Credit Crunch

Interesting quotes from Mervyn King in the wake of the BoE's latest inflation report.

Mervyn King said:
We are travelling along a bumpy road as the economy rebalances. Monetary policy cannot and should not try to prevent that adjustment.

The MPC must focus on bringing inflation back to the target in the medium term.
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Edited to add link to article
http://news.bbc.co.uk/1/hi/business/7400074.stm
 
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Haircut said:
Interesting quotes from Mervyn King in the wake of the BoE's latest inflation report.

Edited to add link to article
http://news.bbc.co.uk/1/hi/business/7400074.stm
Click to expand...
He's justifying a rate cut (June / July) by talking about controlling inflation in the medium term. Similar to Alistair Darling recently when he noted that inflation in the UK was still relatively low (compared to historical rates).
 
I read it the other way.

In my mind he is saying that we shouldn't be using monetary policy to boost the ecomony (i.e. rate cuts to stimulate growth), but rather be wary of inflation.
Not 100% sure of course as it isn't the clearest of statements (at least not the way it is presented in that context by the BBC article).
 
The economy isn't balanced anymore, we're built on debt and things need to equal out. There also needs to be a good dose of the turth issued - inflation is significantly above 3%, just the cost of large puchases such as TV's etc are masking the true picture.

In the paper the other day, there were complaints about beer going up 10p/pint when duty only went up 4p. Nobody mentioned twhe fact that the cost of delivery has shot up.

It's not going to happen over night and with a mid-3rd term government with abysmal approval ratings the truth is the last thing we are going to see. More likely we will get more of the same, a 'druggie' economy where there are erratic swings when it doesn't get it's fix of debt as it can't cope without loads of cash to help us all feel good. We've now got to hang on until September where Gordon is waiting with his big bag of goodies to help with the pain - a nice smooth hit of £60 in our pockets and extra tax coding to help us over those winter months. But like an addict, we aren't facing up to the reality of our situation, that we're going to have to go cold turkey sometime or other because the money will run out.

The same applies for the way personal borrowing is going. The term is 'a strong appitite for credit' and covers those people who have made ridiculous amouns of money buy having a house and who have spent the last 10 years peeing through the equity, buying conservatories, meals out, holidays, cars etc and are now hitting the wall. They are in denial but with the credit crisis, no one wants to lend to them any more. They are gettng desperate and many will lose everything.

In 5 years time, things will look much better and the smartest/those with the dosh will once again be ready to make a killing on property. Those who have lived the lifestyle without the income will haev fallen by the wayside and banks will have tightened up on inter-bank lending. The next crunch will be futures or something else and it will always happen in a cycle because of human nature. When we feel good, we are more open with out dealings and less worried about consequences. Next time around, it'll be futures or something but it will happen again....and again....and again....
 
Kitchster_uk said:
The economy isn't balanced anymore, we're built on debt and things need to equal out. There also needs to be a good dose of the turth issued - inflation is significantly above 3%, just the cost of large puchases such as TV's etc are masking the true picture.

In the paper the other day, there were complaints about beer going up 10p/pint when duty only went up 4p. Nobody mentioned twhe fact that the cost of delivery has shot up.

It's not going to happen over night and with a mid-3rd term government with abysmal approval ratings the truth is the last thing we are going to see. More likely we will get more of the same, a 'druggie' economy where there are erratic swings when it doesn't get it's fix of debt as it can't cope without loads of cash to help us all feel good. We've now got to hang on until September where Gordon is waiting with his big bag of goodies to help with the pain - a nice smooth hit of £60 in our pockets and extra tax coding to help us over those winter months. But like an addict, we aren't facing up to the reality of our situation, that we're going to have to go cold turkey sometime or other because the money will run out.

The same applies for the way personal borrowing is going. The term is 'a strong appitite for credit' and covers those people who have made ridiculous amouns of money buy having a house and who have spent the last 10 years peeing through the equity, buying conservatories, meals out, holidays, cars etc and are now hitting the wall. They are in denial but with the credit crisis, no one wants to lend to them any more. They are gettng desperate and many will lose everything.

In 5 years time, things will look much better and the smartest/those with the dosh will once again be ready to make a killing on property. Those who have lived the lifestyle without the income will haev fallen by the wayside and banks will have tightened up on inter-bank lending. The next crunch will be futures or something else and it will always happen in a cycle because of human nature. When we feel good, we are more open with out dealings and less worried about consequences. Next time around, it'll be futures or something but it will happen again....and again....and again....
Click to expand...

Good post.

I think over the next 5 years it will be an interesting and unique turn of events as we have pretty muched maxed out what the UK can do. There will be rise in unemployment as a 'cutting the fat' technique is used by organisations as well as inefficient companies cease trading.

I do think there is a lot of optimism in the statement that those with money and being smart will be ok. There are other forces at work such as Bank/Building Society behaviours that can affect any savings we have, rising energy/fuel/food costs, the strategy of the government, etc

The problem is that there has never been a recession before in this position and having built an almost false economy through excessive lending it leaves the situation uncertain.

That is not to say we are all going to struggle and die, I just think people need to be realistic and live within their means whilst the government develops a sustainable long term strategy to help us through the hard times and that does not mean lending excessively to keep people and any top dogs happy.
 
Kitchster_uk said:
In the paper the other day, there were complaints about beer going up 10p/pint when duty only went up 4p. Nobody mentioned twhe fact that the cost of delivery has shot up....
Click to expand...

That happens nearly EVERY time though, even when fuel costs haven't been rising. I mean seriously, apart from maybe a couple of select locations, when was the last time in the past say 8 or 10 years that you saw the pub price of a pint of beer or cider go up by anything other than a multiple of 5p (and usually 10p)?

OK so you have to take inflation into consideration and maybe the brewers/pubs balance this out a little, implementing price rises at the same time as tax rises to keep things in round figures. But the whole "4p on a pint of beer" thing makes me chuckle every year.
 
HangTime said:
That happens nearly EVERY time though, even when fuel costs haven't been rising. I mean seriously, apart from maybe a couple of select locations, when was the last time in the past say 8 or 10 years that you saw the pub price of a pint of beer or cider go up by anything other than a multiple of 5p (and usually 10p)?

OK so you have to take inflation into consideration and maybe the brewers/pubs balance this out a little, implementing price rises at the same time as tax rises to keep things in round figures. But the whole "4p on a pint of beer" thing makes me chuckle every year.
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To an extent it does. my local put prices up 5p/pint last time, 10p now. I know the owner well and the cost to him is as much as 11p on some beers, around 8p or 9p on others. Wages go up every year, the cost of opening the doors goes up with more legislation. Fitting a smoking area outside costs money but helps yuo keep your trade...

Just using that as an example, showing things aren't always what they seem and it is really just spin. "...beer has gone up 10p but we only put 4p extra tax on - it's a disgrace..." when almost all of that 10p will end up in government coffers one way or another!
 
Personal debt is higher per person in the UK.... and we havent even BEGUN to see big problems from people defaulting on their loans and mortgages.

Manufacturing has left in a bit way from the UK, and we've transitioned to a service based economy .... Inflation is hitting us hard because we have to import anything of value, and our currency that gets weaker every time rates are cut does nothing but stoke inflation.

It's going to get worse. Not better.
 
Kitchster_uk said:
The economy isn't balanced anymore, we're built on debt and things need to equal out. There also needs to be a good dose of the turth issued - inflation is significantly above 3%, just the cost of large puchases such as TV's etc are masking the true picture.

In the paper the other day, there were complaints about beer going up 10p/pint when duty only went up 4p. Nobody mentioned twhe fact that the cost of delivery has shot up.

It's not going to happen over night and with a mid-3rd term government with abysmal approval ratings the truth is the last thing we are going to see. More likely we will get more of the same, a 'druggie' economy where there are erratic swings when it doesn't get it's fix of debt as it can't cope without loads of cash to help us all feel good. We've now got to hang on until September where Gordon is waiting with his big bag of goodies to help with the pain - a nice smooth hit of £60 in our pockets and extra tax coding to help us over those winter months. But like an addict, we aren't facing up to the reality of our situation, that we're going to have to go cold turkey sometime or other because the money will run out.

The same applies for the way personal borrowing is going. The term is 'a strong appitite for credit' and covers those people who have made ridiculous amouns of money buy having a house and who have spent the last 10 years peeing through the equity, buying conservatories, meals out, holidays, cars etc and are now hitting the wall. They are in denial but with the credit crisis, no one wants to lend to them any more. They are gettng desperate and many will lose everything.

In 5 years time, things will look much better and the smartest/those with the dosh will once again be ready to make a killing on property. Those who have lived the lifestyle without the income will haev fallen by the wayside and banks will have tightened up on inter-bank lending. The next crunch will be futures or something else and it will always happen in a cycle because of human nature. When we feel good, we are more open with out dealings and less worried about consequences. Next time around, it'll be futures or something but it will happen again....and again....and again....
Click to expand...

Good post.
The more I think about the situation we're currently in the more I think it will be deflationary in the medium to long term.
We're seeing producer input prices rocketing at the moment, but producers aren't able to pass on the costs to the consumer.

Wages aren't able to inflate the same way as input prices have been doing because of global competition so we could well end up in a situation where the economy just won't support price increases and we could end up with carnage with business going bust because they can't increase prices enough to absorb their cost increases.
This would completely annihilate demand, and with credit still tight we could end up with a deflationary recession.
 
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