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Any (post 2008) Economists in the house? - Inflation.

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Jacob

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From the doc above :-
"Beijing has not yet imposed strict limits on Chinese investments in carbon-intensive projects abroad. And China is still banking on “dirty” energy sources, even though it is a leader on annual installments of renewable energy.10 Nonetheless, China added almost 20 gigawatts (GWs) of coal power capacity in the first half of 2020, and approved an additional 48 GWs from new coal plants – more than Germany’s entire coal fleet.11 Furthermore, the launch of China’s emissions trading scheme, which was officially announced in 2017 and slated for nation-wide implementation in 2020, has recently been postponed.

Hardly green!!

Cheers James
China moving slowly greener and is already out performing USA on CO2 per capita footprint.
 

TominDales

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Good day,
I want to understand what is driving inflation in the private sector (world-wide, not just UK).

If it was Governments debt (public sector), I would "get it".

Journalists in the Financial Times can't present a logical explanation without mentioning the FED.
You ask a very good simple question. - Just seen this thread.
The simple answer is: Inflation happens when demand exceeds supply. We have that situation right now.

Typically inflation happens when workers and assets are fully utilised so they cant meet demand. Prices and wages rise due to this shortage. That is what historically produced the 5 year business cycle.

Over the past 25 years inflation has been at comparably low levels as new workers came on stream in Asia - mainly China in vast numbers. These workers had been (comparatively) unproductive working in fields in subsistence farming and then moved into modern factories producing the worlds goods. This caused supply to meet or exceed growing demand pretty well continuously for the past 25 years. The world grew fast without inflation.

The situation right now, is that global supply and demand was turned off by the pandemic for 15 months, followed by a rapid pick up in demand as people have come out of isolation. It takes time to turn all the factories and shipping lines back on in an orderly way. This is causing supply chain shortages across the globe. This effect is magnified because governments globally kept their people and economies ticking over on furlough schemes. Furlough paid people to consume but not produce. We now have lots of personal savings and government borrowed cash being spent at all at once. Furthermore people arnt fully fully productive yet, (still got isolation, pings etc) so supply is tight in many industries. We now have a situation than even Chinas massive output cant meet global supply. The fundamental driver of low inflation isn't there at the moment.
Energy is another global inflationary factor. Oil and gas were racked back 15 months ago, oil prices even went negative for a while. The result was a racking back of supply in Russia opec etc. Now demand is back, but it suits Opec etc to allow demand to exceed supply as that will help drive prices up even as supply increases. Its only when oil output exceeds supply that prices will stabilise, US shale has been the governor of that in the past.

Classic economics would predict inflation right now. However trying to predict the future is hard. Many people lost there jobs in the pandemic, so until all the furlough schemes come to an end and all the worlds assets are fully running again we wont fully know how much excess demand is in the system. Central banks aren't sure if they should carry on supporting the economies or to put interest rates up. It quite likely there will be a medium term uptick in inflation ie for 2 to 3 years which will be quite hard to tame. Governments have loads of levers to cool the economy down such as reversing QE or putting interest rates up.

Quelling inflation is painful so its not something central bankers do unless they have to. Conversely a little inflation early on makes everyone feel good. Its only as inflation settles in and starts to become a habit that the central banks will force an austere shrinking of demand.
 
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Felipe

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Not if it's left to private industry and the free market - that's what brings in Chinese goods and weakens the importers national industries. Another good reason for staying in the EU - more power to act as a member of a larger group.
Overall China progress plus Covid are pushing countries toward more estate and closure. Brexit and Trump already were cultural manifestation of the closure, but done wrongly.
Now US is investing 90Bi in semiconductor, Nasa budget is highest since decades, and so on, which is the better path forward to compete with China.
I hardly belive countries will stick to the liberal fantasy nowadays. Only developing countries might, the ones that were brainwashed by the International Monetary Fund and signed the Washington Consensus back then (they ruined the Country I came from).
 
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Trainee neophyte

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Secondly, much of the world doesn't share the West's concern for personal rights, freedoms, what have you. Freedom of expression, freedom of movement, freedom to pursue life, liberty and happiness. The right to bodily integrity. Right to a fair trial - define 'fair'!
You may want to ask Craig Murray and Julian Assange how freedom of speech and freedom of movement and freedom of expression and...no I can't go on - it's too ironic. Fair trial? Having a trial at all would be nice for Assange. Murray is locked up for the heinous crime of going against the poisonous Crankee. Just two examples of how journalism is brought to heel by the freedom - loving west. No different to China. Possibly worse, because the west alleges to protect and follow all the ideals you list, but not only completely ignores them when expedient, but gets its entire flock of sheep to believe black is white and up is down. You've been sold a pup.

Just because someone tells you your system is best, it doesn't actually mean that it is true.
 

Blackswanwood

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Murray is locked up for the heinous crime of going against the poisonous Crankee.
An alternative point of view in the case of Craig Murray would be that the victim of an alleged sex crime had the right not to have her identity exposed. Perhaps I'm being gullible in believing that ... or you are sticking up for a mate as per your tag line ... didn't Murray also try to claim that the pictures of the Russians who carried out the nerve agent attack in Salisbury were dodgy?;)
 
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GregW

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Absolutely Jacob, but history didn't start with humans and it won't end with humans neither. We're not killing the planet, we're just gonna kill ourselves.

Not for a long time, hopefully...
No one killing the planet 😂😂😂 humanity slightly changing ecosystem that sustain humans. All what’s happening is climate is less and less affordable for mammals. Give Thame 100-500 years after coal industry humanity be gone - there will be no sign of humanity of coal industry other than synthetics 😂😂😂

Wake up - Earth will be in great shape. Human will self eliminate them selfs and other mammals.

PS. When Vegans get to ultimate power, Cow will be extinct 😅 just think about it that way - human is a parasite in ecology.
 

GregW

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So as regards China, there's two things.

China may well be on the way to leading the world in blah-blah-blah, because dissent is not tolerated.
If Boris or Biden tried to muscle industry and public into 'greener' fuel sources, there's be pretty predictable problems bringing people along with the plan.

In China, there's the Party Way, or... actually, there isn't an "or".

Secondly, much of the world doesn't share the West's concern for personal rights, freedoms, what have you. Freedom of expression, freedom of movement, freedom to pursue life, liberty and happiness. The right to bodily integrity. Right to a fair trial - define 'fair'!
China has one most transparent systems at the current time. They not waste money of own people, fairness in self care for everyone, individual responsibility is greatly emphasised from early years, extremely supportive towards self development, 100% capitalism allowing to become as much financially as that possible by not burden your success with choices of others, individuals who choose not to comply to high standards of living or experiences are re-educated for free with very clear choices…

Comparing it to west culture, west looks poor.
All it’s better it’s freedom to do nothing right, and liberty to excuses from fallowing the overwhelming complicated regulations of law so rich not be able to be trial fairly 😆😆😆😆
 

GregW

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Good day,
I want to understand what is driving inflation in the private sector (world-wide, not just UK).

If it was Governments debt (public sector), I would "get it".

Journalists in the Financial Times can't present a logical explanation without mentioning the FED.
First one must understand difference between money and banknotes, in basic relation to generating money as production of market needs, in comparison emission of banknotes to cover a government overspending.

Money are created by generating product with money value to market needs for the product, against “promise to a bearer” that banknote represents.

Inflation is nothing more that effect of theft by government and central bank of the nations money, by watering down value of banknotes.
 

sploo

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I read recently somewhere if u wanna see a UK thief, sorry I mean GP doctor
u need a £100 squids...bet thats only cash and no receipt....
not sure but isn't the average pay around £100,000 per GP....?
I like the NHS.....but not the quack GP's who use google to find out whats wrong....
PS, if u have a life threatening problem service is free....and virtually instant....
So.... firstly I'm not aware of any £100 charge to see a UK GP.

The next issue is "quack" GPs vs the NHS. GPs in the UK are NHS doctors. Junior doctors go through their basic medical training, and at a certain point in their career they have to choose a specialist area (such as Cardiology, Neurology, or Paediatrics). This step is very competitive; with fewer specialty training posts than there are junior doctors. Failure to get a specialist training post leaves you in limbo, and traditionally those doctors would go and become GPs.

General Practice can however now be specifically chosen as a route; and given the better work/life balance, some choose to go this route from day one.

Point being: UK GPs are not "quacks".


Mind, if u bribe ur NHS consultant with cash u can get ur hip replacement within a week.....very fair.....

I needed an injection of 2 drugs into my shoulder joint.....discussed over the phone...needed an X ray....
private x ray supplied for €25 euro...instant ....I walked into a shop like place....out in 10mins.....
the doc said if I pay for the drugs he'll do it straight away....
his surgery is open til 9pm....
so at 8pm walked out a painfree happy man.....
Greece is the place to be....
These issues are problems with NHS funding, and the good profit margins available on some private work. Some, being the important word here.

For a long time the NHS has been quietly run down, underfunded, and sold off; inevitably leading to longer waiting times.

Services such as a private x-rays are great - easy, cheap to provide, profitable, and with very low risk. The problem is that this leaves the NHS with all the loss making long term care (e.g. treating cancer patients). At some potential point in the future with a fully privatised UK healthcare system people will be in for a nasty surprise when they get properly ill, and discover the costs.


I thank heaven the government knows that selling off what's left of the NHS would be death at the ballot box or that would be gone too. And then where would we be?
Publicly, yes; all politicians know that being seen to be positive towards the NHS is a vote winner. Unfortunately, if it's underfunded, run down, and quietly sold off in small chunks (as has been happening for years) we'll reach a point where the public are so fed up with the poor service they'll demand a fix. They may well be softened up sufficiently by then for the last bits to be sold off.

Sadly those politicians probably won't be blamed for this; after all, they spent 30s clapping for the NHS like moronic seals a few times.
 

jcassidy

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You may want to ask Craig Murray and Julian Assange how freedom of speech and freedom of movement and freedom of expression and...no I can't go on - it's too ironic. Fair trial? Having a trial at all would be nice for Assange. Murray is locked up for the heinous crime of going against the poisonous Crankee.
And that fact that you are able to complain about this in a public forum validates the system you are dismissing.

My 2c is Assange has gotten what was coming for him, and Murray very conscientiously and deliberately engaged in contempt of court.

Just because someone tells you your system is best, it doesn't actually mean that it is true.
Quite true, luckily experience tells me that our system is the best.
 

Jacob

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You disappoint me. Surely Mummy driving Sebastian daily to his private school falls into your purview of wasteful use of resources ?
Well yes of course! Make the spoiled little twerp walk!
The point is; fossil fuel use is the primary cause of climate change and we are supposed to be cutting back. We have known this for 20 years or more.
Unnecessary use is easy to identify and could be stopped over night but there is absolutely no sign of this happening anywhere. Even the price is still historically low, there is no disincentive whatsoever.
It seems that all bets are on "innovation" - new technology providing solutions with no suggestion of change of behaviour. Lazy thinking IMHO.

 
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Trainee neophyte

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My 2c is Assange has gotten what was coming for him, and Murray very conscientiously and deliberately engaged in contempt of court.
So revealing to the world the actual war crimes committed by the US gets you locked up indefinitely without trial, and deservedly so? I expect all the current journalists have taken the lesson on board and are carefully ignoring any war crimes as per the pretty obvious object lesson. So that's all right then. Biden blew up half a dozen children the other day, because he could, but they probably deserved that, too.

As for Murray, while he may or may not have "jigsaw identified" the women who made spurious allegations against Salmond (more government and party corruption never to be investigated, admitted to or even accepted as possible) , so did most of the mainstream newspapers, to a much greater degree. No one else was even prosecuted, let alone found guilty. However the judge ruled that non mainstream journalists must be held more accountable than "normal" journalists, and locked the man up for 9 months rather than the fine any newspaper would have been given. Very fair and even handed treatment.

The powers that be have hated Murray for years, ever since he blew the whistle on illegal torturing by US and UK operatives. Nice government you've got there. Luckily it's the best there is.
 

TominDales

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First one must understand difference between money and banknotes, in basic relation to generating money as production of market needs, in comparison emission of banknotes to cover a government overspending.

Money are created by generating product with money value to market needs for the product, against “promise to a bearer” that banknote represents.

Inflation is nothing more that effect of theft by government and central bank of the nations money, by watering down value of banknotes.
Although increasing the money supply faster than economic output is a source of inflation, that is not necessarily the case right now, its hard to tell as there are recessionary pressures as well as inflationary ones. In my opinion the money supply is an overly complicated way to think of inflation. Although its the way economists explain inflation, it turn a simple concept into something confusing. Money explanations get quite mathematical as it involves the flow rate and the amount of money. Money is an intangible concept, its created and destroyed by bank loans/repayments. I think its best to think of inflation simply as when there is too much demand for goods and services and not enough supply, so prices of goods and services go up.

In a previous post #142 I 've tried to comment on how current inflation is very much linked to the pandemic and a throttling back of supply while demand has been sustained through furlough etc. The primary driver for inflation is that growth in supply of goods verses the demand for goods and services. The pandemic caused a racking back in supply of goods 15 months ago. Oil and gas were in oversupply so production was cut, goods made in china were cut, computer chips for cars etc. However as the pandemic has unwound demand has picked up faster than supply, partly because supply chains have been disrupted and its taking a while for factories and systems to come back on stream and partly because the furlough schemes operating globally allowed people who were economically inactive to continue to consume goods, so supply went down but demand didn't. From a monetary point of view, the money supply continued to expand/flow through government and personal borrowing but output shrank. Also people who saved money during the pandemic are now spending their savings. This money is chasing too little supply of goods.

Its hard to predict the future, its likely that inflation will pick up for the next 2 to 3 years as the excess money/demand for goods works its way into the economy faster than the world can grow. However its hard to know, a lot of people may lose there jobs as furlough unwinds in which case there will be a huge reduction in demand. In this case the link between money supply and inflation is broken. That's because of two factors, one is people trade less in a recession so the money circulates more slowly - that has an equivalent effect to reducing money supply and secondly as people borrow less or repay debts they shrink the money supply (or constrain its growth).

It's often overlooked that most money is created by private banks, 80% or more is created by companies and people borrowing money from banks, the rest comes from government borrowing. Here is an explanation from the bank of England How is money created? . In normal circumstance the money supply in an economy is regulated by peoples attitude to risk. We borrow money when they feel secure ie job prospects up so growth is coming and we borrow. Come bad times and we cut back, lower our borrowing or save money. That way money tends to grow inline with underlying growth. The central banks can fine tune this natural equilibrium by adjusting interest rates to encourage of discourage borrowing.

Most responsible governments manage the money supply to keep the currency and inflation stable at ca 2%. There have been famous cases where governments didn't do that such as the US Confederate states printed money to procured arms in the US the civil war = 700% inflation. Wiemar Germany printed money to repay its war debt and generated hyperinflation. Zimbabwe did a similar thing more recently. The US government part financed the Vietnam war with a loose money supply that contributed to global inflation in the 1960s. But most responsible governments avoid that.
However thinking of money can overlook the obvious. The inflation of the 1970s and 1980s was driven by demand for oil outstripping supply as OPEC managed supplies to encourage higher prices.

Also government make mistakes. During a recession there is untapped supply of labour, so government borrowing and low interest rates help keep those people productive and avoid what is called a liquidity trap. Keynes pointed out that tight money supply globally with the gold standard etc, exacipated the liquidity trap in the 1930s The liquidity trap is why Quantitative Easing did not lead to inflation during the financial crisis, the new money enabled those recessed to continue to consume taking up slack production an so keeping economies ticking along and so avoiding deeper recession. However if a government (central bank) allows an increased in the money supply, thinking the economy is in recession when it isn't then inflation sets in.
So although central bank control of money supply is a key lever for controlling inflation, its easier for those of us not close to markets and M4 etc to think in terms of supply and demand. Are too many of us buying stuff when its not available. Are we borrowing when we probably should be saving. Are we saving too much when we should be enjoying the prospect of good times.
A long answer to your point, in my view governments only sometimes responsible for inflation as lot of the time is us the consumer or its an outside force such as structural changes in Asia (china) or Opec that is the real driver of inflation.
 

Flynnwood

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The liquidity trap is why Quantitative Easing did not lead to inflation during the financial crisis.
@TominDales. Hello - OP here :)
From Investopedia: "A liquidity trap is a contradictory economic situation in which interest rates are very low and savings rates are high, rendering monetary policy ineffective. First described by economist John Maynard Keynes"

Post 2008 crash, inflation has been low, as have interest rates. Hence my OP/Subject Title.

(I think it was around 2010/2011 that I read teachers of Economics were giving up, because they could not understand why inflation hadn't kicked in after 2008.)

Interesting input from jcassidy in this thread (who works for a Central Bank).
 

Jameshow

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@TominDales. Hello - OP here :)
From Investopedia: "A liquidity trap is a contradictory economic situation in which interest rates are very low and savings rates are high, rendering monetary policy ineffective. First described by economist John Maynard Keynes"

Post 2008 crash, inflation has been low, as have interest rates. Hence my OP/Subject Title.

(I think it was around 2010/2011 that I read teachers of Economics were giving up, because they could not understand why inflation hadn't kicked in after 2008.)

Interesting input from jcassidy in this thread (who works for a Central Bank).
If there is a recession and resultant job losses and insecurity generally along with house price deflation then inflation is going to be restrained??

Cheers James
 

Flynnwood

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Inflation is nothing more that effect of theft by government and central bank of the nations money, by watering down value of banknotes.
Hello GregW :) OP here.

Genuine question as per OP, how can the enormous inflation the world is seeing in raw materials, private sector, (I've seen 240% in 8 months), being driven by Governments or Central Banks?
 

Flynnwood

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If there is a recession and resultant job losses and insecurity generally along with house price deflation then inflation is going to be restrained??
Cheers James
Hello James - I don't understand what you are saying. Can you expand please? This is from landregistry.data.gov.uk today. I see no house price deflation post 2008/9 recession.

(Trying to stay 100% laser focussed on my OP question about huge inflationary private sector raw material costs, worldwide, not UK only).

landregistry.data.gov.uk.PNG
 

TominDales

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@TominDales. Hello - OP here :)
From Investopedia: "A liquidity trap is a contradictory economic situation in which interest rates are very low and savings rates are high, rendering monetary policy ineffective. First described by economist John Maynard Keynes"

Post 2008 crash, inflation has been low, as have interest rates. Hence my OP/Subject Title.

(I think it was around 2010/2011 that I read teachers of Economics were giving up, because they could not understand why inflation hadn't kicked in after 2008.)

Interesting input from jcassidy in this thread (who works for a Central Bank).
thanks, which number is jcassidy post? there are so many random comments that its hard to see the wood from the trees. I must say I keep a very simple view of inflationary pressures, is stuff in short supply and is it a trend. I'm no economist, but that has kept me safe for 40 years. I shared a house with two world class economists when doing my Ph.D (in science I might add), one was an econometrician - ie mathy and the other more into peoples behaviour and inflationary expectations. Although its not a science, its a fascinating discipline blending maths and people behaviour.
I hurriedly wrote the note on money supply so probably wasn't very clear. My understanding of a liquidity trap is its a situation where oversupply of money does not lead to inflation for a number of reasons, not all of which I understand, but essentially people wont spend money even if interest rates are low and money is being injected into the economy ie the flow of money is suppressed. I think the Investopedia definition is more a symptom than the underlying cause.
Thanks for pointing out. my frustration with most new reporters is that they get bogged down in the details and mechanism of economics and dont stand back enough, the exception being David Smith of the Sunday Times.
 

TominDales

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Hello GregW :) OP here.

Genuine question as per OP, how can the enormous inflation the world is seeing in raw materials, private sector, (I've seen 240% in 8 months), being driven by Governments or Central Banks?
Although the central banks could be held responsible for letting it happen, the driver is not them but the pandemic. The pandemic changed human behaviours over 15 months, so that we produced less essential stuff whist leaving lots of people paid to be at home with nothing to do but order stuff for to improve their homes. For some people (not just in the UK) furlough improved family budgets as costs came down faster than expenses, for families that pay expensive child care the costs came down more than wages. For those in work that chose not to eat out or holiday last year, they ended up with surplus cash. This allowed for spending to outstrip making. (not universally true, sadly the pandemic has very uneven consequences, many people have been left destitute by it.

You could blame central banks for financing this spending through furlough etc and massive public borrowing to sustain spending while people were not working. So in a sense the expanded money supply has been financed by governments. So inflation is a price we have to pay for avoiding what would have been mass hardship and a massive recession. We will probably be paying the price over the next 2 to 5 years in terms of high inflation and high interest rates and probably sluggish growth. I don't think we can blame governments for this. The alternative lesse fair system would have had similar effects to the 1930's recession. The pandemic of 1348 complety upended the economic order - in that case it destroyed the feudal system having wiped out 1/3 of the population. Most economists say deflation is nastier than inflation so modern central bank economists have lent towards inflationary risk rather than deflationary.

1632864447055.png
 
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