Debt Is Wrongly Assumed To Be Inflationary

ITV’s Programme On Britain’s Huge Debts
Guido’s writing about the debts again, and rightly so.  But as usual the site owner and his followers assume that high debts will automatically lead on to inflation.  But there are many examples where this has not been not the case.  Debt being taken out to chase rising prices is inflationary.  But once debts are at their peak, and people want to get hold of cash to pay them off, cash becomes not less valuable, but more valuable.  It’s a concept that many seem unable to grasp.  Yet look at Japan over the last fifteen years.  Debts have ballooned but prices have continued falling.
This is the comment I left on –
Debt is not necessarily inflationary. If everyone is competing to pay off debt, demand for cash rises and its value rises while the price of assets all being sold at once falls. If money is printed to cover the debts, that would be inflationary.
But the collapse in the money supply in the real economy could be so vast that the net effect, even with trillions of QE, could still be net deflationary. In the US, inflation underlying is only 1%, despite $2.6 trillion QE, a fallen currency, record low interest rates, oil and commodities at 2 year highs.
Don’t always assume that vast debts equal inflation to follow. Prices of things not directly affected by QE are falling – such as property prices. The effects of QE might well be transitory, and bigger and bigger splurges would be needed. Yet politically this will become increasingly impossible, let alone that the Fed would not want to deteriorate its own loan book by taking in junk IOU’s.
My preference would be for the government to borrow not to subsidise its deficit, which needs eliminating, but to build infrastructure, which will increase the country’s longterm competitiveness.  That kind of investment would look good in an investor’s portfolio, compared to IOUs from governments sinking further and further into debt.

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6 Responses to “Debt Is Wrongly Assumed To Be Inflationary”

  1. Twig says:

    It was Channel 4.
    Britain’s Trillion Pound Horror Story

    It illustated the problem so clearly that even Labour voters might be able to understand it.

    One can only hope.

  2. Tapestry says:

    I’ll be back in the UK soon and can keep up with things better. Who or what was behind the NUS attack on Millbank Tower, combined with the lack of an effective Police presence? It seemed like serious intimidation is being used to defend the client state, which is a key One World Government installation in western societies, out of which they will launch a civilian state-controlled paramilitary force to rival the Police and the Army. This will have no loyalty to past traditions of freedom and democracy.

  3. Twig says:

    As you know, there is a fabian fifth column operating in the UK supported by a whole load of useful idiots. The march was originally reported as a protest against the LibDems for changing their minds about tuition fees, but in the event the protesters didn’t bother go to the LibDem HQ in Cowley St., they headed straight for Tory HQ and then proceeded to trash the place. The Police, as is the norm nowadays were as much use as chocolate teapots.

    It’s amazing how these lefties all supported Gordon Brown’s tax, tax, tax and spend spend spend policies, and now there’s no money left they’re complaining because they’re being asked to pay their share of Gordon’s bill. And they don’t even need to pay up front, they don’t pay until they start earning over 20k, so what’s their beef? It’ exposes their hypocrasy, they just like spending other peoples money, but when it comes to their own money that’s a different matter.

    Have a look at this set of photos on BBC’s website, use the arrow to scroll through to picture no.4. This is a wider angle shot of the picture that appeared throughout the press on the next day. A picture is worth a thousand words.

    Did you watch the Channel4 program linked on my previous comment?

  4. Tapestry says:

    I’m on bad internet connection here but will watch the prog on my return to uk. The violence of the nus demo suggests planning and the aggression of their messages. That combined with wilful removal of effective policing suggests coordination to create an effect apparently casual but not casual at all

  5. Twig says:

    Yes, of course, the fabians are trying to incite “poll tax riots the sequel”. If these students were really that concerned about having to pay for their own education they would be demanding for the money that we pay to the EU to be used for higher education in the UK instead.

    On Any Questions last night, the £89k plus a year Bob Crow asked that since the Scots can provide free uni, why can’t we?
    Nigel Farage pointed out to that it’s actually we the English that pick up the bill for the Scottish through the Barnet Formula
    Link to Any Questions R4 12th Nov.
    The exchange is at 12 to 13 minutes in.

    Unless you really need to come to the UK I would recommend you to stay put in the Phils, it’s becoming rather chilly here.

  6. Tapestry says:

    Yes but I want to be home for christmas and see my family.
    The Fabians even fix the reduced police response to make sure the supposed scenes of ahem spontaneous anger were seen. It’s worked in the past in getting rid of thatcher. They’re bound to try the same routine again.

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