Is it time for wage increases?

Sarenco said:
I don't think that anybody would argue that rising real incomes are not a good thing.
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This poster would.

Purple said:
I just don't know where to start but I don't know how anyone can think wage increases can be a good thing for the economy in a country which is a tiny percentage of a single market (and single currency), which exports so much of what it produces and imports so much of what it consumes. If we were a closed economy like North Korea or communist Russia it might make sense but for us it's crazy.
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TheBigShort said:
So instead of the ECB pumping stock markets and property bubbles etc. How about government borrowing at 0% and pumping massive infrastructure in new technologies, medicine, transport, construction, agriculture, etc..etc..
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Ok, let's try some facts:-

Impact of QE on stock prices

Eurozone - on-going QE - EuroStoxx50 TR YTD: -8 04%.
US - FED tightening - S&P500 TR YTD: +6.98%.

Not much sign that the ECB is pumping stock prices based on those figures.

Impact of QE on government borrowing costs

10-year German bond yields (30 June 2016): -0.13%
10-year French bond yield (30 June 2016): 0.18%
10-year Irish bond yields (30 June 2016): 0.52%

So, Eurozone governments can already borrow funds at close to (or in some cases below) 0% out to 10-years.

You have simultaneously argued that QE has been a failure in combating deflation while at the same time it will ultimately result in hyper-inflation, with dire consequence for retirement savings, etc. How do you square these two conflicting positions?
 
TheBigShort said:
This poster would.
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I don't think Purple was arguing that rising real incomes was a bad thing in that post.

But there's not much point simply hiking wages if it results in jobs moving elsewhere as an enterprise becomes uncompetitive. That would obviously result in a reduction in income.
 
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Sarenco said:
Impact of QE on stock prices

Eurozone - on-going QE - EuroStoxx50 TR YTD: -8 04%.
US - FED tightening - S&P500 TR YTD: +6.98%.

Not much sign that the ECB is pumping stock prices based on those figures.
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Fair point. But my point is to highlight the policy of an asset purchasing program. From my armchair its not possible nor feasible to determine exactly which or what assets are being purchased.
However in the main, the ECB has been buying government bonds. It has also being buying corporate debt and it is also lending free/cheap money to banks. Similar to what the US did.
This program facilitates large banks, corporations, governments etc to access cheap funding.
It is what they do with this funding that is the issue.
My view is that it is responsible for increases in property prices in the main. I have stated why I dont think prices should be increasing at the rate that they are - this is a property bubble.
This cheap funding is responsible for negative yields on bonds, costing savers or eating bank profits.
This cheap funding is broadly responsible for the record increases in the stock markets (I should clarify, in the US. You are correct re Euro stocks).
So why are US stocks being bought and not Euro stocks? Well, on going woes at Deutsche Bank, italian banks etc may have something to do with that.
The point is ultimately, all this cheap money, or too little of it, at too slow a rate, is finding its way into the productive economy, manufacturing, distribution, research and development, advancing new technologies etc.

Sarenco said:
You have simultaneously argued that QE has been a failure in combating deflation while at the same time it will ultimately result in hyper-inflation, with dire consequence for retirement savings, etc. How do you square these two conflicting positions?
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No I have argued QE will be a failure in combating deflation as it will lead to excess inflation. I know I used the phrase rocketing-inflation but I would be reluctant to say hyper-inflation as that conjures up images of all sorts. But certainly double-digit inflation is not out of the question in medium term (1-5yrs) and from the point we are at now that will indicates further instability.
 
TheBigShort said:
No I have argued QE will be a failure in combating deflation as it will lead to excess inflation.
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Sorry but that makes absolutely no sense. If we have above target inflation in the coming years as a result of QE then obviously the policy will have been successful in combatting deflation.

Are you advocating a further loosening of monetary policy (leading to even cheaper borrowing rates for Government entities and corporates) or a tightening of policy? You seem to be saying that you want to see both at the same time, which is obviously impossible.
 
Sarenco said:
Sorry but that makes absolutely no sense. If we have above target inflation in the coming years as a result of QE then obviously the policy will have been successful in combatting deflation.
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Eh, yeh for sure. But inherent in this discussion is the concept that monetary policy, or any policy for that matter, is derived around the principle of providing a stable economic environment.
Im sorry if you didn't pick up on that. So, in efforts to combat a deflationary environment, the ECB has adopted a 'whatever it takes' approach through QE. My view is that policy is/will ultimately debase the currency because it primarily involves chugging billions into non-productive areas of the economy to try create a wealth effect.
This will create more instability.

Sarenco said:
Are you advocating a further loosening of monetary policy (leading to even cheaper borrowing rates for Government entities and corporates) or a tightening of policy? You seem to be saying that you want to see both at the same time, which is obviously impossible.
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I would like to see new debt being used for capital expenditure programs in infrastructure not asset buying. This will in turn create employment, increase real incomes, and generate the inflationary effect that the ECB is seeking.
Perhaps at this point, if my views are confusing you, you can explain why QE is a good or bad thing, and if bad, what alternative would you propose.
 
http://on.mktw.net/2cVsMjd

Article from marketwatch.com suggesting increasing wages in the US economy to be a good thing.

"If any single indicator can tell where the economy is headed it might be wages...stagnant wage growth has been one the hallmarks of the weakest economic recovery since WWII"
 
TheBigShort said:
This poster would.
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I'm all in favour of real incomes increasing. That can be done by people becoming more productive and therefore being paid more, through reductions in payroll taxes, through reductions in utility charges (remember the average wage in the ESB is more than twice the average industrial wage and over half of the ESB's input costs are labour). Wage moderation in the State sector means lower taxes and increased real income for the productive wealth generating sector of the economy.
 
[broken link removed]

David McWilliams writing recently. His conclusion is that we are not experiencing a property bubble. Still, interesting that he warns against it at this time.
Personally, I think we are in a bubble. Not 2007, but a sharp correction in Dublin will occur over next 12 months unless some momentum gathers for wage increases across all sectors.
 
TheBigShort said:
[broken link removed]

David McWilliams writing recently. His conclusion is that we are not experiencing a property bubble. Still, interesting that he warns against it at this time.
Personally, I think we are in a bubble. Not 2007, but a sharp correction in Dublin will occur over next 12 months unless some momentum gathers for wage increases across all sectors.
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Wage increases which are not tied to productivity increases are one of the worst things that can happen in any economy as it will ultimately result in a flight of capital. This is especially ture in a small open economy.
A reduction in property prices would be a good thing. The best way to get one is to increase supply. The best way to increase supply is for the construction industry to become efficient and productive through adopting methods of construction which have been common in most of the rest of the developed world for decades. How on earth could anyone look for pay increases in such an unproductive sector?
We have the the second highest spend on health in the OECD and the poorest outcomes. Do you want to reward the doctors and nurses and other people who work in the healthcare industry for collectively being so bad at their jobs?
Farmers already get about 75% of their income from welfare payments. Should we ask the Germans to give them more welfare payments?
Who exactly has earned these pay increases you are talking about?
 
TheBigShort said:
Personally, I think we are in a bubble. Not 2007, but a sharp correction in Dublin will occur over next 12 months unless some momentum gathers for wage increases across all sectors.
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Surely wage increases would push up house prices further?
 
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TheBigShort said:
[broken link removed]

David McWilliams writing recently. His conclusion is that we are not experiencing a property bubble. Still, interesting that he warns against it at this time.
Personally, I think we are in a bubble. Not 2007, but a sharp correction in Dublin will occur over next 12 months unless some momentum gathers for wage increases across all sectors.
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I will gladly take a bet with you on no correction (i.e. downwards), sharp or not, in Dublin house prices in the next 12 months. Certainly not caused by wages rates here! No chance, pure pie in the sky.
 
Delboy said:
I will gladly take a bet with you on no correction (i.e. downwards), sharp or not, in Dublin house prices in the next 12 months. Certainly not caused by wages rates here! No chance, pure pie in the sky.
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Yea, but when it does happen (could be a decade from now) McWilliams will be shown to have called it first.
 
Delboy said:
I will gladly take a bet with you on no correction (i.e. downwards), sharp or not, in Dublin house prices in the next 12 months. Certainly not caused by wages rates here! No chance, pure pie in the sky.
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Ok, you are on. Come 06.10.2017, national house prices will have fallen from the previous 12 months.
If they fall 6% on average or more (thats my definition of a sharp correction) what will you owe me?
 
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