a bit of uncertainty, they may still loan, but for a higher rate of interest. If a government defaults, they may refuse to lend at all, in which case the government can't borrow.

To the second - you have to create some wealth. You do this by some activity like growing a field of cabbages and selling them for more than they cost you to grow, or selling your skills to someone willing to pay for them. Generally, they can only pay for your skills if they've generated wealth by some means. The amount of wealth hopefully increases with 'economic activity' over time, and as the amount of wealth grows, it's one of government's responsibilities (usually delegated to central banks) to see that the money supply keeps pace with the growth of wealth, so that a given amount of goods or services has about the same value over time. If they create too much money, you end up with excessive inflation, because there's more money than economic activity. If they don't create enough, the value of basic goods goes down, and people like bakers can't make a living because loaves are worth virtually nothing.

Bearing in mind that it's a woodworking forum, may I respectfully suggest that if anybody wishes to understand economics better, they obtain a basic textbook on the subject?Just be aware that there's a lot of guff floating around the internet and elsewhere about 'debt' at the moment; don't get taken in by it. Debt is 'illusory' in the sene that money is a man-made 'illusion' - but try living modern life without it.

Suffice to say that if Lidl sell a set of chisels at a very low price, it's either because somebody has worked out how to make them for even less and still make a profit (high volume manufacture and very small unit margin, perhaps?) or they're selling them at less than cost to tempt people into their shops in the hope that they'll buy other, more profitable, stuff whilst they're there, or come back later and do so. Either way, if the chisels do what you want, and you're aware of the possible catches and either avoid them or don't care anyway, don't knock it!
 
Now I know how the world's banking systems works, however I'm still looking forward to getting my hands on a set of Lidl chisels.

Jonny
 

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