Economics help blog – Page 151

Regional UK house prices

27 February 202014 December 2015 by Tejvan Pettinger

In the past decade there has been a divergence between house prices in different parts of the UK. In particular, house prices in London and surrounding areas has rocketed to unprecedented levels. Source: ONS According to the ONS, average mix-adjusted house prices in September 2015 stood at £299,000 in England, £175,000 in Wales, £199,000 in …

Costs and Benefits of a weak Pound

17 February 202010 December 2015 by Tejvan Pettinger

Readers Question: What are the main reasons for the decline of the pound, and what are the costs and benefits of a low pound? The decline of the Pound could be due to Cuts in interest rates Declining economy – causing expectation of lower interest rates ‘Technical positions’ dealers selling Pounds to get rid of …

Tax Avoiding Companies in the UK

20 January 201810 December 2015 by Tejvan Pettinger

Some interesting data about large multinationals and the amount of tax they have paid in the UK, compared to their turnover.

If we look at tax as a % of 2011 turnover, we see many paying a small percent.

Source: Guardian data via Duedil

Impact of falling oil prices on the Euro

10 December 2015 by Tejvan Pettinger

Readers Question: Sorry I’m really confused on how the weak oil prices affects EUR/USD currency. I’ve tried searching for articles but there are really different arguments. For EURO – Weak oil prices worsens Eurozone inflation therefore European bank ,to prevent deflation and boost economy will continue with their negative interest rates and Quantitative easing which …

Question: What are the similarities and differences between the Bank of England and the ECB?

19 January 20209 December 2015 by Tejvan Pettinger

Readers Question: What are the similarities and differences between the Bank of England and the ECB? Thank you

They are both responsible for controlling inflation. However, this year, the Bank of England have shown much greater flexibility and willingness to consider other objectives such as full employment and preventing recession. The ECB has been much more rigid in targeting low inflation.
The Bank of England is also willing to pursue quantitative easing and increase the money supply where necessary. The ECB has promised to avoid creating money and not to get involved in buying government bonds (in any significant quantity).

Euro carry trade

3 December 2015 by Tejvan Pettinger

A carry trade occurs when an investor borrows in one country (at a low interest rate) and invests this money in another country (which has higher interest rates.) If we assume exchange rates are stable, then this carry trade enables an investor to make a profit – and the profit could be even more if …

Currency Wars Explained

17 February 202029 November 2015 by Tejvan Pettinger

Currency wars are said to occur when countries seek to devalue their currency to gain a competitive advantage. However, if one country seeks to become more competitive through devaluation, it means other countries become less competitive. Therefore, they may respond by weakening their currency too. Thus, we may get a situation of competitive devaluation where …

Why Can Japanese Government borrow at Low Interest Rates?

27 January 201829 November 2015 by Tejvan Pettinger

Readers Question: After the insightful post on ‘Italian Economic Decline’, I was particularly captured by the % debt to GDP line graph of the different developed countries. The one thing that really caught my eye was Japan’s huge % debt to GDP and yet their government bond yields are consistently declining. Aren’t the markets worried that Japan may default on their debt someday or is the fact that they have a lender of last resort (no fear of liquidity problems) unlike Italy and their 0% interest rates shielding them from augmenting yields?

Japan-national-debt — Source: IMF – Gross government debt% of GDP

It is true that Japanese public sector debt is over 239% of GDP, yet bond yields in Japan remain low. It seems the markets have no current concerns over Japanese repayment. Spain might feel aggrieved that they face rapidly rising bond yields – even though their public sector debt (70% of GDP in 2011) is considerably lower.

Japan debt 229.1% of GDP on a gross basis, and 127.8% of GDP on a net basis

Why Can Japan Government Debt be So High at Low-Interest rates?

High levels of savings in Japan. Japan’s saving ratio has fallen in recent years (partly due to an ageing population) but although it may sound a paradox, there are still high levels of domestic saving. Up to now, this large pool of savings has been used to buy Japanese government debt. (Japan Saving ratio)
Read more