Deflation: whats the problem?

neil

Legendary member
5,167 750
Only a working man

It still isn't the govt's job to provide people with jobs...all they can do is set favourable conditions.
If these people are working for less, so what, at least they aren't claiming benefits.

But many low paid workers in the UK do claim benefit to top up their wages !
Favourable conditions like no Zero hour contracts, a living wage, reasonable rents, house prices/rents within grasp of ordinary working low wage earner? Not with Cameron and the other rich kids.

http://www.theguardian.com/books/20...shment-how-get-away-with-it-review-owen-jones

The working man:

 

trendie

Legendary member
6,879 1,430
but deflation is triggered by companies lowering their prices.
its not that deflation comes first, then all this jobs/loans stuff happens as a consequence.
the price came down, by design of the companies, then it was seen as deflation.

example:
The price of cornflakes came down. This meant the cost of living went down.
This was seen as deflation.
Its ALREADY happened. (the price of cornflakes coming down)

Companies will continue to sell their cornflakes at a slightly lower price.
How does this mean jobs will be lost, or loans become expensive?
 

Forexmospherian

Legendary member
39,928 3,301
but deflation is triggered by companies lowering their prices.
its not that deflation comes first, then all this jobs/loans stuff happens as a consequence.
the price came down, by design of the companies, then it was seen as deflation.

example:
The price of cornflakes came down. This meant the cost of living went down.
This was seen as deflation.
Its ALREADY happened. (the price of cornflakes coming down)

Companies will continue to sell their cornflakes at a slightly lower price.
How does this mean jobs will be lost, or loans become expensive?

Hi Trendie

I dont think you have ever been in business have you ?

Both micro economics and macro economics are complex - we dont live in a simple ( one bank) world whereby every one is equal and we all are happy with the same wage and same amount of work output and there are no new births and deaths in the world - and nothing changes every decade - etc etc.

For example - my late Father spent if I remember correctly £38 guineas / pounds on his first new car and £320 on his first 3 bedroom house in Staffordshire England. At that time the population of England was approx 39 million people and world population under 4 billion

Now look at the situation today - average cost of new car - over £10k - average house over £180k - population - big increases.

So more people to feed and work and produce goods - but life expectancy different today than 70 years ago and the whole world is more advanced etc etc.

So to try and say its simple and its start with companies reducing their prices is a bit like the "hen and the egg" question.

The world today is now a small place - and todays people maybe want to much compared to life 50 -100 yrs ago. Ideally - it would be great if life was simple and nothing changed and there was no bankers or crime or politicians etc etc ;-)

Then Inflation and deflation would be dead easy to sort out

Regards


F
 

Atilla

Legendary member
19,909 3,160
but deflation is triggered by companies lowering their prices.
its not that deflation comes first, then all this jobs/loans stuff happens as a consequence.
the price came down, by design of the companies, then it was seen as deflation.

example:
The price of cornflakes came down. This meant the cost of living went down.
This was seen as deflation.
Its ALREADY happened. (the price of cornflakes coming down)

Companies will continue to sell their cornflakes at a slightly lower price.
How does this mean jobs will be lost, or loans become expensive?

Consider why would company reduce price.
- To sell more
- To beat competition
- Cost of production falls and it passes some of it to consumer
- Demand falls, reduces prices to get rid of old stock

Either way... here is an example...


Year1 - Factory sells goods X for £100

Year2 - Factory sells goods X for £105 in Year-2 (inflation 5%) &
- Marginal Revenue > Marginal Cost thus
- Borrows £100K over 5 years at 6% interest to buy 2nd machine to double output.

Year3 - Factory sells goods X for £115.50 in Year-3 (inflation @ 10%) &
- 2nd Machine installed and running at full capacity. Business continues expansion.

Year4 - Factory sells 75% of goods X for £115.50 (25% of goods X goes into inventory storage) Slow down in demand.

Year 5 - Factory can only sell 50% of goods X for £110.0 (50% goes into inventory)
- ROI less than forecast. Variance between budgeted and actual returns.

Year 6 - Factory is heavily discounting to shift inventory stock and cuts production. Can only sell 60% of goods X for £95.00.

Factory margins now squeezed but still have to service loan £100K at 6% interest over another 3 years.

Price of good X fallen - good for the man on the street. We have deflation. Factory has to produce more to make up monies to service same debt.

However, factory now cuts production and lays off workers.

Let's say factory is big employer in town and layoffs reduces towns disposable income effecting local business. Prices have fallen but so business now slowed down and layoffs and wage freezes.

Now multiply this across the UK, continent and the globe.


Hope it makes sense.

Play it out again with let's say continued and rising inflation. Company makes more money and produces more as prices rise increasing revenue over cost of production. Likely to buy third machine. Invest and hire more labour.

Etc etc... (y)
 
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neil

Legendary member
5,167 750
Trendie

but deflation is triggered by companies lowering their prices.
its not that deflation comes first, then all this jobs/loans stuff happens as a consequence.
the price came down, by design of the companies, then it was seen as deflation.

example:
The price of cornflakes came down. This meant the cost of living went down.
This was seen as deflation.
Its ALREADY happened. (the price of cornflakes coming down)

Companies will continue to sell their cornflakes at a slightly lower price.
How does this mean jobs will be lost, or loans become expensive?

Trendie -I hope this helps:

A sort of summary:
http://touchstoneblog.org.uk/2014/10/deflation-watch-1/


A bit long winded I know:

http://europesworld.org/2014/10/09/the-spectre-of-deflation/#.VK7S2SusXT8
 

Splitlink

Legendary member
10,850 1,234
It still isn't the govt's job to provide people with jobs...all they can do is set favourable conditions.
If these people are working for less, so what, at least they aren't claiming benefits.

I don't agree. Some will be earning below the minimum. The reason that they are working for low pay, if necessary, is because they, probably, are supported by their parents, or they have a mortgage to pay. We, also, like you, have a lot of illegal immigrants here. They are willing to earn a lot less than local labour because of the conditions they lived in in the own country.

But, in any case, this is going a bit off topic, Deflation brings all of these problems.
 

Jack o'Clubs

Experienced member
1,554 342
Actually this isn't a bad news story at all. Read the story, ex-energy prices underlying inflation stood at 0.6%, same as November. For an energy importing region like Europe, lower oil is an excellent thing and people will feel the increased spending power whether it's through lower prices at the petrol pump, lower utility bills, or for industrial companies, higher margins. Yes, mathematically it's caused 'deflation', but it doesn't matter when it's down to an input cost price shock (in the same way that economists look through higher inflation caused by weather-related food price increases). It's if/when that underlying 0.6% number goes negative that we're all in trouble...
 

Splitlink

Legendary member
10,850 1,234
It still isn't the govt's job to provide people with jobs...all they can do is set favourable conditions.
If these people are working for less, so what, at least they aren't claiming benefits.

Hi cv,

Another point while I ,m at it! :)

I say that it is the government's job to make sure that its people have good services.

Cameron's government has been cutting the budgets of police, NHS, fire brigades, military, education---the lot, ever since it has been in power.
All those people are out of work. Rajoy is the same, here. The government must bear some of the responsibilty for causing unemployment with all these cuts.
 

Splitlink

Legendary member
10,850 1,234
but deflation is triggered by companies lowering their prices.
its not that deflation comes first, then all this jobs/loans stuff happens as a consequence.
the price came down, by design of the companies, then it was seen as deflation.

example:
The price of cornflakes came down. This meant the cost of living went down.
This was seen as deflation.
Its ALREADY happened. (the price of cornflakes coming down)

Companies will continue to sell their cornflakes at a slightly lower price.
How does this mean jobs will be lost, or loans become expensive?

No, that is not the same thing, You are talking about competition, volume and market share. Deflation happens, not because of competition, but because a product cannot be sold and workers are laid offand cannot find other work. These workers lose buying power and the government loses tax revenue. Its a vicious circle.
 

counter_violent

Legendary member
11,337 3,040
But many low paid workers in the UK do claim benefit to top up their wages !
Favourable conditions like no Zero hour contracts, a living wage, reasonable rents, house prices/rents within grasp of ordinary working low wage earner? Not with Cameron and the other rich kids.

http://www.theguardian.com/books/20...shment-how-get-away-with-it-review-owen-jones

The working man:



By saying favourable conditions, I didn't mean tax credit top ups...back in the day, if you wanted more money, you did more work. The introduction by the last govt of something for nothing, which is what tax credits are, is yet another distortion of economic truth. How can anyone know their true worth when all we get is nonsense quoted like, "everyone is entitled to a living wage".

I respectfully submit that no one is entitled to anything that didn't produce a greater value. If the people want more, they should do more, simple as.

While wer'e about it, I actually object to govt spending my money. What makes them think they can spend it in a better way than I can.

:)
 

counter_violent

Legendary member
11,337 3,040
Hi cv,

Another point while I ,m at it! :)

I say that it is the government's job to make sure that its people have good services.

Cameron's government has been cutting the budgets of police, NHS, fire brigades, military, education---the lot, ever since it has been in power.
All those people are out of work. Rajoy is the same, here. The government must bear some of the responsibilty for causing unemployment with all these cuts.

Split, you are mixing up real economy jobs with govt payroll jobs again. To think that they are one and the same thing is a big mistake.

Govt payroll jobs can only ever be funded from those in private sector employment via their taxes. Anything over and above fully costed and funded govt jobs has to come from borrowing and debt. It's the borrowing and ever increasing debt that's the problem...just kicking the can down the road and never a day of reckoning. Well that day of reckoning is upon us all...and responsible govt's are trimming the public sector back to sustainable levels. What is the problem with this ? I can't see any.
 

Atilla

Legendary member
19,909 3,160
Split, you are mixing up real economy jobs with govt payroll jobs again. To think that they are one and the same thing is a big mistake.

Govt payroll jobs can only ever be funded from those in private sector employment via their taxes. Anything over and above fully costed and funded govt jobs has to come from borrowing and debt. It's the borrowing and ever increasing debt that's the problem...just kicking the can down the road and never a day of reckoning. Well that day of reckoning is upon us all...and responsible govt's are trimming the public sector back to sustainable levels. What is the problem with this ? I can't see any.

Agree with sentiment but so much of the economy is based on debt I can't see why the same can not or should not apply to government.

If everybody including institutions had to save up money before being able to invest - assuming no credit was given, the finance industry would cease to exist along with industrial production which it finances.

If you take this argument to it's n'th conclusion we shouldn't really borrow any money?

Also, countries that don't have strong government usually end up going down the road to anarchy?

These arguments - sometimes a little like economic theory, sound all well and good on paper but not so good in reality.
 

neil

Legendary member
5,167 750
An insight on working conditions for some people:

http://www.tuc.org.uk/workplace-iss...ng-modern-day-working-conditions-new-magazine

Low Pay:

http://www.theguardian.com/business/2014/oct/18/economy-bleak-british-workers-technology

I lost a lot of text somewhere- so I'll paraphrase: If Cameron's rich friends pay low wages such that the average unqualified worker on Zero hour contracts, part time hours or simply low wages such that payment of bills, high private rents,travel costs etc.are difficult -no problem, because we, the taxpayer will stump up tax credits to top up low wages to a living wage level.This suits Cameron's rich buddies who in turn pay into the Tory coffers and get richer. It's a scratch my back and I scratch yours mentality except you and I are excluded because we carry no influence apart from a vote (so smoke and mirrors are useful here to blame the low paid for their plight, accuse some of scrounging but overlook the benefits paid to their cronies in greater company profit).So yes, we the people subsidize the low paid for the benefit of the fat cats.WE bailed out the banks remember.
 
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Atilla

Legendary member
19,909 3,160
Actually this isn't a bad news story at all. Read the story, ex-energy prices underlying inflation stood at 0.6%, same as November. For an energy importing region like Europe, lower oil is an excellent thing and people will feel the increased spending power whether it's through lower prices at the petrol pump, lower utility bills, or for industrial companies, higher margins. Yes, mathematically it's caused 'deflation', but it doesn't matter when it's down to an input cost price shock (in the same way that economists look through higher inflation caused by weather-related food price increases). It's if/when that underlying 0.6% number goes negative that we're all in trouble...

Yes agree absolutely. This is good for consumers and producers as oil is a big energy cost of input.

What we see is in effect, distribution of the cake from oil producing to oil consuming countries than in previous time period.

How this plays out on the international stage from reduced demand for imports from Russia and ME countries against increased demand for goods n services in oil consuming countries subject to variations in interest, inflation and exchange rate moves remains to be seen.

From the man on the UK street perspective (less North Sea Oil) it's definitely positive.

However, in the medium to longer term, I'm not sure why oil producing countries will continue to pump oil out at say cost of $70 only to sell it for $50. Winding down of oil industries and downward pressure on prices will hit the level of economic activity - with some time lags imo.

Without opening a can of worms, on balance - a small degree of inflation is deemed to be more desirable than those near 0% rates. :whistling
 
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counter_violent

Legendary member
11,337 3,040

I take it you will be voting UKIP :LOL:

Apparently they have a whole raft of policies to do with vetting immigrants so the unskilled will not be welcome as before. This will in turn push up the wages for all as companies will have to pay more to get the people they want.
 
 
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