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Deflation or inflation – what will happen in the UK?...

I’ve written in a previous article about the various concepts involved in economic inflation and how it can affect the value of your money, your wages and the things you buy. The opposite of inflation is deflation, which I’ll explain in this article before going on to discuss the probable and possible situations in the UK for the next few years. The ‘deflation versus inflation’ argument is more important in the UK today than it has been at any time in the last 30 years, so it’s worth thinking about in some depth. So, deflation. If inflation is a general increase in prices and/or wages driven by the greater availability of money (whether ‘real’ money or debt), then...

posted on: Dec 6, 2008 | author: Lance

How the UK economy works, part 1: The Bank of England...

Although most people have a rough idea of how the UK economy works (or, if you’re being cynical, doesn’t work), the functions of the various components and their relationships to each other can be quite elusive. We’ve covered some aspects of money on this site in the past (here, for example), but there’s more to the economy than money itself. In fact, arguably more important than money is the way in which that money is moved around the economic system of the UK. Over the next few articles I’m going to look at each of the main institutions involved in the movement and management of money in the UK. I’ll be looking at the Treasury, the FSA, the...

posted on: May 29, 2008 | author: Lance

The physics of economics

Put two economists in a room together and you’ll get three different opinions on the state and future direction of the economy. Surely economics, the dismal ’science’, could learn something from one of the true sciences, such as physics? Certainly there have been efforts to do so, particularly among large investment banks and hedge funds, who have used quantitative analysis tools running on powerful computer systems to try to tease out the signals from the noise of price movements, taking into account thousands of different influences from interest rates to tax variations, asset prices to currency exchange rates and much more, all on the basis that there is some underlying predictability, some ‘law’ that governs price movement. Which...

posted on: Mar 11, 2008 | author: Alex

What is money?

It sounds like a daft question, doesn’t it? Money is the notes and coins in your pocket, the numbers on your bank statement, the limit on your credit card. You use it to buy things. Simple as that. However, as with many seemingly daft questions, this one is worth scrutinising more carefully. For instance, why are those particular notes and coins ‘worth’ something? Why can’t we make our own? Why do we need money in the first place? How do the electronic numbers in bank accounts become the ‘real’ notes and coins in our hands? All of these questions and more spring up when we ask what money is. Not all the questions can be answered in one...

posted on: Feb 24, 2008 | author: Alex

Investor emotions part 3: Remorse

As I’ve discussed in previous articles, the two most significant negative emotions for investors are greed and fear. Either one on its own can lead to people losing money, but more often than not they are combined in an elegant double-whammy that hits some amateur investors so hard that they leave the market with their tails between their legs and never come back. Greed leads them to invest more than they can afford to lose, while fear encourages them to change their strategy on the hoof, without rationally considering the circumstances and the consequences of their decisions, thereby increasing the chances that they will lose. The result is remorse, an emotion that can be either negative or positive:...

posted on: Nov 5, 2007 | author: Alex

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