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20% drop in the rate of house price slowdown. Are we reaching the bottom of the curve?
Data from the Halifax released today shows a marked slowdown in the rate of descent of house prices. If this trend continues then house prices would be returning to a month on month growth by the end of the year, relieving the pressure for millions who are worried about negative equity.
City analysts and leading economists reacted positively to the figures, which showed that the trend of ever increasing descent has at last slowed and homeowners may be able to stop worrying about negative equity, and first time buyers may be able to buy their first home without worrying about losing money on the biggest purchase they have ever made.
In addition, the Bank of England's monetary policy committee held the base rate constant for the second month in a row, allaying fears that an increase in the base rate might be required to combat the slight increase in inflation that has become noticeable in the last quarter.
With the liquidity problems facing many of the major banks now showing significant signs of improvement it is hoped that the mortgage rates - currently high by historical standards in relation to base rate - may start to reduce to allow those who have put off buying during the recent downturn to buy their dream home.
Although it cannot be said that at present there are signs for celebration, it can certainly be said that there are signs that the worst may be over, and that one of the most talked-about economic phenomena of the last decade - the so-called "credit crunch" - may at last be starting to evaporate, and with its demise bring hope for homeowners and aspiring homeowners everywhere.
[Ok, the above appears in no newspaper anywhere. I wrote it. Why? Because I was getting sick and tired of the doom and gloom merchants and decided to use the same data everyone else is using (the 20% drop I mention above is accurate per the Halifax data) and write a positive piece, using unattributed sources (leading economist, etc), like the media do (i.e. I make it up). I thought that switching around the point of view might be interesting. Any of the newspapers **could** write the above - they choose not to - Why? Because good news is not news right now.]
Data from the Halifax released today shows a marked slowdown in the rate of descent of house prices. If this trend continues then house prices would be returning to a month on month growth by the end of the year, relieving the pressure for millions who are worried about negative equity.
City analysts and leading economists reacted positively to the figures, which showed that the trend of ever increasing descent has at last slowed and homeowners may be able to stop worrying about negative equity, and first time buyers may be able to buy their first home without worrying about losing money on the biggest purchase they have ever made.
In addition, the Bank of England's monetary policy committee held the base rate constant for the second month in a row, allaying fears that an increase in the base rate might be required to combat the slight increase in inflation that has become noticeable in the last quarter.
With the liquidity problems facing many of the major banks now showing significant signs of improvement it is hoped that the mortgage rates - currently high by historical standards in relation to base rate - may start to reduce to allow those who have put off buying during the recent downturn to buy their dream home.
Although it cannot be said that at present there are signs for celebration, it can certainly be said that there are signs that the worst may be over, and that one of the most talked-about economic phenomena of the last decade - the so-called "credit crunch" - may at last be starting to evaporate, and with its demise bring hope for homeowners and aspiring homeowners everywhere.
[Ok, the above appears in no newspaper anywhere. I wrote it. Why? Because I was getting sick and tired of the doom and gloom merchants and decided to use the same data everyone else is using (the 20% drop I mention above is accurate per the Halifax data) and write a positive piece, using unattributed sources (leading economist, etc), like the media do (i.e. I make it up). I thought that switching around the point of view might be interesting. Any of the newspapers **could** write the above - they choose not to - Why? Because good news is not news right now.]
In reply to John_Hat:
they choose not to - Why? Because good news is not news right now
No, because to be seen grasping at straws would be laughed at.
The HBOS figures show a true annual fall of 8.6% to June. This is a record, it beats the previous greatest decline of 8.5% to Oct 1992 (which was three years into the last housing crash).
How is that good?
lsn
they choose not to - Why? Because good news is not news right now
No, because to be seen grasping at straws would be laughed at.
The HBOS figures show a true annual fall of 8.6% to June. This is a record, it beats the previous greatest decline of 8.5% to Oct 1992 (which was three years into the last housing crash).
How is that good?
lsn
In reply to John_Hat:
Hmmm
Jan 0
Feb -0.4
Mar -2.5
Apr -1.3
May -2.5
Jun -2.5
Jul -2
How a 2% drop instead of a 2.5% drop over one month can be called a 'trend' is beyond me. We are now 9.7 % down from the peak (more like 12% down including inflation). If we continue to drop at 2% this will equate to a year on year drop of about 22%.
Hmmm
Jan 0
Feb -0.4
Mar -2.5
Apr -1.3
May -2.5
Jun -2.5
Jul -2
How a 2% drop instead of a 2.5% drop over one month can be called a 'trend' is beyond me. We are now 9.7 % down from the peak (more like 12% down including inflation). If we continue to drop at 2% this will equate to a year on year drop of about 22%.
In reply to wilding:
"If we continue to drop at 2% this will equate to a year on year drop of about 22%."
**grins**. You are doing exactly the same as me in the opposite direction. The point of the post was to demonstrate exactly that - that most of the doomsayers are taking little information, extrapolating like crazy with no actual knowledge, and then shouting that the world is going to end.
There are two sides to every story. Just one side has not got a lot of airing recently... so I thought I would oblige **laughs**
"If we continue to drop at 2% this will equate to a year on year drop of about 22%."
**grins**. You are doing exactly the same as me in the opposite direction. The point of the post was to demonstrate exactly that - that most of the doomsayers are taking little information, extrapolating like crazy with no actual knowledge, and then shouting that the world is going to end.
There are two sides to every story. Just one side has not got a lot of airing recently... so I thought I would oblige **laughs**
In reply to lowersharpnose:
Its not - but that was not the point of the post. The point of the post was to demonstrate that statistics can be used any way you like. The media, who you are fond of quoting, are making the bad look worse and ignoring the good.
e.g. showing a true annual fall to June of 8.6% could easily be counterbalanced by saying that Q1 figures this year showed a 1% **increase** in average house prices..
I'd point out that I don't particularly think the situation is good. I **do** think that it is confidence-induced, and wall-to-wall doom and gloom is merely going to make that worse. Surely in 100 negative media posts one post on a forum to demonstrate a point is hardly going to swing the balance **grins** - I have full knowledge of exactly how much clout I wield **laughs**.
Its not - but that was not the point of the post. The point of the post was to demonstrate that statistics can be used any way you like. The media, who you are fond of quoting, are making the bad look worse and ignoring the good.
e.g. showing a true annual fall to June of 8.6% could easily be counterbalanced by saying that Q1 figures this year showed a 1% **increase** in average house prices..
I'd point out that I don't particularly think the situation is good. I **do** think that it is confidence-induced, and wall-to-wall doom and gloom is merely going to make that worse. Surely in 100 negative media posts one post on a forum to demonstrate a point is hardly going to swing the balance **grins** - I have full knowledge of exactly how much clout I wield **laughs**.
In reply to John_Hat:
I am still at a loss. How can you think there is anything good about a 2% fall in house prices over one month?! There is no way this can be considered anything other than a house price crash, unparalleled in history. We have built an economy based on debt. Have you seen the recent credit card debt data? People are borrowing even more, just to maintain their life.
Inflation is huge, using the 1980s method of calculating, inflation we are over 10% in the USA. I imagine it is the same in the UK. Interest rates will have to rise.
I am still at a loss. How can you think there is anything good about a 2% fall in house prices over one month?! There is no way this can be considered anything other than a house price crash, unparalleled in history. We have built an economy based on debt. Have you seen the recent credit card debt data? People are borrowing even more, just to maintain their life.
Inflation is huge, using the 1980s method of calculating, inflation we are over 10% in the USA. I imagine it is the same in the UK. Interest rates will have to rise.
In reply to John_Hat:
that Q1 figures this year showed a 1% **increase** in average house prices..
These are the figures for Q1.
Dec 07 £197,163
Jan 08 £197,243
Feb 08 £196,465
Mar 08 £191,590
It is difficult to portray a fall from £197,163 to £191,590 as a 1% increase.
I guess HBOS managed it using their "smoothing" fiddle.
lsn
that Q1 figures this year showed a 1% **increase** in average house prices..
These are the figures for Q1.
Dec 07 £197,163
Jan 08 £197,243
Feb 08 £196,465
Mar 08 £191,590
It is difficult to portray a fall from £197,163 to £191,590 as a 1% increase.
I guess HBOS managed it using their "smoothing" fiddle.
lsn
In reply to wilding:
Yes, I have seen the credit card data. Average credit card debt in the UK is £3,008 (per adult £4900). Average household debt is just over 9 grand.
Frankly, with student loans included (which they are and are often 10k on their own), that is **small**.
Including mortgages, the average debt is about 60 grand. Given average house is about 180k that means an average LTV of 33% - which is LOW.
Just a thought..!
Wilding, I respect you and your posts, but can we agree that the US and UK economies are different, with different factors affecting them? Please don't assume that just because something happens in the US it will happen in the UK. Different banking sector, different means of financing, etc, etc.
Yes, I have seen the credit card data. Average credit card debt in the UK is £3,008 (per adult £4900). Average household debt is just over 9 grand.
Frankly, with student loans included (which they are and are often 10k on their own), that is **small**.
Including mortgages, the average debt is about 60 grand. Given average house is about 180k that means an average LTV of 33% - which is LOW.
Just a thought..!
Wilding, I respect you and your posts, but can we agree that the US and UK economies are different, with different factors affecting them? Please don't assume that just because something happens in the US it will happen in the UK. Different banking sector, different means of financing, etc, etc.
In reply to lowersharpnose:
Probably - I downloaded the spreadsheet about an hour ago and just picked the most positive figures. Like I say, I'm not particularly arguing the figures - just that you can make them work both ways - either positive or negative.
As I've said before on other posts, 5% base rate, 6.25% mortgage rate, 4% inflation are all low historically, we've all had much, much worse, and lots of people screaming about the economy being in a bad way is kinda daft - "a bad way" is 15% interest rates, 17% mortgage rates, and 15% inflation - oh and 3 million unemployed.
We are not there - in fact we are a long way off - and to avoid seeing the positives out there and concentrating on the negative is kinda missing half the picture - and the part of the picture that is frankly quite pretty to look at, and I like pretty things!
**bounce**
Probably - I downloaded the spreadsheet about an hour ago and just picked the most positive figures. Like I say, I'm not particularly arguing the figures - just that you can make them work both ways - either positive or negative.
As I've said before on other posts, 5% base rate, 6.25% mortgage rate, 4% inflation are all low historically, we've all had much, much worse, and lots of people screaming about the economy being in a bad way is kinda daft - "a bad way" is 15% interest rates, 17% mortgage rates, and 15% inflation - oh and 3 million unemployed.
We are not there - in fact we are a long way off - and to avoid seeing the positives out there and concentrating on the negative is kinda missing half the picture - and the part of the picture that is frankly quite pretty to look at, and I like pretty things!
**bounce**
In reply to John_Hat:
Inflation is a *good* thing for eroding debt.
Back in the early 90s, high inflation meant that earnings increased swiftly. You only had to hang on for a few years for the debt to be managaeable and then inflated away. That is not going to happen this time around.
Low inflation/low interest rates mean that the high debt levels will take ages to disappear. This really affect the future spending power of those that have borrowed large income multiples.
In the past, with high wage inflation, relatively modest falls over a few years would make houses cheap again.
Not so now.
We need much larger nominal falls to make houses cheap again. I think we will see them.
lsn
Inflation is a *good* thing for eroding debt.
Back in the early 90s, high inflation meant that earnings increased swiftly. You only had to hang on for a few years for the debt to be managaeable and then inflated away. That is not going to happen this time around.
Low inflation/low interest rates mean that the high debt levels will take ages to disappear. This really affect the future spending power of those that have borrowed large income multiples.
In the past, with high wage inflation, relatively modest falls over a few years would make houses cheap again.
Not so now.
We need much larger nominal falls to make houses cheap again. I think we will see them.
lsn
In reply to John_Hat:
Good point John. The Today Programme exasperate me on a daily basis with the "gloom in the High Street" news.
- When M&S revenue falls, this is a sign of general doom.
- Yet when Associated British Foods today reported a 19% increase, the business editor was falling over himself to explain why this was a freakish result.
> Like I say, I'm not particularly arguing the figures - just that you can make them work both ways - either positive or negative.
Good point John. The Today Programme exasperate me on a daily basis with the "gloom in the High Street" news.
- When M&S revenue falls, this is a sign of general doom.
- Yet when Associated British Foods today reported a 19% increase, the business editor was falling over himself to explain why this was a freakish result.
In reply to John_Hat:
Certainly the response in the US to the credit crunch has been very different from the UK. In the US the FED aggressively cut rates to 2% and the politicians gave every tax payer $600 back. They were worried about deflation and recession.
In the UK the BoE has kept rates almost stable, and your politicians have increased various taxes. Presumably they are afraid of inflation and recession.
We will see which approach works.
ps you have obviously thought long and hard about your house purchase. good luck with your new home!
> (In reply to wilding)
>>
> Wilding, I respect you and your posts, but can we agree that the US and UK economies are different, with different factors affecting them? Please don't assume that just because something happens in the US it will happen in the UK. Different banking sector, different means of financing, etc, etc.
> Wilding, I respect you and your posts, but can we agree that the US and UK economies are different, with different factors affecting them? Please don't assume that just because something happens in the US it will happen in the UK. Different banking sector, different means of financing, etc, etc.
Certainly the response in the US to the credit crunch has been very different from the UK. In the US the FED aggressively cut rates to 2% and the politicians gave every tax payer $600 back. They were worried about deflation and recession.
In the UK the BoE has kept rates almost stable, and your politicians have increased various taxes. Presumably they are afraid of inflation and recession.
We will see which approach works.
ps you have obviously thought long and hard about your house purchase. good luck with your new home!
In reply to wilding:
Didn't they do that after house prices had corrected? we've got a long way to go here yet.
> (In reply to John_Hat)
> [...]
>
> Certainly the response in the US to the credit crunch has been very different from the UK. In the US the FED aggressively cut rates to 2%
> [...]
>
> Certainly the response in the US to the credit crunch has been very different from the UK. In the US the FED aggressively cut rates to 2%
Didn't they do that after house prices had corrected? we've got a long way to go here yet.
In reply to Papillon:
Not really, the FED started to cut interest rate just after the credit crunch started in august. House prices had been falling for a year before august 07, but are still falling almost a year later.
Incidentally, The two de facto government mortgage agencies are basically bankrupt at the moment (think halifax and nationwide). We'll see how the FED can bail them out, they have trillions in debt (although their assets shuld cover most that debt).
> (In reply to wilding)
> [...]
>
> Didn't they do that after house prices had corrected? we've got a long way to go here yet.
> [...]
>
> Didn't they do that after house prices had corrected? we've got a long way to go here yet.
Not really, the FED started to cut interest rate just after the credit crunch started in august. House prices had been falling for a year before august 07, but are still falling almost a year later.
Incidentally, The two de facto government mortgage agencies are basically bankrupt at the moment (think halifax and nationwide). We'll see how the FED can bail them out, they have trillions in debt (although their assets shuld cover most that debt).
In reply to John_Hat:
hahahahaha...doom and gloom merchants!
Why are house prices at seven and eight times the average salary a good thing? Do you like being in debt to the bank or something?
You'll be telling me next that high petrol prices are a good thing...
hahahahaha...doom and gloom merchants!
Why are house prices at seven and eight times the average salary a good thing? Do you like being in debt to the bank or something?
You'll be telling me next that high petrol prices are a good thing...
In reply to lowersharpnose: You're not wrong. These are exciting times. My kids are looking forward to their oil-limited future as much as I did to my oil-awash one.
In reply to boswelox:
I think that if high petrol prices mean that renewable energy, which has always been historically more expensive than oil-derived energy, becomes competitive, and all the millions of dollars of research into engines which has resulted in cars performing at 70mpg is poured into renewables then its hard to see how it cannot be a good thing!
I think its somthing that will force change. We have technology there to take over from oil, we just have to use it and develop it. Necessity being the mother of invention and all that **grins**.
I think that if high petrol prices mean that renewable energy, which has always been historically more expensive than oil-derived energy, becomes competitive, and all the millions of dollars of research into engines which has resulted in cars performing at 70mpg is poured into renewables then its hard to see how it cannot be a good thing!
I think its somthing that will force change. We have technology there to take over from oil, we just have to use it and develop it. Necessity being the mother of invention and all that **grins**.
In reply to John_Hat:
Good post, certainly agree with the sentiment!
It's also worth pointing out the different reporting of petrol, food etc. prices vs housing - somehow both inflation and deflation seem to be bad things in the press today...
In reality house price deflation is a good thing for all those buying 'more' of the product - 1st time buyers and those trading up.
The other amusing comparison is between the housing headlines of a year or so ago and today - I really wish the press would make their mind up about what news is good news...
Good post, certainly agree with the sentiment!
It's also worth pointing out the different reporting of petrol, food etc. prices vs housing - somehow both inflation and deflation seem to be bad things in the press today...
In reality house price deflation is a good thing for all those buying 'more' of the product - 1st time buyers and those trading up.
The other amusing comparison is between the housing headlines of a year or so ago and today - I really wish the press would make their mind up about what news is good news...
In reply to John_Hat:
Sorry with the banks it’s a classic case of sticking your head in the sand and hope it goes away.
The law firms, have said it been strangely calm on the corporate liquidation front, but they expect a tsunami to hit soon, the reason is simply nobody has a sausage of an idea who owes who what to whom and indeed when.
Plus the communiqué from the G8 meeting of finance ministers trying to gee up the IASB to get thier act together on establishing a frame work on how to measure what things are worth? the views of the head of ECB the recent monetary stability report from the BoE and the report the other day from the SEC concerning the credit agencies and the potential for even more downgrades, which is really scary and potential and all those write backs in to banks balance sheets (as per the FT last week) and the potential implications for their capital ratio's, which if they have to cover will suck more liquidity out of the system.
The s**t I suspect is being lined up to really hit the fan. But I really, really hope it doesn’t.
But as with most things in life a whopping great big compromise (fudge, bullsh*t) will be offered and accepted.
All at the tax payers expense, of course, just when we can least afford it.
Sorry with the banks it’s a classic case of sticking your head in the sand and hope it goes away.
The law firms, have said it been strangely calm on the corporate liquidation front, but they expect a tsunami to hit soon, the reason is simply nobody has a sausage of an idea who owes who what to whom and indeed when.
Plus the communiqué from the G8 meeting of finance ministers trying to gee up the IASB to get thier act together on establishing a frame work on how to measure what things are worth? the views of the head of ECB the recent monetary stability report from the BoE and the report the other day from the SEC concerning the credit agencies and the potential for even more downgrades, which is really scary and potential and all those write backs in to banks balance sheets (as per the FT last week) and the potential implications for their capital ratio's, which if they have to cover will suck more liquidity out of the system.
The s**t I suspect is being lined up to really hit the fan. But I really, really hope it doesn’t.
But as with most things in life a whopping great big compromise (fudge, bullsh*t) will be offered and accepted.
All at the tax payers expense, of course, just when we can least afford it.
In reply to lowersharpnose:
"How is that good?"
falling prices = increasing affordability ultimately for savers
"How is that good?"
falling prices = increasing affordability ultimately for savers
In reply to Anonymous:
Oil is precious resource which is being consumed far too cheaply and stupidly. This is a subject for one of the many oil/fuel threads.
Right now, I view falling house prices as necessary and inevitable.
lsn
Oil is precious resource which is being consumed far too cheaply and stupidly. This is a subject for one of the many oil/fuel threads.
Right now, I view falling house prices as necessary and inevitable.
lsn
In reply to wilding:
is ludicrous to say the US and UK economies aren't tied together. if nothing else, look at how stable GBPUSd has been during this crisis.
> (In reply to Papillon)
> [...]
>
> Not really, the FED started to cut interest rate just after the credit crunch started in august. House prices had been falling for a year before august 07, but are still falling almost a year later.
>
obviously the credit crunch was sparked by US house price falls which infected our banks willingness to lend, which in turn caused our house prices to fall.> [...]
>
> Not really, the FED started to cut interest rate just after the credit crunch started in august. House prices had been falling for a year before august 07, but are still falling almost a year later.
>
is ludicrous to say the US and UK economies aren't tied together. if nothing else, look at how stable GBPUSd has been during this crisis.
In reply to wilding:
Will raising interest rates have any effect on inflation which is being driven by international commodity prices rather than consumer behaviour?
> (In reply to John_Hat)
>
>
> Inflation is huge, using the 1980s method of calculating, inflation we are over 10% in the USA. I imagine it is the same in the UK. Interest rates will have to rise.
>
>
> Inflation is huge, using the 1980s method of calculating, inflation we are over 10% in the USA. I imagine it is the same in the UK. Interest rates will have to rise.
Will raising interest rates have any effect on inflation which is being driven by international commodity prices rather than consumer behaviour?
In reply to Tobias at Home:
"obviously the credit crunch was sparked by US house price falls which infected our banks willingness to lend, which in turn caused our house prices to fall."
erm. That is kinda not true. Its kinda the "Decline in Pirates causes Global Warming" argument. You have not mentioned about fifty other factors, all interlinked and operating in different directions, in the US, UK, Europe and the far east, which all impact on the situation. The problems that caused the US situation (house price falls being one) were different problems that caused the UK situation (house price **increases** being one), and though the end effect looks superficially similar there are a lot more complex factors at work.
However, at the end of the day I am not an expert on the US financial sector to the degree I am on the UK one, and would not presume to opine on matters where my knowledge is less than I would consider ideal.
Hence, if you say they are inextricably linked, then, as you are an expert on both economies, I would of course consider your knowledge much greater than mine **grins**.
"obviously the credit crunch was sparked by US house price falls which infected our banks willingness to lend, which in turn caused our house prices to fall."
erm. That is kinda not true. Its kinda the "Decline in Pirates causes Global Warming" argument. You have not mentioned about fifty other factors, all interlinked and operating in different directions, in the US, UK, Europe and the far east, which all impact on the situation. The problems that caused the US situation (house price falls being one) were different problems that caused the UK situation (house price **increases** being one), and though the end effect looks superficially similar there are a lot more complex factors at work.
However, at the end of the day I am not an expert on the US financial sector to the degree I am on the UK one, and would not presume to opine on matters where my knowledge is less than I would consider ideal.
Hence, if you say they are inextricably linked, then, as you are an expert on both economies, I would of course consider your knowledge much greater than mine **grins**.
In reply to John_Hat: what 50 other factors?
the credit crunch is due to banks packaging off subprime and other credit derivatives to such an extent that when they start to lose value/dry up. banks no longer trust each other balance sheets and stop lending to anyone.
the current crisis is almost 100% due to a lending bubble.
what do you think caused the credit crunch?
the credit crunch is due to banks packaging off subprime and other credit derivatives to such an extent that when they start to lose value/dry up. banks no longer trust each other balance sheets and stop lending to anyone.
the current crisis is almost 100% due to a lending bubble.
what do you think caused the credit crunch?
In reply to John_Hat:
The problems that caused the US situation (house price falls being one) were different problems that caused the UK situation (house price **increases** being one),
bollocks! there was a massive housing bubble in the us. what the fck are you talking about?
The problems that caused the US situation (house price falls being one) were different problems that caused the UK situation (house price **increases** being one),
bollocks! there was a massive housing bubble in the us. what the fck are you talking about?
In reply to Tobias at Home:
I think John's talking about the sub-prime losses were caused by people defaulting and there being insufficient asset cover due to house price falls after a big bubble. We have a liquidity crisis causing house price falls on the back of the US falls.
>
> bollocks! there was a massive housing bubble in the us. what the fck are you talking about?
> bollocks! there was a massive housing bubble in the us. what the fck are you talking about?
I think John's talking about the sub-prime losses were caused by people defaulting and there being insufficient asset cover due to house price falls after a big bubble. We have a liquidity crisis causing house price falls on the back of the US falls.
In reply to andy:
Does it have anything to do with at what point the bubble burst? The pin that pricked the US bubble was unemployment, and that in turn has ruptured all the other hugely overinflated markets.
(Am I right in thinking that the IMF has been warning the UK about this outomce since 2003?)
Does it have anything to do with at what point the bubble burst? The pin that pricked the US bubble was unemployment, and that in turn has ruptured all the other hugely overinflated markets.
(Am I right in thinking that the IMF has been warning the UK about this outomce since 2003?)
In reply to andy:
that is pretty much the case yes. i think i wrote something to that effect in another thread.
> (In reply to Tobias at Home)
>
> [...]
>
> I think John's talking about the sub-prime losses were caused by people defaulting and there being insufficient asset cover due to house price falls after a big bubble. We have a liquidity crisis causing house price falls on the back of the US falls.
>
> [...]
>
> I think John's talking about the sub-prime losses were caused by people defaulting and there being insufficient asset cover due to house price falls after a big bubble. We have a liquidity crisis causing house price falls on the back of the US falls.
that is pretty much the case yes. i think i wrote something to that effect in another thread.
In reply to Anonymous:
yes, from about then. but it was great for the banks/governments of the world to let the bubble inflate. basic short-termism i guess.
> (Am I right in thinking that the IMF has been warning the UK about this outomce since 2003?)
yes, from about then. but it was great for the banks/governments of the world to let the bubble inflate. basic short-termism i guess.
In reply to Tobias at Home:
Ah, but the lending bubble was in the US, and we are suffering a credit crunch over here.
So you could say that the credit crunch (and inflation) was caused by the risk taking behaviour of City *ankers encouraged by the inflation busting bonus structures and wage rises in their industry.
Which makes it a little inappropriate that those same *ankers are now telling hard working people shafted by their mess to accept falling living standards because if they demanded inflation-matching pay rises then it might fuel inflation...
> (In reply to John_Hat) what 50 other factors?
>
> the credit crunch is due to banks packaging off subprime and other credit derivatives to such an extent that when they start to lose value/dry up. banks no longer trust each other balance sheets and stop lending to anyone.
>
> the current crisis is almost 100% due to a lending bubble.
>
> what do you think caused the credit crunch?
>
> the credit crunch is due to banks packaging off subprime and other credit derivatives to such an extent that when they start to lose value/dry up. banks no longer trust each other balance sheets and stop lending to anyone.
>
> the current crisis is almost 100% due to a lending bubble.
>
> what do you think caused the credit crunch?
Ah, but the lending bubble was in the US, and we are suffering a credit crunch over here.
So you could say that the credit crunch (and inflation) was caused by the risk taking behaviour of City *ankers encouraged by the inflation busting bonus structures and wage rises in their industry.
Which makes it a little inappropriate that those same *ankers are now telling hard working people shafted by their mess to accept falling living standards because if they demanded inflation-matching pay rises then it might fuel inflation...
In reply to wilding:
The big problem here seems to be thre 'credit squeeze'. Quite why there should be such a squeeze isn't clear to me. Perhaps some of the more financially astute people on here could enlighten me.
It strikes me that, having got their fingers burned being greedy and sloppy taking on crap sub-prime loan bundles from the US, the financial instuitutions have suddenly been overcome with a sense of over-inflated probity, and are being overly cautious with granting loans. Which is screwing the economy. A knee-jerk reaction, in other words.
But I sure it's more complex than that...
> In the UK the BoE has kept rates almost stable, and your politicians have increased various taxes.
The big problem here seems to be thre 'credit squeeze'. Quite why there should be such a squeeze isn't clear to me. Perhaps some of the more financially astute people on here could enlighten me.
It strikes me that, having got their fingers burned being greedy and sloppy taking on crap sub-prime loan bundles from the US, the financial instuitutions have suddenly been overcome with a sense of over-inflated probity, and are being overly cautious with granting loans. Which is screwing the economy. A knee-jerk reaction, in other words.
But I sure it's more complex than that...
In reply to johnSD:
No, Inflation is caused by increased money supply. Just look at all the money the BoE and FED have been creating to support the lending spree over the last five years. The increased commodity prices are probably reflective of the increased amount of money pumped into the system, which leads to inflated prices.
However, it isn't my area of expertise and i'm sure some people here will disagree with my analysis
> (In reply to wilding)
> [...]
>
> Will raising interest rates have any effect on inflation which is being driven by international commodity prices rather than consumer behaviour?
> [...]
>
> Will raising interest rates have any effect on inflation which is being driven by international commodity prices rather than consumer behaviour?
No, Inflation is caused by increased money supply. Just look at all the money the BoE and FED have been creating to support the lending spree over the last five years. The increased commodity prices are probably reflective of the increased amount of money pumped into the system, which leads to inflated prices.
However, it isn't my area of expertise and i'm sure some people here will disagree with my analysis
In reply to captain paranoia:
I heard it explained this way:
For every pound a bank makes in profit it can lend ten pounds.
For every pound a bank makes in loss it has to restrict lending by ten pounds.
Banks made 400 billion dollars of writedowns, thus they are trying to restrict lending by 4 trillion.
I heard it explained this way:
For every pound a bank makes in profit it can lend ten pounds.
For every pound a bank makes in loss it has to restrict lending by ten pounds.
Banks made 400 billion dollars of writedowns, thus they are trying to restrict lending by 4 trillion.
In reply to wilding:
Restricting inflation by restricting the money supply was tried by Maggie. If I recall correctly it didn't work and more traditional measures were used eventually.
As an economic theory it makes sense, but its one of those things that didn't work so well in the real world.
Restricting inflation by restricting the money supply was tried by Maggie. If I recall correctly it didn't work and more traditional measures were used eventually.
As an economic theory it makes sense, but its one of those things that didn't work so well in the real world.
In reply to wilding:
Nein. Bank landing is limited by the reserve multiplier in the UK, which is the multiple of cash reserves that a bank can lend. This is set differently to each bank by the BOE, based on a whole range of factors.
Profit is only very very loosely linked to cash reserves, and the writedowns will affect profit and reserves, but not cash.
JH
Nein. Bank landing is limited by the reserve multiplier in the UK, which is the multiple of cash reserves that a bank can lend. This is set differently to each bank by the BOE, based on a whole range of factors.
Profit is only very very loosely linked to cash reserves, and the writedowns will affect profit and reserves, but not cash.
JH
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