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Credit deflation and the reflation cycle to come.


DurhamBorn

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1 hour ago, MrXxx said:

"Lucky" or just forward thinking?...it always amazes me how many people as soon as the have a bit spare then go and spend it on non~essentials...I wonder if this is a reflection of multi~generational exposure to our benefits system, and so the assumption that there will always be someone to `bail them out` ..think in the future they may be in for a bit of a shock!

It's just human nature in my opinion. Not much of a safety net in the US and it's no different there. What I find fascinating though is the boomer generation are probably the first lot who had a genuine chance of actually changing the mindset. Investing in the family and creating generational wealth. Sadly no change, happy to spend till the cows come home, stick the kids in the state school system to keep the dumb. Holding on to the money as tightly as they can before passing some crumbs down after death for the siblings to quarrel over. Rinse and repeat.

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1 hour ago, MrXxx said:

"Lucky" or just forward thinking?...it always amazes me how many people as soon as the have a bit spare then go and spend it on non~essentials...I wonder if this is a reflection of multi~generational exposure to our benefits system, and so the assumption that there will always be someone to `bail them out` ..think in the future they may be in for a bit of a shock!

It is mind boggling at times. Friends of ours are paying off a 50% shared ownership in Tottenham. Both work in the public sector so not doing too bad but still living paycheck to paycheck. Got a 10k windfall from inharitance, bought new bikes, new Dyson hoover, went to Alps with the kids and poof, it was gone. 

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53 minutes ago, kibuc said:

It is mind boggling at times. Friends of ours are paying off a 50% shared ownership in Tottenham. Both work in the public sector so not doing too bad but still living paycheck to paycheck. Got a 10k windfall from inharitance, bought new bikes, new Dyson hoover, went to Alps with the kids and poof, it was gone. 

Save for what? If its a choice between 0.01% interest in the bank or a new car....

It doesn't surprise me however, the number of companies I look at who have a tiny amount of cash in the bank (compared to turnover) and are reliant on bank overdrafts or invoice financing to trade is shocking.  Holding cash for a rainy day has fallen out of fashion since credit is so easy to come by.

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13 hours ago, spygirl said:

Im not entupirely sold on gidiots pension cash in boom.

Most of the pension pots being cashed in are tiny - under 15k.

Theres a few where DB are offered buyouts, then withdrawn, but not many.

The flip side is that Gidiot allowed untouched SIPP’s to be passed on at death free of inheritance tax.

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18 hours ago, zugzwang said:

The UK taxpayer is currently propping up hopelessly inefficient private rail companies, bus companies, water companies, electricity companies, home builders and building services contractors either through direct govt grants or lucrative corporate tax cuts, while at the same time being relentlessly gouged year-on-year for services that are often sub-par and which at times would disgrace the Third World.

Privatisation serves the interests of Big Money; public ownership serves everyone. Indeed, as Enron demonstrated heroically, there physical reasons for believing the distribution water and electricity can never be made consistently profitable since random losses through long-distance networks constitute a considerable fraction of the cost of service to the end user.

As for Scargill and Thatcher. Had the NUM won then perhaps the UK wouldn't have squandered the vast unearned benison of North Sea oil + gas on unemployment benefits and mortgage repayments and would instead have tended that wealth into a multi-trillion pound sovereign wealth fund like socialist Norway?

Think about it!

Okay, so I've had a think about it.

Firstly it's clear that Scandinavian countries in general pay much higher taxes for their generous state provisions. In terms of "inefficient private rail companies, bus companies, water companies, electricity companies, home builders and building services contractors" are you seriously suggesting that the government nationalises them all. Hang on, while we are at it lets nationalise Tescos, Sansburys and Waitrose, they are essential services and public ownership would serve everyone!

From my viewpoint the local buses and trains are pretty good, I have a choice of gas and electricity suppliers and I have clean water at a fair price. I can't speak for other areas I admit!

I just look back at some of our previous attempts with Nationalised Industries and they seemed to always end in failure, with good money thrown in with a seemingly open chequebook.

I'm not sure quite how the NUM would have got involved with the UK oil bonanza. My point was that the industry could not be expected to be propped up by UK plc as it's coal product was no longer going to be needed. Possibly those soon to be unemployed miners should have been paid to retrain into the oil industry. I'm sure some would have ended up there.

Yes, the sovereign wealth fund of Norway may have been a good idea for the UK. According to Wikipedia in 2017 "With a population of 5.2 million people, the fund was worth $192,307 per Norwegian citizen" invested in global stocks, property bonds currencies etc. You have said;

18 hours ago, zugzwang said:

and would instead have tended that wealth into a multi-trillion pound sovereign wealth fund like socialist Norway?

I have to disagree, firstly it's not a multi-trillion pound fund, it is just a one trillion US dollar ($) fund.
Put that same one trillion$ into the UK population of 66.7 million and you get $14,992 per UK citizen, or £11,715 per person in pounds sterling.

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19 hours ago, stokiescum said:

a good argument but ive got nordic friends and they pay insane levels of tax and beer is about 8 quid a pint.historicly they pay close to 42% tax its hunky dory haveing billions in a soverighn wealth fund but only if it actualy gets spent.

https://tradingeconomics.com/norway/personal-income-tax-rate

We are a hugely efficient economy and the next cycle will suit us compared to most.The consumer will be less of the economy though and will take the pain and the leveraged will be hit hard.

The UK is a very cheap place to live if you take housing out of the picture.Iv never known it so cheap for a night out etc.Im off out to an Italian restaurant tomorrow that does 3 course lunch for £7.99 and its lovely quality only have to work 25 minutes to earn that and can earn a pint in Spoons and other places in 7 minutes.In the 80s i had to work 30 minutes for a pint.Like you say wealth funds arent much use when everything costs so much.The UK oil money was spent,but it helped get the economy through the transition from an inflation cycle to a deflation one.The opposite is about to happen now of course as we exit a deflation cycle.Its ironic in the US Trump is saying to the chinese we want a zero trade deficit and they are saying ok by 2022.He is without knowing asking them to export back to the US all the inflation they soaked up from them since the 80s.The rust belt might not be so happy when everything is going up in price faster than their wages.

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1 minute ago, DurhamBorn said:

We are a hugely efficient economy and the next cycle will suit us compared to most.The consumer will be less of the economy though and will take the pain and the leveraged will be hit hard.

The UK is a very cheap place to live if you take housing out of the picture.Iv never known it so cheap for a night out etc.Im off out to an Italian restaurant tomorrow that does 3 course lunch for £7.99 and its lovely qualityI only have to work 25 minutes to earn that and can earn a pint in Spoons and other places in 7 minutes.In the 80s i had to work 30 minutes for a pint.Like you say wealth funds arent much use when everything costs so much.The UK oil money was spent,but it helped get the economy through the transition from an inflation cycle to a deflation one.The opposite is about to happen now of course.

well you earn a lot more than me but working on the principle of beer i can buy 5 pints for an hours work,over 7< if we say a pint is 2 quid. if ive done overtime that month in nealy 3 years ive never not been able to get it.but your right houses apart ive never known things like food,beer,clothes be so cheap.i do see slow increases in say laptops but the spec is vastly increased.ive noticed cheap undercounter freezes have edged higher also.even used moters seem more afoardable and reliable.im even sure derv hit close to £1.50 around 7 years ago.

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1 minute ago, stokiescum said:

well you earn a lot more than me but working on the principle of beer i can buy 5 pints for an hours work,over 7< if we say a pint is 2 quid. if ive done overtime that month in nealy 3 years ive never not been able to get it.but your right houses apart ive never known things like food,beer,clothes be so cheap.i do see slow increases in say laptops but the spec is vastly increased.ive noticed cheap undercounter freezes have edged higher also.even used moters seem more afoardable and reliable.im even sure derv hit close to £1.50 around 7 years ago.

As i mentioned earlier in the thread iv been stocking up on clothes mostly on Ebay auctions and the prices are crazy cheap.Things like M&S Blue harbour chinos that are £39 for £6.00 delivered and pretty much new,bundles of shirts for around 10% of the cost new yet they are pretty much new.Lots of people these days when someone dies etc simply call in the house clearing people rather than do it themselves and they then will sell the clothes on as a job lot for a few quid.Im getting a lot in now as i fully expect the prices of 2nd hand decent quality stuff to start going up in a year or two.

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Suggesting that even more stimulus might be ahead, Xi said the country will maintain economic operations "within a reasonable range". Though his isn't the first time Xi has warned about the risks of slowing economic growth, this is the first time on record where he has warned about the "serious" threats to the party’s "long-standing rule." The meeting was unusual in that, while Xi has occasionally assembled the country's 200-member Central Committee, this is the first time he has called for a meeting of top officials without assembling the entire body.

One analyst said the Chinese leader wanted to draw attention to the preponderance of internal and external threats to stability in China.

"Xi is seeing more and more red flashes on his monitor as things on many fronts go wrong," said Ether Yin, partner at Beijing based consultancy Trivium China. "He wanted to draw the whole system’s attention to that."

https://www.zerohedge.com/news/2019-01-22/unprecedented-speech-president-xi-warns-serious-dangers-communist-party-rule

Xi is getting hot under the collar, they know they have a big credit problem but aside from pumping more money in there is nothing they can do apart from watch the bubble burst.

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11 minutes ago, Majorpain said:

https://www.zerohedge.com/news/2019-01-22/unprecedented-speech-president-xi-warns-serious-dangers-communist-party-rule

Xi is getting hot under the collar, they know they have a big credit problem but aside from pumping more money in there is nothing they can do apart from watch the bubble burst.

will chinese tat get more expensive or cheaper for western consumers ?

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5 minutes ago, stokiescum said:

will chinese tat get more expensive or cheaper for western consumers ?

Depends on CCP's reaction to the crisis.  Id put money on between much more expensive to unobtanium though.

I do think the world has run out of usable cheap labour to exploit for now.

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1 minute ago, Majorpain said:

Depends on CCP's reaction to the crisis.  Id put money on between much more expensive to unobtanium though.

I do think the world has run out of usable cheap labour to exploit for now.

if that happens wont the snowball effect make it worse

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2 minutes ago, stokiescum said:

if that happens wont the snowball effect make it worse

Well, if (when) China does go I would expect Europe to follow it off the cliff.  People might notice some minor changes to their living standards.

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1 minute ago, Majorpain said:

Well, if (when) China does go I would expect Europe to follow it off the cliff.  People might notice some minor changes to their living standards.

the whole of the west could go tits up,the eec would be hit very hard i presume.

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26 minutes ago, stokiescum said:

the whole of the west could go tits up,the eec would be hit very hard i presume.

The Eurocrats let anyone into the Euro chasing after their goal of the biggest federal state possible.  Greece was the canary for whats to come, if you look at the news about what those populist Italians Salvini and Di Maio have been saying about France recently its a right eye opener!

The UK Government is at least going into this with its eyes open (£5 says "they" read this thread!), BOE has its £750bn piggy bank and reservists can be called up for home duties for a year from Feb 10th if things really kick off.

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1 hour ago, stokiescum said:

will chinese tat get more expensive or cheaper for western consumers ?

In many ways the funny money has made the goods cheaper, it has increased the cost of living and business start ups by increasing land values but the first pulse created 10,000's of businesses ruthlessly undercutting each other and outcompeting the rest of the world. This served the Chinese economy well, sending western competitors to the wall or rushing to join in sending their manufacturing into China. Think this is the main reason overt tone printing all over the world didn't result in the huge inflation surge as expected (although it did in real estate etc) and the loss of jobs in the west suppressed the wage side inflationary push you would expect. I don't think China is going to be getting any cheaper from here whether they print or don't, unless the chinese government subsidise the cost to a huge extent.

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3 hours ago, Majorpain said:

The Eurocrats let anyone into the Euro chasing after their goal of the biggest federal state possible.  Greece was the canary for whats to come, if you look at the news about what those populist Italians Salvini and Di Maio have been saying about France recently its a right eye opener!

The UK Government is at least going into this with its eyes open (£5 says "they" read this thread!), BOE has its £750bn piggy bank and reservists can be called up for home duties for a year from Feb 10th if things really kick off.

you should look up how france treats ex-colonies, for decades after independance, they still pump them dry of money and treat them like shit, plus ensure that french infrastructure and the military get first dibs on all the goodies of those 'ex' colonies.

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4 hours ago, Majorpain said:

Well, if (when) China does go I would expect Europe to follow it off the cliff.  People might notice some minor changes to their living standards.

Yes i expect Europe to suffer the most.China is about to export its inflation instead of deflation.They will spend and spend to import US goods for the people and to keep the US happy (until they understand this means lower US living standards).China will then invest like crazy in the one belt one road project.They will also move massive amounts of people onto public transport as they try to hold down the amount of oil imports.Bus orders and digger orders are going through the roof in China as other manufacturing falls.The reflation is being set all around the world now and is only a matter of time.The window is closing when youl be able to get PM miners and the metals at prices that will seem insane by 2027/28.Deflation is over (with a final debt deflation to say goodbye).The consumer isnt going to drive the economy going forward,its going to be full on liquidity injected into the veins of the economy where velocity will be unleashed.Massive amounts of wealth are going to be moved from deflation loving assets (bonds,cash,rental houses,large parts of the stockmarket) to inflation loving assets.As often happens at key inflection points the very assets that will ride the inflation wave are the ones most hated,most avoided and most laughed at.Nothing is ever certain,but there is a chance small investments could turn into life changing sums for ordinary people placed in the right areas.

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12 hours ago, MrXxx said:

"Lucky" or just forward thinking?...it always amazes me how many people as soon as the have a bit spare then go and spend it on non~essentials...I wonder if this is a reflection of multi~generational exposure to our benefits system, and so the assumption that there will always be someone to `bail them out` ..think in the future they may be in for a bit of a shock!

Yes, forward thinking most certainly but I do try and recognise that there are millions of Brits who are on subsistence wages. I've never had to worry about a large MOT payment or anything like that given I've always been well paid, I know for a lot of people that sort of unbudgeted expense could tip them over the edge. Some people can't afford to save and they have my sympathy. 

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2 hours ago, Barnsey said:

https://www.realvision.com/defensive-investing-in-an-uncertain-world

Great 1 hour interview with Victor Sperandeo, highly recommended

Thanks for that Barnsey. I’ll second the recommendation, it’s well worth watching and covers a lot of the topics discussed on here.

Spoiler: his suggestions for investors

  • government debt - US treasuries 
  • Gold and silver
  • mining stocks
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