It is Obvious

Chris Rick has got altogether too much to say

Am I getting bigger?

Posted by chrisrick13 on January 29, 2015

It is obvious: I’m an economist

There is amazement and amusement in the non-biased reporters that I read that inflation way above target in the UK was ignored and now that inflation is below target there is much action (or at least talk of action) to do something about it.

Inflation means that debts can be defaulted by making the money that they are denominated in, if not worthless, then worth a lot less.  Who cares?  As a saver I jolly well do!

What can I do about it?  I can try and earn a lot more so that I can keep adding to my savings.  This reminds me of a hamster in a wheel.  I can invest in risky stuff and hope that my investments are the ones that don’t go bust.  I can say ‘sod it’ to saving and have a good time now.  If the UK economy fails, as it likely will, there is little difference in the plight of someone with some money and someone with no money.

So the worry that economists have that when there is disinflation (the rate or inflation is decreasing) or deflation (things are getting cheaper) then people delay purchases, is not correct.  If it happens then a spiral is nicely reinforced.  People lose jobs and deflation accelerates.  However you only have to turn to my wife, and perhaps more people than you might care to consider, to see what really happens:

“I saved £X when I bought Y £Z!”
“You could have saved £Z+£X by not buying Y”
“But I might not have any money tomorrow.”

So it is that there is this natural tendency to delay purchases until the tipping point comes.  Then the entity sees that even if the price drops close to zero there might be no money in the purse to buy it.  So get one now.

I also see people buying assets that they can use now for pleasure or convenience and might barter with later.

If we assume that people are rational then there will come a point where with falling prices people still buy.  This is the point of loss of hope for us all.  The entity that is the UK population is perhaps a better predictor than any economist.

But there are plenty of things that you cannot delay buying until the price drops.  Food is one I can think of.  Perhaps we should all aim to put as much weight on as we can while food is cheap and then go on diets when prices go up.  There is a good way of saving, put a few stone on – you can ‘eat’ it later.  Still there are some things that you can rely on that won’t contribute to disinflation or deflation: energy prices.

I’ve noticed that payday loans with interest rates on the thousands of percent are not on tv anything like as much as they were before I went away.  I hope someone does a study to see what is actually happening.  How are those people mis-guided enough to take out those loans faring?  Are they just not buying stuff?

I see that Amigo are offering loans up to £5,000.  Their interest rates are about 47%.  Seems quite reasonable when you have been looking at payday loans with interest rates in the thousands until you note that it is still nearly 100 times more than the base rate.  There is another catch.  Someone else (with a very good credit record) has to guarantee the loan.  So Amigo will lend money with a huge interest rate at absolutely no risk.

It is obvious: I’m an economist.  No I’m not.  At least I behave like one.

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