« What use are nation states? | Main | Hiding bad hiring decisions »

June 27, 2008


Mark Harrison

> After all, spending boomed in May.

Did it?

I've still never got my head around why the ONS measures sales volumes (in like for like goods) rather than sales value.

Year 1: Buy 1 tin of baked beans, and one joint of beef.

Year 2: Buy 3 tins of baked beans...

... that's (overall) about a 50% growth in retail as per the ONS, but I suspect about a 70% fall the way any other G8 country would report it.

john b

It did according to the British Retail Council, who might be expected to know about that sort of thing. And ONS measures volumes *and* values AIUI...


The ONS measure the value of sales first, and then subtract price changes to derive volumes. So if we traded down from beef to beans with unchanged prices, spending would fall, and this would show up as a fall in volumes, as well as value.


My grasp of economics seems to get shakier by the day and this all seems correct, but...

I thought the banks were suffering from capital problems which a reduction in deposits would exacerbate? If this is nonsense could someone explain why,

yours confused


Good article on wisdom of crowds (why it fails)...
One only has to look at the Efficients Markets Hypothesis (you cant beat the market as current prices reflect all information) to realise how absurd the concept is in extreme. Consider a contemporary example.. Barratt's shares are down 93% year to date... was the crowd wise? Was this predictable?
As for low savings rate, this is much more than a first quarter issue... savings have been shrinking for many reasons and clearly savings rates anywhere in the low single digits is woefully low and unlikely to deliver what most people expect in the future.

Mark Wadsworth

It's all smoke and mirrors.

If you net off all mortgage debts and cash deposits, you get a big fat nil. The flipside of a credit bubble is a 'deposit bubble' (usually in tandem with an asset price bubble).

The overall savings rate is always close to nil, as some people spend more than they earn and vice versa. You start off with nothing and end up with nothing.

The only sensible measure is the overall earnings level in the economy.

'Wealth' in itself is only the NPV of earnings derived from assets with scarcity/monopoly value + speculative value which is of course of no real value at all as it is not represented by future income that the underlying 'asset' can generate.

What Councilhousetory alludes to is the fact that banks have an asset side (money they have lent to home-buyers) and a liability side (cash on deposit and shareholders' funds). The assets have fallen in value (defaults, falling security values) and so all the banks are doing with these rights issues is converting cash deposits into new share capital. This is how they are going to deflate the 'deposit bubble'.


Here endeth today's lesson.

james higham

Spending boomed but this was on credit and had zero to do with savings, Chris.


P38PYr xidshpab bljthvkr rczuplmq


pavntmij gghmbvln downinaq

The comments to this entry are closed.

blogs I like

Blog powered by Typepad