MM wrote:
On Mon, 14 Apr 2008 12:40:35 +0100, The Natural Philosopher
wrote:

Stagflation is almost inevitable.

What IS stagflation? I've heard of the term, but I don't really know
what it is. Give some examples? Thanks.

MM
It means inflation and a lowering of economic activity.


Normally inflation is a sign of there being too much money around, so
easy to borrow, so too much money chasing too few goods. Cf teh housing
market recently.

Stagflation is when the prices are not being directed by an increase in
purchasing power and shortages: Just severe shortages. Think Zimbabwe.

Or post war reconstruction periods.

Its a period of 'wealth destruction' as savings/investments become
relatively worthless.

Its happening roght now, although the signs are the banking crisis at
least is drawing to a close. We still have the banks: they just aren't
lending even tho rates have been held down top protect the guilty
(existing mortgagees).

What has gone is the forward pricing on stocks and shares. Unless its
mining or agriculture, there seems little prospect for 'jam tomorrow'
and if there isn't that much jam today, the prices fall.

In short from around 7-8% expectations on investment, people are
settling for 3% or so. With the blue chips unlikely to even return that,
bonds look a good bet, but they are in limited supply as well, so their
return is shrinking.

To put it another way, money, instead of being put into long term
infrastructure that might actually make a decent modest return over a
long period, has been given to people to buy overpriced houses that are
not worth having at the price, and too spend on high street shopping
which simply means throwaway rubbish. They can't pay it back, so the
money has been 'destroyed'.

As consumerism grinds to a halt, those involved in it will have to raise
prices to counter loss of volume. Or sack staff, or both. So less goods,
costing more, and higher unemployment.

And with Nu Laber, higher taxation as well. Because if THEY start laying
off staff, they won't win the next election. Well they wont anyway.
People are finally bored with them.

Want to know what comes next? a Tory government that will rip into the
public sector, and shed staff like there is no tomorrow. Probably with
tax breaks for self employed and small companies, to help re-settle the
almost useless into some form of gainful employment.

Plus a bit of rule alteration to allow entrepreneurs to go it alone.

With luck, a sliding scale of fuel duty to smooth out the bumps in the
upward prices.

But the world just changed. We just haven't gotten used to it yet,
that's all. It will take 15 years to get back on track in the new scenarios.