Good Money and Bad Money: the Rules have Changed

There is good money and bad money. If you took out a mortgage in order to buy a house or a long term loan in order to buy an assets between 1964 and 2008 in most developed or developing nations in the world you borrowed good money and repaid in bad money. If you saved money between the same periods in a deposit taking institution you parted with good money and in most cases got back bad money years later. In 2008 the rules changed although most ordinary people did not know it, because the rule change was not generally known.  Continue reading

Life Becomes Just a Little Bit Simpler

For the first time in my lifetime there was no inflation in the month of February. Of course the prices of some things rose but the prices of other things fell and as far as people can measure by the Retail Prices Index the rises cancelled out the falls and that means some other “firsts” such as Continue reading

Quantitative Easing

All the quantitative easing has stopped; in the United Kingdom and in North America the financial institutions have been flooded with cheap printed money in an effort to improve liquidity, stimulate lending and make the economies prosper. the effort has failed, in its stated aims, although the effort has prevented many financial institutions closing their doors and calling in the liquidators, thus protecting the savings of people. Continue reading

LIBOR – The Stables are still Filthy

If you borrow money at an interest rate that is linked to something, then you have to understand the thing to which it is linked. If you were to borrow money linked to the base rate of a major bank (or one of the base rates of a major bank) you will know that the rate you pay will rise and fall. You rather put yourself into the hands of the bank and the market. If the bank’s base rate to which your interest rate is linked, is also a base rate that is used to attract deposits to the bank, then your interest will fluctuate more or less in line with the market.
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Logical Behaviour in the Economic Circumstances of Today

I wrote yesterday about the economic situation and the problems that afflict us. It seems to me that there are a number of logical conclusions that you can draw from the present economic position that exists in the world and following those conclusions only certain behaviour is rational. Here are the premises:- Continue reading

Inflation

In the United Kingdom inflation is falling marginally to about 5%. Many economists think that by late 2012 UK inflation will be below 2%. The simple explanation is that the very high inflation is largely due to high fuel prices, but has been mitigated to a small extent by lower food prices, lower air fares and lower petrol prices. I understand the simple explanation but there is a more complicating factor which the economists are ignoring. The so called quantitative easing has injected many hundreds of millions of pounds into the economy. That money must, inevitably, result in inflation. No one seems to address the point of  how that will affect inflation. Continue reading

A scandal wrapped in a fraud and shrouded in a puzzle

Inflation in the United Kingdom is running at 5%. This is good news for some borrowers whose mortgage rate is fixed below 5.2% but bad news for savers and most others. If you have savings (and most of us do directly in the bank or indirectly through pension funds or life insurance policies, you will be lucky to earn 3% interest on those savings, and you can only get this rate in a ISA or in a pension fund. If your savings earn 3% but over a year lose 5.2% in spending power your savings are depreciating at the rate of 2.2% a year. Continue reading