Work and interests

• Network Engineer
• Internet Server Administrator
• Software Programmer
• Ethical Entrepreneur
• Electronics Designer
• Natural and cognitive philosophy enthusiast

Current interests

Inflation or Deflation?

Even though demand is shrinking, (foreign) factories still exist to pump out about as much product. Mines still extract the same amount of ore etc. We have a glut of several products and prices will inevitably fall, whilst investment in new industry around the world will be put on hold and workers are put on three day weeks etc.

So the outlook is near term deflation followed by medium - long term inflation as a shortage of industry bites in a few years. ... That is the story as far as the Government will dare go. Things are likely a little more complicated than that, and a complication which the politicians will continue to ignore. They might as well, as it is too late to do anything about it...

Political group-think has kept clear thought of economic realities off the political stage for the last 10 or so years. So what has this group-think kept off the political stage? First of all, think about everyone you know, think what they do day by day to earn money. Do you know anyone who makes goods for export? Now think again of everyone you know. Do you know anyone who doesn't spend a lot of money on goods made abroad? Obvious isn't it? Is that situation sustainable?

So long as we continue to attract investment, our economy will continue to be buoyed. Savings, shares, government bonds etc bought by money from abroad. Once that conveyor bringing foreign investment money to our shores stops, we can't buy anything from abroad. Unlike the Eurozone, we have little or nothing to exchange. France & Germany make cars, wines, domestic appliances, tools, perfumes etc. Italy makes cars, domestic appliances etc. Enough to fulfil their domestic markets and to export. In Britain, money has been so cheap from the investment conveyor, it has hardly been worthwhile to make products in order to make money - our currency has been so strong, it has not been economical to support manufacturing industry where we need to compete with other countries.

Today, we have a reversing nett capital flow. The pound has been devaluing quickly over recent weeks. How far will it go? Will we even see this deflation the government are talking about with the backdrop of a falling currency and an investment withdrawal? That is why Alistair Darling is looking so glum. If you are in the United Kingdom, and you have savings in pounds, what is likely to happen? If the currency devaluation continues, you will find that your pound in a few years buy much less than it does today. Although you will have more pounds sterling than you had before, your greater number of pounds sterling will buy fewer products. The value will have evaporated. People living abroad, with savings in pounds can see this very clearly as the pound devalues - they see the investment from the perspective of their local currency. That puts it into a clear perspective. By contrast, you may not see your investment in the pound devaluing in your savings account as the pound devalues on the international currency markets, even though that is exactly what happens. You'll instead see your interest accruing and feel you are richer, when in fact your investment in pounds has devalued and you are in fact poorer. There is no 100% safe investment. Even holding cash is an investment with significant risks attached.

This, in part, is fuelling a capital emigration from Britain, and may accelerate. My recommendation: Don't save in pounds. Don't save in Dollars. Convert your wealth held in cash to wealth held in items of enduring value. The gold market is and has been the play-thing of central banks for years who don't want investors to feel too comfortable with a gold holding as investment. After all, if gold is allowed free reign to appreciate, it would be seen as a safer investment vehicle than fiat paper money such as Dollars, Pounds and Euros. That will attract investment away from paper money and result in people turning to Gold as a standard currency and investment.

Age Wave

Baby boomer is a term used in the study of Demographics for people in the above age range, who were born in a period of a rapid increase in the rate of births. There were more people born in the baby boomer years than in the years before and after. This has an important impact on the economy.

As Baby boomers reach retirement age, we will have a very large increase in people retiring, and a similar decrease in people in work. On average, pension funds will be paying more in pensions than they receive as contributions. There will be fewer people paying in and more people drawing a pension. You might think “Ok, the stock market is going up. My pension fund will be ale to pay my pension. Whew!” (If only- the stock market is going down fast, and many pension funds may not be able to cover payment). Or you might think “Could the recent stock market collapse be a standard pattern now that the very large pension fund contributors will need to take money from the stock market (to pay pensions) instead of pumping it in (from surplus pension contributions)?”.

The Age Wave effect was first proposed by Economist Harry Dent. If his theory is true, then the stock market and houses could become a long-term poor investment, and many people will be somewhat disappointed by their pension returns as there is inadequate capital pumped into the stock market to fund pension fund asset liquidation. Some baby boomers have already opted for early retirement. Mandatory retirement for the oldest baby boomers starts in 2011. In 2008, the oldest baby boomers are 62 years old.

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Email nick at nickhill dot co dot uk.