There are many who, with wishful thinking, believe the UK's current zero rate of inflation will not last and inflation will return soon.
I do not believe them. Deflation is likely. Why else would Switzerland have issued a ten year bond at a negative interest rate yesterday? And why otherwise are Danish banks actually paying people to take mortgages?
Now, I know these are not UK situations and we have our own currency, but such moves tend to replicate themselves. And I think deflation remains our most likely long term prospect unless we "print" more money into the economy to create sustainable employment, long term investment and increased economic activity via the Green New Deal and green QE.
The case is overwhelming. And it's one that has to be won.
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Presumably the negative yield is still a ‘better’ return than the loss in the nominal value of the cash kept under the bed. Dose this mean investors pay the Government to keep them ahead of the deflation? (Just)
You have hit it on the head
Richard
Some segments of the economy have a substantial negative real interest rate: take a look at any mid-sized building site (10-50 residential units) asd ask yourself if anyone appears to be in a hurry.Or working at all.
This is not the same as deflation; but it’s a reliable precursor.
The wild card is the disconnect between asset prices and economic activity: we may well see the continuation of asset price inflation, against a backdrop of declining commodity and consumer prices, and a sterpening decline in wages. This is consistent with an accelerating concentration of wealth; it might be sustainable, or capable of sustaining an equilibrium state in an economy that looks like feudalism with factories.
Now, I know these are not UK situations and we have our own currency
but so do the Danes and the Swiss.
Richard,
Trying to explain concepts of deflation and inflation can be difficult to the laity. I have thought about how to express the differences, for some time now. I believe the best way to describe these two values is through a euphemism.
Deflation is, rather, like a cold icy grip that slowly drags one under the ice caps and slowly, slowly, takes the life out of you. By the time you recognize what is going on, too late. Similar to a story I heard once about a frog being boiled, in a pot.
Inflation, on the other hand, is akin to experiencing a raging fever and being sucked up into a tornado. It is a wild ride, and you get set down somewhere other than you started, requiring some orientation. But you dust yourself and are back at it in no time. Similar to the boiling frog story, only in reverse.