Shoring up the economy - where is all the money coming from??

[Over Clocker]

I feel that some of this will be paid for by increasing the top rate of income tax, which on one hand is not good for me, but on the other hand I understand that some taxes will need to be raised to pay for this.

We'll see tomorrow in the PBR, as PM Brown has said the PBR will not only say what they will do now, but they will also lay open how they expect to pay for it over the next few years.

 

[The_Abyss]

Breaking news - a new higher rate tax of 45% is to be introduced.

 

[bigredshark]

You don't actually think the drop in VAT is for consumers do you? This will not be passed on to consumers for more that a few months, the prices will then return to their old price points (this happened in Ireland a few years ago, Vat was put back up the next year) This money is a direct injection of cash to the economy, as VAT is so ubiquitous.

Nate

Well considering the package has yet to be announced, nobody knows. I expect there will be seriously pressure for it to impact price on the high street immediately otherwise they don't appear to be doing anything real.

Even if it only lowers prices in real terms for a few months, then it'll serve it's purpose, getting people to spend money and increasing cash flow into retail.

The far bigger risk is while it'll increase retail cash flow, a big chunk of that cash will end up with manufacturers in china and asia in general in short order. That's a big risk because if it happens it won't create jobs outside of retail...

 

[bigredshark]

Actually yes they can - google fractional reserve banking.

There's nothing wrong with fractional reserve banking, it's done great things for the world economy. It has flaws but it has far fewer flaws than any practicable alternative and many of those are related to the periphery rather than it's core.

 

[The_Abyss]

There's nothing wrong with fractional reserve banking, it's done great things for the world economy. It has flaws but it has far fewer flaws than any practicable alternative and many of those are related to the periphery rather than it's core.

I didn't say that is was flawed, I said yes, the banks can just create money.

 

[bigredshark]

Breaking news - a new higher rate tax of 45% is to be introduced.

On incomes over £150k according to the BBC -

That's clever politically, tackles criticism the tax cuts are unfunded and makes it difficult for the tories to attack the tax rise and still claim they stand for ordinary people (ordinary people earning £150k of course...). How much actual use that is I don't know, affects a tiny number of people (I'm assuming 1-2% at most) and will likely raise a respectable but not game changing amount.

 

[The_Abyss]

As it is for incomes over £150,000, I very much doubt it will raise anything significant at all, as most on that income can afford decent financial advice, and much of the increase will immediately be removed via tax relief on pension contributions.

They could have been really brave, and increased NI above the 1% above higher rate earnings, even up to the same level that the 20% bracket pays (11.8% IIRC).

 

[bigredshark]

I didn't say that is was flawed, I said yes, the banks can just create money.

Sorry, I've just got too used to having to refute people saying it's somehow evil.

I'd dispute that it allows the creation of money as it's technically credit creation and only increases money supply. That is does so by 'creating' commercial bank money is true though, but it's not quite the same thing.

 

[mattheman]

Or might have something to do with the fact that as far as I can tell the conservatives have no coherent economic policy and don't look convincing on the subject. Whether you agree with him or not, Gordon Brown does at least give an impression of really understanding the subject...

haha i just spat out my drink, GB is the biggest fool around

 

[bigredshark]

haha i just spat out my drink, GB is the biggest fool around

Well, he understand economics, whatever you think of him doesn't change that. From what I've seen of them on TV, Cameron and Osbourne really don't understand it very well, calling for a fully funded stimulus package looked pretty stupid.

 

[mattheman]

Well, he understand economics, whatever you think of him doesn't change that. From what I've seen of them on TV, Cameron and Osbourne really don't understand it very well, calling for a fully funded stimulus package looked pretty stupid.

he understood it so well didnt he, spend spend spend, no more boom or bust, yep i agree he understands.

 

[bigredshark]

Care to link? I've (sort of) 'fallen for it' (sort of being that I realise the information I've seen was very simplistic in nature), and I'm open to being corrected.

There's this..

http://forums.overclockers.co.uk/showthread.php?t=17943575

which has kind of wondered off topic now but it's the most recent argument about fractional reserve banking. I'd need to look back further to find one with my actual arguments in it, I grew bored of repeating them.

 

[Nate--IRL--]

Sorry, I've just got too used to having to refute people saying it's somehow evil.

I'd dispute that it allows the creation of money as it's technically credit creation and only increases money supply. That is does so by 'creating' commercial bank money is true though, but it's not quite the same thing.

Isn't increasing money supply from credit creation as you say, creating money now from a debt payed off later? Money as debt?

I'm not really looking for a debate, but it does appear we are arguing over semantics here

Nate

 

[bigredshark]

he understood it so well didnt he, spend spend spend, no more boom or bust, yep i agree he understands.

Better than you do...it's oh so easy for the uninformed to criticise with hindsight

 

[mattheman]

Isn't increasing money supply from credit creation as you say, creating money now from a debt payed off later? Money as debt?

I'm not really looking for a debate, but it does appear we are arguing over semantics here

Nate

inorder to pay of past debt you need to create more money, ie inflation, thus the value of your money drops as the value of your debt. ie your paying off old debt with new debt.

 

[Nate--IRL--]

inorder to pay of past debt you need to create more money, ie inflation, thus the value of your money drops as the value of your debt. ie your paying off old debt with new debt.

Yep and thats why deflation is the biggest worry now, it disrupts the whole house of cards, eh..I mean system.

Nate

 

[bigredshark]

Isn't increasing money supply from credit creation as you say, creating money now from a debt payed off later? Money as debt?

I'm not really looking for a debate, but it does appear we are arguing over semantics here

Nate

We're absolutely arguing over semantics, that's basically what economics is after all. I don't like with the phrase 'money as debt' (it's horribly tabloid) but yes, it is supplying money now against later debt.

The debate is more whether that's bad in itself...which I can get into but it's probably better in speakers corner rather than boring everyone. (the other problem is the average person in the street considers words like 'debt' and 'leveraged' as bad instinctively and finds it difficult to accept any other argument)

 

[bigredshark]

inorder to pay of past debt you need to create more money, ie inflation, thus the value of your money drops as the value of your debt. ie your paying off old debt with new debt.

Only when it goes wrong, a well regulated system should prevent that kind of failure...

 

[Nate--IRL--]

We're absolutely arguing over semantics, that's basically what economics is after all. I don't like with the phrase 'money as debt' (it's horribly tabloid) but yes, it is supplying money now against later debt.

The debate is more whether that's bad in itself...which I can get into but it's probably better in speakers corner rather than boring everyone. (the other problem is the average person in the street considers words like 'debt' and 'leveraged' as bad instinctively and finds it difficult to accept any other argument)

To be honest, I have a hard enough time just understanding the Current system, than to be able to judge its merits too.

My original point was that if the debts that originally created the credit go bad, they effectively destroy the Money created by that debt too. Money 'disappears' from the overall system - this is deflation.

Nate

 

[iSam]

Gordon Brown's obsession with borrowing your way out of trouble. He fails to see that borrowing is one of the reasons we are in this mess.