Grow the economy through deflation

who_ru

how can an economy grow through deflationary measures as we had last budget and will be even more pronounced in the next budget.

are we in a spiral of consumers not spending/can't afford to spend & a govt that must remove cash from the economy?

deficit must be within 3% of GDP by 2014?

Mr Benevolent

who_ru wrote: »

how can an economy grow through deflationary measures as we had last budget and will be even more pronounced in the next budget.

are we in a spiral of consumers not spending/can't afford to spend & a govt that must remove cash from the economy?

deficit must be within 3% of GDP by 2014?

Our deficit is at 98.6%. How in the name of the devil are we going to reduce that to 3% in just over 3 years?

George Orwell 1982

Confab wrote: »

Our deficit is at 98.6%. How in the name of the devil are we going to reduce that to 3% in just over 3 years?

Our deficit is 11% of GDP excluding the bank bailout. It would be perfectly manageable to reduce that to 3% of GDP by 2014 if it wasn't for the bank bailout.

Mr Benevolent

George Orwell 1982 wrote: »

Our deficit is 11% of GDP excluding the bank bailout. It would be perfectly manageable to reduce that to 3% of GDP by 2014 if it wasn't for the bank bailout.

Thank the government for lumping sovereign and bank debt together. Instead of the banks going down we all go down.

Titanic time tbh.

who_ru

it sickens me to think that any economic recovery will be pretty much jobless, we can't even hold what we have, more jobs will inevitably go.

but i'm not optimistic that there will be any growth whatsoever in the short to medium term, we are a busted flush.

this is the posinous legacy of the ahern/cowen years. it was a fool's paradise we lived in.

hinault

Deflationary situation is very dangerous.

With the level of tax increases and expenditure cuts being considered, times will get tougher.

And remember bank interest rates for most people are still historically at their lowest point.
These interest rates are bound to rise as the rest of the Eurozone starts to function while dear old Ireland will be still trying to pay for Ahern/Cowen/Lenihans mistakes.

Austerity

Yes deflation is a very bad thing. In daily life the definition of deflation is a general fall in prices. Imagine I can use my savings to purchase more things than I could before.

With falling prices I can afford to buy more stuff. The HORROR, THE HORROR!

We need inflation immediatley to destroy my purchasing power because making normal people poorer is good for the economy.

Allowing prices to fall so that people can buy more things is very bad for the economy you know!

Justin Collery

Deflation is good. It makes our exports cheaper, makes us more competitive, and ultimately brings the economy back to place where it can grow again, minus all the rubbish built up over the boom. Constructive destruction.

Slow, drawn out deflation is bad. People expect to be poorer next year than they are today, and so have no confidence to spend, set up businesses etc. leading to a dangerous spiral.

Which option is the country headed for again?

xavidub

Austerity wrote: »

Yes deflation is a very bad thing. In daily life the definition of deflation is a general fall in prices. Imagine I can use my savings to purchase more things than I could before.

With falling prices I can afford to buy more stuff. The HORROR, THE HORROR!

We need inflation immediatley to destroy my purchasing power because making normal people poorer is good for the economy.

Allowing prices to fall so that people can buy more things is very bad for the economy you know!

That point of view would have some merit were it not for the fact that deflation destroys confidence so people still don't spend thereby perpetuating the slump. And deflation also makes people's mortgages and even bigger proportion of their takehome pay.

Just take a look at Japan which has had 15 years of deflation/stagnation which has hugely damaged the post-war economic progress of the country.

Austerity

xavidub wrote: »

That point of view would have some merit were it not for the fact that deflation destroys confidence so people still don't spend thereby perpetuating the slump. And deflation also makes people's mortgages and even bigger proportion of their takehome pay.

Just take a look at Japan which has had 15 years of deflation/stagnation which has hugely damaged the post-war economic progress of the country.

You are now equating GDP numbers with a good economy?

Austerity

xavidub wrote: »

That point of view would have some merit were it not for the fact that deflation destroys confidence so people still don't spend thereby perpetuating the slump. And deflation also makes people's mortgages and even bigger proportion of their takehome pay.

Just take a look at Japan which has had 15 years of deflation/stagnation which has hugely damaged the post-war economic progress of the country.

Because the prices of computers have been falling for the last two decades people stopped buying computers... OH WAIT.

johnnyskeleton

who_ru wrote: »

how can an economy grow through deflationary measures as we had last budget and will be even more pronounced in the next budget.

Deflation and negative growth are two different things. If prices decrease by 1% and at the same time there is an increase in economic activity of 2% we will have a nominal increase in GDP of 1% and a real increase in GDP of 2%.

who_ru wrote: »

are we in a spiral of consumers not spending/can't afford to spend & a govt that must remove cash from the economy?

No, we are in a phase of readjustment of spending. As I said in another thread, I find it very difficult to see what exactly people aren't spending on that they would otherwise be spending on.

If the Irish people become more price conscious, prices will come down and their money will go further. So shopping in Lidl and Aldi is a benefit to us all.

who_ru wrote: »

deficit must be within 3% of GDP by 2014?

George Orwell 1982 wrote: »

Our deficit is 11% of GDP excluding the bank bailout. It would be perfectly manageable to reduce that to 3% of GDP by 2014 if it wasn't for the bank bailout.

Our deficit was over 12% last year, and set to be in the same or greater region this year. The cuts of 3bn for next year will see us running to stand still at best.

In any event, the government's plan to get us back to 3% deficit is to have 6% sustained growth from 2011-2014, thus increasing our tax revenues and also while the deficit will decrease slightly in absolute figures, it will decrease more relative to our GDP. Each 6% increase in GDP will, without any actual changes in govt finances, reduce the deficit:GDP ratio by nearly a full percentage point.

Austerity wrote: »

Yes deflation is a very bad thing. In daily life the definition of deflation is a general fall in prices. Imagine I can use my savings to purchase more things than I could before.

With falling prices I can afford to buy more stuff. The HORROR, THE HORROR!

We need inflation immediatley to destroy my purchasing power because making normal people poorer is good for the economy.

Allowing prices to fall so that people can buy more things is very bad for the economy you know!

Exactly. Or what's worse is the appaling vista that deflation makes people more price conscious leading to further reduced prices and it also makes people eschew overpriced tat in favour of goods and services that are actually useful.

xavidub wrote: »

That point of view would have some merit were it not for the fact that deflation destroys confidence so people still don't spend thereby perpetuating the slump. And deflation also makes people's mortgages and even bigger proportion of their takehome pay.

With interest rates lowered because of deflation, mortgages are cheaper than ever. But in any event I disagree with the idea that deflation destroys confidence. Outside of the property market, I see no evidence that people lack the confidence to buy ordinary, good value goods and services. Our deflation is coming from such a frothy peak, that what it means in reality is that people are not buying overpriced luxuries unless and until the prices of them come down. We have generally become more price conscious and that can only be a good thing.

xavidub wrote: »

Just take a look at Japan which has had 15 years of deflation/stagnation which has hugely damaged the post-war economic progress of the country.

Yet Japan is one of the richest countries in the world and one of the biggest exporters of goods and services. They are now a highly efficient economy. Deflation is only bad if your sole measure of economic success is GDP growth. I don't subscribe to that theory - what is so great about growth that it is more important than things like efficiency, productivity, fair distribution of wealth, low corruption etc?

Lockstep

Confab wrote: »

Our deficit is at 98.6%. How in the name of the devil are we going to reduce that to 3% in just over 3 years?

EU guidelines:
Our annual deficit must be within 3%.
Our debt ratio must be at 60%.

You're confusing the two.

ei.sdraob

kickoutthejams wrote: »

EU guidelines:
Our annual deficit must be within 3%.
Our debt ratio must be at 60%.

You're confusing the two.

our annual deficit is 33% this year (so far!)

our debt ratio is approaching 100%



the EU rules have long gone out the window