Questions for QE
One more month, then it's make-your-mind-up time. Today, the Bank of England's policy-makers decided to leave everything as it was. It would have been a shock if they had done anything else.
But on 4 February, it will be a different story. Then, the committee members will have to decide whether to expand one more time the asset purchase programme fondly known as QE - or, as so many people expect, put it on pause. Crucially, they will also have to work out how they are going to explain it.
It's probably never been more important for the Bank of England to provide a lucid explanation of its actions - or more difficult.
We tend to focus on the gilt market piece of this. Clearly the MPC wants to avoid a big bond market sell-off in reaction to a pause in QE. If they indeed put the policy on hold, they will want to find a form of words that emphasises the conditional nature of the decision.
There may be no way to prevent City headlines proclaiming that QE is over. But you can expect them to do their best. Maybe they could have the statement bid "au revoir to QE, but not necessarily farewell". Then again, maybe not.
But, in my view, there's a much bigger problem with explaining the MPC's actions, which is that even if they all agree that a pause is the right way forward, they won't necessarily agree on why.
The "textbook" reason to pause would be that £200bn in asset purchases is enough. It may not be obvious right now, but that's just because the lead times are even more "long and variable" (in Milton Friedman's phrase) than usual.
On that view, putting even more cash into the economy could risk further distortion of the financial markets - and could even be counter-productive if it raises market fears of asset bubbles and/or excess inflation down the road, pushing up long-term interest rates as a result. All the MPC needs to is sit back and watch, as the fairly strong recovery forecast in their latest November Inflation Report takes place.
To repeat, this is the "textbook" reason to pause. MPC members refer to the same textbook when they give speeches explaining how QE has worked. David Miles ran through the litany, in passing, in a thought-provoking speech [91Kb PDF] about the future size of the UK banking system just before Christmas:
"Since QE began corporate bond spreads have fallen sharply; for both investment-grade and non-investment-grade bonds, to their lowest levels since September 2008. And since the beginning of the QE policy, the FTSE All-Share Index has increased by about 45%."
"Falling corporate bond spreads and rising stock prices have encouraged companies to raise funds in the capital markets. Cumulative corporate bond and equity issuance in 2009 has been much stronger than on average during 2003-2008."
Here endeth the lesson. But even if QE has achieved all of this, you can still view it as a deep disappointment.
David Miles goes on to mention that since the beginning of 2009, the British non-bank corporate sector has repaid £45.2bn in bank debt - more than the net £38.4bn that they have raised on the capital markets.
Monetarists like Roger Bootle, firm supporters of the policy, have been particularly dismayed that, nine months on, lending across the economy is still so weak. As he says in a note today:
"[T]here is still little evidence that the MPC's policy of quantitative easing (QE) is having the desired effect on money and credit. At its last meeting, the committee deemed the rate of broad money growth 'disappointing'. That's an understatement - the money multipliers have collapsed."
As I said, he's a fan of QE. He thinks that all this is a reason for the MPC to offer the economy another "shot in the arm" next month. The policy-makers may decide to follow his advice.
But, as I suggested in my pre-Christmas post, there will be some on the MPC who favour a pause, not because they are sure that the policy has worked, but because they think it quite possible that it will not.
I know that at least one member of the committee thinks that if £200bn hasn't worked, it's hard to believe that another 25 or 50 billion will make all the difference.
In that latest Inflation Report, the Bank was quite clear about the downside risks to the "central projection" for a decent recovery. True, the charts showed the single most likely outcome, in the Bank's view, was economic growth of more than 4% in 2011. But the mean - average - forecast was around 3%, because there was still so much in the recovery scenario that could go wrong.
And top of the list of things that could go wrong is that QE does not have the larger long-term effect on the economy that the textbook hopes for and fondly expects. The traditional channels for lending in our our post-crunch economy might simply be too bunged up for QE to turn things around.
In that same post, I said the Bank and the Treasury were quietly thinking about a Plan B. 4 February will not be the day for rolling it out. The textbook scenario could yet materialise.
As I've said, if they decide not to authorise further purchases of assets, they will want to explain that a pause in QE does not necessarily mean the end.
What they will not want to explain - in so many words - is that the end of the policy will not necessarily mean that it has worked.
~RS~q~RS~~RS~z~RS~22~RS~)
I'm 
© MMXI
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Lending across the economy isn't being helped at all by banks hoarding QE monies and "repairing their balance sheets" (a.k.a. profiteering) with high interest charges and rip-off arrangement fees. Indeed, many banks are still more concerned with reducing overdrafts rather than offering new facilities. Base rate may be 0.5%, but the differential between that official rate and what we are actually paying for credit is the greatest it's been for years. Far from helping the economy, banks are still kicking firms and individuals while they're down and until that stops the economy is going nowhere. [Unsuitable/Broken URL removed by Moderator]
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Apart from MPC and UK I am not sure I know what the other abreviations are - is a glossary available?
Just what was QE supposed to achieve. Surely it was a classic panic measure by people who appear to believe in monetarism and have a blind faith in our banking system. Holding up public expenditure and car scrappage arguable achieves and has achieved more. A programme of public works and creating jobs for neets and other young people needed to be the main thrust. QE and silly interest rates are more likely to lead to unsustainable inflation of shares and housing and other ways of packaging 'assets' for bubbling up speculation in a casino frenzy?
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QE is nothing more than a fraudulent act, the government spending mickey-mouse money after they have finally run of taxpayers' hard earned cash.
The sooner this farce is brought to an end, the better.
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I bet they'll keep it on the 4th of February. Besides there have already been secret bail-outs by the Treasury so even if they declare and end of it officially, more money will be poured in between, just in case.
It's the only way they know!
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The system that is being shored up no longer exist. In the old system it was in the interest of banks and investors to build the economy with loans and investments. The new financial services is about the trading of money and international banking assets. Banks and investors have no national interest and the result has been that although they have been bailout from their misdeeds by the public the public will see no benefit. The banks and investors are still operating with no changes to the very system that caused the collapse. It will all happen again and maybe next time they will be allowed to fail as that will be the only way things will change as the governments only do what they are told by the bankers. It is no coinsidence that the banks are doing well and the economy poorly....it is a reflection of the problem not of the solution.
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5. At 4:22pm on 07 Jan 2010, ghostofsichuan wrote:
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ghostofsichuan, my admiration for the perhaps the post which described the current events most accurately and concisely.
Nothing will change as nothing has been changed!
I've said it before and I'll say again - The UK is being held hostage by the international banking mafia The problem is that the majority of people do not see the truth as they've been brainwashed by decades of propaganda which tells them to believe it's all a conspiracy theory.
We can start by demanding a change of the Bank of England as it does not serve no country's interests.
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QE would be illegal if we were part of the Euro, because it would be stealing from the other countries who have the Euro. Now the BoE are stealing from UK savers and giving to the borrowers and there is no one to complain.
What mandate do the BoE have to debase our currency?
No wonder Brown did not want us in the Euro.
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There has been much comment about QE and its 'impact'. The main issue, it that inflation WILL spike this year AND the touted 'recovery' may be fictitious in that unemployment will at best (I think) stop increasing. It will be very interesting to see the effect of interest rate increases & higher inflation on our economy 'poised for growth'. Stagflation anyone?
Methinks it will have to remain 'poised' for longer!
Anyway - onward to the election and starting the hard process of sorting the economy and defecit out.
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QE does not prevent the necessary devaluation of capital to restore a 'true' rate of profit, it just postpones it.
When inflation takes off wage increases will not keep up.
How many people got 1.9% increase recently?
We will all experience a cut in wages (unless you are on the board at a bank).
As usual the workers will suffer most!
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QE Bank Bail-out 5
Can we have the facts : what did the pension funds and overseas investors do with their liquidity from QE purchaes - buy new gilts, bank bonds, bank shares, buy new ftse 100 shares/bonds to reduce ftse 100 bank loans,boost gilt market-maker fees - meanwhile top 100 companies gain, equities boosted, banks made profitable - what about the rest of the economy? The BoE have decided to buy largely gilts and not private sector assets unless premium grade ( even those are small in value).Posen criticises this.
If the QE gilts sitting on the APF Limited balance sheet fall in value ( have they?) how much will be lost when they are sold by the MPC. Who pays? Us again? I trust someone is keeping an eye on this.
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Mervyn King and his cronies have destroyed the British Economy and a petrified like scared rabbits in the headlights of the oncoming juggernaut of financial catastrophe.
Their polices gave us the bubble economy and they are totally unfit and unable to solve the catastrophe they have created. They must go, and go now, but the gutless self serving wimps of politicians will not do what they know they must.
The financial catastrophe they have crested will destroy the Nation - their continuing blundering incompetence is breathtaking. They have no ideas; they have no clue as to how to bring the Nation back from financial meltdown.
Interest rates MUST go back up to 5 to 6 percent and QE must stop. We will I am very much afraid need exchange control to control outflows if sterling is to survive - my bet is now odds-on that it will not survive and that we will be forced to join the Euro on very unfavourable terms - much like Iceland. Mervyn King has reduced this Nation to the beggars of Europe. He has humiliated us all.
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So if industry has paid back substantially more than it has lent, where has the money gone?
Where has the money that would have invested in gilts, but has been sidelined by QE, gone?
Is this just another one of those banking smoke and mirrors?
Or has it gone into the bubble of underpinning the asset prices that need to fall?
Or a bubble of the stock markets? Will it crash once QE is reversed?
Is it envisioned that this QE will remain in the money supply forever?
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Hard as it is to believe, the powers that be seem to be arguing that because £200bn of QE hasn't had the desired impact then clearly what is needed is more of it! A bit like the drunk with a hangover who decides that the best cure is another drink, but when this doesn't work decides it isn't the drink that is the problem, rather that he just hasn't had enough of it! You couldn't make it up.
So where has the money gone? Straight onto the bank's balance sheet which then leaves them free to speculate on whatever, oil, currencies, the stock market etc safe in the knowledge that reduced competition and a wall of money courtesy of me and thee makes it like shooting fish in a barrel. Time to get the bonuses out again lads and ey up, guess what, the bank's will even pick up the one-off bonus tax bill for us, whe-hey, bring out the bubbly.
Meanwhile Joe Public tries his best to get a mortgage or a small business tries to get a loan, but the shop shut sign appears in the window. At the same time he faces tax increases, higher N.I. contributions, a wage freeze and an end to his private sector defined benefits pension fund, if indeed he is lucky enough to hang on to his job at all.
Thanks Gordon, it has been a pleasure doing business with you.
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All you economic guru's talk about budget deficit. No one relates the real debt over the last ten years to our problems. It means that over ten years labour have had a 60Bn budget black hole anually.
Yet they have the cheek to talk about a tory black hole of 34Bn.
Real debt seems to be taboo with you economist. If the next government do not do anything about it the international community will. Thatcher made us viable and we scorn her. Thats our problem.
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I totally agree with ghostofsichuan, very little has changed in the world outside banking. Is anyone really lending? It doesnt seem like they are. Surely this was one of the original objectives? The banks are just holding tight hoping no more chickens are coming home to roost. Liquidity is everything at the moment.
Unemployment may be slowing up, but as a prospective employer you need to be making some serious money before you would enter the minefield of employing someone. If the economy is to grow, employing people needs to be far less costly and straight forward.
Anyway at least the BBC have finally realised that Jonathon Ross was being paid about 18 times the market rate!
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Great posts therealcost, geofffromleeds, stronghold_barricades, John_from_Hendon.
It's time to recognise that the BoE and Mervyn King are part of the problem and must go when Brown goes.
Bring back Maggie's torso mounted on the lower half of a dalek's pepperpot. She should rule over us Davros style and the red light on her forehead will flash when the budget deficeit threatens to overwhelm us.
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Re 11:
I have read your continual plea for higher interest rates and I don't understand it. I'm not saying you're wrong, but it seems counter to common sense. Can I give you my perspective and ask you to explain what I am missing?
My position is that I am a business owner, an exporter and a family man. My mortgage is variable, my wife works with me in the business. If interest rates go up to 5%, I expect the following:
1) My mortgage and business loans will go up from about 4% to about 9%, doubling the repayment. This will severely limit my spare income, and may cripple my business.
2) Sterling will rise, and my exports will also not be so competitive.
3) My staff will feel the pinch and be looking for more money from me to survive/maintain their living.
From my perspective, I will be seriously worse off, as will about 1/3rd (?) of the UK population whose mortgages are their largest debt.
People who rely on saving income will obviously be better off, and the % rise in their income will be more than the % rise in my repayments. Also the countries interest repayments will cost less.
However, the rate of imports will increase, as they will get cheaper, and we will be giving more and more of our money to other countries making them richer. Our country will get poorer.
I am also not sure that Sterling currently is undervalued. I would go so far as to say that housing costs apart, it should be 10-20% lower than it currently is: that is if you look at what foreigners are paid, and what their Dollar/Euro can buy in the UK, compared with the opposite, the pound should be about par with the Euro and about 1.5 with the Dollar.
I can believe that I can't see the full picture, but I don't think that the interest rate rising will actually benefit the country as a whole. Where am I going wrong?
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#11 - Sorry, but interest rates ARE effectively at 5% or 6% already - at least for borrowers, if not for savers - because what banks are charging for credit at the present time bears no relation to the official base rate. The differential is a rip-off and the only thing raising base rate will do is increase that rip-off. As for inflation, forget it, because once public spending cuts and tax rises kick in after the election deflation will be the problem. Caledonian Comment
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I'm picking up a sense where economic policy is tied to social and political aims. It's obvious that political parties support their supporters but what happens when they are in government? Do they suspend the political agenfa and focus on common issues? The world has changed a lot from the one I knew and it is a bewildering place.
All of this economic policy will end up scrapped at the general election providing that another party is elected in and we are just going through the labourious motions until then.
To me, health wealth and prosperity is the luck of the draw, we all take our chances in life and have plenty of scrapes and scares, but I think one of the roles of the government is to provide some stability for it's citizens, and to uphold law and order so that people can go about their business without being hassled at every turn.
Crime and poverty, war and poverty, all these ideas are closely associated, and all that should be well understood in the 21st century.
In these times we have every advantage so why can't we use them to their best potential?
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#12 Some time ago there were many posts asking "where has the money gone?" about the moey lost in the credit crunch. The truth is that that "money" never really existed. It was a volume of woth based on credit - ie credibility - and once the credibility was gone the money vaqnished like the emperor's new clothes.
now we are asking, where has the QE money gone? It seems that the BoE bought gilts from, among others, the banks - and the "money" is now sitting to the "credit" of those banks in the BoE vaults. They are now being encouraged to buy gilts. If this is right then the new "money" is actually being recycled to sustain unsustainable government spending.
Sooner or later the wheels must come off.
On a broader point, there has been lot of discussion of this (and reltated0 blogs about an election to clear the air. However, I am struck by two thoughts:
(a) An election will not change anything because the incoming government will have little choice. both would have to cut public spending (and so reverse the fiscal stimulus) in order to appease the bond markets. In effect we are now so over-borrowed that the markets take these decisions -not the government. In this regard I think a tip of the hat towards Iceland is in order (At least there the government has said no!)
(b) The only positive way out of this mess would be for there to be a real increase in economic growth (and here I'm with the posters who want a return to real making and selling stuff and a move away from the idea that borrowing and consuming generates wealth). No-one's policies are really directed towards achieving this.
Maybe the real choice is between not cutting, and seeing a run on the pound etc; or cutting and seeing a double dip (and maybe a run on the pound?)
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I am a sceptic as I am abroad and stand to gain if the pound falls
However the problem is that people are generally getting Minimal if any pay rises This means that there is less money in peoples pockets and every extra bit Gordon grabs is making the position worse I really never followed the decision to increase the priceof a passport by 7% 'as the revenue from this source was falling' yes that Labours way of doing things and ignoring supply and demand. Taken to its logical conclusion no pay riseand increased tax means less money and therefore ordinary hardworking people will have to make further cutbacks in their expenditure will be the victims -if they have a job left when this is eventually over.
QE is not a real answer its a temporary fudge which GB is using to try and survive as long as possible
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18. Caledonian Comment wrote:
"...because what banks are charging for credit at the present time bears no relation to the official base rate."
Further evidence that the daft policies of Mervyn King have resulted in the BoE having no control over the gross profiteering of the banks or real interest rates.
I consider rational rates for savers should be 5 to 6 percent whilst borrowers should be a couple of points higher and the very large differentials in the savings and borrowing market need to be reduced - also bring back usury (as illegal) at 42.5 percent (as abolished by M. Thatcher.) The huge differentials in rates are the direct result of absurd abdication of control by the BoE.
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Yes but you have to make and produce goods that people want. It's no good borrowing a heap of money to manufacture a shop full of stuff that nobody wants. That is the problem, gambling too much and I know that from way back. The market is saturated absolutely choc a bloc with modern gadgets at rock bottom prices and as soon as you buy one the next generation comes out of the stockroom.
So people in different niches find themselves in akward or advantageous positions depending on what is being demanded in the market. We know that, it's understood.
People try all sorts of strategies that can blow up in their faces the issue is what is the sucessful one what should be teaching people to do? There is such a range of opportunities, you have to experiement and find a niche for yourself.
I've been down a few dead ends in life and come off the worse for it, so that's experience but I'm still looking around to see where doors might open.
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Very lucid posts here.
Stephanie - interesting technical stuff.
What if in fact QE is as some of us have posited actually creating excess liquidity in the system? (see BoE technical paper if interested http://www.bankofengland.co.uk/education/ccbs/ls/pdf/lshb06.pdf for definition)
If businesses are not looking to borrow from banks (they're certainly not investing or hyper-stocking) and individuals are paying down debt then the QE financing to banks is effectively not needed and probably why little difference on the surface is being made.
However, more worryingly, is 'if we have a case of excess liquidity where is it manifesting?'
Referring to Steil and Hinds excellent recent book 'Money, markets and sovereignty' I quote:
"When a central bank creates excess liquidity.....it can show up in many different places. In the 1920s, it was in the stock market. In the 60s and 70s it was in the consumer price index.......In recent years, it appears to have shown up in house prices, and rather worryingly for the future survival of our fiat monies, gold."
Mmmmm. Let's see we have house prices still defying gravity, we have a stock market rally which appears at odds with future expectation. Inflation has already appeared. We have a global commodities bull market as observed recently and of course gold has gone through the roof (remember we're not the only ones doing QE).
What if QE is really an accelerant and that the credit crunch actually is a bit of a smokescreeen for credit that isn't needed. Has anybody seriously asked this question (or another one of those we blindingly didn't ask)?
Because if there is any merit in this proposition we are in serious, serious trouble..............and the double dip won't be an if but a very big imminent when...................
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We all know that debtors don't want to be there when creditors come knocking but we engage in competition for the sake of it. When resources are scarce it's understandable that people compete but when you're not lacking in anything competition is unnessecary and this sport mentality takes over. That ought not to apply to the essentials of life, people talking about security.
We want to sell a lifestyle rather than existence so we want to go out and about and have fun and do what we want and that's acceptable as long as we pay the piper.
At some point in this market people have become commodities which is where we didn't think it was going to go. If you do not respect the life of another who will respect yours?
Now the sustainablity fever has gripped the world, well we know some people think that people have having too great an impact on the planet and so on you can lecture us all day and all night on it but the world is big enough to accomodate people and if they decide that it's better for them to compete when they could be enjoying life, that's a loss to them.
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Apparently, some think that the bankers placing their hand in a different stocking puppet will somehow make everything better. The banks were able to steal twice...first the retirement accounts and fees for generating unsustainable loans and second when the government gave them public funds. The only problems that have been addressed are those of the banks. The government was sold another sorry story that somehow by saving the banks the economy would benefit, even though the two are no longer connected. Someone needs to stand up and take a different path because this one is a dead end for the public and the economy. Sorry economist but things just don't work they way you were taught in school. It is all much more dishonest.
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It's not dishonest but we saw the ridiculus figures that came out about the airlines and how cabin crew were paid across the idustry. They would rather sack someone on a £23,000 salary than face a strike from their workers who do not wish to accept a pay cut to sustainable levels to accomodate more workers.
When other companies paid half the salary for the same job. It's embaressment at the goofs that is getting people all wound up. The systems, the government and society can accomodate people IF the institutions are managed properly. Nobody wants to to admit to a track record of goofs that's the end of their career it's all image but it is quite slimy underneath but only because people made mistakes that they want to cover up and it all comes out eventually.
How you react to that is up to the individual. If we say we are going kill everyone and ruin them because they did something wrong they will never admit to it but if we say ok well this was a mess up lets just try and straighten it out then there is an opportunity and incentive to get back behind the wheel.
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#24. Rugbyprof wrote:
Yes, you are, I believe, correct to summarise our present condition as still digging (the hole) when in fact we should have stopped digging.
Further (1): the QE that has vanished into holes and piles of existing bricks in/on the ground is an astonishing, absolutely predictable result and entirely avoidable waste of QE and zero interest rates. This money has vanished! The BoE (and Mervyn King) knew that this would happen yet did absolutely nothing to avoid id - anyone would believe that they were trying their best to waste the Nation's resources and deliberately devalue Sterling.
ALso
Further (2): This obvious symptom of the present bubble and crash is also why the slump and austerity will be long lasting and will surprise the (badly educated at Harvard etc.) present set of economists - their model of a slump is a financial slump of the 1930's that was actually quite quick to recover - yet taking a more historical approach to economics because of the huge proportion of the overvaluation of the present bubble/crash is in illiquid assets (i.e. Houses) the slump will be longer and more drawn out -like the Long Depression of the 1870's (1873 -1896 in the UK) Unless and until house prices move downwards to an affordable level for a single income employed person in each area the UK will have an unstable and depressed economy. The idiots who applauded the property market up to absurd multiples of income (as much as 16 times) and the buffoons of 'bankers' who loaned, and were allowed by the Bank of England (and Mervyn King) to make absurd multiple loans, these are the real culprits and the real cause of our long term inevitable readjustment. Mervyn King must go, as he is incapable of re-educating himself into a rational understanding of his own errors and thus incapable of correcting these gigantic errors he has himself made. (Along with the Permanent Secretary of HM Treasury (Nick Macpherson) and his predecessor (Gus O'Donnell) and the MPC etc. Just changing the politicians will never be sufficient!)
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#24 rugbyprof
good points as usual!
Where are the current bubbles then?...good question!
Housing........Yes (QE has sustained the illusion of high asset values in housing especially in the Anglo-Saxon countries).
Equities.....Yes (especailly in the Anglo-Saxon bourses)
Gold.........Yes (but remember this is a truly international asset that is very liquid)
Oil........Yes, the bubble developing again (and it's obviuosly a truly international and liquid asset [npi])
Therefore the answer is, if you want to avoid the effects of a double dip...then invest in Black and Gold!
Conclusion:
Currencies and housing are national and region specific......gold is supra-national
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For all the money invested as future commitments to tax by the British people into their banks, you would have thought that we'd have had some major structural changes forced upon them to mitigate the future risks of a re-occurance.
You'd have thought that paying above market value for stuff the banks owned but didn't like just so as to refloat their cash reserves would have required the banks to draw a line between retail and investment banking so that the latter does not polute the former.
You'd have thought that if the banks were doing so well selling 10 quid spades to the government for 50 quid they would have loads of money they needed to invest in the economy rather than sit on 'cash' providing little return.
From the last query you can only conclude that the Bank's finances were in a desperately worse state than the public were made aware of. And their win at every turn fortune demontrates very poor governance in not extracting a commitment to structural seperation. Brown and Darling saved the World (apparently) by throwing money carelessly at a problem until the shrill voices from the bankers died down. The problem is .. It hasn't cured any problems it has just prevented larengitis.
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Borrowing money is ruin in my book. Risk and ruin is the path we went down when you take a risk we've all been told there's a chance of losing as well as winning. Banks can happily tell people to take risks when they have got their backs covered, that's irresponsible. You have seminars and lectures saying that you don't get anything without taking a risk but the banks get other people to take the risks and reap the rewards.
It's not my problem if people are dodgy dealers and get into trouble.
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#31 jobsw32
Borrowing money is not bad per-se, provided the amount borrowed is realistic and can be repaid. It's also important that money is used 'wisely', not poured down the municipal drainpipe.
The record debts run up by Mssrs Brown, Darling and King are not realistic and will cause huge problems and hardship for decades to come and stifle any chance of a real recovery.
The idea that you can spend your way out of recession is absurd.
Brown accuses those who oppose his policies of wanting 'to do nothing'.
Actually, what needs to be done is to CUT spending. Brown just doesn't get it.
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With all this QE being pumped into the Money Supply, then how do you in the future reduce by clawing-back the same amount in QE that was produced for the Short-Term, when you will have so very little in the way of any Capital left for Medium and Long - Term Investments once we start paying off the National Debt?
The Answer is of course: Print even more Money by way of Quantitative Easing in an endless Merry-Go-Around format.
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The QE'rs should make a film and call it "saving pyrate gordon"
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I wonder will the Euro simply have to be introduced in the UK as a stable currency? Will Britons themselves have to use the Euro as a dependable currency in much the same way that Zimbabweans had to remonetize their financial system with the Euro and US dollar? The government can play with Sterling all they like but will ordinary people not be forced to be practical? Are ordinary Britons not beginning to look at other currencies for their savings?
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The rough figures I have indicate that Q4 of '09 will show a contraction. If this is not the case, put it down to being skewed to seasonal spending.
I would not like to be in this position. What do I do? Expand QE to $300B as what was thought? Or... eke out what's currently in place, waiting it out further beyond February in order to get a better picture of where we're going as Q1 of '10 will definitely show a contraction?
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Having to explain and action is quite easy. It is a matter of a line that can be swallowed. As many will be keen to swallow I find it hard to believe this is a problem. All that matters to the markets is will the UK pay its bills.
QE is a transition, it cannot be given permanence. The only question is a transiton to what.
The cycle of growth is shorter than any QE intervention can be so sooner or later reality has to be faced. The likely outcome is the buffering of QE dissipates and the economy troughs.
Sterling is weak versus the Euro, China will have unstoppable upward pressure on the Yuan at some point. Chinese manufacturers will move to suppling the growing chinese domestic market in preference to export, that is why the Chinese have the aim to develop their domestic market. Global transportation costs will rise due to green taxation at some point. Imports to the UK are, and will become, more costly. The UK public sector will have to contract, inevitable. Public sector unions have already postured that they will not easily allow losses, so subcontractors will bear the brunt in the blurred margin between the private sector and the public sector. The implication is less doing and more shuffling, ie less work efficiency. This mirrors what is going on genrally in the economy, less efficinecy, reduce supply chain volumes leads to less efficiency, more redundancy in the population leads to less efficiency overall.
As public sector cuts have yet to be enacted they are quite likley to match any underlying growth in the private sector. As there has yet to be any effective HMG policy other than discounting, eg VAT cuts, Stamp duty cuts, scrappage schemes, etc, it is clear they do not have any real short term answers. Brown is now singing about the grass is greener by being green but the lead time is long and the support so conditional that take up is low or non existant, eg green car development. It is difficult to see HMG revenues growing, yet HMG forecasts all assume growth in revenues.
Longterm the whole principle of green taxing is to reduce conventional consumerism. With an economy based on conventional consumerism economic activity has to drop. It is implicit.
Consumer confidence meanwhile is up rather than down, simply because it is not possible to be down all the time and many feel things have bottomed so they have survived. Aclimatisation is a rapid process.
The financial sector has now been hobbled. Manfacturing has dropped from 30% of GDP to less than 5% over 4 decades. What has taken decades cannot be undone overnight, if ever. The Service Sector is due to have less to service. HMG continues to have the desire to play at being a global player with the costs that go with that when it has no basis for it. It is difficult to see anything other than retrenchment longterm.
Many economists appear to want to read tea leaves and build models - which when corrected after the event show what has happened - but are only coincidental in agreement with events before they happen - and have no statistical basis so are pretty useless. Much ado is made about saying the issues are complex when they are actually quite easy to identify but unpalateable.
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QE are just further 'back door' bail-out payments for the banks!
We are all being defrauded by this action.
Somebody call the fuzz!
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24 rugbyprof
House prices are 'up' or 'sustained' due to subsidy via what are in reality cheap mortgages for enough buyers in a reduced volume market. The tinkering with the housing market is what lead us here, and now efforts have been made by HMG to support things so total collapse in that sector did not occur. Until the UK housing market resets to a realistic and sustainable level the economy will not progress. This is the same embedded problem as the overblown public sector. Politcal parties courting votes have to enact penalites on voters so this is swerved if at all possible - the attempt to shore up a status quo continues with a deteriorating balance sheet underpinning economic activity. Houses built on sand. In the 1930s the US moved to promote house ownership, aka house building, to create economic activity. In the 1980s Thatcher moved to promote house ownership, aka house building, to creat economic growth. NuLab continued this trend. The UK financial centre growth was based in part on this. The UK housing market is within national boudaries by definition and has grwoth limits, in fact the downside has been the importation of migrant workers and materials in this sector. The problem now is housing is difficult to expand as a domestic economic recovery strategy without damaging percieved house asset value, unless of course you introduce a house scrappage scheme.
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It seems that there are two possibilities:
(i) end QE, put up interest rates - result borrowing is brought back under control by combination of higher interest and (probably more importantly) by debt deflation
OR
(ii) gentle QE, interest rates kept low - result borrowing grows, inflation rises gently but the debt-fuelled bubble just gets bigger and bigger until the foreign banks panic and UK plc either defaults on its sovereign debt or lets RBS go bust.
(i) is more sensible but painful...
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10. shireblogger:
"...what did the pension funds and overseas investors do with their liquidity from QE purchaes - buy new gilts...."
Yes, they mostly bought gilts. You can see this if you look at the domestic/foreign gilts ownership split at the DMO website. Often, these UK institutions are obliged to hold specified levels of gilts (I mean, would anybody lend to the UK govt if they didn't have to?)
Essentially, QE has been used to monetise the deficit, even though that's in breach of Maastricht rules. The way round this is to buy existing gilts from people you know will then buy newly issued ones.
As for equity and commodity market rises, this reflects the dollar carry trade. You can borrow at ultra-low rates in dollars, and your effective rate actually turns negative if the dollar falls in value. If the dollar rallies even briefly, however, this bubble will pop very nastily.
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40. At 09:53am on 08 Jan 2010, Chris wrote:
It seems that there are two possibilities:
(i) end QE, put up interest rates - result borrowing is brought back under control by combination of higher interest and (probably more importantly) by debt deflation
OR
(ii) gentle QE, interest rates kept low - result borrowing grows, inflation rises gently but the debt-fuelled bubble just gets bigger and bigger until the foreign banks panic and UK plc either defaults on its sovereign debt or lets RBS go bust.
(i) is more sensible but painful...
================================================
I'd say it'll be (ii) until the election, (i) after it.....
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40 Chris
(iii) Reverse QE, quantitative squeezing to take money out of the system. This is what is needed but it is a long term plan, and should have been started about thirty years ago.
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I am somewhat unclear of the practical implications of all this false money being created.
As far as I understand it is just an entry in the UK Plc account book and given to the banks who use it for their own gain. Is there a separation here between the investment banks and the retail banks. If not the addition of this false money waters down the value of our saved money. I don't fully understand what assets this paper is buying. Who's assets. If the banks were bankrupt they had no assets. Debts? People only buy debts to screw more money out of the debtor. What are our great grandchildren buying?
Banks are being propped up with false money and our money is being devalued. I'm pretty sure I can guess the response of most bloggers here but is there a genuine risk to retail banking... again.
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#41 Friendlycard
Thanks for the information. So, the famous portfolio effect where the QE liquidity was to be used by instituions to buy riskier assets than gilts and inject the £200 billions directly into the wider home economy was a pipe-dream ?
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41. At 10:02am on 08 Jan 2010, Friendlycard
I agree with your comments, the fun starts when QE finishes.
I suspect that the financial instability of this country, along with the BOE printing money, has likely put an end to foreign investors buying fixed interest gilts.
In short I reckon you can only get away with devaluing fixed interest gilt holder’s investment once by printing money.
I struggle to believe they’ll let it be done to them again.
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Thanks to those who have acknowledged or added to my comments at #24.
Just as an update I note that today's Economist has a front cover with the title:
'Bubble Warning - Why assets are overvalued'
The leader article and subsequent 3-pager offer a very good insight and though some of the analysis follows a slightly different tack to my comments the overall observation remains the same - that further bubbles are already in existence.
You cannot discount the connection between QE (and the associated artificial low rates) and asset price inflation.
Before QE we had leveraged debt and asset bubbles (the bursting of which that led to the credit crunch - the credit crunch being a symptom not the cause as I have stated before).
Now, with QE and debt overhang we have asset bubbles.
That simple equation implies big trouble and the UK is at the heart of any potential downside risk......
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Is it not the case that quietly the likes of Darling and Co are quite happy for the Banks to use the improved margins on lending & QE funding to prop up the Balance sheet - The sooner they become profitable and Share prices are restored the sooner we can get our money back !
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In addition to #24 and #47
Many have asked about QE from a rational standpoint.
The rationality of the UK's use of QE can be seen if you observe that a desperate government knowing of the impending gap of expenditure to tax income used it as a means of ensuring funding and keeping interest rates artificially low. Any other reason is pure hogwash.
The Government has just delayed the inevitable by effectively creating a balloon repayment of interest (little at the beginning but mushroomed at the backend). Annually the bill will run to about £60 billion (as I stated some months ago) and that's if we manage to keep 'it' controlled.
I suggest that all those who have praised the government for its recent actions are going to look very, very silly in a few years' time.
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Hi Stephanie
Thanks for your views on this subject. It is an issue which I would imagine in one form or another many governments and central banks are facing i.e what to do next? I have been reading on notayesmanseconomics a lot about QE and also policy in the United States where there are dissenting voices even on the Federal Reserve Committee.
We are far from the only ones wondering what to do next and when to unravel what we have already done.
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#32 DistantTraveller
It is not sensible to say that spending your way out of recession is absurd. This is simply your opinion. Don't forget that the US (and most of the world, for that matter) used this Keynesian approach to pull the developed world out of the Great Depression of the 1930. In fact Keynes won a Nobel Prize with these ideas.
Monetarist economists, who've held political sway for the last 30 years or so, may not like the Keynesian approach to economics, preferring a laise faire approach (i.e. don't interfere and the market's will look after themselves), but they've never been able to prove beyond a reasonable doubt that it doesn't work. Unfortunately, all the shining examples of laise faire economics are the same nations in the worst economic problems right now, the UK included.
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Post 47 thanks for the update. Assuming my copy gets to my door via Postman Pat it will make for interesting reading either tonight or over the weekend.
I have always thought QE was little more than a desperate attempt by New Labour to try to keep the balls in the air re public finances until the next election rather than any meaningful attempt to help stimulate the economy.
QE isn't the only big decision coming up for the bank. Surely it must have to raise interest rates as inflation ramps up over the next few months as the virtuos effects of falling base rates in Q4 2008 and Q1 2009 fall out of the figures; as does the drop in the price of oil from nearly USD 150 a barrel to USD 40 over the same period.
Add this to the VAT increase; rising council tax and other bills, rising prices for gas and electricity and even staple goods if the freeze continues much longer.
I expect Mervyn to have to get his pen out sooner rather than later. The question is will the B of E flunk the test of increasing interest rates before or during an election campaign?
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#52 ItC
Obviously our Postman drives a snowplough.......
Yep - the question I guess is whether BoE are actually in control anymore on interest rates (pro-active) or this has rather been ceded to the markets (BoE reactive).
Our credibility is now on the line and thus we have much less room to maneouvre. As some have already commented real rates are already at 5-6%.
The bond markets may well provide the answer - keep a close eye on them..........
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Whats confusing me is why is QE regarded as a moneterist policy?
My understanding of moneterism is that it argues that divorcing the money supply from the natural growth (or contraction) of the economy produces inflation. And this was used as an argument as to why you shouldn't "spend your way out of a recession", as you just stoked up inflation and delayed the pain.
Expending the money supply would only be desirable if economic activity was artificialy restricted by a lack of access to money, so pumping more in would get the economy back to its "natural" level.
Hearsay evidence has been saying for a while that businesses don't want to borrow, i.e. economic activity is not artificialy restricted because they can't borrow, it just really IS restricted. The analysis presented here seems to back that up, equity price rises being correlated with QE appears to be evidence for classic money supply induced inflation.
In this light moneterists should be crying "stop" - so is it that doing that would expose a great lie, that the economic theory we have been following for the last 30 years was really a political attempt to demonise government regulation and spending, and allow a handful of people to become very rich? Privatised mismanagement of the money supply (over expansion of debt)has the same effect as government mismanagement, thats why we are in the mess we are in...
So is there an irony that the moneterists where absolutely right as far as the economics were concerned, but blinded by the politics?
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British households are the best judges of economic trends. Their actions speak much louder than any words on this site. Because they know best what their prospects for employment and earnings are. Moreover, what households do about savings and spending will be more powerful than any QE so far!
Household's spent with vigour over the holidays. Which could presage a recovery in money supply as paying down debt dries up. But we won't know for sure until a few weeks after the current weather freeze-up whether that resumption of spending is a one-off - as the doom-mongers claim - or demonstrates risng confidence in the end of the world-wide recession.
If spending is back to normal this month and next, and paying down debt is out-of-fashion, the MPC can take some satisfaction in their QE (and the Government can be happy that its policies worked). So, no change of policy will be necessary and we should expect interest rates to rise in small steps after the election.
All of which confirms that the next GDP figures (26th January) and the news from the High Streets will be key indicators for the British Economy.
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45. shireblogger:
"So, the famous portfolio effect where the QE liquidity was to be used by instituions to buy riskier assets than gilts and inject the £200 billions directly into the wider home economy was a pipe-dream ?"
Thanks, and yes - around 99% of QE purchases have been of gilts.
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46. Dempster:
"In short I reckon you can only get away with devaluing fixed interest gilt holder’s investment once by printing money."
Yes. And a lot of them had already lost heavily anyway, given the slump in sterling which occured back in 2007-08 onwards.
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53 rugby prof
The problem is the solution, if it is to be voluntary, is at government. If it moves to external pressure then internal strategy (internal to the country) has failed. Mandelson is now using the language of ten year plans. If it is a ten year plan the horizon is too far. It is meaningless and spin. The conflict is between government wanting to placate voters and the need to take action to reduce costs in view of the missing gap between expenditure and revenues currently foating between some 13 and 20 Billion GBP per month. When all government cabinet minsters want to talk about is salt on the roads it is designed to obscure. There are plenty of people about who can deal with salt. There are, as far as I can see, no sensible proposals to deal with likely brewing economic outcomes with HMG. This has in turn has muffled any propositions from the opposition parties as as they are then caricatured by Brown as being obsessed with cuts. And so it drifts onwards and downwards. To infinity and beyond. The amazing Mr Browns incredible perpetual bubble blowing machine. Why have one bubble when many are available. Why would anybody buy a house when the long term forecast has to have an possible outcome of a 25 percent drop back onto the affordibility curve. Beats me. The interesting events will start after the GE whoever get the poisoned chalice. Something will have to give.
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54. MisterGC:
"Whats confusing me is why is QE regarded as a moneterist policy?"
Quite right - it's actually contrary to monentarism.
It may be that some journalists have mistakenly said 'monetarist policy' when they meant 'monetARY policy'? Seems strange, but it's the only explanation I can think of.
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Oh dear!...the light at the end of the tunnel IS an express train!
'UK factory gate inflation gathers pace'
http://www.telegraph.co.uk/finance/economics/6950851/UK-factory-gate-inflation-gathers-pace.html
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And the devaluation generated inflation that so many of us predicted is now in sight:
http://news.bbc.co.uk/2/hi/business/8447981.stm
So does that mean we need to increase interest rates for the pound to recover, control inflation and protect what manufacturing we have?
Or do we press on with the present lunacy (of printing money to give to bankers and the government)?
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'Willem Buiter warns of massive dollar collapse'
http://www.telegraph.co.uk/finance/economics/4125947/Willem-Buiter-warns-of-massive-dollar-collapse.html
'He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.'
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It might put some extra thought and some shame to the matter if reporters didnt follow the Government spin and keep refering to "Continuing QE" and reported honestly that " The Government Will Print More Money"
But, that would need an unbiased media
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55 leftie
The evidence suggests that the consumer spent November saving so that he/she could spend in December. Then Januaty and possibly February will be spent clearing down any subsequent debts.
Then with the April pay packet there will be tax increases due.
So March and early April are the only two bountiful months next year. Election in early April I guess. May will be far too late.
As for QE? Well, it was dear old Denis Healey who said `when in a hole stop digging'. It hasn't done what it said on the tin. The money may have allowed the banks to partially rebuild their balance sheets and permitted the government its Augustinian moment, but it was little or no help to the real economy. An expensive experiment and a great pity. It will have to be paid for by the people it did not support. I suppose that is par for the course these days.
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Put DebtJuggler's (62) very reasonable expectation of a dollar collapse together with Riverside's (58) also very reasonable indication of over valuation of assets and you can see an obvious way out for our rulers: let go on, UK inflation grow and the pound devalue. And, with shear genius, re-value assets downwards without a visible price drop to upset voters (especially the ones mortgaaged to the eyeballs)! If the change relative to the dollar is small enough, people might not notice. And UKgov can always argue 'necessity of maintaining dollar competivity' or similar bunk.
Just a few problems: like all savings and pensions going down the drain. With a weak pound, various foreign elements will be able to buy what's left of our industry for peanuts (sorry - excellent inward investment) and close it down.
We have much to look forward to.
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#59. Friendlycard wrote:
"54. MisterGC:
"Whats confusing me is why is QE regarded as a moneterist policy?"
Quite right - it's actually contrary to monentarism."
Absolutely...
What bothers me is that the apparatchiks who are running the madhouse seem to be so poorly educated or/and self-aware that they do not see the internal contradictions in their present policy. As soon as they realise the fallacy at the heart of their policies I expect their heads to explode or at least for them to resign (regular readers will know who I mean). The man quite obviously has no integrity or intellectual honesty at all and like Bunbury, is quite exploded! (O. Wilde I of B Earnest.)
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oops finger problems sorry monentarism in #66 should read monetarism
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OIL IS ACTUALLY QUITE CHEAP IN REAL TERMS COMPARED TO THE 79-80 OIL CRISIS.
Even GOLD,compared to 1980 is cheap in real terms.
The current low base interest rates are entirely reasonable given the increased spread charged by the banks, and why should savers get any return on their money in a deflationary atmosphere?
And actually, house prices are very reasonable at the moment.When interest rates were far too high ,under the Tories, house prices crashed for years and years and the end result was misery.
What we have now is quite reasonably priced , not in terms of multiuplication of income, but rather in terms of the interest cost of a mortgage on an average house as a percentage of income.
Also London is not just the capital of England, it is a world capital, and world capitals are expensive .
Britain is also a world centre of excellence and culture.....with a growing population and a diverse vibrant economy....which we will soon learn has grown 0.7% in Q4 2009.....so enough of this puerile doomsday gloom.
We are going to be okay!........okay?
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Are economic journalists bears, bulls or level pegs?
What is their preferred stance?.....is there a depressive tendency that in recessions we listen to and everything gets worse, and in bull times, we say yes that is all very well, but smell the roses they are lovely ?
The property crash was predicted in 2000, but anyone who sold up in 2000 to avoid the crash would have looked incredibly foolish in 2007 , even in 2010.
So bears are always right at some point , but not at the right timeand certainly not all the time.
Where are the eco-journo bulls......I seem to be the only person on these blogs not waving a white flag .
Doomsters did not predict the huge stock market rally we have just seen.
QE will soon not be needed......the doomsters cannot see that, because they see only worsening circumstances.
As always,Gordon Brown will prove to have been right, and I think the Bank of England have also been resoundingly right.....what a shame that in their own country they are pilloried.
I know through current experience all about debt, profit, tax and interest and credit criteria......and I can see that what has been done so far re QE has been just right because the property market is not even yet back at where it was, oil prices are just right, unemployment has plateaued, the pound has been stable for a year, and people I know are starting to peek out from the duvet and start new ventures.
And I believe that what happens next will also prove to be just right.
Let's have some journalism that can help boost economic morale........the BBC Economics pages have been very samey and doomladen of late......is that good for our economy?
And what growth rates do other bloggers predict for Q4 2009 and Q1 2010?
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69. At 9:57pm on 08 Jan 2010, onward-ho wrote:
Doomsters did not predict the huge stock market rally we have just seen.
----------------------------------------------
You know that this must mean a "correction" later. As you imply with your other examples we just do not know when. I suggest it will be when QE ends, when spending cuts are announced, when spending cuts are not announced, when Peston sneezes, etc etc.
Another crash but we just will never know when unless we are in the pocket of whoever benefits from instigating the scenario.
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A lot of people in this blog confuse the 1970s with the Noughties.
The reasoned monetarism of 1976-9, (when Healey slashed spending, cut deficits and eliminated high inflation.....only for the Tories to bring back high inflation with stagnation and soaring deficits after going hyper-sado-monetarist)was in response to the problems of that era.
Our problems are completely different ....there has been a collapse in lender confidence and risk tolerance which brought about a collapse in property values which further reduced lender confidence at international wholesale and domestic retail banking levels..
Our budget deficit is due to the high cost of sorting out the mess, we did not actually have much of a a budget deficit problem before the credit crunch.
The reasons businesses and developers do not want to borrow is because there is no point buying land , building on it and having a developed value less than it would cost to do it. And developing does not work if you can only borrow half of the cost of it.
Maybe the reason QEis not working is because everything has an artificially low written down value at the moment ......maybe tinkering with money in QE is not working because the real problem is with value.
We maybe need to artificially adjust our property valuations back to pre-crunch levels to increase confidence.
It is interesting that China has survived the crunch and has seen 50% property price increases this year.....clearly their surveyors and banks are acting completely different from ours and their picture is rosy....yes they are exporters but that is not the whole story because so are Japan and Germany.
The 95-100% mortgages of Blair's Britain were the reason for our success, not our failure.
And I think that our economy has gone pear-shaped since Darling took over.......Brown was a much wiser chancellor, he talked us all up , when DARLING ONLY TALKS US DOWN.
Darling is clever but he is a clever, gloomy doomster. Brown realises that that to have a good economy we have to lighten up.
WE NEED OUR CONTROLLED BUBBLE BACK ......BUBBLES ARE ACTUALLY REAL.
WITHOUT BUBBLES THE ECONOMY IS NOTHING........nothing gets built,nothing gets bought and nothing gets sold.....everything stops.
We need to flip our way of looking at the present situation.....it is a time of great opportunity.
It is the cold night before the sunny day.
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Onward-ho #68&69
The reason that journalists at the BBC are getting more doomladen is that eality is dawning on them as they've done a good job of being in denial throughout 2009.
In answer to your growth rate predictions it depends on whether you're talking about true GDP are artificially boosted growth.
The 3rd Qtr was boosted by public sector spend on structure which from memory was about 0.3+% and it still didn't get into positive territory (which was why there were howls of 'it can't be').
I'm sure the 4th Qtr will show positive growth of some degree but that's because we've chucked the kitchen sink at it by pulling future growth forward (given the various subsidies e.g . VAT, car scrappage, the numerous regional funding initiatives, artificial employment creation and of course any public sector funds still available to boost GDP indirectly).
Even with all of this I'm not sure if 2010 will show much above 1% growth. If you take away the artificial support it will be negative.
On your point about house and oil prices I would ask you to check my entries at #24,47 & 49. It may provide you with a counterbalance to your argument.
I would also point out that affordability of a home is not the same as its value (discounted future rents), as I have pointed out before. Many confuse this including so-called 'experts'.
If you're not sure do a test. For example, does the value of a car relate to its value with regard to its cost of production or to how much you can raise on finance?
Granted certain housing will always be subject to special localities or buyers. But remember UK house prices have over 60 years moved at the same rate as inflation bar the last ten years.
Making money on a house is arbitrage just like investment bankers make on their trades, i.e. its just timing. Real estate can also become very illiquid just like credit but unlike cars. Don't kid yourself that real estate is different to other asset classes (bar its unique taxation which is bubble inducive).
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72 There is nothing artificial about using compost to feed a hungry withered plant.We badly needed QE and it has been our salvation not the cause of our future downfall.
The Tories want to put weedkiller on the poor thing and kill it.
Sorry, Tory doomsters,you just don't get it do you.....you have been out of power for so long that you have forgotten that our economy is a crop, it is not a weed that needs to be obliterated.
Old Tory habits die hard.
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onward-ho
Also don't confuse intelligent analysis with political dogma.
With regard to the argument, we shall see in due course who is more accurate.............
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It could be argued that housing became unaffordable because wages did not rise enough as the bulk of jobs switched from well-paid manual to lower paid service jobs....steelworkers and miners get paid more than shop assistants....the only light being the high paid financial services sector, which has since shrivelled....and the public sector, which is being squeezed.
Maybe the lack of industrial action has impaired the need for productivity improvements to pay for higher wages.
In today's Britain productivity has been the result of reductions in wages and wagebills rather than improvements in technique or value adding.
BUT THE ONE THING WE ARE GOOD AT IS SERVICES.
And of course shares had to increase in 2009 , but with the FTSE lower than it was 10 years ago you could hardly call it a bubble, nor is the oil price, admittedly up form the silly $40 of a year ago , particularly high at $80 or so now versus the $150 of 18 months ago.
The deflation of the gold bubble will help to revalue real estate and corporate and government bonds.
A high gold price is usually the first sign of a recession and it resolves when the economy recovers.
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#71. onward-ho wrote:
"We maybe need to artificially adjust our property valuations back to pre-crunch levels to increase confidence."
It always worries me the mixing up the idea of 'Value' and 'price'. We can stick whatever number we want to as the price of a house but its value is still somewhere to live.
Your single sentence worries me enormously on several levels, not only for what you say but also for what you do not say. I could write a whole economics these on why the statement is wrong - or more prosaicly I fundamentally economically disagree with you.
House prices and their relationships with multiples of earnings is one rather large element that is doing (and has done) huge dame to our society. People need places to live, they need to live near where they work and have sufficient accommodation to permit family formation (i.e. the breeding of the next generation of workers) and this has to be at an affordable price so as to permit the process to occur - if this does not happen society collapses.
Further an economically stable society requires that both savers get sufficient incentive to save and borrowers pay a fair price.
Both of these conditions have failed.
Your proposal will compound the failure.
We have to find a way for the ratio of house prices (moderated through a fair interest rate) and earning to make the primary purpose of society (my first argument above) to again be viable.
This requires that we re-establish a fair price for money to persuade savers to save: then a reasonable cost to borrowers and finally a sensible price for homes.
This need house prices to be no more than 3.5 times average earnings in any particular area: any greater multiple and the system of economics balances collapses. (Which is precisely what it has done over the last decade - and Mervyn King and the Bank have knowingly and wantonly presided over this economic societal collapse.)
Do you now understand why I find your single sentence so at odds with a rational economic model. Your re-establishment of 'confidence' is a false idol!!!
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76 You are completely wrong....you want prices to be what you think they should be, not a reflection of what the market will bear, nor what they have cost and what they need to be to allow progress to be made.....and that means building, buying,selling, equity growth AND A REASONABLE ANNUAL RATE OF INCREASE.
And three and a half times income was the limit when interest rates were 12%....it is silly not to include the interest rate in your concept of affordability.
Sense is already prevailing.The market can see that and anyone with foresight can see it .
You need to get real, John, this is a small, crowded , rich island and property should be expensive on a small rich island......once it gets dearer again our economy will be okay....
I REALISE THIS GOES AGAINST THE ETHOS OF YOUR OUTDATED "0"LEVEL ECONOMICS TEXTBOOK BUT THAT IS TOUGH!
In the long run,a thriving real estate market is a great asset for our economy , yes it is a roller-coaster, but without it we are nothing.
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You are completely wrong about housing as a basic commodity........the reason we got into such amess inBrtitain was the oversupply of horrendous public sector housing which was a basic commodity no-one wanted.
We have also had an idiotic greenbelt policy which artificially inflated land values and made us all live in shoeboxes whilst our countryside remains a desert only toffs can afford to live in.
Let's get a bit Australian and bungalow ourselves and sprawl ourselves out of this mess.
Let's sell off the Cotswolds and the Lake district in quarter acre plots and let the people of Britain have a bit of space!
This era of Green tyranny needs resisting.
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#51 DT_1975
You seem to be agreeing with the Brown line - it's either a fiscal stimulus backed by QE, or 'do nothing'.
I'm certainly not suggesting doing nothing, or the laissez-faire approach!
I believe the correct course of action when you have run out of money is to CUT spending. What you should NOT do is spend money you have not got - or worse still, start printing money. That is the road to economic ruin - as Zimbabwe could testify.
Brown has suggested the choice is Labour 'investment' or Tory 'cuts'.
Brown wouldn't know an investment if it painted itself purple and jumped on the mantelpiece and sang 'we're in the money' (with acknowledgement to Blackadder).
The cuts will certainly come anyway, probably sooner than later - whatever school of economics you subscribe to!
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Neanderthals were not stupid, I read that just now and decided to give your latest thread ANOTHER go, Ms Flanders. No. It is no good. I gave it at least 30 seconds too. Quantative Easing. Ok! Neanderthals were not stupid? Maybe THEY weren't but the later model. lol
Oh yes we are. Or at least I am. Dense perhaps! I thought that too - dense - when I saw my forebears wore "bling" when it wasn't even thought of a "bling". Make-up and a sort of ornamentation on their body. Handsome looking chap though - one pictorial depiction seen.
Subject: the end of the affair
Anagram: Faith thee offer Dna
Make up. As an option or perhaps more relevantly - as an action. That strikes "accord"!
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I am convinced by the writers on this blog that many dire things are going to happen to the UK economy soon. I feel a little aggrieved as I have no mortgage (on two houses), some small amount of money in the bank and no debts other than the ones the government has run on my behalf. I have poor pension provision, but I have been contributing, so that could be considered a debt I suppose. I have reduced income on contracts I get but I have income, and I have a wife-wot-works...but who will be sacked as a teacher when things get bad.
Soon my 'sitting-pretty' state will be kicked over by whatever whirlwind arrives first.
What should I do for best? Surely if you can accurately forecast what is going to happen, and I believe the forecasts, you can come up with strategies to best handle what is coming?
At the moment I'm thinking that buying a shotgun and converting all my cash to food is probably best...?
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62 Million people in the UK (refer to Government web site ONS) only 36.6 Million are of a working age.
7.7 million of these are economically inactive.
7.2 Million work part time.
6.65 million work in the public sector.
That leaves 16.7 million in full time employment in the private sector.
Then subtract the low-wage,low tax(even subsidised)"Macjobs" from that 16.7 million
There`s not much (non-State)disposable income floating about at street level is there,Stephanie?
We`re already largely a nation of paupers really are`nt we Stephanie?
In 1997 New Labour committed 5 billion(with a "b") to the "New Deal" employment program.
The Tories said it was a "waste of money".
!.3 trillion(with a "t") offered for banking bail-out(Tories agree with it).
The British establishment is destroying this country,small business by small business,street by street,family by family.
What do the "charts" say about that Stephanie?
Are the British people just going to sit and whimper like abused dogs?
http://marchonlondon.blogspot.com/2010/01/throwing-it-out-there.html
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#77. onward-ho wrote:
"you want prices to be what you think they should be, not a reflection of what the market will bear, nor what they have cost and what they need to be to allow progress to be made.....and that means building, buying,selling, equity growth AND A REASONABLE ANNUAL RATE OF INCREASE. "
You are fundamentally stupid and bent of the further destruction of civil society and the Nation.
Your illogical and daft ideas that boil down to the fundamental error of 'affordability' are what got us into this situation in the first place.
Your stupid notion of affordability relies on every lower interest rates which is itself tantamount to the destruction of money and will be reversed by the market.
Your notions that the errors of the last decade are the new norm are fundamentally wrong and economically illiterate.
There is one underlying fundamental about any society and this is that it is necessary that it maintains the economic conditions that foster and permit its replacement. Your stupidity (which is shared by the idiot bankers by the way - there very same bankers who got us into this appalling situation in the first place) is that the economic logic of your arguments inevitably and unavoidable lead to the devaluation of money and extreme inflation. Houses are places to live and bring up a family - necessary for societal replacement.
Further, the direct consequence of your idiotic and totally economically illiterate and unschooled ideas has been the dramatic increase in the price of all property - including commercial property ad farmland. This extreme inflation relative to our international competitors is one main contributory reason that our business is internationally uncompetitive - this is a direct and unavoidable result of the absurdly high house prices for such a relatively poor Nation as the UK.
You are an economic madman who see noting and is incapable of understanding what he sees. You are also intent on reducing this country's society to one feral mass of ill-educated maladjusted ignoramuses (- and I am tempted to add - like yourself!!!!)
In short you are so wrong....
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78. At 00:02am on 09 Jan 2010, onward-ho wrote:
"Let's sell off the Cotswolds and the Lake district in quarter acre plots and let the people of Britain have a bit of space!
This era of Green tyranny needs resisting."
What happens when you`ve sold all your property portfolio in these plots,onward-ho?
Do you swagger off to some exotic destination and sneer over your shoulder and say:
"So long suckers!"?
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#81
I'm 54 made redundant. No chance of another job. No morgage. No debts. Some money saved. Wife in public sector.
Government are making cuts. Large scale preparations in progress. They just don't want general public to know. Attitude seems to be "Make it all look sweet and we might get back in."
I am trying to start a little business. I emphasize little. Just to look after myself. No point in this country trying to do too much. Too much red tape.... have to be an immigration office, tax man extra. If it's successful I'll work my b******s off to have it all taken away to pay for 'ankers bonuses.
So I scratch my head and wonder like you where can I ensure how to make sure may little savings are safe. I started collecting tins but have eaten most as we don't seem able to create tinned food that can last more than a few months. How would Shackleton etc have coped.
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82 BrownbankruptsBrits
I am afraid I think you are too late. The deed it is done and the curse it is cast. And the process was welcomed by many. The problem disappears with time, but it will be some time - about 30 years.
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85 DenseSingularity
In view of the fact that the dispersal of the massive public debt throughout the economy will result in the destruction of asset value and savings, the objective imho has to be to create an business which gives a reasonable income beyond conventional retirement age. You need, preferably, a wide spread of customers in as many socioeconomic groups and as many geographic locations as possible. This points to the internet. There are no niche markets anymore, niches across the entire world consolidate into sizeable markets but big businesses at present fail to address them effectively leaving opportunity. The access portals to these markets are social networks and specialist interest forums. There are a big proportion of a billion english speakers who have interent access globally. How many customers do you need. The only problem is contacting them and networks provide the gateway. These customers can be supplied from any geographic location providing the product or service they buy is easily and cheaply transportable. As the product or service to be supplied has to be something not easily supplied 'en masse' that also defines to some extent what type of product or service needs to be offered.
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Oh Dear - do I detect a certain level of aggression against Mr Ho? One of the things that most of us that have been in business for more than 10 minutes are very suspicious of is absolute certainty. So, while W-H's rather rosy view of the future may not be to everybody's taste, neither do I find the doom and absolute destruction postulated by some to be any more likely. In particular those that try to fit the UK housing industry into models that apply in other markets are simply cruising for a bruising.
About two years ago, at the absolute low point in the market I predicted (on Rob Peston's blog) that because the fundemental undersupply in the housing market (for 30 years plus!!!!) hadn't gone away and neither had the average Brits addiction to ownership rather than rental, that prices would recover in full in three years. I'm on track, if not ahead of target so far. The real economy (in which I earn a living) is bloody hard work, my business has seen two years in which turnover has dropped 20% - in each year. Our staff levels are down, we're only breaking even. We are all on 80% money, but we are still there. January - in spite of the weather - has opened with a much more positive feel to it than I would have dared hope. Our overdraft is at full stretch for the next two months but it's still available to us (thanks Barclays) and is (just) adaquate. We have worked hard to adjust to changing circumstances and we aren't managed by idiots.
Where I see problems is in persuading the public sector (and the financial services shambles as well) that their party is over too. It's all part of the political will, and associated financial hardness that, so far, I simply can't see. Will any of the parties have the courage to cut back on the fat cats in both the civil service and the banks? We'll see in April.
In the meanwhile, be nice to Mr Ho - he's a litttle ray of sunshine on a gloomy day....
Tony StH
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Actually remoteislander I'd have to disagree. I think JfH comments are very valid even if it portrays anger.
I've been very diplomatic with onward-ho but note when I've challenged there has been no evidence based approach from o-h. It's not optimism - I think o-ho would have been right there in the tulip craze saying tulips aren't overvalued its ok....don't worry.....
As to yourself you - don't state what industry you're in but if it's connected to real estate be wary of any self-bias.
You paint a survival picture which is fair enough. Most of us who own SMEs are a pretty optimistic bunch but that does not mean we are blinded to information out there which is pretty scary.
Part of my job is being able to predict where the economy (and subsets within are going).
Please read my earlier comments on this thread. All I'll say is that we've been going for 9 years and started with nothing other than our own money. We saw signs of the economic meltdown as far back as 2006 and took steps in 2007. So far our analysis has proved pretty spot on.........
My forecast for 2010 is (i) as tough as 2009, or as events unfold (ii) worse than 2009.
There appears to be a number of top businessman who agree. I wish you well in your own endeavour because your nation needs you (as much as your government doesn't give a monkeys - but that's socialism's view of small business) but if I'm brutally honest the world does not need the onward-hos.......there's nothing wrong with being realistic - unless one is in denial and there's been plenty of that recently........
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Several posters asking, "where has the QE money gone?"
As Stephanie pointed out in an earlier blog most, (95%'ish,) of the QE money went straight into buying newly issued Gilts by the Government. The government would really only be issuing new Gilts if it couldn't fully repay the expiring ones. In effect the QE money is/was going into "re-mortgaging" the Government debt. A bit like an ordinary person maxxed out on the credit cards transferring the balance to a new one whilst only paying off interest, and fees in the meantime. QE was needed because all the usual lenders to the Government had "pulled ALL of their credit card-like rollover deals!" (Remember how the 125% mortgages, even 100% mortgages vanished in seconds when the banks crashed...) It's why Government's of the last 40 years have loved it's own people borrowing unsensible amounts of money. You can't seriously blame the government for being poor with money, if you are! They'd be very quick to point out your hypocrisy!
THE question is, are those former lenders to the government back? As pointed out in Robert Peston's blog, they may be, because in the first auction for a modest amount of debt it was over-subscribed. They took £4bn, (so that leaves another £196billion to go!)
If some sort of QE is still needed could the Bank of England even say NO!? If it did say No and the Government had to cut spending (by making redundancies and lord knows what else,) would the Government accept it was necessary to make cuts and accept responsibility for spending too much(borrowed money) in the past?
Course it won't! Just like you would if the bank refused you a 100% mortgage you would blame....the bank for "failing to lend to you!"
Frankly the "Independent" credibility of the BofE is at stake. Will it buckle?
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88 remote islander
I might have you mixed up with somebody else but my recollection is you posted some time ago complaining that you lived in St Helena in the middle of the Ocean and were at that time complained that HMG had put back funding an airport on St Helena. Hence your moniker. If that is the case then I question your comment.
Personaly I do not have any overbearing problem with the current economic situation but that is not the issue. The issue is that collapse is still ongoing although it is now probably more of a ballet than a house of cards. To this has to be added the inevitable public spending cuts. These public sector cuts are probably due to affect the blurred boundary between private and public sectors rather than the central public sector. This will reduce the national efficiency of 'doing' things again following the private sector slump. By 'doing' I mean people who actually do things rather than paper barons farming paperwork. On top of this we have the young generation being disenfranchised from work and earning - and participating fully in society.
Everthing points to increased inefficiency or redundancy in the economy amd increased failure on the inclusion front. The icing on this particular cake is deferred public pension provision which will be extremely difficult to fund alongside a growing health problem and aging population.
This is not a environment to be comfortable in. As far as housing goes things are held up by negative equity keeping property of the market if at all possible, and cheap interest rates. The Conservatives will lean to cuts and swerve inflation if possible is my guess, Labour will swerve cuts and favour inflation at some point is my other guess. The likelihood is the worse of all worlds - inflation and cuts. With inflation will come higher interest rates and house finance problems. This game is far from over.
Houses appear to still be overvalued and however deferred, it is at some time, highly likely it will bite. The public debt will overwhelm freedom of policy and it is unlikley to matter who is in Number 10, although personally I do not see that those who helped create this truely massive problem should remain in residence.
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Rugbyprof and riverside
1/ rugby prof I have read your earlier posts and I detect a Consultant - I'm in manufacturing - which is real work, something I didn't know when I was a Financial and Business Consultant. Am I right about what you do? I've been in business about twice as long as you and we also had the hatches battened down in 2007. I read the tea leaves as well as anybody, better than most. I have predicted and invested in the last three property booms and got out at the top having bought at the bottom. I bought my business for 50p from a receiver. It now operates assets worth about half a million, with debt of less than £80K. I will be debt free by next year. I do know what works in business and how to read a marketplace.
2/ That is why I can afford to live here (for riverside's information) for most of the year, while still owning and running a business in the UK. I still see every email that comes into the business and by means of a virtual network, sit at my "own" UK desk for three hours a day. If you (riverside) own and manage your own business, you're entitled to your view on my comments - if you don't well never mind. Your view on property is a common one and has been consistently wrong for the last 15 years - the basic fundamental of under supply remains. See some of the blogs, including mine, on Robert Pestons current blog.
Life's a bitch, but you don't have to take it seriously, carry on Mr Ho!
TM StH
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Picture the scene, Feb 4, MPC meet in a swanky room, coffee and biscuits on a silver tray in the corner.
Mother Superior/The White Swan asks 'what's it to be today ?'
Sick Boy pipes up 'It's time to go cold turkey, we've had our fun, pay the price, have you no character ?'
Renton responds 'character has nothing to do with it, passing the day has. Trial and retribution is for all our tomorrows'
White Swan: 'He might have no character but he knows an awful lot about Sean Connery'
Spud: 'Well, I don't know, I'll have to go with Renton as I owe him some cash'
Dianne: 'Have you got any bottle or what, man/mouse, what are you ?'
White Swan: 'I'll cook up then'.
Another 25bn QE Feb 4 2010.
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#92 remoteislander
Seems we'll have to agree to disagree with the likes of O-Ho. Glad to see you're from the 'real world'.
On the point of real estate, you're comment regarding 'selling at the top of the market' underlines my point that it is all about timing in property i.e. temporal arbitrage (it's a zero sum industry - negative if you include taxes and transactions costs but Governments like it).
I'll restate that long-term analysis shows UK house prices long term trend equals inflation rate (rather like Gold's). Though most of the time prices are either above or below the line essentially its actually a mean reversion play (and thus arbitrageable - see above). It's currently from various estimates about 20%+ still above trend line.....
Secondly good to see you as others who were ahead of the curve when everybody in the media states that nobody saw the current predicament coming - a slient minority across a sea of mass idiocy who receive no acknowledgement. It's also good to see manufacturing surviving (thriving). No problem with credentials stated in 1.
As for myself, our business is software driven though it involves a certain degree of processing akin to manufacturing and we operate in a niche market. We do some 'expert advisory' work in terms of solutions for clients.
When I think of remote islands, I instantly think 'Atlas Shrugged' - should be on everybody's reading list..............
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92 remoteislander
So you live in St Helena and commute to the UK via boat which takes 2 weeks each way. No wonder you want the UK taxpayer to build an airport for you.
Housing - you claim my view is consistently wrong for 15 years. Mr Brown and the banks have been manipulating the for 12 of them. Despite the 97 election pledge to try and not see a housing boom and bust. What a joke.
We are mainly where we are due to excessive housing loan criteria. Take BTL away - in progress, take 125% mortgages away - done, bar a few remortgage deals for safe customers, take no deposit deals away - done. Take away liar loans, 49 percent were self cert at the peak, and prices will drop. Take second home purchasing on a rising market away - done. Make life more difficult for first time buyers - done. Take jobs away - done.
A bank which follows the rules should have no loss due to mortgage fraud, yet C&G alone posted 230Million fraud write-off last year. That is why the FSA has now said if the bank do not check the data and verify they take the loss at the bank and cannot chase the customer. If the environment changes the actions within it change. It is generally acknowledged that house prices are being held up by scarcity due to negative equity problems and low interest rates. But if you want to think otherwise that is up to you.
Here we manufacture and retail direct to customers in over a dozen countries, but I am entitled to an opinion whether or not that is the case.
rugbyprof appears to be probably calling it right more than most but time will tell. As for not taking it seriously. Losing your job is a serious matter and it is still happening and the young are being hit hard. But if you dont live in the community all you get are news reports persumably.
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#95 wrote : "Take BTL away - in progress, take 125% mortgages away - done, bar a few remortgage deals for safe customers, take no deposit deals away - done. Take away liar loans, 49 percent were self cert at the peak, and prices will drop. Take second home purchasing on a rising market away - done. Make life more difficult for first time buyers - done. Take jobs away - done."
And all this, which could come straight from the economic pages of the Daily Mail, is cause for celebration ? I don't think so. Don't some people ever get tired of the same dreary old mantra, blaming all these mythical alleged "irresponsible borrowers" ? It seems to me that on this blog (and many others) the battle lines over interest rates are clear. Those with money want them to go up - those with debts want them to stay low. So as usual our economic policy is in danger of being dictated by self-interest rather than rational thought. Over the next period, inflation will NOT be a major problem, because the inevitable spending cuts and tax rises after the election will squeeze so much out of the economy that deflation might well become the worry. And as for QE being inflationary - it didn't happen, because wherever the £200 billion has actually gone, it most certainly DIDN'T feed through to the wider economy. And as for low base rate being inflationary - well that's not true either with banks still charging criminally high rates of interest for loans. So if the MPC's brief is to control inflation and after the springtime spike it's not going to be a long term problem, why should we raise interest rates just to heap more misery on the economy and fill the coffers of banks that got us into this mess in the first place ?
Caledonian Comment
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The problem with people in this country and the developed countries is the cycle of greed that continues to spiral out of control. Until we as a nation recognise and reconcile ourselves to the fact that we have been living beyond our means for about 100 years (through our miserable failure to reinvest in the Victorian infrastructure) then we are going to be constantly surprised and disappointed by our economic position. The riches of empire/North Sea have largely gone, our employess are overpaid and not productive enough and the rest of the world is waking up to their potential to play catch up. In the meantime we pay ourselves what we cannot afford, we work less than most of the world and happily consume 2 cars per family (probably a BMW or 4x4), 3 or 4 holidays a year and multiple plasma TVs,DVD players,playstations and enough clothes and shoes in one house for a small African village. Given the bizarre elements of our economic model that allows us to pay talentless middle managers and bankers 10 times more than a nurse or doctor, don't expect any changes in the feckless politicians' ability to actually change anything until you are prepared to accept your own greed is a contributory factor to the mess we are all in.
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95 Riverside
It's no good just repeating the same sad mantras about property. Look through your window - an undersupplied market (and not just for the obvious financial reasons you indicate) is balanced by a "need to move" demand, which is already, particularly in the south east - which always drives the UK market with an appropriate regional lag - pushing London prices above '08 levels. The supply side is already at least 500,000 housing units (on HMG figures)below demand. That's why financials are not the key driver(and haven't been these last 20 years) and that's without factoring in Britain's illogical addiction to ownership. It may not make sense, but that's the reality. All that you say is true - just only partialy relevant as far as the property market is concerned. I also share many of rugby profs views, but his assertion that you can (effectively) forecast future property prices on the 60 year link between inflation and house prices is, in my opinion, simply wrong. At least for the last 30 years and for two reasons.
Firstly - Pre Thatcher social housing effectively capped the acceptable cost of housing to the "working" working class - why should you spend more on a mortgage than on rent, where somebody else also picked up the bills for maintaining the place? The rents charged bore no recognisable link to the cost of providing the housing stock (particularly in the various Socialist Republics that were prime Thatcher targets). As a proportion of the population (however you define it) the middle classes - with their property buying habits - were less significant, probably insignificant outside London and the leafy shires. Thatcher de-nationalised about 30% of the nations housing stock (anybody out there can give me a better figure?) and created a new market. Do the stats from 1985 and I don't think rugby profs figures will stack up. Let me know prof?
Secondly - pre crash - the market was adjusting to sharply higher ("unaffordable")house prices and the supply of rental properties was increasing rapidly, based on both "silly" terms and very, very cheap cost of money. Rents were being effectively subsidised by rapid capital appreciation. Any cash flow problems were eliminated by equity release and all was done on somebody else's money. I know - I did it. As you so accurately say, "take away BTL" and what happens? You remove the cheaper housing acquisition option that renting had become. Domestic rents have recovered sharply in the south east and and held up pretty well over England generally.(no info on Wales and Scotland). So renting is now increasingly more expensive. Not something that reduces housing prices.
So the current market place - look up the Land Reg figures for both volume and regional prices (all other stats are speculation and might be's) - shows steady recovery at sustainable levels in both price and volume. Combine that with the number of people in work - which I feel is a much better indicator of the demand side of the equation than unemployment (which always hits the CDs of the population disproportionately harder than the property buying ABs)and you might start to understand why the property market is "defying gravity" as one blogger on Steph's or Peston's blog put it. Add in relaxing terms (as compared with a year ago) with many more 90% deals available and an increase in the amount of cash available for purchasing houses and 2010 is not going to be the year that house prices face a "correction". Don't be diverted by the silly numbers flying around about the destruction of the equity release/re-mortgage market- that market never influenced house prices - it was just a dumping ground for funny money and the removal of that money has not and will not depress prices.
One of the problems with theories that don't fit the market place, is sometimes some people don't understand that it's the theory that's wrong - not the market place. If you can give me a proper explanation of why house prices are where they are (please not it's all the Banks and Gordon Brown's fault - but a reasoned analysis that's better than mine), I'll happily conceed to your higher wisdom and be rude to Westward Ho as well.
Last point on your "economics" - you make the point that no Bank should experience losses on mortgage business and C&G wrote of £200M+ - no they didn't - they made provisions against it. I like many are quite certain that a very significant - maybe as much as 60 to 70% of the huge provisions made throughout the sector will be reverved within 4 ot 5 years - basically when they can afford to pay the tax or have thought up another wheeze to further defer it. Like the property market we will have to wait and see.
Your somewhat cheap crack at were I choose to live merely demonstates that your lack of knowledge is more comprehensive than simply covering the housing market. Would the Outer Hebrides be more acceptable to you? If you have 5 or 6 hours to spare to discuss how badly this part of Britain (yep british citizens here) has been treated by the Labour Government, I'll happily oblige. Suffice it to say it makes Brown's handling of the credit crunch look transparent, timely, ethical and entirely in the interests of the british taxpayer.
I'm here because I can be, I like the place and I can afford to come "home" whenever I wish. My telecommunication facilities are adaquate to continue to manage my business and my wife does an excellent job here. However people die here for lack of facilities and the lack of the ability to get off island quickly. Money is important, but in the UK we think nothing of flying sick people from the Scillies or North Uist to a mainland Hospital. The expense doesn't come into it. Here we let them die. Judging from your comment, presumably with your approval.
TM StH.
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Its interesting to read some of the comments about house prices in the posts, the thing to do is look at the rest of the world. In America house prices are down up to 60 percent in many places and you won't get a mortgage where the payments are higher than 30 percent of a borrowers monthly income so as to insure that people have disposable income left over to spend in the wider economy, thereby providing an ongoing boost to economic growth. In Japan, who's bubble burst 20 years ago, even today house prices are 40 percent lower than they were in 1989, even though their supply to demand ratio has always been far more accute than here, again because high house prices are fine when most of the value is equity and the owner is paying a manageable mortgage, but when it comes to shouldering that entire cost as a real debt then not many people have the stomach for it. Another reason is that in the future people are not going to be able to get into the same levels of personal debt as in the last 15 years. Take a person on the average wage living in a house worth 200 grand that he bought 10 years ago with a 90 grand mortgage, he has a 20 grand car loan, a 10 grand bank loan and credit card debts of 5 grand, that gives a total debt of 125 grand, and the bank says he is in to much debt in relation to what he earns. Now think of a first time buyer, again on the average wage coming along with no equity and buying the house next door, he has to get into 200 grand of debt just to get a roof over his head, does that mean that he won't get any further access to credit until he has payed down his mortgage? If so then that will have a knock on effect with the rest of the economy as he won't be able to buy anything that he can't pay cash for. Or will house prices fall to a level that enable him to own a home and run a car, buy clothes, go on holiday, save for a pension and so on....
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A large part of our problem is government debt and a lot of us are afraid that cutting public expenditure means cutting services. And those in power are even more afraid that it will lead to a loss of votes. I advise you (and present and future governments) to read two books written by Leslie Chapman. The titles are: ‘Your Disobedient Servant’ (1978) and ‘Waste Away’ (1982) both published by Chatto. Amongst other matters, the first book covers how the author reduced waste and, thereby, reduced expenditure by over one third in his section of the civil service
These books are a revelation on how the civil service and public bodies operate. I would guess that even a half way attempt at applying the ideas of Chapman would reduce the government’s expenditure by 15 % without influencing public services. Applied fully, with some other well judged cuts, and intelligent investment, we could be out of trouble and on the way to a world beating economy within a few years.
I accept the books cover the situation of 30 years ago, but I doubt very much that things have changed.
If I sent copies to Brown, Darling, Cameron and Osborne, are they desperate enough to read them and take action? Isn't it better, even for them, to take courage and be unpopular with the civil service rather than with the voters?
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96. At 11:45am on 10 Jan 2010, Caledonian Comment wrote:
.......So if the MPC's brief is to control inflation and after the springtime spike it's not going to be a long term problem, why should we raise interest rates just to heap more misery on the economy and fill the coffers of banks that got us into this mess in the first place
----------------------------
The answer is in your question. We appear to be ruled by the needs of the banks so "fill the coffers of banks" will continue to be the direction taken.
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In answer to your question remoteislander #98 - there's a useful graphic covering house prices adjusted for inflation at from 1952 through to 2008 at: http://www.allagents.co.uk/house-prices-adjusted/ (source: Nationwide.
Though I would never back a trend on 100% probability you may be able to put your money on where the trend line is heading (in a kind of spot the football way!) if you take this to be somewhat representative. (Of course depending on your start and end points you can come up with some varied averages which the layperson may not realise).
My concern is that some of the artificial subsidising going on whether through QE down to regional schemes and schemes that have been previously referred to is currently artificially propping up a natural tendency downwards and this will only go to elongate whatever trough we hit.
My concern is that on historic evidence we're already set for a trough that's twice as long as the one in the 1990s which I remember very well.
I'll make the point again that certain real estate types or locations will always be subject to local supply/demand issues like any other tradeable 'asset', but they are normally very much in the monority.
You can, believe it or not, download a spreadsheet with all of the above data to check its credibility....
Trust that helps. My other comment is that real estate is but one of many in the economic mix at the moment.
You roll the dice and predict the probability (thanks to Pascale and Fermat).............
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98 remoteislander
House prices. We will have to disagree. Perhaps if you look around mainland europe you will see house costs are usually significantly lower than the UK. I fail to see how high house prices help the UK.
St Helena, pop 4.25K approx. I would have thought it was difficult to provide healthcare under these circumstances. In the UK plans are afoot to move to super hospitals to try and fund the specialist centre of excellence cost, ie less local access more travel, that is on the mainland. People presumably chose to live there knowing the problems.
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96. At 11:45am on 10 Jan 2010, Caledonian Comment:
'And all this, which could come straight from the economic pages of the Daily Mail, is cause for celebration ? I don't think so. Don't some people ever get tired of the same dreary old mantra, blaming all these mythical alleged "irresponsible borrowers" ?'
I am not celebrating. I am just tried of the same old drivel which gets posted. Cherry picking data or presenting no data at all.
Re Housing. I blame HMG government who have failed in governance. I blame the banks who remorselessly exploited people and sold an uncertainty as a certainty. Whether you think the facts should be in a paper or not is neither here nor there. The fact is money is reduced into the supply of mortgages for the housing market and few people buy with their own money, they borrow. So reduce supply and prices will reduce. A transient is in place where interest rates are low and negative equity is lurking. This is fact not politics. There is no secnario where the peak money flows into the housing market will return in real turns. The banks via their policy heavily influence prices up and down. HMG via LGA planning policy affects house supply. House owners thru anti development campaigns try to restict housebuilding. What is difficult to understand about this. Incidently all UK mortgages demand an insurance policy with the mortgage to protect the bank. Nothing to do with optional insurance policies. If you have a mortgage you have to pay for a insurance policy to cover the bank. If everything is in order then the insurance company pays out. The fact that insurance companies have not paid out and mortgage providers have had to write off substantial sums for martgage fraud tells you something is very much amiss. C & G alone listed 230 Million for fraud last year. One provider. The whole thing is one massive con designed to encourage people to get into massive personal debt. Incidentally if a householder gets repo'd they need not think the insurance they paid and the resulting payout by the insurance company to the bank (if no fraud is involved) will get they off. It won't, the insurance company pursues the individual to bankruptcy to recover. And how many houseowners with a mortgage understand that fact.
Land is cheap until it comes to building. It is easy to sort house prices downwards, you expand the areas granted planning which collapses the building land price, back to HMG. Nobody rushing forward to upset house owners I see.
Interest rates will go up, just a matter of time. The interst rates genrally follow inflation. Inflation - Low currency rates mean imports go up in a country where not much is made domestically. End of story.
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The Tory government tried to artificially peg the Pound in the Exchange rate meachanism by buying pounds...lots of them, unltimatly to see it unraval as the market forced the true value to the front.
It seems the present government has learned nothing from that, as they try to raise prices by artificially buying gilts....lots of them. It will surely unravel in exactly the same way as the market forces the true value through.
Short gilts!!
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#104 With respect you're forgetting something : the prospect of massive spending cuts and/or tax increases. These will have a strong deflationary effect.
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If Governments just go on borrowing, in the same frivolous fashion, my concern is people will assume that those same Governments will "suddenly realise" when they have to stop!?
This is the problem. It's Governments themselves that just don't actually know when to stop. Want an obvious example? Argentina, 2002. Did the Argentinian Government seriously set out to do a, "car-crash Government" to its own country??? Of course it didn't (but with hindsight it certainly looks like it!) But poor policies in the 80's and 90's, money laundering for tax evasion purposes and some central bank fraud caused massive financial implosion. Even IMF agreement to frequent "re-scheduling" didn't help in the end, as it focussed the world's attention on Argentina's problems. When Argentina took some austerity steps it was at a time of falling GDP. Which just magnified the contraction and promptly caused deflation....Government just kept on getting it wrong.
Argentina's financial problems became acute when things had become so bad that they failed to pay the interest on their Government debts. When that happened their economy was let loose and allowed to fall off the proverbial cliff by international investors unwilling to provide more help. Britain is quite some way from that point, which means we're also quite some way from needing the IMF.
But U.K. GDP is falling. That should interest voters at a general election. As seen in the Argentinian example cutting spending (because it was required by the IMF austerity package,) further contracted GDP causing further and deeper recession. A Tory Government doing the same thing "straightaway" would inevitably cause a deeper and more prolonged recession.
British debt levels are eye-watering as some have commented. "Talking tough" might sound good, THE problem would be that actually cutting spending (now) would do more harm than good - it was the same in 1981-1983. Talk then was how long it took to get British GDP levels BACK to the same levels of 1979. I no longer recall the exact date, I think it was 1989. In other words it took 10 years just to get back to where we started under Tory rule from the time they took over - 10 years of "going nowhere!"
Sure the debts of today will have to be repaid. But politicians have a nasty habit of shying away from spending cuts and so in the long run I anticipate we will go much further into higher debt as a percentage of GDP. If it all crashes though, all will come down, shares, property, Government bonds. Of that lot which will be of more value than the other 2 afterwards? Government Bonds? You betcha!
Governments won't ever stop borrowing, it's in their nature...
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103 riverside
I'm happy to discuss property with you, but I think it would be best to leave discussing post colonial betrayal to another more relevant thread. Perhaps until the Daily Mail run a relevant page.
TM StH
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106 Caledonian Comment:
''104 With respect you're forgetting something : the prospect of massive spending cuts and/or tax increases. These will have a strong deflationary effect.''
Tax increases will be modest. Paying more for services is more likely, Means Testing is more likely. Ingenuity on defining treatment routes and waiting lists with the NHS is more likley. The record on total tax take in the economy is that it is consistently between 43 to 46 percent of GDP. The 46 percent ceiling would have been broken a long time ago if it was easy to breach. Brown ran at 46 percent most of the time. Economy size has dropped so spending cuts have to occur - the only question is what profile the cuts follow. I dont see what the fuss is about, you are simply talking about spending dropping back somewhere towards what it has been previously. I dont see it as a good thing, I just see it happening. The fact the UK is poorer will be seen as relatively higher prices on imports. What worries me far more is the growing youth employment problem. Rising retirement ages are not going to help. Perhaps the only too happy goodbye that the majority waved to the domestic manufacturing base was a mistake. If you destroy your knowledge base and technical base all you have is the lowest labour rate bid. If you rely on foreign multinationals putting satellite units here then the result is they shut them up at the drop of a hat if it suits then. There strategic base is at home not here. The EU has systematically undermined this country with the grant funding of new facilities being built throughout the ECC, just look at car plants and the EEC manufacturing overcapacity - currently 25% overcapacity, in reality probably more as demand has dropped. Here - You generally dont get employment growth or high salaries from mature products, products late in their life cycle and the R&D activity has been largely destroyed. So what you are seeing around you is probably the landscape for sometime. But without exception past chancellors have always shown few regrets for their actions.
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Thanks remote islander .
And rugby prof and JOHN from HENDON, don't blame me for the crunch,I've paid my bills and stayed kosher.
During the crunch I had to work my head off to remain solvent, but I did it, I have survived,and for me and millions of others, this is thanks to the enlightened policy of low interest rates from BoE....... and for that we must give thanks to Gordon Brown.
QE was absolutely essential to stop the economy, the banks and the government (which was the main source of public AND private sector employment during the crunch.....ask any roadbuilder or service provider) from going under , and although it did not make vast amounts of new money available, it certainly stopped the banks calling time on loans taken out by millions of people and businesses who owed money to them.....this is the hidden unquantifiable benefit of QE which is actually massive...... I owed the banks 5 million quid and if they had called in their loans at the worst time it would have been belly up for me and for the banks too.....but sense prevailed and the asset values are nearly back to where they were.
Pre-QE we were in meltdown and if we have survived then their is nothing artificial about that, it is called good husbandry, and if that is in contrast with Sado-monetarism then I'll take QE anyday.
What we do next is interesting but thanks to what has been done we know that we will manage.
I employ lots of people and there is a future now for them and for me.
You critics do not get that ,do you?
Is it all a bit complicated or is it that you do not have any significant amount of cash invested in UK's future?
And as far as house prices being too high in UK, our GDP is still really very good,so what are you comparing us with ?UK in 1945, UK in 1981? UK in 1992?
WHY NOT COMPARE US WITH MALLORCA, PARIS, SOUTH OF fRANCE, WEST LA, ROME,MIAMI SOUTH BEACH , ATHENS,HONG KONG,SINGAPORE etc. In comparison our prices are actually not too bad.
As for QE,gloomsters, you are truly biting the hand that feeds you.
It was Gordon Brown who nudged and succeeded in getting every other Western nation to follow the same path last year, which has ensured that QE has been used in some shape or form across the whole world and in fact the pound has retained its value since QE was introduced ......as the markets recognise the universality of this approach.
THE REASON THE TAX TAKE WAS SO GOOD IN THE PAST WAS BECAUSE THE ECONOMY WAS ZINGING, IT WAS NOT A MIRAGE....AND THANK GOODNESS IT IS ALREADY STARTING TO RETURN TO NORMAL.
AND WHEN PEOPLE LIKE ME GET BACK INTO SWING THERE WILL BE NO STOPPING BRITAIN.
And as far as ratings agencies saying our credit rating is crashing,they are paid to say that by the very people who will make money out of them saying that,are they not?
.....of course they want our credit rating to fall, that way our lenders will get a higher rate of return for their money.
Just as when something is too good to be true it usually is, when something is too bad to be true it usually is.
So I do not buy UK Armageddon , I'm looking forward to a rosy old age!
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There is nothing artificial, not their is nothing artificial
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Also when I see 98% of bloggers are gloomladen, surely next year there will be a few cheerier souls.....that degree of consensus cannot be permanent.
The times-are-a-changin'!
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This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
Remember BBC,i`m long past the point of keeping copies of everything I post(and what "go`s missing at some later point) and attempt to post.
Your "house rules" are not being broken.
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That should be:"long past the point of NOT keeping copies".
I`ll be posting the volume soon to prove my point about BBC censorship.
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112 o-ho
Yes of course. I must remember to never let the facts get in the way of a good story.
There is one small point -
''Up to one million households have borrowed money on a credit card to pay their mortgage or rent over the past year, a charity's study suggests.'' From the BBC.
Here is the link - http://news.bbc.co.uk/1/hi/business/8450518.stm
Now it is a moot point whether borrowing on a credit card is worse than borrowing on a bank overdraft because it would appear some bank overdraft costs are on par with some credit card costs despite some parties forever chuntering on about low interest rates being damaging. However there is just the chance that people trying to kepp a roof over their head are - err hmm, whats the word, err - desperate, thats it, desperate to make drifting ends meet.
But never mind, or even Nevermind, the sun will come out and all will be rosey. Of course you could risk the interpretation that more than 1 in 20 appear to be, err whats that word, err desperate, thats it desperate. There might even be the scenario that such desperate measure roll up and acculmulate in front of the borrower and if there is no uplift that things get sour. Thank goodness it is only individuals and we are in the trusted hands of a government which would never resort to a national credit card. But err Nevermind, a dramatic economic uplift will save us all even the desperate, and a health housing market will of course result because housing is so, just sooooo undervalued.
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Brownbankruptsbrits
The man on the poopdeck put the telescope up to his wrong eye and said - I see no ships. Someone in the crew muttered - Funny, I can see hardships from here and that fellow over there said he can see censorships.
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Can I appeal to all Bloggers to please proof read their contributions before hitting the “submit” button?
This blog usually contains much of interest to me but I find some otherwise good comments almost unreadable. This is due to misspelled words, lack of punctuation (especially question marks!) and often there are words left in a sentence that just don’t belong there anymore! Not to mention the persistent confusion between “their”, “there” and “they’re” which in my view are very nearly unforgivable!
If you want to be taken seriously, take yourselves seriously!
It only takes a few seconds to run a spell checker (type it up in a word processor first, then copy and paste the results after checking). Make sure that what you have written makes sense to a reader. It’s a courtesy to your reader. You know what you wanted to say, but if your reader has to work at unravelling your sentence then you are not going to get your point across!
Thanks to all for your contributions to a fascinating discourse.
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119 Robm
If you dont like what is written pass it by. Unlike the BBC I do not get paid and I have life outside cyberspace and a tight 7 day a week schedule. Or post more yourself so more can moan about your posts. Thank you
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Not sure if the government had any education.... It is quite obvious that putting billions into banks and businesses that have proven themselves incompetent in handling money in the first place is just throwing money into the fire....
People who cannot get credit, because the banks are now scared to lend, will not be able to purchase goods/services from said banks and businesses so where does that get us? Nowhere! the banks and businesses will once again payout large bonuses to those who fail the common man and the and the banks/businesses will fail anyhow...
It is time for reform, not bail out!
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119
Could you avoid the use of double quotation marks, where single quotation marks are appropriate?
As you imply, correct punctuation is important.
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When are the politicians going to wake up to the fact that the voters are better educated nowadays (how, I don't know under the current administration) and that simply re-naming the problem/solution is no solution in itself.
QE is still printing money that we have no assets to shore up. Wasn't that the cause of all this (Sub-Prime Mortgages etc.). What is a sub-prime mortgage - one that is unlikely to be repaid!!!! Who in their right mind authorised that?
Good luck everyone in the next election - if you can find anyone that will give you a straight answer to a straight question it may be that you have come across an real extraterrestrial rather than one of our politicians!
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117 riverside
Yes a million of us have used our credit card to pay our mortgage.....mea culpa....which sounds awful , but actually it is not always for a bad reason.....sometimes people do have cashflow problems, eg when they lose a job and are about to start their next job, when they start out in a new business....when they have had to pay for a holiday for the family for next summer, sometimes people buy houses or cars or help out relatives.....it is easier and cheaper and quicker to use a credit card as a stopgap like that, rather than to arrange an overdraft, and rather than taking out a personal loan.
It is not necessarily a bad sign .It is a lot better than defaulting on the mortgage.
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117
I really do believe that the universality of the pessimism on these pages is unsustainable and unreasonable and if we are not careful it will inflate into a huge negative bubble that will EXPLODE.....
AND THEN PEOPLE WILL START TO CHEER UP AND THE ECONOMY WILL IMPROVE.
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Onward-ho
With regard to your post #110 and my earlier posts you seem to have either read or understood very little of mine on this thread.
I'll repeat all SME owners (me included) are optimists by nature but that does not mean I ignore facts or evidence, or worse, fit them to my preconceived point of view - that's where deliberation comes in.
It would appear that your personal circumstances are or have biased your view of the world.
Thinking rosy (as science has now proven) does not change the picture.
This is in the same bracket as people who put the word 'doom', 'pessismistic' or 'negative' in reply to any observation that may be factual but doesn't fit the 'perception'. The media is very good at it, particularly the BBC. Any firm who has a CEO in this space is in serious trouble.
This is also akin to those who think we can somehow 'talk' an economy down - another mythical spin - complete and utter hogwash. It's only actions that count.
How on earth can you have a rational debate if you shout down any proposition that is deemed 'negative' or 'gloomy' by those for whatever reason (incidentally I never attach these adjectives to anybody's comments)?
You continue to believe what you wish. I'll concentrate on the evidence. I trust that we both come out ok.... (but in relation to the housing market do take a look at the graph link in one of my comments #102 above)....
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hey-ho Mr Ho, your/youre/you're still my little "gleam" of sunshine. Could do without the punctuation pedantry however - I'm with Riverside on that, some of us have got work to avoid.....thanks to all for a very decent discussion on the mysteries of the financial universe. Remember the answer is usualy 42...
TM StH
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remoteislander
you may find something re 42 at http://en.wikipedia.org/wiki/42_(number) to prove your point.......!
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69. At 9:57pm on 08 Jan 2010, onward-ho wrote:
"Doomsters did not predict the huge stock market rally we have just seen."
You mean the 50% rise in six months on the Dow?
If you know anything about markets you know that can only mean one thing...
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125. At 1:47pm on 11 Jan 2010, onward-ho wrote: AND THEN PEOPLE WILL START TO CHEER UP AND THE ECONOMY WILL IMPROVE.
I’ve cheered up, oh no I’ve not, I’ve just noticed that unpaid tax bill sat on my desk.
I know, you get out your cheque book and I’ll be the happiest man in Europe.
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Yes I can see that property is on a long term upwards trend, and has had a recent correction.
But 1952 UK and 1976 uk and 1992 uk are not the same UK.
THINGS HAPPEN....MY GRANDFATHER HAD A NICE TOWNHOUSE HE PAID £2000 FOR IN 1926 THAT WAS VALUED AT £800 IN 1939.
BUT 1926 WAS DEFINITELY NOT THE SAME AS 1929 .
wE HAD 15 GREAT YEARS OF ECONOMIC GROWTH UNTIL 2008, WITH LOW INTEREST RATES AND STABILITY....OUR POPULATION INCREASED BY 10% IN THE BLAIR YEARS
AND BRITAIN CHANGED FROM BEING A DECLINING BACKWATER TO WORLD CENTRE STAGE.
No wonder it became more expensive to buy a house.....this is a sign of success, not disaster.
Ask all the wannabe immigrants in Calais what they think of Britain!
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131 o-ho
Your eternal optimism is commendable up to a point if it is not the result something you sprinkle on your cornflakes in the morning.
The fact somebody says there looks to be an incline ahead does not mean you should not proceed or enjoy the drive. It simply means you proceed with care in case they are right.
I am entirely optimistic as I believe I know this environment well as we had a downside in the previous 90s recession. Things are entirely possible in this environment but like all environments if you ignore the dangers then you are in turn dangerous.
However imho few that have been near a downside understand just how diffcult upward movement can be. Further the higher somebody has flown and the more specialised their knowledge is the harder they are likely to find a new trajectory if dumped.
One thing is clear with this mess and that is many are going to be spat out into a space they do not want to be in. What a penniless would-be-immigrant queuing at Calais thinks is neither here not there. There is always somebody worse off than you in the world. If global warming unbalances the climate in the tropics there will be a great many more migrating.
The current problem is debt whether individual or corporate or national and servicing it and having gainful employment. Big business predates on consumers in my opinion and lobbies and befuddles government. Millions are spent on messaging to consumers to buy and there is little coming the other way in comparison warning of any problem. Just a few words of caution from HMG would have cut back the boom imho.
I expect the economy to be in a trough. Most of those working are okay but will be cautious imo. I cannot see any big uplift.
Incidentally rosey glasses will not help because the human brain will aclimatise to them rapidly. An experiment was done years ago where volunteers wore glasses which flipped the image upside down so the voluneers saw the world upside down. After about a week the brain corrected this and suddenly they image was flipped the correct way by the brain.
If want to see mass irrational exuberance or mass psychosis you need an extreme event that people participate in collectively and reinforce emotionally their perception of events. So I view your rose tinted glasses as a waste of time I am afraid. This is a report on a mass event (The Brown boom behaviour is another response). http://news.bbc.co.uk/1/hi/wales/north_west/8427988.stm
You are welcome to your view of events around us but I dont share it.
Whilst there is nothing wrong with using a credit card most credit rating outfits would see that sort of against-the-buffers as marker of a possible major problem arounf the corner. As this ecomony is driven by debt any debt problem is bad news. I am not terribly interested in housing other than it dominates what goes on in the UK economy. The UK economy is probably not going to show much recovery until housing starts to move again. If housing is over priced and held up by negative equity then we probably are looking at least 5 years for inflation to erode the prices with a likely decline of 25 percent needed from now. Thats just a guess. But if it is right our competitors overseas who have not had Mr Browns uniquely positioning of their economy will have moved forward.
That is the problem You cannot escape massive long term debt quickly. You bring it to the bottom line and you are bankrupt. You process it in a shorter term and you have little to spare, you leave it long term and unless there is uplift you remain servicing debt with reduced disposable income. The only escape is uplift and that looks difficult to come by.
Things are either upwards or downwards thats the characterisitc of a cycle the flat bit is a transient.
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Smile, things could be worse.
So I did.
And they were.
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QE has worked; it printed £200 to finance the government's bailout costs.
It is rather like the days when the edges were clipped off silver and gold coins; debasement of the currency. There is no milled edge on banknotes (aka IOU's) so they can do what they like; hence the massive rise in credit.
Call it QE, inflation, debasement, whatever you will; it's all the same: a tax on savings to bail out the spenders.
What we should be doing is withdrawing money instead of issuing it - quantitative squeezing - to get the credit spiral under control.
But that's not going to happen with crooks like Brown and Darling in charge; all we can do is watch the entire economy go down the tubes; the needy feeding the greedy.
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Onward-ho,Riverside, JfH, remote islander et al
Just come across a story today in The Times which I couldn't quite believe but since it's not April 1st must take as being true?
http://www.timesonline.co.uk/tol/news/politics/article6982999.ece
Apparently TUC have been in receipt of taxpayer funds from the Department for International Development (yes it says international) to the tune of £3.6 million under the auspices of a charity scheme. YES £3.6 MILLION.
Given the relationship between the current Government and the TUC (i.e. it receives funding) wouldn't this be classed as slightly corrupt or in fact worse?
Or does the nation have no principles anymore?
O-Ho - could you please look through your rose-tinted spectacles and give me your reaction........of course all others invited also.....because given the economic sitaution, if nothing else, isn't there better use for this amount of taxpayers money, never mind the principles?
P.S. Can't find this story anywhere on the BBC........
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Can we please look at the simple facts the base rate and short term credit for individuals I have never seen the spread so large. QE would have a much bigger impact to our economy if rates where no so unattractive. Demand is being damped down due to this simple fact that banks are over charging. The only action this is causing is for individuals and companies to pay down debt which in the longer term does not help . Getting the debt repayment and spending balance ratio at the optimal level so there is continued consumption in our economy.
We keep being lectured about pluming and pipes and cash flowing but without short term affordability it will not happen.
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135 Rugby prof....actually I do know a bit about trade unions .
And they do spend a lot of time thinking about the broader picture.....often very bright graduates from business schools become researchers in trade unions and political organisations and quangoes, on all sides of the political spectrum.....isn't the CBI a sort of bosses union?
Alot of important and sensible legislation has been formed using input from union sources, on health and safety, disciplinary procedures , worker's rights AND worker's responsibilities, workplace bullying, racial equality etc ......things that were considered radical and pilloried are now so mainstream it is hard to remember what all the fuss was about. A lot of legislation is arrived at by the government seeking information from all interested parties , employers and employees and there is a lot of interplay on all sides.....even things like asking shopping centres to have areas where mums can feed or change their babies....lots of things we take for granted come from union and employer thinktanks.
Good unions are part of a good HRM team, with de-unionisation a lot of good things were lost too.
And maybe paying British unions to liaise with and encourage foreign unions is not totally stupid ....if there was a unionised labour force in the developing world there would be demands there for sick pay, holiday pay, shorter hours and maternity rights,and pension rights there too ........which all make outsourcing more expensive and protects home jobs....so it is not completely stupid is it?
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132 riverside, you don't need to predict a property slump ,it happened already......if you look at the price of property in Britain and factor in the slide against the Euro from 55p to 90p(99 p at one stage), the Aussie dollar from nearly A$3 TO A$1.75 ,property in Britain is actually quite cheap......in fact everything in Britain is looking a lot better value now.....friends told me thay had visitors from Germany who spent £1000 in an afternoon in Tesco here on things you wouldn't believe like socks and shirts and toasters!
And don't forget the hundreds of billions of pounds of foreign properties owned by Brits who are sitting on as yet unrealised massive Euro gain windfalls even with the property slump in Europe.
If we were collectively all bonkers and bullish in the Blair years it is just as likely that we are over-pessimistic and indeed nihilistic in the Brown and ? Cameron years.
The truth is somewhere in the middle.
I just hate prevailing orthodoxies as the older I get the more I see how they change like the wind.
Hence onward-ho.
What do you think about an amnesty for offshore dosh to come back to Britain?
It brought in a hundred billion euros into Italian banks....would it work here too?
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130 Dempster....if you owe it you must have earned it ....if you've spent it I hope you invested it prudently in bank shares or property!
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Onward-ho
With regard to my question in #135, I note that your answer goes on about unions.
You see absolutely nothing wrong with the lack of principles around taxpayer's money in the article.....?
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140 Rugbyprof
I do not know the ins and outs of what happened, if it was a scam that is not good.
How do you regard unions?
Do you think they have a role to play in a pluralistic society ,and are unions not an important way of encouraging Fair Trade, which is a part of international aid for developing countries.
The amount of interplay between union policy developers and researchers, civil servants, local governments, employers' agencies and academia is incredibly important and valuable, and maybe that is why some of this work is funded ..... I do not know, do you?
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There's optimism and that's fine but if GDP falls or, even if it does rise, we discover it's being inflated with sub-prime-like debt, you'll have to forgive me if my optimism turns to realism!
If people want to go down the path of self-delusion then I accept their right to do that. But you must recognise my right to choose NOT to follow you.
The problem with Britain is ordinary people are not being genuinely represented and lazily they have have accepted the alternative of, being managed! The Government instead of explaining, with complete transparency, the scale of it's problems, instead has choosen to obscure them and fool the people with the idea that its all too bewilderingly complex for them to even begin to undertstand it all. Using words like "deficit" and "debt" inter-changeably, implying they mean the same thing. When they don't, etc!
The shame is most people in Britain only ever want the blind optimism of self-delusion. Just plain old optimism isn't good enough for them!
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Every comment on here is negative! I remember reading some comments several months ago and there was a mix of positive and negative thinking. It seems no one is confident that QE is going to be positive for the economy. Looks like we're screwed then.
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138 O-Ho
GBP low against other currencies. Yes. So imports up in price, exports more attractive to others. Yes - UK property lower in cost to other currencies. Individual debt which is the keystone to consumer spending is unmoved by GBP movement. Its a domestic issue. HMG now proposing a push on UK agriculture so we feed oursleves more rather than import, now why could that be. Domestically in pounds sterling UK housing looks too expensive still for UK buyers. But that is just a point of view. British ex pats pushed up property prices around the globe. Now they are coming back if they can it would seem, at least some of them, so property prices will fall where they have been pushed up by Brits. Meanwhile all the money to fund this jamboree was funded by debt taken by the younger end of the population with housing and still has to be paid off which will throttle disposable income hence consumer spending. I am entirely optomistic, I am also realistic. The UK only paid off a few years ago the cost of the mortgage taken with the USA to avoid going bust after WW2. Government revenues where 20Billion adrift in Nov 2009, just one month. The Iraqistan war(s), regarded as a major problem has cost something like 14 Billion to date. So Mr Brown is overspending at the level of war(s) like that every month. Does that make you feel comfortable.
135 rugbyprof
TUC - Takes the cheesy biscuit perhaps. Nothing would surprise me. When Lurd Meddlesome and Buoy George are capable of both being on board the same Russian owned yacht then anything can happen elsewhere as well. Normal rules do not apply, they are history, if they ever existed.
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'The "textbook" reason to pause would be that £200bn in asset purchases is enough. It may not be obvious right now, but that's just because the lead times are even more "long and variable" (in Milton Friedman's phrase) than usual.@
>>>>>>>>>>>>>>>>>>>>>>>>>
Stephanie
Isn't it obvious that QE is a HM Treasury 'spin doctored' initiative to try and keep the traditional GDP vital statistic north of zero just in time to try allow New Labour to spin its way through the next general election with a (technical) 'recession ended' slogan?
The prospect of a 'pause' is politician's spin language for saying there's no point spending on QE after e.g. February 2010 as the time lag effects of any QE spending at that time would be of reduced, if indeed having any real effect (on anything but banker's bonuses) until after the general election.
Isn't this what has been going on here - a great lie - trying to save 'Gordon Brown's bacon' with Mervyn King given instructions on what to do with QE when he is supposed to have 'independence'?
Isn't in true that HM treasury hatched the QE plot by seeking permission from EU central bank to operate QE as Gordon et al were nervous about upsetting the ECB and its 'red tape' and has made a deal behind the scenes for the UK to join the EU currency after the next general election?
QE stinks like the politician's 'bacon saver' that it really is!
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To all those people who claim “QE” has worked, please remember: we can only come to that conclusion if the economy manages to continue to function and grow after QE is completely withdrawn. I think we can all agree that we’re a long way from that.
Off topic: Bank lending: We, as a country, do not save enough as such there has been insufficient deposits to cover bank lending and hence banks had to find alternative forms of funding. One of the ways was securitization. If regulators want to tie gross lending to deposits, and not fixing the securitization market, banks will have even less ability to lend than during the credit crisis.
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144 Property prices in London, which is the driver for property prices nationally, are not solely a domestic issue....half of the property was bought by non-doms in some areas....so the price of property should be measured on international comparisons with other Leading World cities like New York ,Tokyo, Paris and Los Angeles, as much as on domestic earnings and on that basis it is not as dear as it was.
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147. At 4:27pm on 12 Jan 2010, onward-ho wrote:
144 Property prices in London, which is the driver for property prices nationally, are not solely a domestic issue....half of the property was bought by non-doms in some areas....so the price of property should be measured on international comparisons with other Leading World cities like New York ,Tokyo, Paris and Los Angeles, as much as on domestic earnings and on that basis it is not as dear as it was.
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Nonsense - London property prices are just prices they are not a driver. London has its own general level of property prices in the UK due to its unique size and other features
International comparisons are interesting for who ... non doms? Who have created much of the UK financial mess - or rather the lack of their regulation concerning their vulturised antics and hubris?
What are you trying to say?
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147 O-ho
20 million people live within commuting distance of Central London. I had a property in Surrey at one point. Just how many non doms are you suggesting keep house prices up in this 20 million catchment area.
Far from 'driving' national property prices the outflow of London money cashed in on property - the'Escape to the country' has screwed the affordability of countryside propetry for many local residents as rural economies simply do not provide the income to give acess to property purchase. I currently live rural, I know the problem as I live in that community.
You simply are picking what cherry you want in this. The young end of the population taking the main hit in this recession will further complicate the first time buyer scene just around the corner. Bearing in mind Mr Darling has noted that the main effect of job losses in the 90s recession was to create long term unemployed status for many, The risk is once out of circuit that you stay that way. Stretching retirement ages does not help.
But you may be right, I doubt it personally. As housing market health is probably linked to economic recovery (this is the previously stated view amongst some economists both here and in the US) and the housing market has a high risk of being quiet - then there has to be a high risk of the economy being quiet. This is the dichotomy the government has created and has to face. If housing is overvalued it has to drop before the economy restarts propoerly, yet putting measures or allowing events that in effect cause too rapid a drop in housing prices will bankrupt many households.
Therefore every effort will be made by BoE and HMG to have a gentle decline in housing prices. Buffering. This is fine, and for what it is worth I support it as a policy - I have no desire to see families bankrupted - but those very measures will defer the economic recovery.
The current measure is to have low interest rates and the BoE has stated that low interest rates are expected for some time. High inflation would get rid of the problem but high inflation normally has high interest rates associated with it so that route is not one to go down easily as high interest rates on mortgages would again force bankruptcy on many.
So I expect 5 to 8 years depending on inflation levels for the negative equity problem to disipate and property to drop back on the historic affordibility curve. Affordibility is multi-facet. If housing is linked to economic recovery then the spending cuts will have to enacted wholesale by whoever is in number 10 because the UK cannot chug along with deficits between 13 and 20 Billion GBP per month year after year. The game is already played, just the players have to move.
I hope your view is right, I would be only too happy to be proved wildly wrong. Time will tell. This however is the embedded problem with too high a obsession with domestic housing as a economic tool, which has clearly been the case for decades, starting with Thatcher. Ultimately relatively high house prices have no beneficial attribute for a nation, particularly if de facto manipulated by banks and planning policy.
The bite from this will be that many businesses trying to hang on for an uplift will not see it so more businesses will downside or fold. In biusiness terms therefore the only way forward is to do things differently in order to engage growth.
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145 nautonier
You know more about economics than I do I suspect but it has always seemed striking that QE was never far way from Darlings 2009 2010 revenue deficit and that public spending cuts could be expected vaguely as QE was wound down. QE is hole plugging in one form or another surely.
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150. At 5:54pm on 12 Jan 2010, riverside wrote:
145 nautonier
You know more about economics than I do I suspect but it has always seemed striking that QE was never far way from Darlings 2009 2010 revenue deficit and that public spending cuts could be expected vaguely as QE was wound down. QE is hole plugging in one form or another surely.
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I don't claim to know any more than anyone else but on QE it seems obvious to me (and I've been saying this since last January/February last year) and that is that the government's HM Treasury/ BoE intention has been on in using 'funny money' to stop the 'UK economy Brittania' from sinking too quickly as a cynical poltical ploy and to confuse highly paid city analysts/ economists by the score.
The government has largely succeeded in 'selling the lie' and one of the moments of reckoning appears to be approaching.
However, if the full story on QE does not unfold until after the general election then the government's criminal misuse of public funds will have got them past their target date of a general election, which I think has been their main intention all the way through.
Very cynical indeed and worthy of a public enquiry?
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riverside and nautonier
Yep.......
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#151 nautonier wrote
'Very cynical indeed and worthy of a public enquiry?'
Public inquiry? , just another gravy train
Public Inquiry
see section 11
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As to QE working: It certainly helped the banks. It does not appear to have helped the economy. The banks are doing well and the economy is not. Maybe some discussion of that disconnect is needed. But banks trade money and assets now and do not concern themselves with the daily financial problems or working people. This is about the wealthy and insuring that their assets are secure. They will get around to the little people in time, we should all be patient while they take care of themselves. Apprently stealing retirement accounts and investments came up short for the financial needs of banks. Seems the plan is to take care of the banks and everyone else should pray. This is all to encourage greater participantion in religious activities, our choice of course. As usual, the public is to look to the after-life because nothing will be done for them here. Give unto to Caesar......they will take the rest.
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#154
QE is working fine, look at the Japanese model.
Before they started it was called the 'nuclear option', the last tool in the box.
After slashing interest rates to effectively zero and providing fiscal stimulus through public spending and unemployment benefit/tax credits/vat cuts/scrappage that did not stop the freefall, nuking the economy was the only viable solution.
Rather than the nuclear winter that might have been envisioned we are headed into a type of perpetual autumn, no/slow/no growth, insufficient investment due to insufficient return.
Lack of growth due to lack of economies of scale due to lack of spend.
The fallout is poisoning everybody elses economy. (including the bric)
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#155: BobRocket:
Japan is about to bailout JAL and the economy is in a stall. I like the approach the Japanese government took in providing cash benefits to families, elimination of freeway tolls, etc. and that should provide some cash infusion into the economy. But Japan has issues with bureaucratic corruption and their bankers are no more honest than anywhere else. Japan does not appear to be doing any better than anyone else right now but I think they will come up with a Japanese solution which will be better than the Banker's Solution that will be followed in the West. Chinese data is like Chinese painting, meant to elicit an emotion, not be representational..
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The UK spent £200bn propping up our economy in the last year resulting in the economy only shrinking from +2 or +3% to -2% (about 5% shrinkage overall)
The US spent nearly $1tr and theirs shrank similarly
The EU spent somewhere in the region of E400bn and their economies shrank
The Chinese spent over $700bn and their growth rate shrank by greater than 2% (they were growing at over 10% and are now growing at only 8%, but they were growing, how long can that continue given the parlous state of everyone else ?)
So, about $2.5tn spent this year and growth globally was not happening, how long can we spend $2.5tn p/a to stand still, we are borrowing this money from future growth, where is that growth ?.
We seem to have 3 options
1. Stop and crash (and hope the reset is none too painful)
2. Continue with the slow wasting disease until it is too late
3. Go all out for growth (mortgage the future and hope it works)
There is a fourth option and that is to look on the bright side and hope everything will be ok. (I think this is really option 2)
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#147,148,149
One aspect of house prices that is never mentioned is the rather large pool of property wholly owned by people aged over 75.
There are several potential effects on death and estate settlement
a) assets sold and most proceeds are transferred to future generations early to avoid estate duty
b)property is sold to pay for care home costs
c) property is sold and proceeds distributed to pay off debts of younger generations
d) property is rented to provide additional income to future generations
e) prices are lower to enable swift estate settlement.
In any event, unless all assets are gobbled up to pay for care, future generations benefit.
I think we will see this increasing as the NHS cared for individuals gradually start to die in increasing numbers.
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BobRocket:
The above three options left out: revolution, which doesn't help the economy but tends to lift spirits. If there is an option that will work the more important concern is to make the changes that prevent it from happening again, and that has not been done. Bankers and their culpable political handmaidens that caused the problems have resisted every attempt to insure that the practices that caused the downfall are eliminated. All the same instruments are being used today. So, if everyone would like a boom, and I think they would, they must be ready for the next bust, which will follow. Bankers manipulate the growth, take as much as they can and divest themselves as much as possible before the bust and when all else fails, feed on public funds. They have more options as they own the government.
We don't know what would have happened if the banks had been allowed to fail. Maybe, better, more responsible banks would have formed and maybe legislation would have been enacted to protect the public and its money.
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#159 ghostofsichuan
Revolution is option 1, either before or after.
There is a fifth option, the one that bankers/politicians/the elite fear the most.
Peaceful protest in a consumer society.
Non-Consumption.
(they don't have a model for that)
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Dear Stephanie
We are continually told that the bonus for bankers is for the good work they do for the banks. Well as most customers of banks or the financial service industry will know we the customers do not seem to benefit from these so called best of the best i.e. pensions down shares down shortfalls on endowment mortgages etc .so it seems to me that yes they may earn the banks billions but what about working for the banks customers? It looks like the banks are completely detached from the customer and only interested in the shareholders the bank managers and the dealers a nice cosy little club.
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Thanks all for the great contributions to this blog....
#149 riverside
Great. My instant reaction to that post was the same. You've saved me some of the thinking and explaining required to correct our positive friend.
In my area (North East Scotland) you'll find property prices are not only related to the national trends but also the oil industry/price and local activity in this industry. Obviously oil has links to the wider economy hence the influence of national trends. Also, national effects of inflation, interest rates etc help corelate the two. But, it is certainly not led by London price! In fac, if it wasn't the residence of government and investors it would have no effect!
Supply and demand. We have a green belt which doesn't help, but I can't say I don't agree with it. It's helped maintain a green area outside the generally grey 'granite city'. Being a bit 'green' I like this but I can see why others don't. (Also, it's left a big space for the much needed by-pass which has been discussed for the last 20 years or so...green lol! like most it's generally when it's not too painful!)
Anyway, back to the point, when the price of oil/activity goes up, the demand increases hugely here as we see an influx of bodies from around the country (and world). Generally high earning, highly skilled individuals.
We have a very strong rental market due to these conditions. The prices (especially rentals) get dragged around by this and not by supply and demand in another part of the world. When it gets quiet we have overcapacity, rentals drop, wages drop, people sell up and leave. So,
obviously the overall property price drops.
late 90s through early 00's = money supply 'bubble' + oil price 'bubble' + TV induced develpment 'bubble'
The price rose at an alarming rate. Under supply/capacity was fuelling the fire of daft lending. Wages for those in the industry were going up and people could afford more. Housewives and those who fancied som DIY or painting and decorating took up a new hobby and made millions!
But what about those in public sector, low incomes or other industries.
Disaster!!.... Those leaving school/uni/college or on low incomes have ended up with no hope of buying a property here due to the prices.
I agree that prices are still way over what they should be, certainly in this area. Over the past decade we have seen a monstorous rise in prices. I've posted before that the average price to average wage ratio is a major problem. I just can't believe people see this ratio as irrelevant!
The oil price has dropped again now. Demand has certainly dropped in the area and housing prices have supposedly dropped. Many flats now sit empty in the city either newly built or being held by the cash rich investors hoping things bounce back.
Yet many of my hard working peers can only dream of being able to afford their own property.....those with one are probably glad of the low interest rates meaning they can actually afford anything but the mortgage for a change.
Now I know this may have happened purely because of the market conditions but I firmly believe the banks and market actually had a hand in creating the mess and made things much worse. It certainly let it happen!
Investors hold on...prices stay high to protect those already invested in the market. The market does slowly deflate but this is only caused by those forced to sell up to find a new job etc. To use the economists terms, volume is still low, those that are forced to move and take the loss backed up by the dafties in the cash rich group thinking we're over the hill! If the market actually worked in any real sense of the word, those people wanting a place of their own could buy one at the price they could afford!
On the flip side, the markets promotes overshoots in price caused by investors, accelerating growth to uncontrolable levels. When thigns are rosey, everyone jumps on, price goes up, investor sells up, someone else buys, makes a bit sells and round and round we go with the price rocketing up.
Investors don't help the market find the right price, they distort the price. They only notice they've messed up the economy once it turns up on their macro economics radar......most are focused on micro economiocs to make the big cash and are blinkered to what the numbers really mean! They only start complaining when the mess they've made causes their bin to stop being emptied or their (avoided) tax bill to rise!
(BTW as a side note...this bonus thing again today! Get a grip...don't give them their bonus...they leave...so what...means they take soemone elses job who has to leave and undercut someone else....this will filter through.......prices slowly go down! That's how the market these guys force on us works. Yet they'll try to resist market forces when it means a drop in income!!!!! Yes, the first bank may lose a few good-uns, but to be fair it's mainly down to luck as we've seen. A chimp makes money on a growing economy! The odd one manages to maximise this but really..... all of them???..... by that much?!?!?!)
So back to the 'real' issues! How do we make housing affordable to the 'workers' and give them the spare cash they need to make the rest of the economy work? As riverside pointed out, there's soooooo many pitfalls!
Deflation.....slow and steady wins the race in my opinion also!
Inflation solution = interest rates problems.
But......it also means pay rises (albeit lagging and maybe not for the masses. Otherwise, I might go this way as I indicated in previous posts).
But as I've said, I think the markets need a good going over. The issues I highlight with this market are applicable throughout. I'd much rather be discussing a new economic framework than the latest plaster. One which might help keep ratios like average salary to average house price within realistic levels.
In advance of any critics....thanks to modern tech, my spelling is bad, grammar worse! I don't have office on this PC, it's a long post and it's far too late to check every word in a dictionary!
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Perfect Bob #157 & 160!
I was closing to adding something similar to my last post but it was already an essay.
I think the problem was that if the banks had failed, they didn't have the money to cover the insurance we supposedly have if they do go down.....35k covered for each isn't it? And judging by the fact that alll the names boil down to about 2 real banks.......I think pretty much everyone with savings in the UK would have been claiming. That's some bill on top of a growing deficit...probably around the same as we've pumped in!
It's better to make it look like a bank failing and us bailing them out than Brown and co not having the pennies they need to honour their insurance pledge!
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153. At 8:02pm on 12 Jan 2010, BobRocket wrote:
#151 nautonier wrote
'Very cynical indeed and worthy of a public enquiry?'
Public inquiry? , just another gravy train
Public Inquiry
see section 11
>>>>>>>>>>>>>>>>>>>>>
Other than a public enquiry and voting them out at the next general election - there is very little we can 'conveniently' do otherwise?
When you have a government that continually screws up then of course all of this 'lesson learning' and system of public enquiries is a tremendous drain on the nations public finances and resources?
Even though the Iraq enquiry has been watered down by the government to save the bacon of those with blood on their hands - at least its ... 'something'?
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148 nautonier
Of course London is the main driver......people sell their 2 bed flats there and buy mansions in the Boondocks ..... ask Kirsty and co about White Settlers....... yes, they are back..... were you not one yourself, nautonier ?
And here is a perediction you can hold me to...... return to pre-crunch property prices by Spring 2011.
If not before.
And yes that means at least 10% house price rise pa.
It's due a bounce...... it was all getting a bit boring recently!
Boing, boing onwards and upwards!
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Don't forget the other main driver of houseprices in the past thirty years has been the increase in women in the jobs market.... my mum was forced to resign from her job when she got married ..... the percentage of working women is much higher in UK than anywhere else in Western Europe, so talking about prices relative to average income is not the same as household income.
And since prices reflect demand, one problem is that the young are much more likely to move into their own flats and houses , and less willing to stay at home or to flatshare. Also you do not see the big families you used to see with 6,8,10 kids.....there must be more disposable income if you have one or two rather than loads of children.
And all those split up couples mean two or more homes are required for the family or families.
And all those mums and dads buying flats for their student children....it was not all a bubble, there has been a huge demographic change. City centres have become more fashionable and more expensive because people actually wanted to live there.And class-blurring has meant that today's young aspire to owner-occupiership when renting would have been their aim in the past.And despite the recession, a lot of that has not changed and there is a pent-up demand and a lot of fence-sitting recently.And today's houses are much better equipped with fancy kitchens and extra bathrooms and are more luxuriously specced than in the past...no wonder everything got dearer..... today's young expect lots and have Banks of Mums and Dads to fund their deposits.
And when people have children it's school catchments which drive the market.And the psychology of thinking your kids must have a garden ....it was not overexuberant ,irrational lending, it was the increased priority people placed on housing and the sacrifices people were prepared to make to get on the ladder.
And the biggest factor of all in the housing market has been the fear factor..... it's not what you live in it is who might be next door.
After I got burgled and had my car windows smashed 3 times I moved, even though it quintupled my mortgage, and that security of mind was worth every penny whatever the interest rate was.
And a lot of these perhaps rather twee factors return to the fore and negate the effect of recession, which is what we are seeing.
And if people have not been moving they have been able to pay off bank loans and get their mortgages down, ready for the next move.
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102 Rugbyprof
Belated thanks for the link to the Nationwide graphs - sorry work interfered - as occasionaly it must. At least it wasn't during the Test Match....
I think they illustrate several key points.
1/ That property is historicaly a very safe bet and that is probably the single most important criteria for the non-professional investor that a house purchaser is.
2/ Corrections, even those allowing for inflation, are (in the context of 20/25 year mortgages) of short duration. The 4 to 5 year hiatus in the late 80s and early 90s being the longest for 50 odd years.
3/ That a graph comparing yearly actual values against a much flatter inflation trend line is misleading in so far as periods of high inflation (anybody remember those) make inflation adjusted "real" house prices look worse (in terms of consumer impact)than they were in the real world, where prices were actualy increasing at near or actual rates of inflation.
4/No graph explains the "Savings Effect". People borrow on long term mortgages as a form of compulsury saving. If at the end the day they own an asset, that in real terms is little more than inflation cover for the cash they've paid out, but which provides a lot of cash and removes the cost of housing from their personal inflation calculations most people will continue to purchase houses. Factor in the "real" cost of rent paid over the same period as an alternative to purchase (with no compensating asset at the end of it) and buying houses - in the UK - will continue to happen irrespective of where we are on the long term inflation trend.
5/The graphs really indicate how important inflation is as a driver for house prices, look at the flat curves for both housing and inflation during the 50s and sixties and the jump from 1970. We are, most would agree, due a dose of inflation (or stagflation) in the next year or two at above current levels. That will be a house price driver.
6/ During the big price dip (in real terms) in the 90s, other things were also happening - sharp increases in stock through the medium of council house sales and the final collapse of the heavy industrial sector - coal, steel, cars etc. We do, of course have a collapse now as well, but without the increase in housing supply.
7/ Extending the "real" graph with 2009 actuals indicates that prices remain about 12% (£20,000 average) above the trend at the end of the year with house prices increasing at faster than the rate of inflation. IE it's moving away from the trend in a positive direction.
8/ Looking at the shape of the "head and shoulders" on the graph and comparing it to the 90s shape, some chartists would undoubtably be getting excited by the fact that it already indicates that the market has bottomed, but as I said other factors also apply. Any professional chartists out there?
9/ Can't find out which measure of inflation they used RPI or CPI, not critical, but would be interesting to know.
I think we can agree to agree on the facts - but I'm still happy that my reading of the tea leaves (and it's no better than that) leads me to believe that house prices will continue to increase, maybe at a slower rate in 2010 (than 2009), but I still reckon that it's not a silly bet to go with london prices back to 2007 by year end. The rest of the country about a year behind.
Just one further thought on the blogger on Aberdeen housing - it was always thus, certainly since the 70s in Aberdeen and local conditions will always override the average. Location, location, location is a mantra with meaning.
Good blog folks - gotta go to work now....
TM StH
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"The "textbook" reason to pause would be that £200bn in asset purchases is enough. It may not be obvious right now, but that's just because the lead times are even more "long and variable" (in Milton Friedman's phrase) than usual."
Oh Stephanie - don't discredit yourself by quoting Friedman - the master of deception. Implying a pricing theory replaces the underlying value theory and that we can control Capitalism simply by controlling the money supply (but not asking why the money supply gets out of control in the first place - that would be too hard) - is like a bad Doctor handing you a tissue as a 'cure for the flu'.
....anyway - we don't need to worry about QE anymore because the NIESR have 'predicted' a 'past result' (which I would have thought was rather tricky to do) and apparently we have already 'returned to growth'.
Oh joy of joys - after a year of contraction we are predicting a Q4 growth of 0.2% - just like there was a huge fanfare about Germany 'coming out of recession' last year - despite the overall picture for 2009 being a contraction of 5%.
This is how bad it's all got, the prisoners (who are running the asylum) have resorted to bending all evidence they can to convince us that:
a) They are back in control
b) Things are turning around
Neither of these facts are true - but look how hard the world is trying to convince you and me that they are.
When we 'slip back' into recession then the media and Government will have their excuses ready - 'Double dip' they call it and expect to hear the phrase a lot over the next few months.
In reality there is no double dip - it's the same recession but a short period of 'growth' or 'near growth' has occurred because the UK has printed about an extra 7% of it's Economic value - and in return we have seen (at best) a 0.2% growth over Q4 and a whopping 4.8% contraction over the year.
Yes folks - your eyes do not deceive you and nor does your maths.
When you add 7% to something and the total reduces by 4.8% that means you have actually lost 11% of the original total - a much worse number than mentioned by any Economist - or the people who report on it - and also (co-incidently) the loose criteria for a DEPRESSION
....of course you won't be reading that in your paper tomorrow....
The BoE have no chance of controlling the beast and any attempts to do so will fail and possibly create bigger problems.
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Onward-ho comment #166
Nice theory but complete bunkum..........
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169 Rugbyprof Mr ho 166
every theory needs a bit of bunkum...keep up the fight.
TM StH
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165. At 2:40pm on 13 Jan 2010, onward-ho wrote:
"Boing, boing onwards and upwards!"
Is that like the 10 year boom we just experienced that 'would never end'?
Didn't we just 'solve the Economic management of the country - seeing an end to Boom and Bust'?
If I throw a ball in the air - will it keep travelling upwards if I want it to?
Do you know what the 'long term average' of house prices is? - or does it not matter?
I don't think London is the driver anymore - considering it has lost the most jobs (well the financial ones) so far - the market is already falling (unless you listen to estate agents).
Houses on the market are certainly heading back to pre-bust levels - but as someone who sees the inside of this market I am well aware of how many 'met asking prices' are being rejected by nervous surveyors and more importantly mortgage providers - which is causing a record number of purchases to fall through or to be re-negotiated just prior to exchange.
I know of a property developer who is currently in battle with one of our 'nationalised banks' over a valuation which was done in 2007 when the mortgage was agreed in principle - unfortunately a re-valuation was requested by the lender and lo and behold the valuation is down by 20%.
As expected the lender is now threatening to walk away (because they have just remembered what 'Risk' is) - but this deal is so far down the line if it fails it will bring down the developer and all the properties owned will default or have to be sold.
This has been going on since late 2007 - but your attitude seems to indicate that at the start of a recession everyone defaults who is going to in the first 3 months and then it's "all back to normal" within 5.
Oh how wonderful it must be to live in such ignorance of the fate that awaits us all.
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Nice to hear from you WOTW 168
Remoteislander #167
I trust that your interpretation of the data is correct for the benefit of many..............
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166. At 3:48pm on 13 Jan 2010, onward-ho
What gibberish!
My favourite piece of nonesense was this line:
"And today's houses are much better equipped with fancy kitchens and extra bathrooms and are more luxuriously specced than in the past"
Have you ever seen a new build flat? Sure the penthouse might be spacious but people looking at flats are more likely to take ex-local authority these days for the very reason that the new build flats are tiny and the same for new build homes.
Bank of Mum and Dad providing the deposits - well that situation just got 10 times worse with a 40% deposit required to get a half decent rate. Once again, BoM&D only works if you have rich parents - just another way of ensuring the inequality of wealth remains.
....but when you have nothing to provide in society the only way to maintain your position is through inherited wealth.....much as the bankers ensure they aren't challenged for their positions by maintaining the old boy network.
Capitalism or Barbarism? The only difference is in Barbarism you use a club to oppress!
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173 WotW
Debt is the new facism, That is why school leavers are encouraged to immediately enter debt.
.............
Remoteislander and O-Ho - You are either right or wrong and I am not bothered either way. Are you.
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171 - I'd agree with most of your post. There are many individuals and companies out there in default but the lenders don't want to recognise this formally because they take a dunt to their balanace sheets and they want to avoid calling up security now in the hope that asset prices recover.
More generally, I can't see the current house price recovery continuing. You only have to consider interest rates creeping up again, tax going up, more unemployment (particularly in the public sector), public sector cut backs, petrol prices on the rise again, gas prices rising (and higher than normal gas bills after the cold snap). It all adds up to a fall in house prices over the next year or so. I can't see the BoE being able to reflate prices with more QE. It will result in sterling devaluing further and there is only so far sterling can be allowed to be devalued to help exports without creating other problems particularly given that we import so much (including food).
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165. At 2:40pm on 13 Jan 2010, onward-ho wrote:
148 nautonier
Of course London is the main driver......people sell their 2 bed flats there and buy mansions in the Boondocks ..... ask Kirsty and co about White Settlers....... yes, they are back..... were you not one yourself, nautonier ?
And here is a perediction you can hold me to...... return to pre-crunch property prices by Spring 2011.
If not before.
And yes that means at least 10% house price rise pa.
It's due a bounce...... it was all getting a bit boring recently!
Boing, boing onwards and upwards!
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
I'm not a Londoner myself although I think that your optimism is misplaced - residential property markets will always have 'hotpsots' on prices but I think it is a few years probably 5-10 years before the market could be in a position for a general property surge bubble like we had leading up to 2007 - and perhaps 'never' if a new government this year properly regulates the banking system. A stable economy needs low inflation and a house price growth to match otherwise property will become unaffordable for most people.
Commercial property yields were inflated by local/regional hotpspots and local monopolies and idiosyncracies on size/location/construction etc but again I think that some sectors of the commercial property market will come back strongly on prime sector categories but a lot of commercial property such as offices is over-built and again the recent property bubble may never return as banks will not be as keen to encourage the compression of yields as was doen previously, if the regulators do their jobs properly.
In other words, I think a general property boom scenario is most unlikely and/or several years away.
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175. At 5:18pm on 13 Jan 2010, nedafo2 wrote:
"171 - I'd agree with most of your post. There are many individuals and companies out there in default but the lenders don't want to recognise this formally because they take a dunt to their balanace sheets and they want to avoid calling up security now in the hope that asset prices recover."
What you have described there is the behaviour of a depression - holding off the asset revaluation only means there is a long, slow decline rather than a short sharp one (which is hopefully followed by a return to growth) - because at some point someone has to foreclose.
Delaying and postponing the problem in this case will simply make things worse at the macro and micro economic level - the United States are going to give us all a lesson in 'how not to fight a recession' at the Macro level.
Oh there is definitely going to be a turn in the market this year - but how much is anyones guess. It may fall like a stone as the stamp duty holiday has gone which brought forward the demand for 2010 (my sister completed a few weeks before christmas for this very reason - and she wasn't planning to buy until 2011) - or the market may be further boosted as a falling sterling means rich foreigners can come to England and purchase twice as much as they could do before - and probably will.
Whilst this will provide a nice story for the media (house prices rising) it won't be beneficial to the people who live here and it won't solve the long term problem of FTB's being unable to purchase (and all demand begins with the FTB - too many people forget that fundamental)
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As I understood it I thought QE was a very temporary "Pump Priming measure" to bring medium term interest rates by increasing demand for such securities at the bottom of the interest cycle. But once the economy picked up the whole process had to be reversed almost immediately to prevent inflation. If that is true will we not go from a situation this year when almost all goverment debt is being purchased by itself to one where not only will the BOE stop purchasing goverment debt but will very soon after that actively sell it into the market. Thus requiring the market to absorb close to £400 Billion of goverment debt in about 1 year.
This can't be good can it?
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174 erratta
facism should be fascism
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173 writingsonthewall
"Have you ever seen a new build flat? Sure the penthouse might be spacious but people looking at flats are more likely to take ex-local authority these days for the very reason that the new build flats are tiny and the same for new build homes."
Absolutely. Hence the rise of the "living space" - aka kitchen-diner-lounge. Did you see the documentary just before the crash in which they took the lid of these "investment properties"? Doors were not fitted in the show flats so viewers weren't aware the doors would not open fully when furniture was fitted. And some companies had bespoke furniture made at 75% of real size to give the illusion of bigger rooms. (Like MFS furniture adverts in reverse).
As for prices returning to pre-crash levels, I can't see it. There are thousands of tiny city centre flats in Leeds/Manchester that were selling for £180-200k. But who will buy them? Young professionals with £25k student loans and earning less than £20k? Or families with some equity and no debt(a rare breed) looking to move somewhere bigger with a garden for the kids...
171 WOTW
Economists watching the US are predicting a further 15% drop in house prices there. 300,000 homes a month are being repossessed now - despite all the stimulus packages. If the 2008-2009 mortages that are due to reset this year to higher interest rates fold, then we are basically back to where we were pre-stimulus - except a whole lot poorer.
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#165. onward-ho wrote:
"And here is a prediction you can hold me to...... return to pre-crunch property prices by Spring 2011.
If not before."
According to this evening's Evening Standard, residential property prices in the prime areas of London - Kensington, Chelsea, Mayfair, etc. - have already returned to, and risen beyond, their 2007 pre-recession peaks. Other areas in the capital are not far behind.
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181 rbs_temp
"According to this evening's Evening Standard, residential property prices in the prime areas of London - Kensington, Chelsea, Mayfair, etc. - have already returned to, and risen beyond, their 2007 pre-recession peaks. Other areas in the capital are not far behind."
Excellent! All we need now is a return to 125% mortgages and we'll know the economy is really booming! Then we can just load the mortgage debt onto all those empty container ships going back to China and the trade deficit will be squared off too!
Those Chinese aren't as smart as they make out you know - giving us all the consumer goods we can buy on their credit in return for our manufacturing jobs - when the REEEAAAALLL economy is in property speculation! Ah, but they'll be sorry when my property is back to 10 times my salary, yes indeed, then they'll wish they lived in the UK...
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176. At 5:24pm on 13 Jan 2010, nautonier
Between the year 2000 and 2007 the growth in commercial property prices far exceeded the growth in rental income. Historically commercial property prices were linked to their respective rental incomes. This link was effectively severed, because speculators believed that the increase in capital value would make good the relatively low rental return.
The credit crisis in late summer 2007 caused a tightening of lending institution criteria. The end product was a contraction in the money supply. As a consequence ‘speculators’ left the market and commercial property tended to be bought more by ‘investors’.
Investors differ from speculators in that they require a given rate of return on their investment and expect capital growth to be in line with general inflation. Therefore whilst ‘speculators’ were prepared to pay 20 – 25 times the rental income for a property because they believed that capital values would increase by over 10% per annum, ‘investors’ are only prepared to pay up to say 12.5 times rental income, because conversely they believe that capital growth will simply mirror general inflation. The difference between the ‘speculators’ approach and that of the ‘investor’ has led to a significant fall in sales prices, in essence around 50%.
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Questions for QE?
Well the government 'spin machine' is still working well - many of us have got distracted here away from 'quantitative sleazing' and the government lies over a message about and end of 'technical recession'.
We can't really question QE as the 'devil is in the details' and which are closely guarded 'secrets' as coveted by a small army of BoE/Treasury officials and City 'yes' men (and maybe some women?)
Perhaps the government should open up the QE books and other public accounts for public scrutiny before the next UK general election?
What also puzzles me is all this talk about 'investment - v - cuts' whcih is nonsense. Investment is a financial term that has been hijacked by lefties to refer to any amount of money that is spent - remember the US Worldcom Inc. 'fiasco' - their company accounts showed that their accountants had been booking e.g. employee expenses spending as 'investment' to boost the accounting revenues of the corporation.
I hope that the next time that a politician spouts on about 'investment' in e.g. public services that they produce a full investment calculation in support of their bunkum twaddle talk so that we can all have a real good laugh! (although the figures will probably exist in HM treasury and which is part of the black hole of UK government finances and again it looks like more figures need to be made public before the next election).
A major problem is that when some if not all of the politicians use the term 'investment'(e.g. Balls is a major offender of misusing the word out of context and unsupported) - the journalists do not challenge what is said on e.g context, application, calculation method etc etc. regarding the investment.
Some of the alleged 'invstments' must have a huge range margin of error, risk and uncertainty as the main inputs, outputs and variables are not even defined?
More government twaddle and spin that we all just accept and is left unchallenged even by the opposition parties.
What is QE? - Gordon Brown describes it as 'investment'?
I think that its all risk and debt?
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183. At 9:18pm on 13 Jan 2010, Dempster wrote:
176. At 5:24pm on 13 Jan 2010, nautonier
Between the year 2000 and 2007 the growth in commercial property prices far exceeded the growth in rental income. Historically commercial property prices were linked to their respective rental incomes. This link was effectively severed, because speculators believed that the increase in capital value would make good the relatively low rental return.
>>>>>>>>>>>>>>>>>
You've left out the ridiculously easy access to a flood of bank capital for lending for most borrowers but otherwise - Yep - So where does that leave us now?
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http://news.bbc.co.uk/1/hi/business/8455603.stm
Will the Americans accept 'responsibility' or will they say ... Gordo caused 'it'?
I'm sure there is still no US/UK/global agreement on that critical moment or trade that actually caused 'it' - in theory - 'it' must have been a single event happening in one country and not a series of events happening simultaneously around the Globe as Gordo claims?
I still think that Gordo caused 'it'! He oversaw the City of London get bigger and fatter and bigger - so that he could milk those trades of those big British and US companies?
Twas Gordo that did 'it'!
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186. At 9:53pm on 13 Jan 2010, nautonier wrote:
http://news.bbc.co.uk/1/hi/business/8455603.stm
I'll bet £20 the conclusion is "lax lending in the mortgage market caused by lack of suitable regulation.
Solution: Bigger and more expensive regulators - "super regulators" - more taxes to pay for it pleeeease.
However, this will be the wrong conclusion, simply because no one will dare ask "why did the financial industry feel the need to lend so carelessly?"
...to which the answer is - chasing a diminishing profit. The world of finance is simply a reflection of the means of production. It lives by extracting wealth from the process of production by charging a fee (interest) for allocating resources (loans / money) to businesses. As the producing businesses suffer the 'never gone away' tendency of the rate of profit falling (as first mentioned by Adam Smith) the profits of the banks reflect this.
Eventually the banks have to find more customers as volumne is the only salvation to the rate of profit declining. As the margins are squeezed and more risky customers are found the results are obvious.
Even if you don't subscribe to Marx's surplus value theory - then the tendency as pointed out by many Economists explains why banks always stretch their lending criteria over time. You can argue all day about the causes of the rate of profit to fall - but know that the profit does fall and this leads to 'banks behaving badly'.
If you are old enough to remember the 90's recession the 'cause' was again found to be lax lending criteria by banks - they were extending the salary multiplier at the time - up to 6x lending - in fact I'm sure Norman Lamont made a comment about this at one point (although I may be wrong)
The same symptoms and the same cause - but if they actually get to the cause then they will realise this system has to go - that is why they will re-describe the symptom of 'lax lending' to make it look slightly different from all the other times and the public will suck it up like a dry sponge.....or will they this time?
...now how much do you think the US will spend on this investigation before coming to the wrong conclusion?
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A few months ago I was arguing the Spanish banking system was not as stable as being portrayed in the media - specifically I said all the local banks are sitting on the losses hoping the recovery will kick start very soon - but that Economic fundamentals were going in the opposite direction.
Well it looks like the gane is up now - here comes the next problem for Europe to deal with. Still being ignored by the UK media - why? well have you seen who is now one of the biggest high street banks in the UK???
....which is why I reduced my total savings exposure to that bank dramatically 2 months ago.
They still think they can 'lie their way out of recession' - as long as people believe their money is safe then they will leave it in the banks - once they realise the risks the banks are facing (as more struggle) then we shall see how quickly confidence evaporates.
http://www.elliottwave.com/freeupdates/archives/2010/01/07/The-Coming-Housing-Crisis-in-Spain-and-What-It-Means-for-Europe.aspx
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Want some more evidence of the way the elements of the system combine to decieve you all?
Well have you seen how many reports there have been regarding Christmas sales from retailers already this year? In a change to previous years it looks like every major retailer's results will be published in their own seperate news article - such is the focus on making this into good news.
All sales up - so what's the problem?
Did anyone see the pre-christmas discounts, or the post-christmas discounts?
Your sales can be up 20%, but if the items you're selling are at half price the situation is not as good. The decline in prices is deflationary and I would not bet against the inflation figures being low (despite the re-application of VAT) and the BoE will switch the presses on again later this year - possibly with an excuse of "avoiding the double dip recession".
If you look at the reports carefully you can see all the pieces being lined up for this. Don't forget there's an election coming and the Economy is always the number one issue - the consequences of long term damage to the Economy will seem insignificant to the damage of not being elected (to a political party) - so where do you think their loyalties will lie........?
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187. At 08:37am on 14 Jan 2010, writingsonthewall wrote:
186. At 9:53pm on 13 Jan 2010, nautonier wrote:
http://news.bbc.co.uk/1/hi/business/8455603.stm
I'll bet £20 the conclusion is "lax lending in the mortgage market caused by lack of suitable regulation.
>>>>>>>>>>>>>>>>>>>>>
Yes - that's a major factor?
Solution: Bigger and more expensive regulators - "super regulators" - more taxes to pay for it pleeeease.
>>>>>>>>>>>>>>>>>>>>>>
Yes - we already have these like the USA - and they are next to useless
>>>>>>>>>>>>>>>>>>>>>>
Other factors - market risk, uncertainty, corruption, political donations, banking monopolies, technological risk, tax havens, accountancy, lack of competition between bacnks, lack of responsibility and accountability, lack of shareholder involvement etc.
'
IF the UK is dependent on QE to come out of 'technical recession' than I would argue that the UK is not out of any kind of recession and the economy will 'double dip' when QE is withdrawn in the absence of a radical change in national economic management and/or genetal improvement in global economic conditions.
The question for the Americans is did the presence of UK banks, like RBS buying secruritised assets in the USA create the finance bubble that encouraged the US banking system to leverage itself out with financial instrument and other exponential risk - that sent fincail shock waves around the world.
If that is the case then the finacial crisis did not start in the USA as Gordo has repeatedly claimed - it started in the boardrooms of UK based banks making decisions to expand their business most unwisely in the USA with the 'tripartite goon show' standing idly buy while we as taxpayers have been indebted and leveraged to oblivion.
We may not have the highest % on national debt as a G20 nation - but the UK is the least well prepared to manage the massive national debt that we have due to the other deficits ravaging our economy including tax base/UK spend deficit, import/export deficit etc - so international comparisons based on % of national debt are meaningless in context and in terms of UK readiness to improve the UK economic environment and finances.
This all indicates gross mismanagement of the UK economy.
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WOTW - one of the problems with more QE in my view is what it does to the remaining credibility of sterling. Although a further devaluation will no doubt help exporters, it does create other problems. We have lot of people living on the edge of solvency in this country and a further devaluation of sterling pushing up the cost of food and other essentials (most of which are imported) could be catastrophic. Of course, the government could increase benefits etc to help them but where does it get the money. Notwithstanding all the talk of deflation, this sounds like the start of an inflationary cycle to me.
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185. At 9:42pm on 13 Jan 2010, nautonier wrote:
'You've left out the ridiculously easy access to a flood of bank capital for lending for most borrowers but otherwise - Yep - So where does that leave us now?'
Fair comment, I have left out ridiculously easy credit, but that is why speculators believed prices would rise faster than inflation.
Go back 20 years and the yields and years purchase multipliers for commercial property in the northwest were roughly as follows:
Houses in multiple occupation (bedsits) yield 25% YP 4
Basic terraced houses and flats yield 15% YP 6.66
Small shops on short leases yield 14% YP 7.14
Small shops on long leases with regular rent reviews yield 12.5% YP 8
Small quality commercial on long leases with good tenants and regular rent reviews yield 10% YP 10
Commercial properties with blue chip or Government tenants on long leases yield 8% YP 12.5
Remember interest rates were much higher and the yield is gross (pre management costs, un-let periods etc.)
In any event if interest rates rise then the current YP multipliers may fall further, bringing capital values down with them.
In respect of rents, it really depends on what it is, but offices have been crucified where I live, there simply is very little tenant demand at the moment.
In any event there may well be a way to go in all this yet.
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Crikey, how did we get on to housing. Everyone knows that house prices will not go up in the foreseeable. Either the prices will have to fall to levels affordable to FTB's, or wage inflation will have to catch up. Of course, assuming the lenders take a responsible view from now on in!
Now depending on how/if/and when the government go about reducing the deficit will probably determine what happens to wage inflation.
Surely the QE digital money ended up on the balance sheets of the FTSE companies, including retailers, who could then afford to discount their prices leading up to Xmas?
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To nautonier and WOTW
The DMO has (according to Mr Peston) around £200 billion to shift this year.
Common sense suggests that this is likely impossible……… unless the Bank of England buys them of course.
Projected tax receipts in 2010 – 2011 = £400 billion
Projected Government spending 2010 – 2011 = £600 billion
There’s a £200 billion hole that has to be filled.
You could cut public expenditure, but that means sacking around a quarter of the public sector workforce. And let’s face it, that won’t go down very well.
You could try and borrow it by issuing gilts, but evidence suggests that there simply isn’t the demand for £200 billion worth of UK fixed interest gilts, and if there was, all that would happen is that the UK would fall into a compound debt trap.
You could print another £200 billion to fund the shortfall like last year, but then sterling’s value will likely fall further, and anybody holding fixed interest gilts will fall out with you in a big way.
No matter which way you look at it, there’s one heck of dilemma facing whoever gets in power at the forthcoming election.
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I found this poignant paragraph in a news story somewhere:
"Britain’s labour movement now has it on the full authority of Lambeth Palace that the idea of unlimited economic growth is a fantasy, a revelation that a nodding acquaintance with Marxism could have made available to those assembled somewhat earlier."
Which means if the politicans had bothered to read Marx then they would have known what they are now just admitting is true - growth cannot keep increasing forever in the same way a ball thrown into the air on earth will not continue travelling upwards.
...now how much have we 'paid' these politicans over the years for their lack of knowledge on such important matters?
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191. At 10:16am on 14 Jan 2010, nedafo2
True, true, but I believe there is a tipping point in QE where the devlauation of sterling ensures that import prices rise (inflationary) but if these imports are essential (especially if we cannot produce any quantity in this country) - then more and more income is spent on these imports ensuring more and more wealth leaves the country - which also means less and less spent on internally produced goods - which will force prices downwards of those goods. The internally produced good cannot rely on imports in the production process - they must be fully resourced here.
It all depends on whether the goods we manufacture are essential - or whether we generally make luxury items in this country and import all of our essentials.
I don't have the answers to this but a lot of it will depend on whether oil is an imported luxiry of a necessity as that will be the one we feel the most, as soon as oil is no longer priced in dollars.
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Ms Flanders wrote:
'As I've said, if they decide not to authorise further purchases of assets, they will want to explain that a pause in QE does not necessarily mean the end'
I don't agree, they either have to carry on with QE, or stop it complete.
You can't expect foreign investors to buy fixed interest gilts with the potential for more QE in the pipeline, because it will devalue what they're buying.
How can they price the gilt if the BOE could devalue it substantially by printing more money?
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WOTW - undfortunately, I'm pretty sure that we tend to import a lot of essentials and export a lot on non-essentials although I don't have the data to hand. If this is correct and we do in fact import a lot of essentials including food and increasingly energy as production from the Northn Sea declines then one effect of this is that the poorer sections of society will suffer disproportionately from sterling devaluation.
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198. At 11:19am on 14 Jan 2010, nedafo2 wrote:
"one effect of this is that the poorer sections of society will suffer disproportionately from sterling devaluation."
Absolutely true - but luckily the poor know what to do when they are forced to suffer - revolt.
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To WOTW: banks holding on to property waiting for an upturn is happening here as well.
To Nedafo2 one effect of this is that the poorer sections of society will suffer disproportionately from sterling devaluation.
Not just the poorer sections either.
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If the shortfall of tax income relative to spending is about 1/3 of spending (and I agree with Dempster's estimate that it is), that's not far beyond the savings that could be made just by eliminating waste in our public administration.
If our government cannot see their way through that, they deserve all the suffering that they should get, but will actually pass on to us.
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201. At 12:53pm on 14 Jan 2010, WolfiePeters wrote:
'If the shortfall of tax income relative to spending is about 1/3 of spending (and I agree with Dempster's estimate that it is), that's not far beyond the savings that could be made just by eliminating waste in our public administration'
Good point, but what one sees as waste, another sees as their wage.
Ultimately, unless they intend to print money to fund Government next tax year or plunge us into a debt spiral, there are likley to be an awful lot of very unhappy people.
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192. At 10:32am on 14 Jan 2010, Dempster wrote:
185. At 9:42pm on 13 Jan 2010, nautonier wrote:
'You've left out the ridiculously easy access to a flood of bank capital for lending for most borrowers but otherwise - Yep - So where does that leave us now?'
Fair comment, I have left out ridiculously easy credit, but that is why speculators believed prices would rise faster than inflation.
Go back 20 years and the yields and years purchase multipliers for commercial property in the northwest were roughly as follows:
Houses in multiple occupation (bedsits) yield 25% YP 4
Basic terraced houses and flats yield 15% YP 6.66
Small shops on short leases yield 14% YP 7.14
Small shops on long leases with regular rent reviews yield 12.5% YP 8
Small quality commercial on long leases with good tenants and regular rent reviews yield 10% YP 10
Commercial properties with blue chip or Government tenants on long leases yield 8% YP 12.5
Remember interest rates were much higher and the yield is gross (pre management costs, un-let periods etc.)
In any event if interest rates rise then the current YP multipliers may fall further, bringing capital values down with them.
In respect of rents, it really depends on what it is, but offices have been crucified where I live, there simply is very little tenant demand at the moment.
In any event there may well be a way to go in all this yet.
>>>>>>>>>>>>>>>>>>>>>
Yep - 20 years ago UK population was just over 50 million - staggering increase since then - and we now have the internet, 1996 Housing Act making it easier to let houses and have had a flood of non dom vultures and foreign money and a limited supply of bulding land - but we still have a local/regional/ national housing shortage with unlimited population growth
Yep - back then people moaned the same but I think most felt better than they do now and housing was still reasonably affordable compared to average incomes - what has changed - the sell out of the UK to every kind of foreign raider, has continued unabated as part of Gordo's accelerated globalised decline of the UK - England particularly!
The property price pattern will, I think, be very patchy overall going forward but not a great deal different without a further economic catastrophe but it wouldn't take much in terms of events e.g. bad economic management to freeze the market and increase stagnating effect of for the UK generally 'drifting.'
Radical housing policies are needed to make better use of what we have rather than keep building more homes away from where people need them and in the middle of nowhere requiring more loss of agricultural land and more cars and roads.
Shelter say 800,000 empty/unfit houses in the UK? Why doesn't the government deal with the big issues instead of making timely political apologies and spin-meistering?
Remember that if house prices do increase - many in the Labour party want to tax the increases in ordinary house and property prices so if the housing market does recover strongly within our lifetimes, and the labour loonies are in power - hold onto your wallets like a banker's barnacled fingers on the money tills!
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187. At 08:37am on 14 Jan 2010, writingsonthewall wrote:
186. At 9:53pm on 13 Jan 2010, nautonier wrote:
http://news.bbc.co.uk/1/hi/business/8455603.stm
I'll bet £20 the conclusion is "lax lending in the mortgage market caused by lack of suitable regulation.
Solution: Bigger and more expensive regulators - "super regulators" - more taxes to pay for it pleeeease.
>>>>>>>>>>>>>>>>>>>>>>>
Yep - the US/Fed have come to that conclusion but in terms of action - they do seem today - to be going further and now taking some direct action in the major wholesale finance markets with taxation and interestingly that this will also catch the UK and other foreign banks - so the US appears to recognise that it isn't just a US issue?
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Article in the Telegraph today
http://www.telegraph.co.uk/finance/markets/6983025/Debt-market-Demand-for-10-year-gilts-falls-on-MPC-remarks.html
There was decent demand for the £2.25bn worth of 2049-dated gilts sold by the Debt Management Office yesterday.
Matteo Regesta, a strategist at BNP Paribas, said: "The auction went pretty well. People had made room for it by selling long maturities to the Bank of England yesterday."
Now what happens when the Bank of England ends QE and isn’t buying gilts any more?
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202. At 1:46pm on 14 Jan 2010, Dempster wrote:
"'.... the savings that could be made just by eliminating waste in our public administration'
Good point, but what one sees as waste, another sees as their wage. "
To some extent yes, but by no means entirely. See my previous post and the books by Chapman. Reduction of overmanning in the public sector is something that needs to be done, though I prefer to see public employees efforts transferred to productive activity rather than the dole queue. And, apart from manning levels, Chapman lists a lot of other ways state money is consumed without producing any public service.
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Thanks to all - so much worth commenting on....
165 O'ho (the Irish optimist), 181 rbs, 182 AtheP - I struggle to understand why some find the facts are so difficult to accept. We had all this "prices are going through the floor on property" this time last year and some us chose to disagree. The reasons why we (or at least I) disagreed are outlined in some detail in my blog 167 (and a few more over the last couple of years!). The reasons haven't changed so my conclusions remain the same. 174 Riverside - I invited you to give a better explanation (than I did) of why domestic property prices are where they are. I even promised to be rude to Onward Ho if you could. All I get as a response is this drivel. Get an intellectual grip.
177 WOTW - Useful blog in many ways, not least because (inadvertently I think)it demonstrates exactly what I always say about the domestic property market. Your sister's behaviour is entirely illogical - at least on your analysis of the market. It's spot on for mine. The relatively small saving that Stamp Duty would represent is dwarfed by the huge saving she would have made in the 20% drop in value you forecast for later this year. It's because the market is made up of an awful lot of sisters and very few dealers with supercomputers that the market works as it does. It's unique. QED.
The British property market will collapse when the British economy does. Let's be clear on what that would mean. That supermarkets would be replaced with grow your own. That we would all give up the private car. That air travel will cease. You'd have to knit your own suits out of re-cycled pet plastic bottles. Look - it's going to be bad (anybody out there old enough to have - like me - worked through the 3 day week and the winter of discontent?). Terrible times, but I doubt if it's going to be as bad even as that. Oh - and by the way - that period hardly put a dent in either of RugbyProfs house price graphs.
What I suggest to all the more pessimistic of a great bunch of bloggers is this. The fundemental robustness of the real economy is grossly underestimated. If you think Morrisons will stop delivering the 44 different sku's that just Tomatoes represent, to their supermarkets in September 2010 and can show me the detailed run of events that would make that happen - then sure - we'll have Armagedon and you'll be right. If you can't (and please don't just feed me opinions based on macro-economic guesses), it just won't happen. Please lighten up.
183 Dempster, 185 nautonier - it leaves us exactly where we are (and great to have a blog with real numbers - Riverside doesn't appear to believe the Land Reg stats for prices and volume...), which is with a lot of empty sheds and offices that will remain empty until some real growth happens (as opposed to a return to status quo ante). As you say, commercial rents already reflect that. My rent renewal negociations were fun last year, and were one of several factors that drove down our fixed costs below '08 levels. In any event what happens in the Commercial market has little or no impact on the domestic market.
Have we done property to death now? Remember - to find out what's really going to happen - ask your sister.
Cheers to all.
TM StH
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Funny how 'no one' is likely to have a clear ... no not even a murky idea on whether QE has 'worked' (as one of Gordo's 'investments') until - after the next general election.
I wonder what the target IRR is on the project, being as the Treasury/BoE have probably spent several million pounds of taxpayers money on supporting professional/technical/legal advice and fiscal projections on the 'QE investment'?
Perhaps we can see this and related QE data/investment projections before the next general election as it should not be sensitive government data if as Gordo says ... it is a UK public 'investment'?
Then we might better understand 'el Gordo' - the financial genius - saver of 'Gordo's bacon' and as to whether the figures 'stack up'?
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No 207 ..RemoteIslander--- I have always felt the whole 'property market' thing in the Uk is one big reason why our own investment in productive businesses has been so low.
Just now the housing market (Commercial property just is so Cream-Crackered nothing can support that) is supported by QE money which, as far as I can see, is just a continuation of the same old ongoing lax credit 'boom' rather than a 'new' asset price bubble.
The global crash (which was basically 'Made in the UKSA') has hit us hardest precisely because our economy is the most dependent of all on rising property prices, in order to 'underwrite' the debts we've dragged from an increasingly distant future.
And (in the real world, at least the one I live in ) I hear all the time how worried everyone is about what will happen when QE stops...and the public sector cutbacks REALLY begin.
I also think that in the real world more people are realising that investing all our hopes in property, and then deluding ourselves that we're insightful and perceptive investors, isn't the solution---it's the problem.
I just hope the Chinese figures on their own economy are true.
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Re: (i) property prices
Going back to one of my earlier comments at #102 and the link to the graph of the UK property prices over the last 50 years.
For those that still see a happy ending to the market please note that if you take ground zero of the recession as 1990 (i.e. peak) it took 5-6 years to reach bottom before spending another 6+ years getting back to where it was.
If we take 2008 as ground zero that would suggest it will be 2013-2014 before we touch bottom and 2020 before we get back to 2008 prices.
The 1990-93 recession was considerably shallower than current and there was no QE or plethora of subsidies putting off the inevitable meaning that recovery was quicker.
Also remember a rise in interest rates were a major factor. We have yet to experience the inevitable rate rise (coming soon). If a million people are already paying their mortgage with a credit card that's a very bad place to be.
I also seem to remember the same reasons being trotted out now as then for why it the market would soon recover quickly (which it didn't).
Re: (ii) Economy
For those who may not have the data to hand, also remember in GDP terms 1990-93 was a double dip. I expect exactly the same only worse this time around because we're not even exporting our way out of this one even with sterling down 25% - (for example read http://timesonline.newspaperdirect.com/epaper/viewer.aspx).
For current GDP comparison see [Unsuitable/Broken URL removed by Moderator]
Remember GDP output is defined as:
GDP = private consumption + gross investment + government spending + (exports − imports)
Private consumption is down and will continue to do so. Gross investment is down. We already net import which gets worse as inflation rises and our exports as already mentioned aren't increasing.
Which leaves massive unaffordable and unsustainable government spending.
Reality is that our organic GDP is massively negative already. PERIOD.
I'd like to think we can blaze a trail of business driven innovation to help us out of our annual £200 billion but sadly most of the population see business as the devil incarnate. By the way the public sector cost reduction exercise will be a red herring because of the numbers.
Remember as I have said previously £200 billion is basically equivalent to having TWO TIMES THE NHS not one). Do you really think a £20 billion PS saving is going to make a dent?
UK has lost something and I'm not sure it will get it back in time - we can't go on forever trading in zero-sum wealth creation in real estate (it's actually negative if you include the taxation) and spending ourselves to death without facing severe consequences.
The sad truth is I work more than 80 hours a week in my company wih little holidays and when you do the tax/NI/CT calculations it means I actually work 48 hours a week for the public sector with no benefits. And I'm actually contributing to an economy that is regressing to third world status.
If somebody could please provide me with the logic of this I would be extremely grateful.......(and please spare me the why are you working 80 hours nonsense........)
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Just like Japan, in 20 years time domestic property prices in the UK will be 40 percent below their peak in 2007, its as plain as the nose on my face. I suppose only time will tell who is right, and allot depends on the government, whoever they may be over the years, and how much they intervene in order to shore up the asset values of the banks balance sheets. The truth is that this is a completely different world to pre 2007, the old rules and certainties have gone, it all boils down to affordability and how much people, especially first time buyers, are willing or indeed able to borrow.
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211. At 9:11pm on 14 Jan 2010, muggwhump wrote:
Just like Japan, in 20 years time domestic property prices in the UK will be 40 percent below their peak in 2007, its as plain as the nose on my face.
>>>>>>>>>>>>>>>>>>>
Yep!
If actual house prices and the housing market stay relatively 'flat' and inflation increases then your scenario is very much a possibility, I think as in real terms, the house prices can fall substantially if general price inflation exceeds actual UK house price 'growth'.
I think a general house price fall in real terms is more likely than a general house price increase based on the current state of the UK economy. If the pound devalues further and UK interest rates rise and the foreign investors don't see a raiding opportunity - I cannot see UK average earnings growing as the only other likely variable that could give rise to extra domestic house purchase demand.
This is reality - not pessimism - I think you've got that one nailed!
I'd rather have no house price increase than be stealth taxed (as an extra Inheritance tax for some unlucky blighters) on any house price increase by the current Labour government - this is something that may not appear in the Labour party general election manifesto.
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207 remoteislander
We are in the midst of the worst recession since the 1930s. The current years revenue deficit is expected to be in the region of 180 Billion. Credit criteria has changed substantially since the peak of a couple of years ago. Public sector cuts are shortly to be enacted. Cuts have not been seen so far as the current years budget was set some time ago. In fact public sector employment has been in growth - it is the private sector which has seen the hit. 1 million are using credit cards to pay mortgage and rent. Yet you claim it will be business as usual. Time will tell. Personally I think you confuse realism with pessimism.
211 muggwhump
The banks control the market as the reality is the banks buy via proxy purchasers. Very few have the cash to not have bank involved. Its very clever really. The banks provide the mechanism where the buyers take all risk, pay for insurance for the banks risk. The banks get a profit without a downside if they follow the rules. The banks have decide that houses are overvlaued as shown by their behaviour. Currently the computer says No. Prices will not fall when the computer says Yes. For the computer to say Yes more often the prospects have to improve.
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Hi all
I have found the debate on this page to be interesting. Of course it is based on Stephanie's blog so thanks to her. After reading it I took Francesca's advice and looked up what notayesmanseconomics has to say. He poses quite a few questions for the MPC which they do not seem to have an answer to. Do they listen to outside thoughts and ideas?
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I really don't think that I'm being a doom merchant. I'd rather say that I'm being realistic and consistant. We ARE in a DEPRESSION. Public sector cuts or no cuts, things are not going to radically improve in at least the next 5-6 years. That is not to say that some sectors of the economy may not experience the same hardships as others (eg supermarkets) - that is just the way of depressions (look back to the history of the 1930s).
I never have accepted the total collapse scenario promoted by armagediontimes. life will go on. However, there has been no real effort put into rectifying the systematic problems that promoted/allowed the collapse in the first place.
Remember TOXIC ASSETS? They are still there. You can change the banking accounting rules. You can create bad banks. However, at some time those assets have to come back into play - well they already are as the merchant banks are allowed to value them at whatever price suits their particular situation!
You can debate the pros and cons of QE all you want. But QE is, at least open to examination whereas those toxic assets are probably both bigger (worldwide) and totally opaque.
On a more domestic issue - house prices. Perhaps what we are presently witnessing is the market working effectively. The investment impetus is presently stalled and therefore we are seeing the stand-off between buyers and sellers. Unless there is an imperative then sellers are not willing/able to sell their property at a discount. Buyers are unwilling/able to pay what they consider to be a premium. There is a true stand-off which will not be resolved until there is more confidence.
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Stephanie seems quiet. Hibernating? Taking the opportunity to rest before the GE kicks off? I wonder if she's been told a date...
I snipped the attached from another forum (thanks Volker).
With kind Regards |\ _,,,---,,_
ZZZzz /,`.-'`' -. ;-;;,
Volker Bandke |,4- ) )-,_. ,\ ( `'-'
'---''(_/--' `-'\_)
"Economics is extremely useful as a form of employment for economists."
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Try again...
|\ _,,,---,,_
ZZZzz /,`.-'`' -. ;-;;,
Volker Bandke |,4- ) )-,_. ,\ ( `'-'
'---''(_/--' `-'\_)
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Try again
. |\ _,,,---,,_
. /,`.-'`' -. ;-;;,
.|,4- ) )-,_. ,\ ( `'-'
'---''(_/--' `-'\_)
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3 more markers to throw into the uplift pot - from the news today:
900 jobs to go at Bosch plant which is moving to Hungary,
The average family spends 12.50 more per week on petrol due to price rises since last year,
LGA pension deficits look to have more than doubled to 60 Billion making council taxs rises and or service cuts a possibility to plug the gap.
These are facts not pessimism.
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Hi riverside et al.
The problem isn't with us labelled 'pessimists' but the people who label us as pessimists when we just look at and interpret the evidence.
It saddens me when individuals label my interpretation as pessimistic when I am more naturally inclined the other way.
The best are the commentors who come on the blog and state 'how depressing it all is'. Well my advice is to stop coming on here and go and read 'Alice in Wonderland' instead and stop bothering us with your silly comments.
I neither label others pessimists or optimists but look at the merit of the argument.
The question is whether individuals are more likely 'boxed in denial' - choosing pieces of data to suit the argument rather than the other way round (because it's less painful?). That also goes for going too 'doomsday-type' by the same argument.
The available economic evidence at the moment appears to have far more downside than upside as produced by the sheer weight of data.
As they say 'you can take the horse to the water'. You can even 'take the water to the horse' but if it's not interested in drinking then it doesn't matter......
The only downside being that us 'pessimists' can't escape the consequences of those in denial.......
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I have read the comments here with great interest and can agree with some aspects of the analysis. However, I do worry that the Daily Mail doom and gloom tendancies of some seem to indicate short memories over the last few recessions and the lead up to them. Have people forgotten the gauging out of our industrial base in the early 1980s? Or the "Big Bang" of the late 80s. What about the complaints of "Government red Tape" in the industry.
We arent the only country to have borrowed massively on Public debt but we are one of the major culprits in building up individual credit. In fact our National debt is one of the lowest of the rich countries. (admittedly it is growing very rapidly and needs sorting or it will very quickly approach other countries levels). Only other anglo saxon economies have borrowed at anything like the rate we have as individuals. I really think we need to change that culture-ie savings and investment in real capacity rather than speculation and credit cards
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In my view the main issue is:
The Bank of England’s quantitative easing has kept the Government funded up to press, but it has only delayed facing the problem by 12 months.
The DMO has (according to Mr Peston) around £200 billion in gilts to shift in the forthcoming tax year.
Projected tax receipts in 2010 – 2011 = £400 billion
Projected Government spending 2010 – 2011 = £600 billion
There’s a £200 billion hole that has to be filled.
You could:
Cut public expenditure, but that means sacking quite a lot of the public sector workforce
Cancel infrastructure projects, which will hurt the private sector
Cut benefits and public sector pensions.
None of which will go down well.
You could:
Try and borrow it by issuing fixed interest gilts, but evidence suggests that there simply isn’t the demand for £200 billion worth of them, and even if there was, the UK would end up in a compound debt trap.
The BOE could print another £200 billion to fund the shortfall like last year, but then sterling’s value will likely fall further, but facing the problem is only delayed another year.
In my view these are the issues which need bringing to the Public’s attention prior to a general election, anyone agree?
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Dempster - yep
The question is why isn't this being pushed into the mainstream media attention?
As an example - I watched BBC's flagship Question Time programme - for the umpteenth time not a single question on the state of the economy.
Why?
Why is Stephanie not asking the same questions?
Why indeed?
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#222 Dempster,
I can't argue that the issues you highlight will be at the forefront of discusion up to and beyond the election. However, we are really focusing upon symptoms of the malaise.
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224. At 12:03pm on 15 Jan 2010, foredeckdave wrote:
#222 Dempster,
'However, we are really focusing upon symptoms of the malaise'
I agree.
The malaise in my view is that the state does not have control of the creation of money as debt.
Take control of that, and you have more control over the economy and inflation. Leave it to private banks, and what we have now is the end product.
You probably know my view by now, but in any event I reckon we a State Bank.
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Thanks to all that responded to 207 -
In reverse :-
219 Riverside - your three points.
1/ and yet unemployment is still half what it was in the 30s.
2/ and yet we still drive our cars and did you spot the 25% increase in european car production in December? Those are confirmed dealer orders reflecting the end (particularly in the UK) of deferments to company car renewals (move from 3 to 4 year contracts mainly). Cars wear out, eventually you replace them or do without. Company car taxation changes are also starting to bite and lower carbon cars (to reduce tax liability and increase real take home pay) are also more valuable than they were in saving increased fuel costs.
3/ and the juicy low hanging fruit that is public sector pensions will be radically modified to to bring them more in line with the private sector, no matter which party wins in April. And, yes of course, paid as they are from current expenditure (not from a pension "pot"), more revenue will be needed as and when the liability crystalises. I don't think you can be an actuary as you would have recognised that this is a 40 year rolling liability, with little or no impact on current numbers. If you want a figure to worry about look the relevant figure for central government. Before you ask - no I'm not an actuary either - but I am married to one....
If your general point is that life is going to be more expensive for all of us and unpleasant for the 9% likely to be unemployed for some time - I don't think anybody is arguing with you and 219 brings nothing fresh to the argument. Similarly 213 - tell us something we don't know.
212 nautonier - Your forecast collapse in the housing market implies inflation running at a rate that exceeds the increase in the cost of housing. BTW have you seen todays reports from Bovis and Balfour Beatty? I don't see why that equation should be significant, but if we take 2010 property price increases to be at 50% of the 2009 figures (9%) - lets say 4.5%, you are assumming - I guess - what, inflation at 2% above that? 6.5% inflation by Q3 in 2010?
I think that's unlikely, but, should it happen, I refer you back to RugbyProf's 50 year graph. This indicates, if it indicates anything at all, that house prices "real" and actual follow the trend rate for inflation. Historically inflation at that level drives house prices up, not down.
It's an inconvenient stat (if you expect an imminent collapse) but real numbers, particularly in housing, often contradict the theorectical.
Everybody seems to be making the mistake that this is an open market with buyers and sellers moving freely in response to larger economic forces (except WOTW's sister see blog 177 and my 207), it isn't. If prices aren't right people don't move unless absolutely necessary. The market automatically self tightens to protect price. This is genuine "what would you do if it was your money territory" - it is their own money and value protection - "I won't sell at that price" - is a logical market response. Only banks, using other people's money can afford to throw value away.
Don't forget the cost of actually putting up new build goes up every year. Only land costs vary and all the major builders have re-financed or written down their land banks over the 6 to 12 months. Base costs are therefore lower but their margins have to be (and are) being re-built - see Bovis. Having cut capacity savagely they have no incentive to price for quantity and need to make good money to support those refinancing costs. They have all moved to either social housing building or building on demand - ie when a substantial deposit has been paid and purchase funding has been confirmed. They will be delivering - bought and paid for - more houses at a higher price in 2010 than they did in 2009. Fact, also inconvenient to the collapsing market brigade.
On another of Nautier comments - you expect no growth in average earnings in 2010. I say we'll see at least 1.5%, based on two things. We (as an SME owner) are moving into our third year of nil pay rises (told you it's been tough) and will have to do something this year. I think that's a pretty common private sector scenario. SMEs employ 60% of the private sector working population.
Secondly, no major cuts to public sector staffing levels will happen this year. Sure we'll get the usual smoke and mirrors from Government about how hard the're cutting, but it's a mandatory 6 months consultation period for redundancies (if they are serious) and they can't start til May.
Oh - and you can bet anything you like that you'll be taxed, stealth and otherwise. My favourite punt - revaluation of property prices to market levels for Council Tax - now there's an incentive to Government to keep prices as high as possible in 2010. Take the top limits off and you hit a few Bankers as well.
210 RugbyProf If I didn't know you to be an absolutely upright citizen, I would think that you're playing ducks and drakes with statistics. You're correct of course, but -
1/ you are stretching the period to the absolute limit - I would have thought you were a year or so over the top in most of the country.
2/ but much more significantly you're using the after adjustment for inflation figures. The actual figures (perhaps more relevant in a low inflation period (but see above?)) are some years shorter. As I said in 207, dips of 4 to 5 years are not sufficiently significant in the life of a 25 year loan to drive people from the market. I think my comments on "forced saving" in blog 207, as well as the comments on self tightening in this one, go some way to explain the irrationality of this particular marketplace.
Lastly, and there is no kinder way to say this, working 80 hours means that you are employed by your business, not a business owner. Whatever your reasons for putting in the hours, in the long term your health will suffer and (if you survive that long) when you come to retire and sell the business, because it depends entirely on you, it will be worth far less than it should be. If you'll take advice from a stranger that's been exactly were you are - get a Business Coach. There is nothing as lonely (and maybe tunnel visioned) as an SME owner under pressure. An objective or even critical friend (even if you're paying him) can be beyond price. This is the bit where you tell me you ARE a Business Coach..........
Sorry it's so long, but I don't work Fridays - sorry Prof
A good week end to all.
TM StH
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225 Dempster -
agreed, as you have pointed out before, we actually have a couple of State Banks, we're just not using them properly....
TM StH
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Good argument TM #226 remoteislander.
Just with regard to your response to my earlier comment. I amy have misled yo uslightly in that there is more than one (connected) business and fully agree with your unsustainability comment. However, building things takes its time and efforts.
By the way I at least do what I like doing which causes no work conflict stress. It's just one of time (why do we have to sleep, for example?).
My point really was the equity issue re taxation. All SME owners and directors (there's more than one of us) realise that sufficient effort has to be put in to get the return. But the same issue returns time and again when you confront the personal tax/NI and corporate tax as a limited co at the level we're at.
With turnover of up to a million you realise the disincentive which this government wouldn't dream of understanding.
Combining the tax/NI and the real 'killer' NI empoyers you realise how much disappears. If 3 directors pay themselves around £30k each there's collectively enough tax and NI to pay for another (forget the dividend argument for the moment). When you're directly generating the business the issue of taxation is not the same for those who are employed by others.
If you're good enough like we are to make a profit then it gets taxed again. What people don't realise is how much it takes to generate this profit.
We've calculated that effectively we work just under three months of a year's turnover purely to pay for the corporate tax (to generate the net amount). And this excludes our personal taxation.
The disincentive is enormous because this money could be used as investment or actually we could work less. When G Brown and his cabinet cronies talk about 'investing' in public sector with their flexitime and gold-plated pensions it's enough to...well...let's just leave it at that.....
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As this topic appears stale
Anyone read about the Mckinsey report on deleveraging.
Apparently 3 options:
Belt tightening
Outright default
Inflation
all depends on what is acceptable politically.
Gillian Tett in the FT for one expects some of all these options.
Any better ideas given slow growth for years to come.
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remoteislander
FTB problems see below. As I have commeted somewhere above this is a bankers game. The bankers enable purchase, in many cases they effectively are buyers by proxy.
"We can more than afford to pay a mortgage, but we can't get together a deposit. The lowest amount we've been quoted is 20% and the highest 35%.
If you want your uplift you have to change the computer says No. You can string as much together as you want, although I am struggling to understand why you are so bothered about the issue. The reality is simple - banks say up, and up they go, as they release money, banks say No, and down they go, bar a few hardy types or level traders. At the moment I cannot see the computer saying Yes in a hurry.
quote source > http://news.bbc.co.uk/1/hi/business/8454455.stm
NB First time buyers ran out of steam some time ago so it moved to BTL to replace FTBs. BTL in trouble it would seem. Then on to Liar loans, FSA say 49 % were self cert at peak.
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226. At 12:26pm on 15 Jan 2010, remoteislander wrote:
212 nautonier - Your forecast collapse in the housing market implies inflation running at a rate that exceeds the increase in the cost of housing. BTW have you seen todays reports from Bovis and Balfour Beatty? I don't see why that equation should be significant, but if we take 2010 property price increases to be at 50% of the 2009 figures (9%) - lets say 4.5%, you are assumming - I guess - what, inflation at 2% above that? 6.5% inflation by Q3 in 2010?
>>>>>>>>>>>>>>>>>>>
No – that is not what I said – I said that as things stand in our UK economy – real terms house price deflation is more likely than a general UK house price increase in real terms prices.
>>>>>>>>>>>>>>>>>>>>>>>
On another of Nautier comments - you expect no growth in average earnings in 2010. I say we'll see at least 1.5%, based on two things. We (as an SME owner) are moving into our third year of nil pay rises (told you it's been tough) and will have to do something this year. I think that's a pretty common private sector scenario. SMEs employ 60% of the private sector working population.
Look at the fundamentals of the UK housing market:
• Strong general demand but at affordable prices
• Inflation set to rise possible above annual mortgage rates of interest – so the ‘banks’ will raise interest rates otherwise they will lose money by lending
• Strong uncertainty in the labour market
• High transfer costs of moving home – stamp duty, legal, refitting etc
• New stock is largely undesirable
• Sellers not wishing to market properties temporarily - creating shortage in available properties
• Low consumer confidence encourages most to stay where they are
• Consumers confused by rising house prices due to a limited supply of houses on the market
>>>>>>>>>>>>>>>>>>>>>
No – that’s not taking into account inflation – if general price inflation is say 3.5% pa and you say that wages will grow at 1.5% in 2010 – then wages will have to grow at 5% pa in 2010 to offset the effects of inflation and provide real terms 1.5% annual increase in average wages.
Housebuilders have to be upbeat and they know that the likely sale volumes are still weak in 2010 and is still a buyer’s market in many places for new properties.
>>>>>>>>>>>>>>>>>>>>>>>>>>>
Secondly, no major cuts to public sector staffing levels will happen this year. Sure we'll get the usual smoke and mirrors from Government about how hard the're cutting, but it's a mandatory 6 months consultation period for redundancies (if they are serious) and they can't start til May.
>>>>>>>>>>>>>>>>>>>>>>>
Are you sure?
Brown and Blair sacked 600,000 civil servants in 2005 and if Labour can cut jobs like that then so can the Conservatives!
That's why I think, the best outlook from now/pre-election is that the economy and housing market is frozen in a stagnating holding pattern until the general election. My comments reflect that we are awaiting the outcome of a general election.
If Labour stay in power - I can see things getting worse than they are now and keep getting worse economically - until they are removed from power.
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229 TonyPR
Darling has said - somewhat Joanna Lumley like re the Ghurkas - that Gordon accepts that cuts have to occur. Cameron apears to not want inflation as it erodes wealth, and favours cuts. So cuts look highly likely whoever is in. Inflation looks likely to me. Default is unattractive I suspect. With the size of the debt movemnet is limited. High levels of inflation will cause real problems for houseowners if it crops up soon, in a few years its impact would be lessened. Cuts on a taper over a number of years and will deepen if no uplift. Attempts to keep infaltion and interest rate low for a few years. Next GE looming, not this years, the one following. Almost all actions other than the staus quo together with uplift will be unattractive to the public. Just a POV. Therefore any strategy that draws in City funding rather than public money will be attractive. Eg windfarms are getting City money via the ROCs which more than double megawatt income. The consumer ultimately pays but no public money is involved and investment is generated. I would expect more schemes like this in other sectors. It really is a form of indirect taxation but off the public books.
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#231 nautonier,
"If Labour stay in power - I can see things getting worse than they are now and keep getting worse economically - until they are removed from power."
please tell me which other party or set of policies are going to rectify the situation?
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House prices are NOT high.
We've gone from a 1 income per household nation to a 2 income per household nation.
House prices as a multiple of household income are fairly priced.
New reality is you have to buy with your partner / wife /friend / brother.
(I'm only 27 so I've not benefited from the housing boom)
As such no housing price bubble (at the moment) in the uk. Now I will admit that China is having a major asset bubble which is likely to crash the global economy. As a consequence uk house prices will drop and become the cheapest for the next 50 years.
My SOLUTION for UKplc
BOE should "pause" QE indefinitely. And then in 2 years end the program with out selling the 200bn which we've bought.
IE we should let the government (us)keep the magic money to reduce the deficit.
If done in 2 years time this would be the most pain free way of getting £200Bn in the coffers. But would only be palletable if when its announced that UKplc is profitable.
Thoughts?
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Banks are making money doing nothing. Example: I spoke to a friend today who has £60000 cash sitting in a pension pot managed on his behalf by a large German bank (as a result of them taking over the company previously actively managing his pension). This has been sitting there for best part of a year (he's fortunate and doesn't need to check his finances regularly). When the stock market has gone up 45% since the start of QE they have sat on his cash giving 0.15%. Yet these genius bankers feel they can award themselves big bonuses - no wonder we're all peed off with them.
For my sins I sell to Investment Banks and they seem to live in a different world completely to the rest of us. I don't see any changes in their behaviour over the last 2-3 years so expect more trouble before too long. Most of the people who were in senior positions are still in place - will they learn from history; its not looking good as there was plenty of heat before and they didn't, (through not understanding the risks) or wouldn't, (I think there's an issue but I'm making money so won't) rock the boat.
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233. At 8:19pm on 15 Jan 2010, foredeckdave wrote:
#231 nautonier,
"If Labour stay in power - I can see things getting worse than they are now and keep getting worse economically - until they are removed from power."
please tell me which other party or set of policies are going to rectify the situation?
>>>>>>>>>>>>>>>>>>>>>>
I think you know the answer to that one
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229.tonyparksrun
"Anyone read about the Mckinsey report on deleveraging.
Apparently 3 options:
Belt tightening
Outright default
Inflation
all depends on what is acceptable politically.
Gillian Tett in the FT for one expects some of all these options.
Any better ideas given slow growth for years to come"
==================
According to the Edmund Conway, economics editor at the Telegraph, 80% of the govt's debt is 'inflation proof'. Interesting article. Other than raising taxes and cutting spending (hard for a slowing economy when no-one is spending anyway), he suggests the options available to deal with the debt are (some of) the following:
* de-linking state pensions from inflation
* raise the retirement age
* cut public sector pensions
* amend terms of PFI agreements and index-linked gilts so they are no
longer inflation protected
* cancelling the gilts the BoE bought under QE - i.e. direct monetization of the debt.
http://blogs.telegraph.co.uk/finance/edmundconway/100002782/a-dose-of-double-digit-inflation-might-be-wishful-thinking/
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222. Dempster:
"The Bank of England’s quantitative easing has kept the Government funded up to press, but it has only delayed facing the problem by 12 months."
I agree. I think there are big problems but no-one wants to talk about them. Possibly they are hoping renewed consumer debt will pull the economy out of this hole but I think that match is spent.
Have you seen this story in the Telegraph? Why is no-one talking about this?
'Significant chance' of second financial crisis, warns World Economic Forum
"There is now more than a one-in-five chance of another asset price bubble implosion costing the world more than £1 trillion, and similar odds of a full-scale sovereign fiscal crisis, a key report warned.
"Investors must steel themselves for the possibility of a second leg to the financial crisis, and should be equally prepared for a fiscal crisis, in which a major economy faces either default or a "sudden stop" in financing themselves on capital markets, according to the World Economic Forum.
"Among the most likely, and potentially most costly, is a sovereign debt crisis, as some countries struggle to afford the unprecedented costs of the crisis clean-up, the report said, specifically naming the UK and the US"
http://www.telegraph.co.uk/finance/financetopics/davos/6990433/Significant-chance-of-second-financial-crisis-warns-World-Economic-Forum.html
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#232 riverside. The City provides no money for ROCs - they just act as arrangers and co-ordinators. In order to fulfill this very simple function they apparently need to create a fresh swathe of derivatives. No-one will ever be able to explain to you why this is necessary. ROCs money comes direct from electricity consumers.
Offshore wind is so expensive that it will receive double ROCs. The other problem with wind is that no matter how much you have you cannot close down any existing thermal generation, as you still need it when the wind doesn´t blow (or blows too hard). This means that thermal operates intermittently. Since emissions tend to peak at times of plant start up this means that you have no advance idea whether or to what extent wind decreases or increases aggregate emissions. Wind also requires substantial new additions to the transmission system which has a number of environmental impacts (none of them beneficial).
Wind is also incompatible with nuclear, since nuclear must run all of the time, and cannot two shift in order to accommodate the vagaries of wind speed. Surprisingly the government is committed to substantial new nuclear. This means that a lot more old inefficient and polluting thermal plant must remain on the system to operate at the margins. This further increases both costs and aggregate emissions.
No-one who with even the remotest interest in reducing emissions would subsidise wind. You would only do so if your aim was to increase both aggregate emissions and costs. It is not complicated to understand. Therefore government policy is to spend money (yours not theirs) to increase emissions. I don´t think that this is necessarily clear from the publicity materials.
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#234 Carlos-Tapas. Logic does not appear to be your strong point. Why not have 11 a side house buying teams? That way we could argue that house prices remain some 550% undervalued. If that doesn´t float your boat think rugby and we could effortlessly move to 15 a side house buying teams.
Think on this: In Kensington a Ukranian "philanthropist" pays GBP 87 million for a house. In Haiti an entire City is destroyed leaving 10´s of thousands dead and the UK government offers GBP 6 million in aid or less than 1/14th of the "value" of one house in Kensington.
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239 Arma
I see you have surfaced refreshed.
ROCs - Yes it looks to be a nonsense. My understanding is The ROCs give a higher megawatt financial yield paid for by the customer which in turn allows the genrator to go to the City for the funds to build. The City wants a good return or will not play ball so they are given a good return. This whole mechanism is enabled by the government. As ROCs have been estimated to be nearly 3x bigger (ONS data I believe) than they need to be this is effectively a stealth tax on the consumer. This stealthly take via the customers bill has to be added to the average 38 pounds added per bill by one means or another to cover the loft lagging initative for lower income housholds. No wonder energy costs are rising. Wind does not work below 11 mph and the turbines are locked off above 56 mph in case they fail. The latest size turbines which are the equivalent to a jumbo jet stuck on a pole. There appear to be reports of cracks in blades on some big turbines. However each turbine is worth multi millions in ROCs.
None of it makes much sense but perhaps policy bends with the wind. There are other measures that would be just as effective but the key issue appears to be keeping the cost off the public books and packaging it in a way that gets the City involved.
A planning lawyer we know appeared baffled that both planning law and local democracy is being bypassed with the new body specifically established to speed up implementation. I am somewhat less surprised by this.
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238 ArnoldThePenguin
Fear not Arnold, none of this will stop the idea of uplift for some. They probably see what you are saying as some sort of conspiricy theory to engineer opportunity for a few.
Personally I find it mind bobbling that the country can have an enquiry into the Iraqistan mess but not the handling of the financial mess. Last public report on the financial cost for Iraqistan was 14 billion, swamped by Browns deficit for Nov 2009, one month only, at 20 Billion. Crisis what crisis.
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233. At 8:19pm on 15 Jan 2010, foredeckdave wrote:
#231 nautonier,
"If Labour stay in power - I can see things getting worse than they are now and keep getting worse economically - until they are removed from power."
please tell me which other party or set of policies are going to rectify the situation?
>>>>>>>>>>>>>>>>>>>>
Allright I'll give you some help - any party but 'Labour'
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#243 nautonier. You appear to be another contributor suffering problems with logical reasoning.
In the UK the only possible election outcomes are (i) Labour Government, (ii) Tory Government, or (iii) Labour or Tory minority Govt in coalition with the Liberals.
Given that all 3 Parties have identical policies with regard to all substantive issues then it matters not which identikit clone either you or anyone else chose to vote for.
It may matter somewhat more to your self respect that, contrary to all evidence, you have allowed yourself to believe that an election gives you any "choice" at all.
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244. At 5:52pm on 16 Jan 2010, armagediontimes wrote:
'It may matter somewhat more to your self respect that, contrary to all evidence, you have allowed yourself to believe that an election gives you any "choice" at all'
An election does give us a choice, whether what we get makes any real difference is debatable. But still we can at least choose.
Canvassing opinion where I live, there are many who have lost faith with the reds and the blues. The next election will be an interesting test for the mainstream parties.
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#245 Dempster. How can choosing one thing over another when either choice results in the same outcome be a choice? You are just deploying semantics to seek to detract from a truth you do not like.
Why will the next election be an intersting test for the main parties? They don´t care one way or the other. One or the other will get elected and they know it. Whoever gets elected will simply receive orders from financiers and construct policies to suit.
Look at renewable energy as an example. It adds to cost and it adds to emissions. So why do it? Answer because government guaranteed subsidy to output prices removes financing risk, and enables a risk free return to lending institutions. Whilst simultaneously through a process of smoke and mirrors allows them to price their money at something much greater than the risk free rate.
You see any political party proposing to reverse this con?
You can take any example you want and you will see an homogeneous policy proposal from all main parties.
In theory you could vote in someone like the BNP (who are just nuts as opposed to captured) but you won´t. If you did then you would see an immediate sterling crisis, no-one riding to the rescue, and the remaining population just being left to wander around in the dark brutalising themselves. Not much of a choice there either.
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244. At 5:52pm on 16 Jan 2010, armagediontimes wrote:
#243 nautonier. You appear to be another contributor suffering problems with logical reasoning.
In the UK the only possible election outcomes are (i) Labour Government, (ii) Tory Government, or (iii) Labour or Tory minority Govt in coalition with the Liberals.
>>>>>>>>>>>>>>>>>>>>
Well there you have it - you've partly explained it for Foredeck but I think that your incorrect with:
'all three parties having identical policies'
- Brown's speech today was a massive 'wish list' without any roadmap on how to get there.
I think that DC and NC have good policies and are just keeping quiet in case Brown does the same as he did in 2005 and stole some of the Tories policies.
The main difference between the parties is the issue of economic management of the national economy and 13 years of a failed Labour government shows important differences between the parties.
also
'In the UK the only possible election outcomes are (i) Labour Government, (ii) Tory Government, or (iii) Labour or Tory minority Govt in coalition with the Liberals.'
This is incorrect as it ignores the possibility of a hung Parliament and with very tight margins throwing the Green Party, UKIP and the SNP all into the mix - and which I think would be a good thing as would give more people a say.
But what I think does not matter - it will be a matter of votes.
My point is that I think that things can and would improve a lot so long as Labour get kicked out. This feeling of confidence may not last long this year but I think that Labour getting kicked out will itself e.g. lift the stock market 5 - 15% if only temporarily and some investment will 'return' if a credible overall economic plan is applied to the UK economy with a new government. This may be all that is needed to get the UK moving again in economic terms but still with difficult times ahead.
The question is what do people value most - house prices (the national obsession)? Job security? higher personal safety and lower crime? lower imports?
QE will probably not be an issue if we get a new government as a new confidence factor will take over? Something that economics cannot gauge/measure?
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#246 armagediontimes,
I think we may see a sterling crisis whatever the colour of the government, the question is whether it comes before or after the election.
Your example regarding renewable energy policy (in its current form) is both excellent and true.
#247 nautonier,
It may surprise you to know but there are a large number of people who do not believe that the Labour government of the last 13 years has been a total failure, there have been some very good policies targeted at the poorest members of society as well as some very misguided ones. Not everybody lays the current economic crisis solely at the doors of No. 10.
Whilst I will be glad to see the back of the current bunch of reds, I hate to think what state this country would be in if the blues had held sway for 13 years, I for one will not be welcoming them with open arms.
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Given that a sterling crisis is a possibility, any ideas how we might mitigate such an event.
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nautonier,
I REALLY would like to know which "good policies" are being promoted by DC and NC! As for a lift in the stock market please remind me what benefit such a lift would have in the real economy (before you do please explain why the stock market has increased without 'green shoots being realised).
We are meerely repeating the political stagnation of the 1930s
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248. At 8:31pm on 16 Jan 2010, BobRocket wrote:
#246 armagediontimes,
I think we may see a sterling crisis whatever the colour of the government, the question is whether it comes before or after the election.
Your example regarding renewable energy policy (in its current form) is both excellent and true.
#247 nautonier,
It may surprise you to know but there are a large number of people who do not believe that the Labour government of the last 13 years has been a total failure, there have been some very good policies targeted at the poorest members of society as well as some very misguided ones. Not everybody lays the current economic crisis solely at the doors of No. 10.
Whilst I will be glad to see the back of the current bunch of reds, I hate to think what state this country would be in if the blues had held sway for 13 years, I for one will not be welcoming them with open arms.
>>>>>>>>>>>>>>>>>>>>
Brown has been Chancellor and PM - and must bear 'some' responsibility
Obviously, I'm talking in broad terms but as 80%? of the population feel or are actually now worse off than when Labour came to power in 1997 - I'm referring to the economic side, mainly, but the social side of the last 13 years is another set of issues, I think.
I agree about those who think Labour have done some good work and that is why I seriously consider the hung parliament scenario and hope it happens so that the Greens, UKIP, Plaid C, SNP etc do not lose representation because of an outmoded and archaic parliamentary election set up.
But DC has some good policies - if the UK population remains unchecked and goes to 70 million very quickly - how much extra is that to cost the UK - £2 trillion + - this is a very serious issue and the cost of unchecked population growth in the UK would dwarf the current UK budget deficit? Its just that the media focus on the wrong issues and cannot see the significance of what DC is saying.
I also like what DC is saying about national security as I think that's another areas that is currently holding back the economic development of the UK. NC wants to raise the tax threshold to £10K which I think is another good policy (£15K would be better and provide real relief/stimulus to the low paid/those who spend nearly all of their money as soon as they get it)
The history books show that Labour has always caused economic mayhem requiring the Tories/Liberals to rescue us - I also have reservations about some of the Tories and their historical antics and that is why I would like to see Clegg and Cable and others get a position in government alongside David Cameron.
QE
It is important that the QE stops now, as it is becoming clear that those implementing it are just hoping for the best and are not really in control and understanding of the consequences?
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250. At 8:37pm on 16 Jan 2010, foredeckdave wrote:
nautonier,
I REALLY would like to know which "good policies" are being promoted by DC and NC! As for a lift in the stock market please remind me what benefit such a lift would have in the real economy (before you do please explain why the stock market has increased without 'green shoots being realised).
We are merely repeating the political stagnation of the 1930s
>>>>>>>>>>>>>>>>>>>>>>>>>>>>
A busy stock market in the UK is vitally important - allows people's pensions to mature and pensioners' can retire (creating 'vacancies') and also spend - those UK based companies have more money to invest and expand and foreign investors buy UK shares etc - although as discussed many times before - a strong UK stock market is not itself a good indicator as to the overall state of the UK economy as many of the stock market listing have 'foreign interests' and are government 'propped' monopolies e.g. Tesco gets favourable treatment everywhere with planning permissions etc.
It is not certain that the economy will sink in 2010 - it if stays where it is now - with a change of government - that will be a good outcome and base to find some new policies, improvement, progression (but not 'growth' - I hope)
As for DC and NC - I think they have more policies on the way - which is unusually 'optimistic' for me - but that's just my opinion
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I'm not convinced that David Cameron actually wants the job, I'm sure he would have been happier if Brown had gone to the country in 2008 and regained with a reduced majority, it would have given him another 4 years of flouncing about and playing at the big boys table without having to take any responsibility.
As for Nick Clegg, well he can say what he likes as he has almost zero chance of being PM.
A hung parliament, whilst a distinct possibility, would almost certainly precipitate a sterling crisis (which is why we should be contingency planning now)
Is the reason the Labour governments (historically) have had economic trouble due to the tories, upon losing the parliament, retreat back to the banks to forment their next takeover ?
I also like the idea of raising personal allowances but the downside is that not only does the current system raise some cash, it keeps people in a job, I pay tax but also receive tax credits (the money go round is at least keeping someone off the streets)
The words 'good', 'hope' and 'optimistic' are not ones that many (me included) use on these boards but I also remain optimistic that a sensible way forwards can be found.
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Afraid I have to agree with armageddon times on this one: it won't matter who you elect, the people in power will remain the same. Obama's first year has proved that conclusively.
Bush was a "conservative right-wing Republican": he started useless wars, bailed out the financial system at the expense of taxpayers, and in general pandered to the corporatocracy rather than the middle class.
Obama is a "centre-left liberal Democrat": he started useless wars, bailed out the financial system at the expense of taxpayers, and in general pandered to the corporatocracy rather than the middle class.
Two totally different political and personal backgrounds, EXACT same outcomes. The only difference is that now we have a President who can speak in complete sentences.
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#247 nautonier. There is a huge diference between words and actions. Sure the political classes all say different things, but they will all implement identical policies.
Which mainstream political party is proposing to explain in clear terms why we are in Afghanistan?
Which political party is proposing to explain the logical connection between why it is a criminal offence in the UK to refuse employment to a Pakistani on grounds of ethnicity whilst UK taxpayer money is used to finance the murder of unknown numbers of Pakistanis in Pakistan through the use of drone attacks.
Perhaps the dichotomy in these policies may feed through into immigration both legal and illegal. Which political party is adressing this issue in an open and honest manner?
Which political party is proposing to break up "too big to fail" financial institutions?
Which political party is proposing to launch a serious and sustained investigation into fraud that may have been committed by large financial organisations?
Which political party is proposing to explain why normal accounting standards have been suspended in favor of "mark to myth" accounting standards?
Which political party is proposing to reverse the drive to increased reliance on renewable energy even though it is is known that renewable energy in its present guise increases both costs and emissions?
Which political party is proposing to explain why and how, on a per capita basis, 3 times as many British citizens are classified as too sick to work as in Germany. Surely there must be something wrong somewhere.
The answer is that no political party is proposing to address these issues because to do so would contravene the instructions received from the financial oligarchy.
The oligarchs remain content that sufficient people will continue to cheer for their favorite color and ignore the policies that are deliberately designed to crush the very people that are sufficiently indoctrinated to vote for them.
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#249 BobRocket. We have most likely passed the tipping point with regard to a sterling crisis. There is no obvious way out - massive public spending cuts must occur either voluntarily or involuntarily.
The problem is the scale is almost beyond comprehension - you are looking at third world type scenarios, and this makes it more likely that you are looking at the involuntary route.
Timing is difficult as substantially all curencies are in a race to the bottom. Euroland may be ahead of the UK with a rupture occurring between Northern and Southern participants.
The big brick to fall will be the US$ - not likely that they will go quietly into that dark good night, so look out for an escalation in various wars.
The only thing that can save us is if people wake up to the simple fact that they cannot consume more than they produce. One would think that this is not too difficult to understand - but it seems to be an impossible task to get acceptance of the simple truth that perpetual motion does not exist and cannot be willed into existence.
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256 arma
We are simply witnessing the politicans doing a ritual vultures dance around the body of the public sector and singing irrelevent songs - because shrink it must.
But rather than just obvious cuts we are likely to see ingenuity used to dress up some of the the cuts as something else and to hide as much as possible as market choice, means testing, or hidden billing to consumers. This is likely because the scale of cuts will exceed what is politically comfortable with the electorate. Actually not much is acceptable to huge sectors of the public.
Only a fraction of the population work in the wealth creating sector, the private sector. By definition all outside the private sector - active or otherwise - are consumers however valuable to society their provision is, and in many cases it is valuable.
When the clear majority of the population are not wealth generating then democracy breaks down because the demand from the majority is for ever more public spending from a reducing wealth creation base. Lower wage trends and tax credit just exacerbate the problem as less tax is paid whilst employment levels are maintained.
All of this points to self determining solutions so it makes virtually no difference who is in charge. However getting elected is about how fed up the electorate are and how they react to the song being sung. Once in anything is okay, anything can be done in the name of expediency by any party, QED.
The problem is very simple really - reduced HMG income, income having been expanded artifically via the unsustainable boom.
One likely outcome, at the proposition stage, is decisons are devolved to a lower community level so the local consumers are involved more in the difficulty of management and choice, aka as saying No. At present consumers of public services in many cases have no responsibility for their demands. One interesting outcome of this would be that politicans could not play fast and loose with promises about acess because such decisions would not be theirs to make. Some politicans will fight movement in this direction because of this.
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255. At 10:55pm on 16 Jan 2010, armagediontimes wrote:
#247 nautonier. There is a huge diference between words and actions. Sure the political classes all say different things, but they will all implement identical policies.
>>>>>>>>>>>>>>>>>
I've no idea about your questions because I'm not a prosecution attorney - many moons ago I became an economics graduate and I'm an amateur armchair economist and not anybody's 'yes man'.
I think I can see spin when I see and hear it and what worries me is that some of the big ticket items facing the UK are not being addressed - our creaking UK public and private infra structure is one of them and allowing the UK population to soar to 65m - never mind 70 million will cripple our country with debts and deficits which will mean that the UK will not be able to fund the existing debt payments on the current UK pbr deficit
Why is no one talking about this bigger funding problem for the UK?
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I continue to be impressed by the amount of good sense in many of the comments above, but I think you guys need to step back a bit and look at the long term prospects in a more detached way.
When I first went to school I can remember seeing maps of the world where 25% of the land area was coloured pink - the British Empire. After a while I understood that several of the pink bits had become "independent" so although they still had some allegiance we didn't own them anymore. I can remember wondering as a five year old why we had given them away, in fact, why hadn't we taken over more countries.
Today, these ideas are ridiculous. We can see this as a long term decline, probably dating from the first world war or even before.
And why? Well we don't have a particularly large population, we don't have much land area, we don't have significant natural resources. We are living to an extent on the riches accumulated from earlier times. We used to have scientific advantages and a well-educated elite but these have been largely democratised out of existence.
So you have to face it - we are in a long-term decline which shows every sign of continuing. Okay, along the way there have been short-term improvements, such as the Brown credit-induced boom, but the long-term outlook is inevitably downward, until we find our natural place in the world again.
But, on the other hand, this is still not a bad place to live and has quite a few things going for it - the climate, the countryside, the heritage and some of the locals are friendly.
I don't know if this is sufficient to outweigh the downside - the reduced moral values, the lack of a general work ethic, the chaotic organisation of government, both national and local. No wonder the everyman for himself mentality is gaining ascendancy.
So I expect we are in for a rather steeper than average decline for a while, in order to pay for the excesses of the last ten years. Living standards will inevitably fall relative to other parts of the world - we are on our way out. You can either jump ship or live with it - nobody is going to fix it, although some will undoubtedly make it worse than it needs to be.
If you put your comments into this perspective maybe it all becomes a lot clearer?
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259. At 2:30pm on 17 Jan 2010, croydo wrote:
I continue to be impressed by the amount of good sense in many of the comments above, but I think you guys need to step back a bit and look at the long term prospects in a more detached way.
>>>>>>>>>>>>>>>>>>>>>
Well put - except everything that you, yourself have written, has already been written on this blog by someone else - over and over again - if you read through the last years' blog postings?
Its easy to criticise what other people write - but the idea is to write something original or to have a reasoned alternative idea?
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#257 riverside
"Only a fraction of the population work in the wealth creating sector, the private sector. By definition all outside the private sector - active or otherwise - are consumers however valuable to society their provision is, and in many cases it is valuable."
Oh pray tell me where you learnt that fairytale? As for the majority of workers within the private sector, they may be money accelerators (as well as also being consumers) but they are far from being true wealth creators. Perhaps if they are totally dedicated to the production and sale of exported items then they just may be considered as wealth creators - of course we would have to exclude any of thir colleagues who were engaged in purely administrative or managerial roles!
That we presently have a very imbalanced economy is undeniable. But 19-early 20th century thinking such as yours is never going to fix it.
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260. At 3:28pm on 17 Jan 2010, nautonier wrote:
"Its easy to criticise what other people write - but the idea is to write something original or to have a reasoned alternative idea?"
Okay, maybe you would like to point me to the bit that you have written that is original?
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262. At 5:11pm on 17 Jan 2010, croydo wrote:
260. At 3:28pm on 17 Jan 2010, nautonier wrote:
"Its easy to criticise what other people write - but the idea is to write something original or to have a reasoned alternative idea?"
Okay, maybe you would like to point me to the bit that you have written that is original?
>>>>>>>>>>>>>>>>>>>>
That's not what I wrote - the ... 'idea' ... is to write something original etc - I didn't write that I had written something original myself - and I don't provide a critique of my own posts - I'm afraid you'll have to roll the sleeves up and do some reading!
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#258 nautonier. You do not need to be a prosecution attorney or to possess any special skills to adress the questions presented.
You claim concern over an ever rising population. Surely it is not difficult to understand that if you bomb people and otherwise undermine their ability to look after themselves and their families then people will seek to move. This is especially true if a particular relocation option offers them a guaranteed minimum standard of living vastly in excess of anything they can ever hope to obtain in their home countries.
If you want to see a halt or a reduction in the growth of population it is firstly necessary to stop the indiscriminate killing and the tipping into poverty of people in their homelands. Neither difficult to understand nor controversial I would have thought.
If you are an economics graduate then you should surely have an opinion as to the economic effects of subsidising a form of power generation that is known to add to aggregate costs and aggregate emissions. I am aware that some people question the global warming hypothosis but have never heard anyone suggest that money should be spent with the sole aim of increasing emissions. Have I missed something? (Or could it be that the elite could not care at all about emissions and it is a handy smokescreen to allow them to falsely price risk free money at something other than what it is?)
No-one is talking about the bigger issues facing the economy and society in general because those that control the news agenda calculate that it is in their best short term interests to ignore such issues. They further calculate that their strategy is viable because of the apathetic nature of the population - i.e. the population will not force the agenda. No doubt the agenda setters will take comfort from responses such as yours.
No one is coming to save you - you need to save yourself. If you don´t like an ever rising population take action to force the elite to stop killing the foreign man. It is very simple.
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264. At 5:23pm on 17 Jan 2010, armagediontimes wrote:
#258 nautonier. You do not need to be a prosecution attorney or to possess any special skills to adress the questions presented.
>>>>>>>>>>>>>>>>>>>>>
No one is coming to save you - you need to save yourself. If you don´t like an ever rising population take action to force the elite to stop killing the foreign man. It is very simple.
>>>>>>>>>>>>>>>>>>>>>>
That is just exactly what I am doing - the pen is mightier than the sword!
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I'm confused. The BofE has not been using QE to get credit moving and stimulate the economy so of course it is difficult to see the impact on bank lending.
The majority of the £200b of QE has been spent buying Gilts, that is lending to the Government. I think the figures are something like:
-90% of QE spent on Gilts, £8b of the £200b left
-50% of all Gilts sold since March have been bought with QE
The bottom line is that most of the £200b of QE money has propped up Government spending and not helped to stimulate the economy.
The real interest we have in QE and its possible extension is:
- How will the Government fund its spending without QE?
- Who will come forward and fill the Gilt buying gap left by the departure of QE and PIMCO?
- By how much will we need to raise the interest rate on Gilts to persuade the market to buy them?
- How can the DMO shift £243b of Gilts this year and will we face a Gilt auction failure or a soveriegn credit rating downgrade without further QE?
This is certainly the discussion about QE at large.
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I have just read Dai Miles' speech. As you say interesting. But one thought springs from his conclusions is that individuals should in the future do away with banks as providers of capital for mortgages and instead issue equity in themselves. Individuals no longer benefit from tax relief on borrowings - the advantage that firms have, so why not just collateralise future earnings? Selling of shares in an individual could (should) give capital gain to the holder of the equity as earnings increase and dividend would be paid as a % of income. Graduates with potentially high earning careers could immediately receive large sums, allowing them to skip several steps on the property ladder, this could even help pensioners with guaranteed pensions but little capital.
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Some comments pose the question 'where has all the money gone?' The answer is it was never there in the first place. There is no money (except for the 5% of the money supply that exists in notes and coins). The other 95% doesn't exist. What does exist is debt. 'Money' is really debt. Debt is 'money' created by banks out of thin air when they issue a loan. Debt requires issuance of more debt to service the previous issued debt (plus interest). The private creation of money as debt is the root of the woes of the financial system. The system of debt money is a fraudulent hoax.
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Just to acknowledge #266
Your comments and questions are quite correct and echo repeat similar observations from a number of us contributing on this blog.
I think the answer is mainstream 'shhhh'. It'll all collectively go away if we put our fingers in our ears and close our eyes and sing 'follow the yellow brick road' with Judy.......becasue the truth is a little unbearable for many - that's why people are still going to vote for an incumbent government that has bankrupted us.....
Some of the 'political claptrap' on here is a little hard to believe....by the way a hung parliament will do the most damage to us market wise and economically as the markets have already discounted the current one not getting back in - for evidence just read up on the 70s......
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246. At 7:38pm on 16 Jan 2010, armagediontimes wrote:
'#245 Dempster. How can choosing one thing over another when either choice results in the same outcome be a choice? You are just deploying semantics to seek to detract from a truth you do not like.
Why will the next election be an intersting test for the main parties? They don´t care one way or the other. One or the other will get elected and they know it. Whoever gets elected will simply receive orders from financiers and construct policies to suit'
Perhaps your right. Perhaps it doesn't really matter that much.
Wish it were different though.
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#269 Rugbyprof,
"Some of the 'political claptrap' on here is a little hard to believe....by the way a hung parliament will do the most damage to us market wise and economically as the markets have already discounted the current one not getting back in - for evidence just read up on the 70s......"
With prehistoric thinking like that presented by you and riverside we can all be assured that, as the song says, "Things will never get better".
You may think, or even hope, that the "markets have already discounted the current one not getting back in" but you have no evidence that this statement is true. When will you learn that you are not looking at a 70s type recession, you are at the begining of a recession. The financial markets are acting like headless chickens and are merely reacting to the need to move money even more rapidly to maintain the appearance of wealth generation.
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#269 Rugbyprof. The "markets" couldn´t care less who forms a government. They only care that the government will be subservient to their demands and requirements. For evidence look up Latvia, Ireland, Iceland and others. Ask why it is that all main British political parties have identical economic policy proposals for implementation post the election.
Check out what happens anytime a politician actually seeks to represent the interests of the people. Look at Iceland and see the vilification of that nation for daring to pause in their compliance with the demands of the international kleptocracy. Ask why Gordon Brown deployed anti terror legislation to seize Icelandic assets and ask why Icelandic fraudsters are allowed to live in unmolested luxury in London.
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261 foredeckdave
You can complain about the language as much as you want. The basic fact remains that relatively few are involved with wealth creation in the UK. Wasn't it Macmillan who complained we where selling the family silver to pay for the servants. Well not quite right - we are selling it to pay for the civil servants. That is the fundemental problem.
Further - That tax raised from people who are paid in tax income is simply recirculating tax. That the govmnt income machine is broke because too many are totally reliant on being paid with tax income to the govmnt.
I think you will find 16 odd million are listed at ONS as working in the private sector. How on earth do you expect 16 million, some on the minimum wage and paying little tax and some others recieving tax credits to fuel the system. Particularly when some pensions are paid by tax income because nothing has been set aside byu guess who - govmnt. To make things worse some of that private sector is totally reliant on public spending. Please dont give me the old multiplier effect blah blah blah. The multiplier effect is there in both public and private sectors, the question is where does the primary money come from.
Tell me why there is a 180 odd Billion overspend this year alone.
Manufacturing has dropped from 30 percent of GDP to about 5 percent over 3 decades. One fifth of all HMG income was related to the financial sector, that is why it was allowed to run riot. Your not going to see that income level again.
Tell me why LGAs buy wheelie bins from Germany and the the factory there has back orders for 6 months and we fail to make wheelie bins - of all things - High tech, not - in this country. I think you are the one in denial.
Oh yes, before I forget, Bosch - who took 21 million in grants in the 90s - has packed up (so minus 900 UK jobs) and is going to Hungary, this is despite the pound sliding by a third. Hmmm, and Germans buying from us saying how pleasant it is to buy British, it is so cheap. If it is so cheap to them then imports are so expensive to us. You are in denial shipmate. Until the engine is got running then forward motion will not occur againt the tide will it.
One final thing - In the UK we have to pay the full wack for a water supply piped to us in victorian pipework in very bad condition, that is why it fails and why in some areas the water is dosed chemically so the detrious in the water does not show up so much. Whilst the new entrants to the EEC get truely massive grant funding going in to provide brand new water distrubution systems. No wonder they want to join. Equality for all - not, they can buy businesses and property here but there are restrictions on us buying there.
A great many in this country have MUG written all over them.
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269 rug by prof
'This caint be Kansas'.
Its all spin over substance. Thats why you can have somebody saying I was going to go to war come what may - and giving it out on a daytime show sometime before a committee appointment. Its just one long never ending spin cycle where if you deny all and say it with conviction it is supposed to steam roller the difficult facts. Then we tumble dry I guess.
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Interchanging mind control
Come let the, revolution takes its toll
If you could, flick the switch and open your third eye
You'd see that, we should never be afraid to die
Rise up and take the power back
It's time the, fat cats had a heart attack
They know that, their time's coming to an end
We have to, unify and watch our flag ascend
http://www.youtube.com/watch?v=ZpdMbdqnGKo
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This comment was removed because the moderators found it broke the House Rules.
#273 riverside,
Well that was a good rant and I hope you feel better for it. However your thinking is still so blinkered that the logic of your 'argument' is totally destroyed. It appears to be a common fault amongst many SME owners/directors.
I have never argued that the economy dos not need to be re-balanced. However, I will argue that the old descriptors of public and private act more as a stopper than as an incentive to sorting the economy. We really need to identify where and how value is delivered within the economy and not just focus upon money.
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They have managed to donate 10 cents per person to the Haiti people!!!
'Goldmans to tell staff: give to charity'
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7005851/Goldmans-to-tell-staff-give-to-charity.html
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This comment was removed because the moderators found it broke the House Rules.
Speech by Frank Field 14-Jan-10:
(when Frank Field made this speech to the House of Commons...it was empty!)
"Given the Chancellor's ability to present such thin gruel to the House, I am surprised that his party did not claim to see the signs of joined-up up government. Yesterday they announced that in future all five-year-olds in our schools would be taught the dangers of debt, how not to fall into debt, what to do if they fell into debt, and how to get out of debt as quickly as possible. Bright, or perhaps not so bright, five-year-olds might suggest that the lessons could start here rather than in the classrooms.
I want, however, to inject a note of seriousness, if not horror, into the debate. I want to compare our present position with the phoney war that led up to world war two. Although those on all three Front Benches now talk of the need to lower the deficit, they are all also talking about spending more. I do not believe that our voters-the voters of this country-have any idea how serious the financial position of the country is, or how massive the cuts will have to be if we are to return some semblance of order to our national accounts.
Let me illustrate that first by looking at the payments on the new debt. Let us suppose that we could not roll that debt over, but had to close Government Departments. The cost of the debt in the first year of bailing us out-I am ignoring past debt, which we have to service as well-would be the loss of the Department for Culture, Media and Sport, the Department for Environment, Food and Rural Affairs, the Department for business and enterprise, the Law Officers' Department and the Northern Ireland Office. In the second year-we are not concerned only with the new tranche of debt; there would be two years of debt-we would have to lose, in its entirety, the Department responsible for innovation, the universities and skills. In the third year, the debt repayments would be greater than the budgets for defence, the Cabinet Office and some other Departments of State. It would decimate what we do as a Government if we had to pay for the money that we intend to borrow by closing Government Departments and the programmes that go with them. I do not believe that the people of this country yet have any idea about the seriousness of the position that we face."
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I have the ut-most repsect for the moderators....but god save this nation!
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280. At 11:48pm on 17 Jan 2010, DebtJuggler wrote:
Speech by Frank Field 14-Jan-10:
Well found and well posted.
That should be on the front page of every newspaper.
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277 fdd
Whilst you are cogitating which word is better 'wealth' or 'value' I suggest you read post 280. Appaer from when he lapses into suggesting solutions like flying UK patients to India for surgery Frank Field is remarkably good in his overviews.
BTW you cannot add value to something which is not there. If you do not have the public money to spend you cannot add value to it. Furthermore the problem is government ie public spending debt. Private individuals do not print their own money so sooner or later hit limitations. No such limitations appear to exist with HMG - and until they do talking about adding value where the value is inherently demeaned - by continual printing and debt deferment is equally meaningless.
Personally I doubt you can add the value by any mechanism as rapidly as HMG are removing it, that is one of the characteristics of the decline curve.
Something entirely possible is business just decides going somewhere else is attractive. At least doing that means not paying for other peoples monsterous mistakes. That will of course reduce wealth generation and leave less for you to add value to when you eventually come up with such interventions. The private sector is not some circus strongman who can carry the current pyramid. Take it or leave it.
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277 fdd
BTW further to 283
I suggest you read http://news.bbc.co.uk/1/hi/business/8462207.stm
"[Economic] growth is almost totally dependent on a sustained upturn in the world economy, and upon the energy and enterprise of UK exporters of our prized goods and services." Prof Peter Spencer, Chair, Ernst & Young Item Club economic forecasting group.
Oh deary me, economic growth is going to be down to a decimated private sector. Only a small part of which exports. 16 odd million in the private sector according to ONS. Hmm, lets say 1/3 are involved in export. Hmm. So economic recovery is down to some 5 odd million max. Going to take some time then to sort. What was the current years projected deficit 180 Billion. Better start exporting extra to balance that. But what. No wonder Prof Peter moves on to say it is challenging. Particularly when direct and indirect export manufacturers such as the Bosch unit employing 900 closes and goes abroad.
Prof Peter suggests concentrating on exporting to China. That is about the last thing I would do. The UKs experience over decades is you export once to China and they copy it if it suits them. Reverse engineering its called, aka a chinese copy. We regularly get emails from Asia asking to manufacture for us, they go in the bin.
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Hung parliament a bad thing?
Well its a good thing that a HP might bring the Liberals and some if not all of the remaining political parties into government as, otherwise, their efforts and view of those that vote for them is lost?
The problem is not the prospect of a HP - it is our sleaze museum Parliamentary system and inadequate MP's and the negativity of political parties and them generally all having a bad attitude towards the opposition and being unable to work together across party lines for the benefit of the nation - that is the problem - not the prospect of a HP.
Some countries that have or have had HP's are now doing better than the UK. I wonder why?
Millions of votes in the UK are disenfranchised in each UK election because of our archaic political systems - that is the biggest encouragement of apathy and cause of non-accountability.
Politicians are more frightened of a HP than they are of losing the election as a HP makes them all work harder and most of them are just not up to the job. Massive 'landslide' election wins cause massive damage and waste to the UK economy and as incoming governments over-turn previous practices as sometimes just as matter of political dogma.
Speaking of waste - Why is the UK paying £50m pa (? I think this is the right figure) aid to China?
It makes QE look daft when money is chucked around to one of the world's wealthiest countries?
So when I hear politicians igniting a class war and accusing other parties of social engineering I think - hold on - who created the modern tower block flat and sectioned off huge areas of our towns and cities with council estates and retained a split secondary school education system and has built up a dependency of 8 million people on government benefits and has let millions of people from overseas, of different cultures bring their knives into our cities and has milked the middle class for years with an ever rising Council tax burden.
Are these politicians able to function in a HP or are they just to negative and distracting from the economic mayhem which they have created?
QE is 'peanuts' in its positive effects and in comparison to the big picture.
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285. At 10:05am on 18 Jan 2010, nautonier wrote:
'Hung parliament a bad thing?'
Might be a good thing, maybe common sense as opposed to party politics would be used to solve the economic problems.
There's a £200 billion problem about to coming knocking on our door again. Mervyn's only delayed things by twelve months QE.
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286. At 10:18am on 18 Jan 2010, Dempster wrote:
285. At 10:05am on 18 Jan 2010, nautonier wrote:
'Hung parliament a bad thing?'
>>>>>>>>>>>>>>
Full representation according to the number of votes cast is another 'fair way' but I doubt that it will even get a mention by the media or the politicians except from the minority parties who have a fundamental right through natural justice for representation - worth a legal action to our new lords and masters in the EU?
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To Nautonier.
The system could be a lot fairer, but I can’t see it changing now or in the near future.
In any event in my view the main issue is this:
The Bank of England’s quantitative easing has kept the Government funded up to press, but all that has been achieved is a 12 month delay in facing the problem.
The DMO has around £200 billion in gilts to shift in the forthcoming tax year.
Projected tax receipts in 2010 – 2011 = £400 billion
Projected Government spending 2010 – 2011 = £600 billion
There’s a £200 billion hole that has to be filled.
1) You could:
Cut public expenditure, but that means sacking quite a lot of the public sector workforce
Cancel infrastructure and other projects, which will hurt the private sector
Cut benefits and public sector pensions.
None of the above will go down well of course.
2) You could:
Try and borrow it by issuing fixed interest gilts, but evidence suggests there isn’t the demand for £200 billion worth of them, and even if there was, the UK would end up in a compound debt trap and default in the end.
3) You could:
Substantially increase taxation, but then most would simply spend less in the private sector to compensate for it and the UK would fall into a compound tax spiral with the likely collapse of the private sector.
4) Or
The BOE could print another £200 billion to fund the shortfall like last year, but then sterling’s value will likely fall further, and facing the problem is only delayed another year in any event.
Ultimately whichever political party gets control, or even if it’s a hung parliament, the Government debt problem is going to have to be sorted out. It can’t be ignored for much longer.
Personally can’t see how you can do no.s 2 & 4 simultaneously, because an investor would find it difficult to price fixed interest gilts if the BOE keeps printing money causing a devaluation of sterling.
Perhaps we’re in for a combination of no.s 1, 3 & probably a lot of 4.
What do you think?
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As Stephanie said on http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/11/threeway_on_the_mpc.html
Seven members of the MPC voted to buy another £25bn of assets, Prof.David Miles wanted £40bn and Mr.Spencer Dale who wanted none.
3 months on and the playing field has moved in the direction of Spencer Dale, in yesterdays Telegraph Tom Stevenson suggests that Dr.Andrew Sentance has now moved to Mr. Dales' position. (Dr. Sentance was +£25bn in Novembers meeting)
All things being equal that would suggest that QE will be put on hold in February, but I'm not so sure.
Firstly, if they decide to put QE on hold and things get worse, wouldn't they look a bit foolish turning the taps back on ?
Secondly, the next QE meeting would likely be held on May 6th (possibly election day) when they would be constrained by the new government.
I think Brown needs the £25bn to tide him over to the election and I think Cameron wouldn't object to that as he could just blame it on Gordon, which leaves the question
'Just how independent of the current government is the BoE and MPC ?'
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Oh dear riverside still stuck in the old grooove and stagnant thinking!
What else do you expect from Prof Peter Spencer? Look back at the majority of his previous pronouncements and just see both how far out he was and how wedded to the idea of money as wealth he is - a simle Google search will suffice.
To put it plainly, the vast majority of those involved in the private sector add very little true value to the economy they merely move debt around. Even those engaged solely in export are on a hiding to nothing as the global ecoomy is still resting upon a failed international financial sysytem which has recieved no real attention since its systemic failure was idenified.
If you cannot understand the difference between wealth and value then there is no point in continuing this conversation.
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288. At 11:13am on 18 Jan 2010, Dempster wrote:
To Nautonier.
The system could be a lot fairer, but I can’t see it changing now or in the near future.
In any event in my view the main issue is this:
............Perhaps we’re in for a combination of no.s 1, 3 & probably a lot of 4.
What do you think?
>>>>>>>>>>>>>>>>>>>>>>>
I've previously put forward a raft of radical policies (as have many other contributors) but otherwise I really don't know and I'm sure that most of the politicians don't know either as things are too uncertain with e.g. the general election looming and with most attempting to or content to try and spin themselves through the election and deal with the mess 'on trust' hopefully as the elected government.
QE is just a financial bung described by our Prime Minister as 'investment' but really it is just a '3rd world dictators trick' to paper over the cracks in the main government statistics.
The finances will be dealt with after the next general election by way of what in part we're not going to be told before the general election.
What I think is scary is the prospect of UK public and private infra-structure costs to the UK being brought forward as a burgeoning population both exacerbates those costs and tests our infrastructure to failure in conditions of higher import costs for energy etc.
I don't think that HM treasury figures properly account for the mid - range and worst case scenarios and so there will be huge potential for pressure on middle income families, particularly, after the general election as they are attacked with Council Tax and other stealth taxes and continue to fund those who make little or no contributions themselves to the same taxes.
However, I think that UK government handouts here there and everywhere for all and sundry will likely become history except those in direct doemistic need.
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I have to say that i think QE has worked (up to a point) in that it has allowed banks to get debt of their books and catch their breath. This has allowed some confidence to seep back into the markets and that has led to the ftse rising to a point that nobody can quite believe. I am told there is a lot of money sloshing around the banks to lend but there is still a lot of uncertainty over two key issues. The first is nobody is absolutley sure that there is not some major financial calamity round the corner as it is suspected a lot of banks have yet to realise their balance sheet losses. The second is that if you take out the interest rate factor there is no sector that is really showing signs of taking us out of recession in the UK. Stopping QE is wise next month I think as I think we need to work out where we are and see if a better way forward can be found.
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290 fdd
Yes of course, I should not let inconvenient facts get in the way of a good story. Problem is there are just sooo many inconvenient facts. BTW If you think the entire banking system is going to be reworked from the roots upwards to suit your concept then dream on.
I am entirely aware of the ideas of wealth creation and value added as I am involved in both. What is clear from regular contact with other nationals abroad is other countries do not have the scale of problems that beset this country. Therefore what is needed is simply doing stuff more like the way they do it. It is hardly earth shattering. Nor does it need complete reworking of anything, just less of a Brownfest and PC thinking.
Your sound bites do not solve anything. The cuts are coming whatever. The longer they take the more businesses will leave the country, there is a steady flow of it. For every job that goes abroad so a public sector worker job goes in whole or part, tax take being 46% of GDP. It is very easy to identify public and private secotr, ONS can do it. Any blurring is due to political meddling to expand the sector by getting it of the PSBR, that is why the utilities where nationalised, simple as that - get them off the PSBR. Why do you think PPPs and PFIs were invented, why to expand public spending. Where is the PPP and PFI liability even though they are off the public book, why with the public. This particular top heavy ship is a seaworthy as the Mary Rose with the gun ports open. Nothing you have said changes that.
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292. At 2:18pm on 18 Jan 2010, russell king wrote:
I have to say that i think QE has worked (up to a point) in that it has allowed banks to get debt of their books and catch their breath. This has allowed some confidence to seep back into the markets and that has led to the ftse rising to a point that nobody can quite believe.
>>>>>>>>>>>>>>>>>>>>>>>>>>>
QE has lifted the UK stock market - that's a good one.
Ha Ha ha.............................. ha Ha......................... haaaaaaaaaa ha Ha
Who is paying for your 'yes man' ideas?
The stock market recevered because of market evaluation of risk because share dealers/investors saw the financial system in free fall - when the risk dissipated and the banking system stabilised the stock market(of mainly monopolised companies) simply recovered much of its lost ground - and the big pension funds keep buying stocks and shares partly because the UK property market is weak - but all this is only also because inflation and interests are low i.e. good fundamentals
QE has lifted the stock market - Ha! Ha! Ha!
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riverside,
You can carry on clinging to failed economic ideas and practices - you may even appear to give yourself a little respite - but the system itself will only repeat the mess. So you can be a continuing part of the problem or you can start to actually be part of the resolution. It appears that you prefer the former.
Sure the cuts are coming - some of them necessary but with both main political parties vieing with each other to cut deeper and faster, we will merely be left with a shredded state at the very moment when the second part of the double-dip its.
This is not a recession it is a depression. We can either close our minds and just accept the pain or we can start to think about ways of ensuring that we build an economy that is robust and stable. Now the leaders of your vaunted private sector have proved that, as far as the UK economy is concerned, they are prepared to sell it out quickly for short term gain rather than build anything. Therefore we have to look at new descriptors and realities - a truly mixed economy.
You can bluster all you want but you know I'm telling the truth.
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295 fdd
Trade has existed since man was little more than an ape. Here we trade, ethically, sustainably, internationally, successfully, and have growth. Something tells me we are doing nothing wrong. Looking around the UK clearly something is wrong, perhaps they are not doing things as well as we do here. QED.
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#296 riverside
Good for you - that an honest response.
Now look around you and look at the rest of the industrial and commercial activity and ask yourself why it is that, if you can do it, they cannot or will not?
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297 fdd
Why cannot the private sector perform in this environment. here are a few reasons -
Old structure ie culture. Asset stripping to prop up dividend. Debt, usually to fuel expansion. Inflexible systems. Overhead. Lack of focus. Using excuses not to do things. In many cases allowing a major customer or small group of customers to occupy 40 percent or of the order book - deadly, all control is lost. Inflexible workforce. Marketing men who don't know what they are talking about. Training people who want to train for the sake of it. Low investment in development. Boom and bust cycles affecting the domestic market but failure to export to achieve a balanced order book because it is a long term development. Too much opportunity in property speculation so core business not first in queue for attention. Letting the customer drive the business - fatal. Close contact with the customer base to understand what clicks. Not bothering to do what can be done elsewhere far cheaper. Failure to network. The idea people want standard products because it is easier to make standard products, there is a way around this by having a standard core that can be made individual. Failure to implement JIT and design for manufacture. HMG failure to regulate payments in the way it is regulated on the continent such that supply chain abuse grows and is particularly bad in a downturn - this dicates that a move should be made to trading directly to achieve a spread of customers and direct prepayment instead of this 60 , 90, 120, ++++ day from invoice. That will do for starters. Essentially it is about long term views and focused management, there is nothing special in it. Just focus and throwing what has become conventional behaviour away. Monolithic structures are inflexible. Managers of monolithic structures are autocratic. Managers of business structures in decline are not the type of managers a business in expansion requires, the reflexs are different. As most big businesses are in decline in the West and growth is needed that is a problem.
There is nothing wrong with the financial system as such - what is wrong is the way it has been abused by banks and business and in particular the way debt has been marketed in a rolling programme of expansion. That is a lack of due diligence by government. Any muppet can manage something in growth due to market manipulation. You are totally wasting your time thinking basic financial structures will be replaced. You are wasting your time if you think any tweak can occur to existing big businesses in trouble. If this economic landscape is to stay around then any small business in trouble will probably fail because they cannot reorientate rapidly enough, they do not have the resource.
BTW The definition of a business which is remote from its customer base, abstracts payment arbitarily, ignores complaints, supplies what it feels is right without discussion, is autocratic, spends inordinate effort finding reasons not to do things, etc etc is - surprise, surprise, the public sector - which masquerades as a business but fails to behave like a busines. And what other noteable thing relates to the customer base of the public sector - the customer does not pay for a service as it occurs so some lobby groups just ask for services, why not. And if they fit with the dogma and above all are PC then they get funded.
In fact the cultural problem is clear at ministerial level as Mr Balls said sometime in 2009 he was accountable but not responsible for failures in his dept. Unfortunately you cannot be accountable without also being responsible which he does not appear to realise. But this is a trickle down culture and he and his kin have been in place far too long. a great opportunity wasted and a betrayal of promises and undertakings made in '97.
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#298 riverside,
I have absolutely no argument with your first paragraph apart from your comment about not letting the customer drive your business - the customer is the first and only reason for your firm's existence!
However there IS a heck of a lot wrong with the financial system. As you point out it has been hijacked. The system itself only exists to oil the relationship between the supplier and the customer (domestic or international). However, the grease-monkeys have managed to achieve a position wherein their requirements are foremost and the world economies have to be forced to meet their demands. In essence none of the markets commodity or fiancial are fit for purpose any longer. That is why I continue to argue that wealth has to be replaced by value if we are to break free from the shackles. It really isn't a socialist/capitalist argument as far as I am concerned. We need to recognise and reward the value that can be created within the economy from all sectors.
If I had my way I would adopt a pan-European protectionist policy as the start point of re-building a balanced, focused economy that met the needs of the people of Europe. The balance between government, capital and labour would be restored. Then we could nurture those industries and companies that will meet our requirements both today and for the future.
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299 fdd
No you are completely wrong. You should never let the customer tell you what to do or de facto take over the business. This is why you are dangerous.
If you first get rid of the dominant customer problem, ie letting a major customer or group of customers have 40 percent or more of your order book. This is because that situation ensures your profit and loss situation is entirely in the hands of that customer or customer group. If they walk you have problmes, so you cannot let them walk so they drive price down or demand this or that. That weakens your position. In reality that customer dominates your business, you become a subsiduary with none of the advantages of a subsiduary. There are many businesses in this situation and they have allowed it to happen to themselves. Suppliers to supermarkets come to mind. But here are a lot of businesses that do this, and it is because it is easy to deal with one or a few customers rather than many.
So dominate customers have been eliminated - you have a general customer mix which gives you a spread which is far more healthy. Its just stats.
If you then allow the customer to dictate what you are doing you again run into problems. No customer pays for the business set up and running cost, each customer gains by getting a product or service they could not get on their own. The cost of the product or service would be beyond the capability of any single customer, they benefit by the business developing the customer base. Note the business developes the customer base, nobody else.
If you allow the customer to dicate what they want then the whole thing falls appart. The product or service becomes evermore complicated and expensive and because the customer never sees the true cost their wish list becomes ever bigger and the business is left with trying to share the cost across all customers. This is the architypal problem in the public sector. Consider the NHS. A patient says I have heard there is a new treatment. The administrator says it is very expensive and not proven. The patient says I want it, I dont give a damn, I can't put a price on my life. The administrator says, no sorry. So the patient lobbies and the fund provider tells the administrator to provide it. Every little opportunity is used by the patient lobbyist to demand something, postcode lottery, health apartheid. The outcome is ever outwards, never inwards. And I dont blame the patient, who can. The problem is the budget can do nothing but grow and funding is limited. That is a customer running the business. In Ireland they try to avoid this with the idea of a personal entitlement and budget so the customer is involved in the idea of cost and decision making. The problem in the public sector here is the fund provider, a politically driven body, is the customer not the individual. Steering is therefore politically driven not business driven.
Similar problems occur when you let a customer base run a conventional business. It is up to the business to control what it provides, within that envelope the customer can indicate what they like. This is a fundimental problem with marketing. Marketing in many cases gives the wrong answer because it asks 'would you buy this', or 'what do you want to buy' divorced from the idea of the customer making themselves poorer by commiting to a purchase. It is easy to prove the difference. Online shopping makes purchase very easy. Click and tick. Yet across the board over half of all purchases are aborted at the final click (60%). Those are not my figures they are general figures in the online industry. This tells you that very strong interest in buying is substantially different to actually buying. The problem probably relates to a lack of funds or financial commitments at the customers end, not desire to buy. So if the customer takes things thru to the final click and aborts what do you think the marketing would say. In most cases it would identify a very very high take-up which would never be achieved in practise, far higher than the number of people who move to starting to click. Money, ie transactions are what counts, not talk. Talk is cheap, very cheap.
We do not exist because of any customer. We exist because customers generally are prepared to make themselves poorer to obtain what we provide. We specified the business criteria first then looked for a product group that fitted the business criteria. When a product group could not be identified we developed a new product and therefore a new market. In some cases our customers motivation to buy is very strong and it is clear the first available discretionary income available comes our way. We do not encourage this sort of purchasing behaviour. We never force or demand a closure on a purchase. We never advertise. We concentrate simply on providing something valued which is not available from anybody else supplied from within a flexible manufacturing environment with all overhead that can be eliminated, eliminated. Everything else follows. Our customers are a our saleforce because they tell their friends about us. Essentially it is viral. BTW the product evolves and migrates in design terms to make it difficult to steal the content. It is deliberately allowed to float.
IMHO too many UK businesses do not control their businesses, they let the customer run rampant or totally ignore the customer. Generally the rule here is if it is conventional in anyway dont rush do it. When there is a big chunk of a billion English speaking people in the West online then you do not have a problem with customers, there are plenty of customers. Far more than we can cope with.
The business here was structured and designed to operate in this sort of economic environment. The business was structured and the output followed, not the output designed and the business followed on. Darwinism says that businesses not compatible with this environment will fail. It may be slow extinction, or fast, but they will go. I doubt many businesses here are structured for this economic environment.
That is why I consider the entire issue a cultural one.
I am afraid I not agree your Pan European trade bloc which I see as crypto Victorian. In response to a shortage of workers in the boom the response here was to import migrants despite unemployment continuing. Therefore the issue is not simply work availablity is it.
(BTW The time of posting is because I have had to contact somebody in a different time zone and I am filling in.)
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Riverside - 300 - excellent post. Speaking only for the private sector (although most of the principles outlined by R apply equally in the Public sector), I have always believed the Customer comes third in the corporate pecking order.
First comes the shareholders or proprietor or partners, for without capital there would be no business.
Second comes the staff, for without them there would be no product or service to buy.
Third comes the customer, who needs to buy your product or service.
Without the first two, you don't have a business and without the third you don't stay in business. The publically funded services are obviously more complex, but R is quite right in his assertion that most put the cart in front of the horse.
TM StH
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For all the graphs and charts and theories and proclamations, it's pretty clear that this whole QE business is a colossal fraud. Essentially, printing one's own money to pay off your debts
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riverside,
And there I was thinking that you were listening to Wake Up To Money on Radio 5 live :).
At one time, every Carrefour site had the following slogan prominently displayed in staff areas 'Sans Clientes Nous Sommes Mortes' and that is the maxim that applies to every other industrial and commercial organisation. How that relationship is managed is the responsibility of the executive, operational management and staff of the organisation making the offer.
Your post clearly indicates that you have a very jaundiced view of marketing. If you limit the scope of marketing to yet another operational element and remove it from one of the prime drivers of the excutive then you are bound to focus upon either or both your own offering and control. Trouble is when you do that you rapidly lose your ability to understand if customers are maximising their satisfctions by dealing with you or minimising their dissatisfactions. I can assure you that the larger the proportion of customers who are doing the latter the more likely that they will find other suppliers. When customers recognise your opinion that "We do not exist because of any customer. We exist because customers generally are prepared to make themselves poorer to obtain what we provide" then you can be sure that sooner rather than later they will move to another supplier!
I can further assure you that you are no different to any other organisation. You may think you are. You may think that the nature of your products are different. However, you ultimately need people/organisations to decide to buy your offerings and you will loose them when other organisations meet their needs more closely.
History is littered with the bodies of entrepreneurs who believed that either their product or the way they managed their organisations was of more importance than the customer.
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#301 remoteislander,
And therein the lies the TRUE cause of the UK economic collapse.
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Hi Mr Meigh =]
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