Wisdom vs Knowledge

djpbarry

maninasia wrote: »

But English is already the dominant lingua franca, that won't change anytime soon. I don't see many people challenging that, but some of you should visit Asia to see how many people are learning Chinese now. Chinese characters have also always been a part of Korean and Japanese written scripts.

You don't have to convince me - I was in Malaysia a few weeks ago, where Chinese and Western scripts live side-by-side.

Godge

realitykeeper wrote: »

It is not a big "if". In fact it is an inevitability because QE will fail. It is true the third world will not be able to pay a lot for Asian goods so what will happen is manufacturing will move from the second to the third world as the second world becomes more consumerist. If you think about what is happening in the world at the moment it is very obvious what the outcome is going to be.

Over the next few years, millions of people will move into China`s ghost cities and become services sector employees who will adopt a consumerist lifestyle. This will increase demand for Chinese goods in China and push up the cost of those goods in the US. Since the US runs a trade deficit with China, inflation will increase in the US. This will be a big problem for the US because they cannot reduce interest rates further and the only solution they will have will be more quantitative easing - which itself will lead to higher inflation. Meanwhile the inherent systemic risks of QE will cause a loss of confidence in the US dollar. Capitalism in the west could end soon, unfortunately.

How does reducing interest rates reduce inflation?

realitykeeper

Godge wrote: »

How does reducing interest rates reduce inflation?

The most obvious and direct example is people pay less interest on their mortgages when interest rates are low. Businesses also find it easier financing any loans they may have taken out and these lower costs are sometimes passed on to their customers. So lower interest rates tend to result in lower inflation.

Godge

realitykeeper wrote: »

The most obvious and direct example is people pay less interest on their mortgages when interest rates are low. Businesses also find it easier financing any loans they may have taken out and these lower costs are sometimes passed on to their customers. So lower interest rates tend to result in lower inflation.

Conventional economic theory would have it that increasing interest rates cuts inflation.

http://en.wikipedia.org/wiki/Inflation#Controlling_inflation

"High interest rates and slow growth of the money supply are the traditional ways through which central banks fight or prevent inflation, though they have different approaches"

So again, why cut interest rates to cut inflation?

Geuze

RealityKeeper is saying that as China develops, and labour costs naturally rise there, then the deflationary effects of much production moving to China will be less.

Yes, that is the case.

Chinese production of everything from TVs, toys, textiles, etc., drove down the relative price of many goods over the last 10-20 years, helping to keep down goods price inflation in the west.

This can't continue forever, obviously. We can't depend on continued deflation in many goods prices.

However, it's a bit of a jump from that issue having a large definite effect on US monetary policy.

Geuze

realitykeeper wrote: »

Over the next few years, millions of people will move into China`s ghost cities and become services sector employees who will adopt a consumerist lifestyle. This will increase demand for Chinese goods in China

Yes, more middle-class Chinese buying household goods, etc.

and push up the cost of those goods in the US.

Maybe, although more domestic Chinese demand is not the only factor affecting US consumer prices.


Since the US runs a trade deficit with China, inflation will increase in the US.

This is not certain.

This will be a big problem for the US because they cannot reduce interest rates further and the only solution they will have will be more quantitative easing - which itself will lead to higher inflation.

If inflation does generally rise, that would be a good sign of a recovering economy, and would lead to a normal increase in interest rates.


Meanwhile the inherent systemic risks of QE will cause a loss of confidence in the US dollar. Capitalism in the west could end soon, unfortunately.

You seem to suggest that the response to higher inflation is to further cut interest rates.

This is incorrect.

Low Energy Eng

realitykeeper wrote: »

The most obvious and direct example is people pay less interest on their mortgages when interest rates are low. Businesses also find it easier financing any loans they may have taken out and these lower costs are sometimes passed on to their customers. So lower interest rates tend to result in lower inflation.

I was with you until this statement mate.

High interest rates draws currency out of an economy, and vice versa

Inflation is rampant, look at the stock market hitting all time highs

maninasia

There is inflation in asset prices especially in the stock market in the US, but it hasn't trickled down to create massive demand for goods or employees. One of the reasons is becauase the US government has also been cutting back on spending at the same time, which is deflationary. Energy price rises have also tailed off due to fracking.

So inflation can be be increased or reduced by many factors. It is pretty remarkable actually that there hasn't been large scale inflation with such low long term interest rates.

jmayo

realitykeeper wrote: »

For many years now, Irish governments have striven to develop a knowledge based economy. To a large extent they have succeeded but perhaps with hindsight their priorities were misplaced. I suggest they should have focused on making Ireland a more self reflecting, philosophical type of society first and then pursued the knowledge based economy.

Back in the early nineties a lot of multinational companies were attracted to Ireland because of the young educated workforce. These jobs were filled by Irish people. Nowadays, the high tech companies are still coming but they are forced to hire from abroad because throughout the naughties, Irish youth took up courses in non economically sensible courses like social studies and courses geared toward the caring profession.
Caring is all nice and dandy but at the end of the day, if we all went about "caring" for each other, who would pay for everything?

I would take issue with some of that.
No.1 a lot of the multi nationals sites here are covering Europe, Africa, Middle East, etc and they need language graduates.
We don't have them so they have to usually hire native speakers from other countries.
No.2 there is a question mark about the quality of Irish graduates.
Yes the number of graduates may have increased in Ireland since now everyone appears to nearly get some sort of third level course, but dropping entry standards, qualification standards or creating courses that allow less able candidates into third level does not make for better graduates.
No.3 during our building bubble lots of people started diverting towards construction related studies rather than technology courses.
I don't know where on earth you got this sh**e about courses geared towards the caring profession ???

The first real big world leading techie multinationals arrived here in late 80s early 90s.
Microsoft and Intel were two world leaders.
And yes I know that before that we had Digital, Wang, Ericson, Analog Devices, Motorola, Apple, etc.
But was there more to companies siting here than access to reasonably well educated workforce.
How much of it was down to nice lax taxes, massive IDA incentives, and access to single European market ?

realitykeeper wrote: »

Whether it is the cronyism of politics, the auction politics of the right, left and center, the self regulation during the good times and the over regulation in the bad times, the notion that foreign based retailers are net contributors to the Irish economy or all of the above, - the Irish would appear to be a people of low intellect, standards and morals.

And private education will change that ?
You do know that some of the ones that lead Ireland to the brink of disaster were privately educated ??

realitykeeper wrote: »

In order to acquire wisdom, the Irish must experience poverty and hardship on an extreme scale. This will prompt self reflection and the type of honesty needed to get beyond our foolish self serving, rights and entitlements type of mentality. The good news is that the undercurrents of economic reality will eventually take hold and create the conditions necessary to reshape the nation.

I actually do agree with that.
We need a total meltdown in this country so that we don't have people getting to walk away from their fookups in future.
We need to learn from our mistakes.
Having ff with a respectable poll rating appear to show we haven't.

We shouldn't have cases where property developers, or the wifes of property developers, are allowed continue their former priviledged lives at the expense of the taxpayers even though technically they are bankrupts.
In fact I would say, in reference to how we treat people who screw the system and dump their crud on the rest of us, we need to be more like Vietnam.

realitykeeper

Godge wrote: »

Conventional economic theory would have it that increasing interest rates cuts inflation.

http://en.wikipedia.org/wiki/Inflation#Controlling_inflation

"High interest rates and slow growth of the money supply are the traditional ways through which central banks fight or prevent inflation, though they have different approaches"

So again, why cut interest rates to cut inflation?

These are unconventional times. Growth is being "stimulated" with QE and borrowed money. Its madness I know but there you go.

realitykeeper

jmayo wrote: »

And private education will change that ?
You do know that some of the ones that lead Ireland to the brink of disaster were privately educated ??

Indeed, but they did not necessarily go to kindergarten where they might have learned basic morality. Besides, many of those who voted for them were publicly educated.

Godge

realitykeeper wrote: »

These are unconventional times. Growth is being "stimulated" with QE and borrowed money. Its madness I know but there you go.

That doesn't explain how cutting interest rates cuts inflation.

You gave the example of reducing the amount that people pay on debt but the method of calculating inflation used by the ECB to determine interest rate policy excludes debt repayments. So I am still confused as to how cutting interest rates reduces inflation.

It is not possible to address your other arguments until you explain this process clearly.

maninasia

Godge wrote: »

That doesn't explain how cutting interest rates cuts inflation.

You gave the example of reducing the amount that people pay on debt but the method of calculating inflation used by the ECB to determine interest rate policy excludes debt repayments. So I am still confused as to how cutting interest rates reduces inflation.

It is not possible to address your other arguments until you explain this process clearly.

Cutting interests rates is the number one weapon to counter deflation along with money printing. I don't see how it could ever have a deflationary effect. The idea is to encourage borrowing and spending and money flows.

realitykeeper

Godge wrote: »

... the method of calculating inflation used by the ECB to determine interest rate policy excludes debt repayments. So I am still confused as to how cutting interest rates reduces inflation.

How very convenient for them. Inflation is what it is regardless of whether or not the ECB exclude debt repayments from their calculations.

Godge

realitykeeper wrote: »

How very convenient for them. Inflation is what it is regardless of whether or not the ECB exclude debt repayments from their calculations.

I am beginning to think that you don't know the answer to the question as to how cutting interest rates leads to lower inflation.

All of the conventional economic wisdom suggests the opposite. I cannot find a reliable explanation anywhere and I am interested in how you reached that conclusion.

ardmacha

Part of the confusion about inflation derives from the inclusion of things like mortgage interest in some consumer price indices. Measures like GDP deflator are perhaps a better measure.

Geuze

Interest rates are a tool used by the CB.

Many CB have an inflation target, i.e. they wan to keep inflation low and stable.

They would tend to be happy with 2% inflation.

If the economy is growing fast, and inflation is rising, then the CB will use their tools of monetary policy, incl. increaseing interest rates to cool down the economy.

Think of inflation as the symptom and interest rates as the treatment.

jmayo

realitykeeper wrote: »

Indeed, but they did not necessarily go to kindergarten where they might have learned basic morality. Besides, many of those who voted for them were publicly educated.

I would suggest children first and foremost learn morality from their parents and not in some school.

I think the big thing you can blame our education system for is not teaching enough basic economics as some people made absolutely horrendous financial decisions that a bit of basic knowledge and cop on might have eliminated.
And that curriculum is basically the same for private and public schools as it is set by the Dept of Education.

Oh and it wasn't just the poorly educated or less professionally qualified who made absolutely mad financial decisions.

I believe Greed doesn't respect class nor for that matter educational or professional achievements.
And a lot of people in all strands of Irish society got damm greedy and wanted their slice of action.

I do agree with your point about reaching the bottom to learn from our mistakes.

Maybe we the Irish, a bit like an alcoholic (which btw is another one of our long running societal and racial problems), need to reach rock bottom before we wise up and face our problems.

djpbarry

realitykeeper wrote: »

These are unconventional times. Growth is being "stimulated" with QE and borrowed money.

This is unconventional?

Godge wrote: »

All of the conventional economic wisdom suggests the opposite.

Ah, but these are unconventional times. Apparently.

maninasia

jmayo wrote: »

I would suggest children first and foremost learn morality from their parents and not in some school.

I think the big thing you can blame our education system for is not teaching enough basic economics as some people made absolutely horrendous financial decisions that a bit of basic knowledge and cop on might have eliminated.
And that curriculum is basically the same for private and public schools as it is set by the Dept of Education.

Oh and it wasn't just the poorly educated or less professionally qualified who made absolutely mad financial decisions.

I believe Greed doesn't respect class nor for that matter educational or professional achievements.
And a lot of people in all strands of Irish society got damm greedy and wanted their slice of action.

I do agree with your point about reaching the bottom to learn from our mistakes.

Maybe we the Irish, a bit like an alcoholic (which btw is another one of our long running societal and racial problems), need to reach rock bottom before we wise up and face our problems.

I realise I learned everything about economics and finance AFTER I had two third level qualifications and starting in my late 20s. All of it from reading newspapers, internet discussions, and the recent financial crises.

Before that I knew jack ****. Which is apalling really, graduating from school without even the basics of this (just did the standard accounting classes, commerce classes for the inter cert).

People come out of school and college without almost no knowledge of finance. The same goes for different political and social systems, it's not something that we have access to in schools.

So not having any tools to analyse the situation leaves a lot of people relying on hearsay and their friends and families advice.


NOW, all this being said, experts can also fall into the trip of thinking they know too much, read the Black Swan for a good summary on that. And many of the 'experts' are co-opted by organisations such as in government of hedge funds or banks and they push the 'party' line.

Again you just have to go back to your critical skills toolbox, and maintain health skepticism of 'sure things'.

BTW, this is not only an Irish phenomenon, but very much a human phenomenon.

andrew

The most obvious and direct example is people pay less interest on their mortgages when interest rates are low. Businesses also find it easier financing any loans they may have taken out and these lower costs are sometimes passed on to their customers. So lower interest rates tend to result in lower inflation.

When interest rates are low and business find it easier to finance loans and people pay less interest on their mortgages, what happens? They borrow more. So the quantity of loans demanded increases. Meanwhile, banks supply more money for loans, since the alternative is to have it sit at the Central Bank at a low(er) interest rate. The interest rate on loans that already exist doesn't directly change, as many business and home loans have a fixed interest rate.

Hence, normally, a decrease in the Central Bank interest rate leads to more loans, which leads to an increase in the amount of money in the economy, which leads to an increase in inflation (in the medium to long term.)

Of course, this assumes the demand for loans is there. If demand isn't there, then you can cut interest rates all you like and inflation won't budge. This is what might be happening at the moment.

realitykeeper

Godge wrote: »

I am beginning to think that you don't know the answer to the question as to how cutting interest rates leads to lower inflation.

All of the conventional economic wisdom suggests the opposite. I cannot find a reliable explanation anywhere and I am interested in how you reached that conclusion.

I am not in the habit of repeating myself but for you I will make an exception. Every time the ECB cut interest rates, people pay less on their mortgages. Hence it truly does lower inflation - contrary to what your text book may have you believe. This is a fact which no measure of "wisdom," conventional or otherwise can circumvent.

Don`t you see that discounting property from the official figure is nothing other than a political stroke to massage the figures during the more conventional times when inflation is invariably on the rise? Asserting that "inflation" does not take account of mortgages whilst technically true is nothing other than a semantic, an irrelevance.

In a world of global trade where millions in the east work long hours for a pittance while we in the west borrow billions to subsidize a quality of life we have become accustomed to - something has to give. Semantics, creative accounting and politicking with sums and definitions can only mask the problems for so long but not indefinitely.

realitykeeper

djpbarry wrote: »

This is unconventional?
Ah, but these are unconventional times. Apparently.

Yes QE is highly unconventional. I thought everyone knew that.

Low Energy Eng

realitykeeper wrote: »

I am not in the habit of repeating myself but for you I will make an exception. Every time the ECB cut interest rates, people pay less on their mortgages. Hence it truly does lower inflation - contrary to what your text book may have you believe. This is a fact which no measure of "wisdom," conventional or otherwise can circumvent.

People pay less on their mortgage so their surplus cash now stays in the economy, which can then be used on food or luxury goods or stocks? Hence inflationary? Where's the deflation coming from?

Going the opposite way, rising interest rates mean people have less spare cash to buy the above items, so, please elaborate for me?

realitykeeper

Low Energy Eng wrote: »

People pay less on their mortgage so their surplus cash now stays in the economy, which can then be used on food or luxury goods or stocks? Hence inflationary? Where's the deflation coming from?

Going the opposite way, rising interest rates mean people have less spare cash to buy the above items, so, please elaborate for me?

Obviously when ECB rates are cut that direct intervention is deflationary in and of itself. You state the theory correctly - that people will have more money to spend. In reality though people are not spending, probably because they don`t believe you can stimulate your way out of a recession.

As you probably know the peripheral States of the Eurozone especially Italy, Spain and Greece are trying to bully the German`s into spending more money in order to boost inflation and avoid further deflation. The German`s being prudent are understandably not very keen on that idea. Consequently, some European politicians from the PIGS are lobbying to devalue the Euro by demanding that more Euros be printed.

It would be my view that the German`s are correct and the PIGS are not.

Sheldons Brain

It would be my view that the German`s are correct and the PIGS are not.

The Germans are being irresponsible. A refusal to virtually revalue forces virtual devaluation on everyone else..

Low Energy Eng

realitykeeper wrote: »

Obviously when ECB rates are cut that direct intervention is deflationary in and of itself. You state the theory correctly - that people will have more money to spend. In reality though people are not spending, probably because they don`t believe you can stimulate your way out of a recession.

No, you've got it backwards, the lower interest rates are a reaction to the markets crashing.
The issue is structural, as long as these issues aren't addressed there wont be much growth. This is why people aren't spending, the people are aware of the above.

Would I buy a house now knowing the government has a massive deficit to fix? Not a hope, even with a SCD bubble.

djpbarry

realitykeeper wrote: »

Every time the ECB cut interest rates, people pay less on their mortgages. Hence it truly does lower inflation - contrary to what your text book may have you believe.

You're happy enough to use text-book definitions when it suits your argument:

realitykeeper wrote: »

Yes QE is highly unconventional. I thought everyone knew that.

realitykeeper

Low Energy Eng wrote: »

No, you've got it backwards, the lower interest rates are a reaction to the markets crashing.
The issue is structural, as long as these issues aren't addressed there wont be much growth. This is why people aren't spending, the people are aware of the above.

Would I buy a house now knowing the government has a massive deficit to fix? Not a hope, even with a SCD bubble.

If the governments did not interfere and allowed the credit crunch of 2008 happen, this would have resulted in a depression like that of 1929. That would have been the correct course because the depression will/must happen anyway. It is an inevitable part of the natural order and it cannot be avoided.

The fundamental problem is human behavior. Europe and the US have been rewarding the borrowers and penalizing the savers while any attempt of restoring competitiveness is shackled by the left. Consequently, nature will prevail and the depression will happen only worse because they are making the problem bigger by multiples through QE and the like.

Low Energy Eng

realitykeeper wrote: »

If the governments did not interfere and allowed the credit crunch of 2008 happen, this would have resulted in a depression like that of 1929. That would have been the correct course because the depression will/must happen anyway. It is an inevitable part of the natural order and it cannot be avoided.

The fundamental problem is human behavior. Europe and the US have been rewarding the borrowers and penalizing the savers while any attempt of restoring competitiveness is shackled by the left. Consequently, nature will prevail and the depression will happen only worse because they are making the problem bigger by multiples through QE and the like.

Completely agree, next recession/depression will be catastrophic