Dire Flanders Article: The Truth About Uk Debt

[dances with sheeple]

The fact that people have stopped buying houses,and interest rates are going up makes the article pretty irrelevant anyway? Didn`t read it BTW, Flanders, Peston etc are just Janet and John figures with the task of keeping sheeple making the payments just a little longer? If the truth was spelled out, written on a large blackboard in capitol letters by a celeb reading a telepromter,the sheeple would start killing each other, much better to just string them along with mumbo jumbo that tells them they were "right" to borrow big wads of electronic paper

[billybong]

Here's another interesting fact: the median loan-to-value ratio on a new mortgage didn't go up during the "boom" years - in fact, for most of the 1990s and noughties it was falling.

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around. According to Broadbent, there isn't even much evidence that "mortgage withdrawal" - loans taken out on the basis of rising property values, were used to fund extra consumption.

Not everyone will buy these arguments.

The 1st paragraph seems an excercise in confusing the loan-to-value ratio with the price/income ratio.

Otherwise why write such stuff. It's not "an interesting fact" because it's entirely consistent with increasing debt described in the earlier paragraphs of the article. If it had been the price/income ratio that had been declining (which it wasn't of course) then that would have been "an interesting fact" to mention.

As for the 2nd paragraph even the Bo'E's governor about 2004/2005 was reported to have said that housing market equity was important to consumerism. That's one of the reasons he used to drop interest rates then as prices were starting to show signs of slumping. Maybe all MEW didn't go into buying consumer tat but plenty of other loans against housing equity did - so the reference to MEW in isolation is also a bit misleading

Edited March 17, 2012 by billybong

[bmf]

The 1st paragraph seems an excercise in confusing the loan-to-value ratio with the price/income ratio.

Otherwise why write such stuff. It's not "an interesting fact" because it's entirely consistent with increasing debt described in the earlier paragraphs of the article. If it had been the price/income ratio that had been declining (which it wasn't of course) then that would have been "an interesting fact" to mention.

As for the 2nd paragraph even the Bo'E's governor about 2004/2005 was reported to have said that housing market equity was important to consumerism. That's one of the reasons he used to drop interest rates then as prices were starting to show signs of slumping. Maybe all MEW didn't go into buying consumer tat but plenty of other loans against housing equity did - so the reference to MEW in isolation is also a bit misleading.

Here's one thing I bet will happen. Flanders will last longer than Paul Mason. I know it's only on Newsnight, not 9pm bedtime story news, but how long can he keep running with the truth like this? The editor must agree with him. How long before Newsnight gets a reshuffle?

[Democorruptcy]

A new word for me from the comments

wreckcovery

[billfunk]

The piece reads like she does not actually have an argument. She merely paraphrases Broadbent's arguments then outlines potentially opposing points. She fails to answer the opening two questions.

On almost every point she makes I would have objections which would need answering before I swallowed any of it.

I am reminded of a Blair quote, (misquote), "I think if you are right then you will win the argument". In the arenas of politics and economics I tend to think the most intelligent, articulate person wins the argument irrespective of whether they are right or not. The past 15 years has shown that the highly educated, articulate leaders of men have been proven wrong in all the big arguments. (Foreign policy, economic policy, immigration, social policy, education)

Here we see a classic example of two highly-educated and articulate leaders of men doing what they do best (worst). There is is a very high chance that they are wrong. Still, in a decade or so when it is proven that they were wrong they will intelligently and articulately justify why they were wrong and no doubt continue to be wrong about other things too.

[DabHand]

I do find Flanders to be very light on her feet when it comes to criticising Labour's policies.

I'm heartened to see most of the comments with positive votes are slating high house prices.

That's cos she's had enough labour c0ck between her legs to put a handrail around the Isle of Wight.

[winkie]

That is FTBers etc etc need higher mortgages LIAR LOANS for houses to be "affordable".

They need loans, they need more debt, they need to borrow expensive money so to hand to others that got most of theirs for free.....if you borrow enough you can double your money for free, then sell it on to a greater fool.....that way we all get rich.

[DabHand]

As for the 2nd paragraph even the Bo'E's governor about 2004/2005 was reported to have said that housing market equity was important to consumerism. That's one of the reasons he used to drop interest rates then as prices were starting to show signs of slumping. Maybe all MEW didn't go into buying consumer tat but plenty of other loans against housing equity did - so the reference to MEW in isolation is also a bit misleading

I am pretty sure / certain even that there are threads on HPC looking at MEW from 2002-2005 and working out that it was responsible for up to 6% (one year) of GDP from the initial and immediate consumption spending alone.

[Pindar]

In such a situation, wouldn't everyone have to sell their asset (houses) to pay the debt?

And which debt would they be paying, their own private debt or the public debt?

Very selfless of them if it was the public debt.

Where would they all then live? And who would they sell their property to? Russian oligarchs? Martians?

This suggests that housing itself has become a sort of fractional reserve currency. If everybody tried to cash in at once, the system would probably collapse, were it not for a virtually unlimited supply of something else to exchange them for.

[Democorruptcy]

One word sums up this argument:

"Tulips"

[Traktion]

Some good points.

Collateralised lending against property is the main source of the money supply. Unfortunately that money tends to get concentrated in few hands without other steps to address it like taxation or inflation.

So the bank prints to fill the hole in the money supply to the broader economy. The low rates or even inflation engendered, only serve to keep collateral values up (their intention). So if you are rich, where would you put your money? In 'cash' which the BoE is attacking by its policies or in 'collateral' which the Bank tries to float.

Yet the issue is the concentration...and the Bank's actions only make it worse.

This is only a problem if the supply of property (read: houses) is artificially limited by those who benefit from their scarcity. Without planning restrictions, building houses is easy and you don't need to compete with others to own existing properties.

Ofc, that doesn't stop credit bubbles being blown, but it means that the bubbles should pop again as abundance of supply brings prices back down to earth.

It does come back to what bank credit is and who should take the losses on failure. There needs to be clear lines drawn between safe keeping of assets and the extension of credit by individuals, IMO.

As the banking system is essentially a big mutual credit system internally (ie. how the banks see it), but a safe keeping system externally (ie. as most individuals think is happening), it's all mixed up. However, separating the two would make things far clearer, removing the suggestion of fraud from the contracts between the parties.

An extension of this, is the idea that you don't need any money to open a bank account; you are valuable to the bank, if you can just give them credit. In other words, you should be able to open a bank account with no money to deposit. The more credit they extend to others on your behalf, the higher your balance should increase - the bank would owe you money in other words. How much you trust the bank should be up to you and you should be able to set the maximum balance which they can owe you.

Ofc, this is pretty much what happens anyway, but the contract doesn't make it clear, due to a layer of obfuscation. Therefore, people think money is being deposited for safe keeping, with the bank lending it on. The former may be true, but it isn't needed to provide the latter.

[Bland Unsight]

This is only a problem if the supply of property (read: houses) is artificially limited by those who benefit from their scarcity. Without planning restrictions, building houses is easy and you don't need to compete with others to own existing properties.

Do you think that this is more important because it gives rise to real excess of demand over supply or because it allows bubble participants to rationalise the irrational?

[Traktion]

Do you think that this is more important because it gives rise to real excess of demand over supply or because it allows bubble participants to rationalise the irrational?

It is 'more important because it gives rise to real excess of demand over supply'.

Pushing up the price of shelter, in order to bloat the asset prices of those who already have shelter, seems far from fair to me.

[ska_mna]

My god, this article is a real WTF moment. She's just destroyed any credibility I might have given her. Key passages already pointed out by others, but worth posting and highlighting them again:

Here's the most striking statistic: UK-owned banks have lost 15 times more on foreign mortgages, since the crisis started, than on mortgages in the UK.

Yerr... and perhaps this is because we've not had a full HPC here in the UK yet whereas places like the US has? Ergo, when/if we have ours, the banks will lose similar amounts here.

Those higher prices (and lower interest rates), in turn, led households to need - and obtain - higher mortgages, to go with the higher price of a house. But, as I said before, the rising value of houses meant that overall, the household sector was getting better off.

I mean, really, what the smegging heck?

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around.

I think Eric might have some problems with this statement.

Over supply of credit = rising prices / bubble.

This stuff really isn't that hard to grasp is it?

*Massive facepalm*

[EvilEdna]

I think articles such as this (I haven't read it), give more of an idea of how you should view the authors knowledge rather than your own.

I once read part of the nationwide house price report thingy, written by their chief economist or someone (6 figure salary at least). I can honestly say that I have an awful lot more knowledge and experience of the housing market and economy than he did.

The OBR report is another one, what you have to realize, is that these people really do not have a clue, but get to pontificate by knowing more than their peers and sounding confident.

Good point, and you may well be right, perhaps the awful woman and the analyst she's quoting are just idiots. Often, however, when I read these puff pieces I get the feeling that not even the author of the garbage in question has their heart in it. Often the media within which they publish will have some sort of party line - or the journalist is just being wilfully controversial.

The article conveniently ignores the fact that our entire economy is now geared to defending the nominal value of these vastly over-inflated assets by inflating the Sterling-denominated value of everything else. :angry:

[Josieful]

The BBCs Economics Editor Stephanie Flanders lack of economics knowledge has now come under even more criticism.

Last Friday the BBC’s economics editor Stephanie Flanders ran one of the most terrible economics articles I’ve ever read: ‘The Truth About UK Debt.’ The problem is that it contains very little truth.

The reason it contains so little truth is because, not to put too fine a point on it, Flanders comes off as having quite literally no idea what she’s talking about. In fact, the piece comes across as less an article and more a smattering of graphs and uncontextualised facts. To say that it reads like something on the Zerohedge website would be unfair. But in terms of sheer incomprehensibility and vagueness it is certainly poised in that direction.

http://www.nakedcapitalism.com/2012/03/philip-pilkington-scattergun-economics-%e2%80%93-the-bbcs-stephanie-flanders-muddies-an-already-impenetrable-argumen.html

[tomandlu]

That's consistent with the idea that rising house prices caused bigger mortgages - not the other way around.

Is there anything to support this? What exactly is she saying? That, without excessive lending, there would still have been enough people able to buy all those houses at those prices?

I really don't get what she's looking at that supports this frankly unbelievable assertion.

[dances with sheeple]

Is there anything to support this? What exactly is she saying? That, without excessive lending, there would still have been enough people able to buy all those houses at those prices?

I really don't get what she's looking at that supports this frankly unbelievable assertion.

I think the fear now is that many will throw in the towel on their mortgage and other debts, the gulf between achievable sale price and fantasy price is too wide for people to be comfortable just making payments into thin air, just paying down NE? This piece is just deliberate misinformation in my opinion, pushes the idea that houses had something intrinsic about them that made them more valuable? Most won`t question what people like Flanders say anyway, most sheeple that is?

[Blue Peter]

I am pretty sure / certain even that there are threads on HPC looking at MEW from 2002-2005 and working out that it was responsible for up to 6% (one year) of GDP from the initial and immediate consumption spending alone.

The rough calculation IIRC, MEW was running at about 50 billion p.a., GDP was about 1 trillion and increasing at about 2 - 3% p.a. (= 20 - 30 billion p.a.). So, if even just 3/5 of all MEW was going into consumption, then it equaled all the increase in GDP.

Now, whether that reasoning and (rough) calculation was correct, I don't know,

Peter.

[rantnrave]

The rough calculation IIRC, MEW was running at about 50 billion p.a., GDP was about 1 trillion and increasing at about 2 - 3% p.a. (= 20 - 30 billion p.a.). So, if even just 3/5 of all MEW was going into consumption, then it equaled all the increase in GDP.

Now, whether that reasoning and (rough) calculation was correct, I don't know,

Peter.

HPC poster Nationalist has done some calculations here and posted them on a blog. His research showed that without MEW, the UK has been in recession every year this century. If true, it's no wonder that weaning the economy from this is proving so painful.

[Harry Sacks]

What a load of b*llocks.

Debt is not even the problem

The deficit is the problem.

We could default tommorrow then what?

The government would be forced to spend only what it could raise in taxation

And 50% of the state would have to be dismantled.

This is the situation the Greeks are in.

They can't pay their debts, but they don't want to default because that would mean having to live within their means.

Or they could simply issue the currency themselves, debt free.

[ska_mna]

The BBCs Economics Editor Stephanie Flanders lack of economics knowledge has now come under even more criticism.

http://www.nakedcapitalism.com/2012/03/philip-pilkington-scattergun-economics-%e2%80%93-the-bbcs-stephanie-flanders-muddies-an-already-impenetrable-argumen.html

Good rebuttal, thanks for posting.

[Josieful]

The whole debate and the scorn poured on her articles seems to have intimidated the BBC's economics editor Stephanie Flanders from blogging. Her last post was on the 21st of March.

Mind you she does seem to have an enormous holiday entitlement so perhaps she has gone early for Easter! Does anybody know if she is paid on a part-time or a full-time basis by the BBC?

[Peter Hun]

He should have a word with his boss,

“House prices are a matter of opinion whereas debt is real.”

I disagree, they are both a matter of opinion.

[davidg]

Her glass is always half full. I guess having spent your formative years climbing on and off the likes of Ed Balls everything else life throws at you must seem like eating foie gras to the sound of trumpets

I thought she'd experienced the "trickle down effect" of both the pie munchers? Although not necessarily at the same time. That's what I call giving Ed though.