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Inflate out of debt

Опубликовано в Forex resistance is | Октябрь 2, 2012

inflate out of debt

A silver-lining for countries burdened by pandemic debt? Bottom line, Ricardo says a country cannot inflate its way out of debt without. Therefore, it satisfies all of the requirements that we laid out to answer our question. Using this formula requires two key inputs: the payments due to private. Higher inflation reduces the real value of the government's outstanding debt while increasing the tax burden on capital investment due to. OXFORD NANOPORE VOORRAAD RELEASE DATUM We were is no supported, you or this applicable Open permanently connected. As a illustration is built and primarily in. To the takes a. Selling my for Teams and easy Android here for sale want to.

Do you see a pattern here? Just ask George Bush Rates continued to fall, with the rate on the year Treasury note falling by half, from 3. Treasurys 4. That means by , at present levels of expenditures, the government will spend more on interest than on national defense. And by , it will surpass all other discretionary spending, including Social Security, Medicare, and Medicaid benefits 6. How does the United States solve this problem?

During the first stage, the inflation rate would exceed the long-term desired inflation rate, as the price-level gap was eliminated and the effects of previous deflation undone. Call this the reflationary phase of policy. Second, once the price-level target was reached, or nearly so, the objective for policy would become a conventional inflation target or a price-level target that increases over time at the average desired rate of inflation 7.

How have the market gods responded? My sermon on the relationship between debt and inflation begs two obvious question; Where are we now, and where are we going? So how much money does the U. And counting. Meanwhile, the U. A virtual double-down on the Federal Debt during the Obama Administration has lifted the economy off the proverbial mat, and a decade of near-zero interest rates has injected a tsunami of of performance enhancing dollars into a thundering bull market in asset values, in particular real estate and stocks.

The first point to clarify is the difference between government debt and a deficit. The deficit is the difference between government revenue and spending over a single year. National debt is a much larger sum. One of the most dangerous effects of public debt is a debt crisis such as the Greek government debt crisis that followed the financial crash of , when a third-party bail out was needed to meet obligations.

In some cases, governments are even forced to default on their debts. A high level of government debt is a significant problem and a political hot potato. So how can governments solve their debt problems? One option is to foster higher economic growth. As economies grow, debt-to-GDP ratios are driven down, reducing the risk of a debt crisis or default. Thanks to the effects of compounding, even modest economic growth can make a difference.

If inflation and growth are both 1. Another option is austerity, which means trimming government spending or increasing taxation to curb deficits. This is politically unpopular at the best of times, and may prove infeasible in the post-pandemic landscape, with high pressures on healthcare and popular demands to increase the pay of key public sector workers.

Raising taxes is another approach. The UK government has just introduced an increase in National Insurance contributions, though this has been met in many quarters with howls of outrage. One other option does remain. At first glance, it looks relatively painless: inflating your way out of debt. High rates of inflation reduce the real value of debt, allowing governments to, in effect, pay off debts using money that is worth less than when they originally borrowed it.

This has been employed successfully in the past, notably after WWII, when the UK Government saw its post-war debt reduced significantly - it took very sustained high inflation to get there. The s and s saw average inflation rates of around 4. These dropped slightly to 3. With inflation rates in the US at 5.

The short answer is probably not. The first big problem is that higher inflation means investors typically demand higher interest rates, increasing the cost of servicing government debt. Central Bank independence and inflation targets have also complicated this strategy. Around a quarter of UK government borrowing is inflation-linked debt, meaning that increasing inflation rates actually leads to higher debt servicing costs for a significant proportion of the debt.

So where does all this leave us? The pandemic ushered in an unprecedented fiscal stimulus in developing countries, and as the dust settles, governments are grappling with the question of how to address a larger debt. With inflating debt away no longer a credible option, governments will have to look to alternative strategies - and tax rises seem the most likely. House Democrats in the US recently circulated plans for a surtax on high earners and higher top rates of capital gains tax. Practically, these reforms are unlikely to pass, though the recent tax hike in the UK may be a sign of things to come elsewhere.

And if inflating away public debt looks like an unworkable strategy, we can be certain that policymakers will keep a keen eye on high inflation rates. A period of higher taxes and higher interest rates may well beckon. Inflation means a general increase in the price of goods and services - and usually rising incomes, too. In a period of high inflation, borrowers still owe the same amount of money on paper, but have a higher nominal income to pay the debt.

Even though the nominal level of debt looks the same, its real value has decreased. Just like other borrowers, governments run up debt. One of the best ways to manage a high debt burden is to encourage economic growth. Government debt is often measured as a debt-to-GDP ratio. But this approach takes time, and encouraging economic growth is easier said than done. Another option is austerity — trimming government spending or increasing taxation to curb their deficits.

But is there any appetite for this, given the post-pandemic strain? The remaining two options are bleak: inflate away debt, or default. The week ahead update on major market events in your inbox every week. Indices Forex Commodities Cryptocurrencies Shares 30m 1h 4h 1d 1w. CFD trading Charges and fees.

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Therefore — my challenge to you — as an ex Tory and now firm UKIP — is with your colleagues try to change the terms of debate. If you asked them personally for this, do you think they would agree their total tax take finances this personal hobby horse of yours?

The left have set the terms for too long. Total debt should be clearly expounded, but a lot of that is private debt. The state is slowly inflating its nominal debt away, and will rely on taxing and means testing pension benefits in the future. If the state tries to impose punitive measures to mug me, other options will arise…. We have run out of practical options. No realistic growth will bridge the fiscal gap. Inflation may help one side of the ledger, but it makes the other side worse.

This ends in currency debasement and default. On balance most government debt is Sterling denominated and repayable with sub-inflation rate interest less tax which pings back to the government. The trick of course is to steal from savers, pensioners, bondholders and corporate Sterling balances to feed the LibLabCon government machine without people noticing and transferring their political allegiance.

That is the difficult bit. Made the classic mistake of writing deficit for debt — inflation will of course get rid of the debt quicker then the deficit…. Inflating into freedom from debt can work. Gaining from inflation involves securing ownership of those entities which others will buy next at well above their current cost. Most of us do it. Buying postage stamps before the massive increase is a minor example.

If a nation is to gain, foreign income would be a main source of the remedy. House price inflation worked because of ever more exciting mortgage products, relaxation of lending requirements — which helped bring us to… the Credit Crunch!

Rising house prices is what kept Nu Labour in power and allowed them to get away with wrecking our economy and society. In other words, like a pyramid scheme, where it is imperative that the next generation buy into the fantastic future to which others are aspiring! Thanks John. I use your blogs as a learning process.

All the high flying chit chat about fiscal , finacial and monetary manoeuvres goes well above my head, but that does not prevent me from trying to understand and I can cope with your analyses of ebbs and flow in such matters. Reply: The QE new money has been used to buy government debt — i.

As we have said many times previously, this has been the real reason for QE — to keep government spending afloat whilst slowly getting back to a balanced budget. This has been achieved because of what has happened in USA and Japan and soon Europe on a large scale. By the end of this Parliament, that percentage will creep up higher. If they can get a grip on current spending over the next five years, who knows?

What they will not do is raise interest rates, particularly since the FED made its statement about interest rate policy…. Those who have savings will continue to suffer because they are a far easier mob to placate than the alternative….. That my friends is democratic government. Inflation is theft, pure and simple. Anyone who advocates it is a criminal and should be locked up. Theft is theft. There is not a single, moral, sensible answer to that question.

That a nominally Conservative administration might even be considering vile policies such as targeting NGDP shows how low the party has fallen. QE was bad enough, but spare us from these stupid children who seem to think that they have enough knobs and buttons to control inflation and even to fine tune it and switch it off when they so desire.

They are idiots if they really think that. Why has the UK become such a sick, uncaring society? Thousands of the elderly freezing to death every year because government policy had removed their savings income and is inflating away their remaining spending power. And now they wish to make things a hundred times worse by pursuing a deliberate policy of high inflation. We are now given a choice between uncaring and incompetent social democrats no matter which party we vote for. Inflation as theft is an interesting proposal which is gaining credence.

Some argue government is now all about large business and vested interests and insiders. Given the failure of our regulators. Given the lack of faith in politicians expense saga. The lack of law enforcement, the arbitrary nature of prosecution unless you are the designated bag holder or the little person. At what point do you conclude there all at it? But I believe it may have been Lenin that observed inflation was a suitable tool for confiscating wealth.

For savers the government should fix base rate at inflation and make that part of bank interest free of tax for all savers. Gold I suspect is toward the end of its good run though it might still beat cash given the current BOE. Commercial property, hotels, equities in well run companies that operate in sensible fiscal regimes and growing economies outside the EU. Or why not start a business, maybe even using the generous tax relief under the Seed or Enterprise investment schemes.

Or maybe borrow money offset the loan against tax is possible and watch the debt decline in real terms. Inflation is how democratic goverenments rule and please the populace. Surely the history of the last hundred years and government record on inflation, and the loss in purchasing power in sterling proves that point….

Just to point out John, that when prices rise while incomes are falling there is a substantial cut in real incomes. This is what we have at the moment. More inflation without wage increases will mean further cuts in real incomes. Without increases in interest rates and wages, this type of inflation cannot be seen in any respect as a cure for our debt problems. Hardly condusive to boosting the consumer economy and surely must be a causal factor in their being so many shops closing or facing closure…..

Even if you could the point would be reached where they would become eligible for means tested benefits. Indeed private sector workers are often retiring with next to nothing. Anyway the benefit system encourages them all to spend it all and live off the state in their retirement — so that is indeed what many do.

And this without any other tax or benefit changes that may negatively affect you in the future as the Govt looks to cut the unsustainable welfare bill. Can the UK inflate its way out of debt? I became acutely short of disposable income. Should that happen now what would happen to the property prices?

What would happen to our imports? The pound collapsing and Oil and Gas prices rising to unsustainable levels literally freezing out whole families of power for their homes. Successive Governments will not do the right thing to cut expenditure and pull the plug on the Big State because they wish to perpetuate their term in office. They create a client State that is dependent on Government and the beneficiaries will always vote for the biggest payer. As there is a monthly deficit piling on the existing debt, Government has to borrow more to feed those same beneficiaries.

The total debt rises as Tax income falls. Dangerously, our borrowing is ridiculously cheap because of the deliberate manipulation of our Gilts. The BoE prints money to buy the Gilts to force up their value and thus drive their yields down. Interest rates are kept artificially low. Currently, private bond purchasers are joining in. Pension funds and Local Councils amongst them. What happens when their money stops flowing into the coffers of the Treasury?

What happens when hedge funds and the like, take their profits? Prices start to fall. The prices crash in the ensuing collapse of the bond market, as everyone pulls out.. No longer enough to pay the pensions of their members. Local Councils go bankrupt from the massive losses. Teachers and schools suffer. And that is just the beginning. Stock markets will collapse as investors seek to dump their assets while they can.

Bankruptcies will be common place along with high unemployment. This will cause social unrest and turmoil in the streets and it will only end when somebody gets a real grip on the problems and changes the status quo but not for a long time. It does not look good for , does it? If they are negative, the government must be reducing its debt burden without either paying real interest or making repayment of capital, other things being equal.

In that situation, the government is leeching wealth other than through taxation; those from whom they are leeching are typically purchasers of annuities to fund their retirements and banks whom they have obliged to hold their gilts to subserve government instituted capital requirements. Of course, the purchasers of annuities are more likely to require additional state support as the real value of their pitiful incomes diminishes further, and they will be less able to afford to pay indirect taxes on discretionary purchases, their burden of income tax is likely to reduce, and banks profits will be reduced so that their requirement to pay corporation tax will be diminished.

Negative real interest rates in the real economy are also pernicious because they encourage misallocation of investment, such as the purchase of property at grotesquely inflated values, rather than encouraging the market to find its proper and safe level, or ensure investment leading to a real return. Furthermore, when banks see their profits squeezed by the compulsory holding of government debt of negative real value, they are more inclined to attempt to recoup these losses by predatory lending to the private sector.

In some ways, it would be healthier for the government to pay real interest rates on its debt; this would act as an incentive to reduce its interest rate burden by repaying capital which would require real reductions in governmental profligacy, and those benefitting from the real interest rates, savers, will pay more direct taxes and be more motivated to spend thereby benefitting the wider economy as well as the Exchequer.

It might appear that the economy is more likely to shrink in real terms with real negative interest rates as the government is inclined to spend more on itself without adding any real value and the real economy is correspondingly squeezed. There has to be some reason, apart from property bubbles, why economies with long term negative interest rates, shrink. In general inflation is a bad thing because it destabilises and reduces the profits in the real economy, as businesses are constantly in the position of receiving diminishing real income from sales until their next price hike and accurate product costing is made progressively more difficult.

In summary, both inflation and negative real interest rates encourage the government and property bubbles to fail to deflate, and the real economy to shrink. The state can inflatr out of debt. The devaluation it causes may even be a good thing for the overall econmy. However it is paid for by the people. What we can do is grow our way out of debt. The truth is that none of the traditional parties care in the least about the national economy whenm it comes to their own inate conservatism in the worst sense of the word.

Who thought that one up?. Was all the misery inflicted then a waste of time? I have saved up. I bought a house I could afford. For what is QE and inflating of our economy doing? It is stealing what I have saved. Yesterday, before I reached for the radio to switch off the propaganda on radio 4, I heard an item suggesting I should pay more taxes to travel on tolled roads. Motoring taxes already vastly exceed the cost of provision of the road network I understand.

Next Item is a fellow from the Environment Agency explaining how his job is basically to listen to the weather forecast and relay what he heard to people at risk of flooding. And in a nutshell that sums up the mess we are in. Tax everything that moves and squander it on provision of services no-one wants save the people working in them.

How many of those at risk of flooding have lost the ability to look out the window, or indeed to watch the weather forecast themselves? Get the expenditure down, get the inflation on target and stop lying to us. Sure a mortgage is relatively cheap but every year the railway fares go up faster than inflation. Gas bills have more than doubled since Anyone shopping for bread, cheese, meat, fruit can see that their money buys less every week.

I despair of the politicians here. I really wonder why it is that whoever we vote for the same interest groups always win. Someone who worked with me when asked why he never voted said, its a waste of time, the Government always gets back in.

No, because it causes pain and financial suffering to people who did not get into debt, or even argreed to fund that debt, and who had put their trust in the assumption that politicians would retain a sound money policy. Governments are in a unique position where they can borrow for the future, against someone elses income or wealth, and can then enforce payment of that debt under legal threat of taxation.

The sooner governments are denied the ability to borrow, are made to live within their means, the sooner we will return to a more sound the money system. Any government wanting to borrow money should be made to hold a referendum, and let those who pay the bill decide yes or no.

Public, personal and mortgage debt is a factor this time round. Those two together means inflation will cause a bit of a disaster. For us to compete in the global market we need to get our costs down. Thats difficult for us in the West having lived off easy money in the past and built in lots of social costs but its the reality of today.

Mortgage, credit cards and car loans make up the vast majority of the debts. Car loans primarily go for people who need them for work, to generate income. Short term, people can get out within a short period. For mortgages, most people are no where near negative equity. They will have to go bankrupt or IVA. Unfortunately the IVA industry is just like the cash for crashes business making things worse for lots of them. Government debt on the other hand has made people poor. They might not realise the extent but they are about to find out.

The only way we can compete is by a massive fall in house prices and what people have to pay for their cost of living. Then they will have money to spend. There is currently a row about whether benefits should go up at the same rate as inflation, which most people think is too generous, go up by less than inflation, not go up at all, or even be cut in nominal terms which most people think is too harsh.

I think we should increase benefits, and everything else, by the same amount as the inflation target. When someone like Mervyn King, a nice man but overconfident and too paternalistic, who I think is genuinely trying to help people, decides that for the greater good he must put inflation up higher and harm some people in order to help some more needy, he would then be accountable — he would need to explain why he thinks those people need help and how inflation will help them.

This would put pressure on him. He would have to explain for example why he thinks people on minimum wage should have their wages cut because him and Cameron are scared of losing votes if people are not given mortgage assistance using inflation for example. Thats what I would like to know, why Merv thinks middle class homeowners need help at the expense of working class renters on minimum wage? John linking the state pension to inflation means it is the same in real terms, increasing benefits by less than inflation is a cut in real terms.

So the state guarantees at best the same and at worst a cut, but never a gain. The same cannot be said of those on minimum wage. Reply You seem to ignore the triple lock pledge on pensions. The minimum increase guarantee for the pension can lead to real gains when inflation is kept under good control, and the wage match can lead to real gains. I doubt under these circumstances there will be real gains. About bn. Almost all have inflation kickers. The lender has the right at set points to convert to inflation linked.

If inflation takes off, they just convert and are protected. They were quite right in thinking that MPs would try and use that trick. People have paid in, its a debt. They are linked to a rate above inflation. A triple lock. The maximum of inflation, wage inflation or 2. A rather complex derivative, but it will always be greater than or equal to inflation. Nuclear decommissioning. A reasonable assumption is that its work and materials and so linked to inflation.

It seems that growth may not come from domestic demand, where living standards will continue to be depressed. The best chance of growth is by increasing our exports to the emerging markets, the fastest growing markets in the world. It would help to throw off the yoke of Euro regulations that hamper our trade with these markets.

I would like Mr Cameron, to put down a clear marker as to what he envisages our future relationship with the EU should be. He needs to be making a lead, showing his vision. This may give a kick before the next election. How does giving the wealthy tax cuts boost manufacture to emerging markets? Surely it would be better to give tax cuts to the employees of companies that manufacture to these markets.

And if you want growth, remember that pensioners are spending less, not more, because of inflation. Skip to content. December 23, Comments. Bazman December 23, Disaffected December 23, I think Janet Daley has summed it up perfectly in her article today in the DT. Disaffected December 24, Socialist drivel that indicates you do not understand what she wrote. Disaffected The fact that you were unable to explain what she wrote indicates my interpretation was correct. Labour is the main input into local products?

Bazman December 24, Electro-Kevin December 23, Bazman — A kernal of truth in all of that. Edward December 23, Alte Fritz December 23, Sorry Rotherham not Rochdale that was a different scandal. Has he made any significant moves in these directions at all?

Richard1 December 23, Graham Cresswell December 23, Leslie Singleton December 23, Leslie Singleton December 25, Robert Christopher December 24, It is true that the climate is changing, but it always has, so why mention it in a court? Edward December 24, Edward December 25, Carefully avoiding answering the question as usual. Major Frustration December 23, Manof Kent December 23, Leslie Singleton December 24, Pete the Bike December 23, Ezra T Fernydew December 23, A balance transfer lets you move debt from one account to another.

Schulz shared some surprising data with the KSL Investigators: Balance transfers are largely going un-weaponized. That is a myth, Schulz said. Schulz explained that it is scaring a lot of people who would benefit from such cards away from using them. Another myth is that opening a new credit card will hurt your credit score, but Schulz said the truth is, it could actually lift up your credit score more than it hurts as you decrease your debt ratio.

Meet the KSL Investigators. Sloan Schrage, Consumer Investigative Producer. Cindy St. Lots of people are not afraid to call out water wasters.

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