BoE Base Rate, What if...

[anonymous-user]

sidicks said:

fblm said:

To be fair, Whippy is completely wrong about most economics but he's almost right about GDP.
GDP=c+g+i+nx
Where c is private consumption, g is government spending, i is investment expenditure and nx is net exports. So all other things being equal (don't ya love that phrase!) lower government spending = lower GDP.

I know that, but the point is that seldom are 'all other things equal!

Ha. Agreed. See previous.

[Mr Whippy]

sidicks said:

Mr Whippy said:

You just mentioned a rule about 4 posts up, saying what economic rule meant that reducing public spending will reduce GDP.

No I didn't. I asked you which economic rule supported your claims (I am not aware of one that does).

Mr Whippy said:

Then you said economics isn't binary.

It isn't.

We can have economic principles ('rules') that work in certain circumstance ('all other things being equal'), however in the real world all other things are rarely 'equal'. Hence the comments about things being much more complex...

Mr Whippy said:

I'm still confused here.

That's fairly obvious!

Mr Whippy said:

It sounds like when people want to blame economics for failure, it's arbitrary and wooly and they won't understand.

IT sounds like you want to blame economics without understanding the first thing about it!

Mr Whippy said:

When you try find any solution that an economist doesn't agree with, it suddenly gets very clear and rule based and you're absolutely wrong in your idea.

That's not what said.

Does a rule have to support something within a construct that is arbitrary? Ie, economics which you admit isn't binary in it's outcomes?

Surely any new variable or unconsidered forcing (since it's chaotic there are infinite ones that could become a significant forcing or remain for all intents and purposes irrelevant) makes 'rules' fairly pointless to toss around when discussing solutions to problems most have already admitted are too complex to fix with a binary (rule based) type solution?


I don't get why me saying GDP will fall if governments cut spending needs a 'rule' to support it if economics is allowed to be arbitrary and complicated.



I don't understand many things about economics, and obtuse answers from those who apparently do don't help.

Perhaps that is indicative of economists, obtuse people who can't help and advise and be open about trying to control a chaotic system they actually don't understand... but instead just whinge on about why nothing could be their fault 'because complicated'



So if it's so complicated, who is trying to uncomplicate it so that a rule can be applied that explains the current events?

Ie, explain the falling GDP vs expectations?

Or let me guess, someone has the rule book that got us here to start with, and keeps applying the same rules trying to get us out of it, and isn't seeing repeated wrongness as a failure of their understanding of the system?

[Gecko1978]

Ok if the government print money (or just add it to the ledger) they increase the supply where demand for a product is elastic if you supply more of it when there are readily available substitutes you have to discount the price to match demand to increased supply.
So we print 50% more money and pay suppliers of our road building and other infrastructure would have the choice to be paid in say usd and as such the fx rate would move against the pound so the benefit of printing money would erode.


Essentially the purchasing power of the pound would fall. So your pay rise would be less.

[sidicks]

Mr Whippy said:

Does a rule have to support something within a construct that is arbitrary? Ie, economics which you admit isn't binary in it's outcomes?

I've really no idea what you are on about.

You stated as fact that "If we cut more government spending then GDP really will be negative, so it's self defeating'..

I simply pointed out that a) you actually mean GDP growth will be negative and b) such a definitive statement is not valid as 'all other things are not equal'. Of course what you say might be true in some circumstances.

I certainly don't claim to be an economist, although I have studied some economics.

[Gecko1978]

sidicks said:

Mr Whippy said:

Does a rule have to support something within a construct that is arbitrary? Ie, economics which you admit isn't binary in it's outcomes?

I've really no idea what you are on about.

You stated as fact that "If we cut more government spending then GDP really will be negative, so it's self defeating'..

I simply pointed out that a) you actually mean GDP growth will be negative and b) such a definitive statement is not valid as 'all other things are not equal'. Of course what you say might be true in some circumstances.

I certainly don't claim to be an economist, although I have studied some economics.

With C+I+G+X-N yes if all other elements stay the same cutting G would see GDP fall but if you have GDP growth it is not to say that growth is driven by G is could be increase in X or I etc so even if G fell over all GDP might rise.

G is not the deciding factor in the equation. On a MICRO scale G could be benefits you receive, they get cut but you win the lotto same day C i suppose rises G falls to Zero so does your personal GDP also fall to Zero after the lotto win.....

[Mr Whippy]

sidicks said:

Mr Whippy said:

Does a rule have to support something within a construct that is arbitrary? Ie, economics which you admit isn't binary in it's outcomes?

I've really no idea what you are on about.

You stated as fact that "If we cut more government spending then GDP really will be negative, so it's self defeating'..

I simply pointed out that a) you actually mean GDP growth will be negative and b) such a definitive statement is not valid as 'all other things are not equal'. Of course what you say might be true in some circumstances.

I certainly don't claim to be an economist, although I have studied some economics.

I'll try clarify my sentence above.

If economics can be arbitrary and relatively random, when we don't know what is going on as evidenced by the current perpetual mis-projections on GDP, what use are rules to try define solutions if those rules have failed to work so far?

Yes GDP growth might be negative which is what I meant, sorry.

While GDP growth is very small, government cuts could easily be enough to see GDP growth stop altogether and possibly invert, leading to a negative feedback loop.
If we didn't have a huge debt to service then it'd be not so bad as we could borrow money, but since we're maxxed out on debt at zero rates we're screwed.

One way or another at some point, some economist said borrow loads of money because 'rules'... that didn't work out so well.

Economists should embrace the inner creative side rather than try applying the same broken formulas to chaotic systems.

[Murph7355]

Gecko1978 said:

With C+I+G+X-N yes if all other elements stay the same cutting G would see GDP fall but if you have GDP growth it is not to say that growth is driven by G is could be increase in X or I etc so even if G fell over all GDP might rise.

G is not the deciding factor in the equation. On a MICRO scale G could be benefits you receive, they get cut but you win the lotto same day C i suppose rises G falls to Zero so does your personal GDP also fall to Zero after the lotto win.....

C, I, G and Nx are also not independent of one another. Changes in one are likely to impact the other(s).

[walm]

Mis-projections on GDP aren't really the fault of economic rules.

It's just that forecasting is incredibly difficult.

For example, the consumer's decision to save rather than spend is a nightmare to guestimate.

And you keep saying we could cut the debt by printing money - THAT IS WHAT WE ARE DOING!!

Unless you really meaning phoning up say China and saying - "you know we owe you £1tn and are paying you £50bn in debt service... sorry but we are cutting that in half, both the principal and the interest, cheers."
There are rules (legal ones) about paying debts, even for a country.
You would need to put the UK in default - which means NO MORE BORROWING...

Honestly, so far NONE of your suggestions are remotely close to making any sense, economic or otherwise!

[Mr Whippy]

walm said:

Mis-projections on GDP aren't really the fault of economic rules.

It's just that forecasting is incredibly difficult.

For example, the consumer's decision to save rather than spend is a nightmare to guestimate.

And you keep saying we could cut the debt by printing money - THAT IS WHAT WE ARE DOING!!

Unless you really meaning phoning up say China and saying - "you know we owe you £1tn and are paying you £50bn in debt service... sorry but we are cutting that in half, both the principal and the interest, cheers."
There are rules (legal ones) about paying debts, even for a country.
You would need to put the UK in default - which means NO MORE BORROWING...

Honestly, so far NONE of your suggestions are remotely close to making any sense, economic or otherwise!

But printing money devalues the currency, and devalues debt.

So in essence we are phoning up China and telling them we're gonna pay them less principal and interest, because both the principal and interest are now worth less.

I'm not sure then what the difference is to China whether you openly debase your currency and just do it quickly, or do it slowly as if they don't know what is going on

So how is it different doing it slowly?

[walm]

Mr Whippy said:

But printing money devalues the currency, and devalues debt.

Yes.
And this is exactly what the central banks have been doing and you are complaining about their incompetence and stupidity.

So, they are doing what you want but are still idiots???

[anonymous-user]

walm said:

And you keep saying we could cut the debt by printing money - THAT IS WHAT WE ARE DOING!!

To be fair the QE you did didn't cut the debt, via inflation or otherwise and you haven't done any more since 2012.

walm said:

Honestly, so far NONE of your suggestions are remotely close to making any sense, economic or otherwise!

Yep. To put it simply WE, the British people, directly or indirectly, own 3/4 of UK government debt. Finding ways to inflate it away or welch on it is an exercise in trying to take money off our selves whilst destroying the governments ability to ever borrow again. It's the economic equivalent of losing weight by cutting off your arms and legs.

[Mr Whippy]

walm said:

Mr Whippy said:

But printing money devalues the currency, and devalues debt.

Yes.
And this is exactly what the central banks have been doing and you are complaining about their incompetence and stupidity.

So, they are doing what you want but are still idiots???

So if they're doing it, then why are China happy?

You said if we devalued our currency they'd be unhappy.

So is there good devaluations and bad ones?

I assume we can subtly control whose wealth is devalued while retaining wealth of others, thus keeping some debtors or asset holders happy, while others who may not notice less so?

[sidicks]

Mr Whippy said:

I assume we can subtly control whose wealth is devalued while retaining wealth of others, thus keeping some debtors or asset holders happy, while others who may not notice less so?

Why do you assume that?

How can you make £1 worth more to some people than others (or am I missing the point you are making)?

[walm]

Mr Whippy said:

walm said:

Mr Whippy said:

But printing money devalues the currency, and devalues debt.

Yes.
And this is exactly what the central banks have been doing and you are complaining about their incompetence and stupidity.

So, they are doing what you want but are still idiots???

So if they're doing it, then why are China happy?

You said if we devalued our currency they'd be unhappy.

So is there good devaluations and bad ones?

I assume we can subtly control whose wealth is devalued while retaining wealth of others, thus keeping some debtors or asset holders happy, while others who may not notice less so?

Kind of.
The whole world is in a devaluation spiral - that's the problem, while at the same time, it is a SLOW devaluation (even in theory) so isn't as painful as simply defaulting on the debt.

So I guess yes, there are some better devaluations than others!

By the way, I still maintain that there is no easy and obvious solution and some of the greatest minds of our generation are struggling very hard with what might be the right answer.

But an overnight default is NOT that answer.
And sadly, worldwide race to the bottom in simply devaluing your currency doesn't work either.
I just don't know what does.

Frankly, I would prefer the UK to run a massive stimulus program.
Obama did that in the US and it was literally THE moment of the trough of the cycle.
And they do seem to have stronger macro than us right now.

[Mr Whippy]

sidicks said:

Mr Whippy said:

I assume we can subtly control whose wealth is devalued while retaining wealth of others, thus keeping some debtors or asset holders happy, while others who may not notice less so?

Why do you assume that?

How can you make £1 worth more to some people than others (or am I missing the point you are making)?

OK perhaps I'm not clear enough, or you don't read between lines enough, I'm not sure but I'm sorry if it's confusing


OK so banks raid the accounts of the people who live in Cyprus say, and give them some promises of money back in the future, by which time that money won't be worth what it was today.
That means the banks can then ease the amount by which the terms of the Chinese debts owed are renewed or whatever else.

Ie, subsidise the people who will persecute you, using the wealth of the people who can't persecute you.

[Mr Whippy]

walm said:

Frankly, I would prefer the UK to run a massive stimulus program.

Me too.

£500 billion on roads, comms and energy independence.

Do it all domestically as much as possible too.


The sad thing is I'm weary that we're more likely to see £500 billion used to shore up more banks in the near future, where it'll promptly disappear never to be seen again.

[sidicks]

Mr Whippy said:

Me too.

£500 billion on roads, comms and energy independence.

Do it all domestically as much as possible too.


The sad thing is I'm weary that we're more likely to see £500 billion used to shore up more banks in the near future, where it'll promptly disappear never to be seen again.

Given that any support given to banks has been paid off (with interest) (all but £50bn or so, for which we hold an asset), I'm not sure on what basis you make that comment?

[Mr Whippy]

sidicks said:

Mr Whippy said:

Me too.

£500 billion on roads, comms and energy independence.

Do it all domestically as much as possible too.


The sad thing is I'm weary that we're more likely to see £500 billion used to shore up more banks in the near future, where it'll promptly disappear never to be seen again.

Given that any support given to banks has been paid off (with interest) (all but £50bn or so, for which we hold an asset), I'm not sure on what basis you make that comment?

The basis is the banks are all over exposed and malinvested.

They only paid off their debts because money to lend was offered on the cheap or very cheap. Will that work a second time? Can I take a trillion pound loan at -2% please?
Someone is printing that money. If that is how things are 'paid off' then fine. I didn't think it worked like that because 'China'

Dave

[sidicks]

Mr Whippy said:

The basis is the banks are all over exposed and malinvested.

They only paid off their debts because money to lend was offered on the cheap or very cheap. Will that work a second time? Can I take a trillion pound loan at -2% please?
Someone is printing that money. If that is how things are 'paid off' then fine. I didn't think it worked like that because 'China'
Dave

I don't think you understand at all.

Edited by sidicks on Friday 29th April 21:07

[Gecko1978]

Murph7355 said:

Gecko1978 said:

With C+I+G+X-N yes if all other elements stay the same cutting G would see GDP fall but if you have GDP growth it is not to say that growth is driven by G is could be increase in X or I etc so even if G fell over all GDP might rise.

G is not the deciding factor in the equation. On a MICRO scale G could be benefits you receive, they get cut but you win the lotto same day C i suppose rises G falls to Zero so does your personal GDP also fall to Zero after the lotto win.....

C, I, G and Nx are also not independent of one another. Changes in one are likely to impact the other(s).

They might have a level of corelation but components will also be idiosyncratic. So my point was you can not state for certain a change in one will cause a change in over all measure in that direction.

Example optimal theory tells us the announcement of an action causes paradigms to shift on the announcement such that by the time the announcement is due to be enacted it may no longer be optimal. So I announce government spending to rise at end of year habits change people spend more GDP grows and at end of year I don't need to raise government spending.