Gordon Brown: "i Called For Global Financial Reform Ten Years Ago"

interestrateripoff · January 27, 2009

I'm full of admiration if you do this, interestrateripoff
It has to be the biggest lie since Tony Blair said, quote, 'I'm a pretty straight sort of guy'.

Already been sent, I'll post back what lame responses I get and there pathetic gibberish that they aren't letting Brown off the hook.

I feel in the mischievous mood so tonight I'm going to write to my own Labour MP tonight asking her why she thinks having a liar as a PM is good for the country and why we should trust him.

I'll post here what I write so everyone can read with amusement the Labour spin response that I'll get.

interestrateripoff · February 1, 2009

http://www.number10.gov.uk/Page16869

We received a petition asking:
“We the undersigned petition the Prime Minister to describe what action was taken after previous IMF warnings about the UK economy.”

Details of Petition:

“In light of the PM’s statement of April 2008 that the International Monetary Fund (IMF) needed complete re-structuring so it could act as an “early warning system” for the international economy, we should like the PM to explain what action was taken by himself and HMG upon receiving previous warnings from the IMF. For example.. Dec 2003 IMF gives Brown borrowing warning Sep 2005 IMF report Warning over £1 trillion mountain of debt Dec 2005 IMF report IMF fires new warning over Britain’s finances Sep 2006 IMF report IMF warns over UK property crash April 2007 IMF report Private equity collapse on cards, says IMF October 2007 IMF report UK house market is ‘heading for crash’ April 2008 IMF report IMF: UK vulnerable to US-style housing slump.”

Read the Government’s response
The Government’s fiscal policy objectives are as follows: over the medium term, to ensure sound public finances and that spending and taxation impact fairly within and between generations; and over the short term, to support monetary policy and, in particular, to allow the automatic stabilisers to help smooth the path of the economy.

As noted by the IMF, the Government’s two fiscal rules, designed to implement these objectives, have served the economy well. Since the framework was introduced, fiscal policy has resulted in low and stable borrowing, in contrast to previous UK experience. In the 1986-87 to 1997-98 economic cycle, net borrowing reached nearly 8 per cent of GDP. During the economic cycle that began in 1997/98, net borrowing has averaged 1.0 per cent of GDP and at its peak reached just 3.3 per cent of GDP. The framework has also enabled the Government to reduce net debt to a prudent level, among the lowest in the G7.

The IMF has recently noted that “the 2008 budget judgment was appropriate, as was its commitment to fiscal tightening over the next few years.” The IMF also noted the “shallowness of the UK growth slowdown during the last global downturn” which they attributed in part to fiscal responsiveness. (May 2008)

The petition made reference to rising consumer debt. The Consumer Credit Act 2006 (which is currently being implemented by the Department for Business, Enterprise and Regulatory Reform) will improve the regulation of consumer credit business, by enhancing consumer protection, providing access to alternative dispute resolution via the Financial Ombudsman Service and strengthen the consumer credit licensing regime. The Government is also taking forward a number of important measures to tackle over-indebtedness, including:

· Helping those most vulnerable to the causes and consequences of problem debt, using the £130 million Financial Inclusion Fund for 2008-11 to support the continued provision of free debt advice for financially excluded people, and widen access to affordable credit; and

· Recognising the role of saving to increase personal financial resilience, including promoting access to savings opportunities through ISAs and the Child Trust Fund, and taking forward feasibility work into the system requirements to enable the roll-out of the Saving Gateway.

The petition also made reference to problems in the housing market, which is being affected by tighter global credit conditions, leading to falls in house prices in 2008. But we should remember that the long-term fundamentals that underpin the housing market are still strong; employment is at a record high, interest rates are low and household growth is projected to rise strongly as our population ages and grows and as more people live alone, which will support house prices in the long-term.

The petition also drew parallels between the UK and US housing markets, but there are important differences in each case. The UK has had stricter regulation in its mortgage market. Although both the US and the UK have seen growth in the sub-prime market, most estimates show that it is a smaller share of the market in the UK than the US. A comparison of the new US proposals launched in response to concerns over rising repossessions and the existing UK requirements indicates that many of the key actions of US legislators and regulators are already regulatory requirements that we place on mortgage firms here.

Nonetheless, in September the Government announced a fully-funded £1 billion package of support for the housing market, including more help for first-time buyers, accelerated provision of social housing, support for the house-building industry and those who work in it, and help for homeowners who do face difficulties. The Government will continue to ensure that the effect of the global financial disruption on the UK housing market is minimized, including working jointly with lenders and consumer groups to ensure that borrowers are treated fairly and have access to the support they need. The Government will also be responding promptly to Sir James Crosby’s forthcoming recommendations on options for further strengthening mortgage markets.

interestrateripoff · February 1, 2009

http://business.timesonline.co.uk/tol/busi...icle5380191.ece

The head of the International Monetary Fund (IMF) delivered a bleak warning to Britain on Sunday as he described the level of public debt as “disturbing”, before recommending that it be increased to finance a further fiscal stimulus.
Dominique Strauss-Kahn said that the outlook for the global economy was worsening: “I'm especially concerned by the fact that our forecast, already very dark... will be even darker if not enough fiscal stimulus is implemented.”

Speaking to BBC Radio, Mr Strauss-Kahn said that the IMF, which last month reduced its forecast for global economic growth in 2009 from 3 per cent to 2.2 per cent, gave warning that it may need to be lowered again in January because governments around the world have failed to inject enough money into their economies.

He praised the British Government for its recent debt-funded £20 billion stimulus package, which is equivalent to 1.4 per cent of the UK's gross domestic product, but said that a further stimulus was needed “to kick-start the British economy”.

Mr Strauss-Kahn called for a global stimulus package equivalent to about 2 per cent of the world's collective GDP, or $1,200 billion, implying that Britain needs an additional injection of close to £10 billion if it is to make any headway with stabilising the economy.

Although Mr Strauss-Kahn has traditionally opposed large government deficits, he said that the economic crisis was so bad that an increase in borrowing, even in debt-laden Britain, represented a “necessary evil to stimulate economic growth”.

interestrateripoff · February 1, 2009

http://www.nowpublic.com/tech-biz/britain-...get-imf-bailout

January 19, 2009

The head of the IMF fears many more countries will need a bailout and aid, including the United Kingdom. This is ironic since the UK's prime minister, Gordon Brown, has struted the world claiming he has saved the global economic system along with his country's. Today Brown had to announce another monster bank bailout and his chancellor, Alistair Darling, admitted if this new bailout failed, the country faced bankruptcy within months.
LONDON (Reuters) - International Monetary Fund Managing Director Dominique Strauss-Kahn said on Monday he feared more countries may need IMF bailout packages and said it was not inconceivable that Britain might one day need help.

"I'm afraid, we're not hoping that, but I'm afraid that some other countries, not only in eastern Europe, but all around the world (may need help)," he said when asked if he believed other countries, particularly in Europe, would have to seek IMF bailouts.

He was speaking in a BBC interview, an excerpt of which was broadcast on Monday.

The IMF has recently agreed packages for several countries, including Iceland, Hungary and Ukraine.

Strauss-Kahn said he did not think Ireland or Britain would need an IMF bailout to overcome the effects of the global financial crisis.

On Britain, which had to seek IMF help in 1976, he said: "It has been part of the history several years ago, but it is not the case today."

Asked if he was absolutely confident the British government might never seek IMF help, he said: "We never know, you know. One year ago, if somebody had said that a Republican government in ... the U.S., would nationalize part of the banking system you would have said it's totally impossible. It happened. So never say never."

"But, at this juncture, there is no risk for advanced economies (except for) some very small advanced economies like Iceland, for instance, for specific reasons, to need some kind of bailout," he said.

Later on Monday, Britain will throw its banks another multi-billion pound lifeline by allowing them to insure against steep losses and guaranteeing their debt to stop the credit crunch pushing the economy into a deep slump.

The government has already announced it will spend billions of pounds to rescue banks and to try to stop the economy falling into a deep recession.

interestrateripoff · February 1, 2009

http://www.thisismoney.co.uk/mortgages/hou...p;in_page_id=57

25 May 2007

The housing market in Britain is up to 65% overvalued and needs further interest rate rises to cool it, international economists warned yesterday.
The Organisation for Economic Co- operation and Development revealed that UK property prices are among the most stretched of any major world economy.

At the same time, finance experts warned that the Bank of England could increase interest rates to 6% before the end of the year.

The prospect will alarm homebuyers who are already struggling to meet their monthly mortgage payments after four hikes since last August. Annual payments on an average £150,000 mortgage are already £1,200 higher than this time last year.

The Paris-based OECD said it was worried about the valuations of homes in a range of countries following a world-wide boom. It said a slowdown is long overdue and that a property crash cannot be ruled out.

Among the G7 club of rich nations, only Canadian properties are more over- stretched than the UK's levels.

If interest rates are not raised to slow down the economy, a major slump may do the same job - but with far worse consequences.

The OECD's report said: 'Some slackening in the pace of of housing investment is likely in many OECD countries, and that may contribute to a cooling down of some fast-growing economies.

'There is always a risk, nonetheless, that it takes the form of a pronounced slump with, possibly, substantial knock-on effects to activity in the rest of the economy.'

The research in the OECD's biannual Economic Outlook compared the price of the average house with annual rental incomes.

The measure is widely used by experts because if houses do not generate enough rent, then landlords will be willing to pay less for property, pulling down prices.

This indicator in Britain is now 65% above its historic average since 1970. An alternative-measure compares house prices with average annual incomes. This shows that UK prices are 45% higher than their long-term average, the OECD reported.

interestrateripoff · February 1, 2009

http://www.independent.co.uk/news/business...urn-917276.html

Britain is the worst placed among the world's major econ-omies to withstand the impact of a global slowdown – and the only one forecast to be in recession this year, according to the respected Organisation for Economic Co-operation and Development. The OECD says that the sharp downturn in the British property market, and the increased importance of housing in the economy, has led it to slash its forecasts.
The British economy will shrink by 0.075 and 0.1 per cent in the third and fourth quarters respectively, says the OECD, an annualised rate of minus 0.3 per cent and minus 0.4 per cent. Two quarters of negative growth satisfy the conventional definition of recession. Every other economy surveyed by the organisation – the US, Germany, France, Italy, the eurozone and Canada and, especially, Japan – will see their economies grow during the remainder of the year.

The only good news from the OECD is that the scale of the British slowdown will push inflation down. "House prices exert crucial influences on UK activity," the OECD's acting chief economist, Jorgen Elmeskov, said. Growth in Britain, he remarked, "is going to more or less stagnate in the second half of the year, and we see that as generating enough slack in the economy eventually to bear down on inflation".

The think-tank's forecast came as the latest figures from the Chartered Institute of Purchasing and Supply showed that the building industry – which accounts for 6 per cent of the economy – contracted for the sixth month running in August. Nat-ionwide, meanwhile, reported that consumers became increasingly pessimistic about job prospects last month, an attitude somewhat justified by the monthly Report on Jobs from KPMG-REC, which revealed yesterday that permanent placements are falling at the sharpest rate since November 2001 and salary growth is at the lowest in more than five years.

The OECD's uniquely poor outlook for the UK will come as an embarrassment for ministers, who have long argued that the UK is better placed than her competitors to cope with economic problems. In his Budget speech in March, the Chancellor, Alistair Darling, said: "Britain is better placed than other economies to withstand the slowdown in the global economy."

interestrateripoff · February 1, 2009

http://www.independent.co.uk/news/business...ery-605004.html

Friday, 22 November 2002

THE Organisation for Economic Co-operation and Development (OECD) yesterday warned that the world economic recovery was "more hesitant and less widespread than expected".
THE Organisation for Economic Co-operation and Development (OECD) yesterday warned that the world economic recovery was "more hesitant and less widespread than expected". The Paris-based think-tank also produced a gloomy forecast for UK but suggested the Bank of England may have to raise interest rates to tackle the house prices bubble.

The OECD Economic Outlook reported that economic activity bounced back in early 2002 but then lost momentum, as a result of weakening consumer and business confidence. This confirmed that "sound economic fundamentals" have not yet been completely restored.

The think-tank said economic prospects partly hinged on public policy responses to the situation. "Do stabilisation policies provide the appropriate cushion to prevent economic activity from undershooting in the short run, in the form of a double-dip [recession]?"

US growth was forecast to be much stronger than the rest of the OECD's 30 member economies, at 2.6 per cent next year and 3.6 per cent in 2004, due to "structural" advantages of that economy. Japan was seen as growing at less than 1 per cent over those two years, with "major downside risks". The forecast for Germany was surprisingly strong, at 1.5 per cent for 2003 and 2.5 per cent for 2004.

Turning to the UK, the OECD forecast GDP growth, at market prices, of just 1.5 per cent this year, much below the Treasury's current forecast of 2.5 per cent. Next week's pre-Budget report may see the Chancellor, Gordon Brown, revise down the official growth predictions for the UK.

The OECD forecast growth of just 2.2 per cent for the UK next year, less than the 3 per cent recently suggested by the Bank of England and the Treasury's 3.5 per cent projection. For 2004, the OECD has the UK growing at 2.5 per cent. The organisation based its predictions on a slowdown in consumer spending and weak inflation.

However, it did not conclude that interest rates need to fall. In fact, it suggested the Bank of England's next move may be to raise rates.

"Monetary and fiscal policy have provided a stable macroeconomic environment to date. However the current surge in house prices creates a dilemma for monetary policy as to whether to act before any potential bubble becomes a risk to macroeconomic stability," the OECD said.

John Butler, UK economist at HSBC, said this statement was startling and went against expectations in the UK.

Another Micky Mouse organisation warning about house prices which was ignored.

Perhaps the OECD needs to up it's game and become a proper global economic organisation.

interestrateripoff · February 1, 2009

http://209.85.229.132/search?q=cache:4oq-V...lient=firefox-a

http://www.housingoutlook.co.uk/Papers/ft0306.doc

The UK House Price Bubble Illusion

Gavin Cameron, John Muellbauer and Anthony Murphy

Bubble? What bubble? The last Economic Outlook from the Organisation for Economic Co-operation and Development argues that UK house prices are overvalued by 30%, or even more. It also warns of the danger of a protracted period of house price falls, with dire implications for consumer spending. The OECD is not alone. But these pessimists are wrong.
If there were a bubble, there would exist a systematic, albeit temporary, deviation of prices from fundamentals. Our research shows, instead, that fundamentals adequately explain the current level of house prices

Like many others, the OECD appears to base its conclusions on two pieces of unreliable evidence. One is the ratio of house prices to rents. The second is an equation estimated by the IMF in which housing supply, the changing age structure of the population, shifts in UK credit conditions and nominal interest rates play no role. It is hardly surprising that this equation turns out to be useless.

In our research, however, we do take these and other factors into account. We also model prices at the regional level. The great advantage of the latter is that it generates more precise estimates and more robust conclusions.

Our econometric model satisfactorily explains fluctuations in house prices from 1972 to 2003. It captures the effects of income, the size and age composition of the population, the housing stock, and interest rates. It also builds in the effect of recent house price growth, including transmission from leading regions to others, the so-called “ripple effect” from London house prices.

We distinguish between the short-run and long-run effects of house-building and population growth. We allow for the effects of stock markets and for differences between regions. We also examine the effect of today’s easier credit conditions. These not only have a direct effect on the level of real prices, but also change the relative importance of real and nominal interest rates: the former become more important and the latter less so.

If we estimate our model for data up to 1996 and then forecast the subsequent period, we generate predictions that are in line with the rapid price rises that happened. Our conclusion, therefore, is that we can readily explain the evolution of prices in this recent period by lower interest rates, higher real incomes per household, higher population growth (partly from immigration) and low rates of house-building.

If we compare what actually happened with what our model says would have occurred, we can state that house prices would have been 25 percent lower in 2003 if real incomes per household had stagnated between 1998 and 2003. Had interest rates remained at 1998 levels, house prices would have been 7.5 per cent lower. But this understates the true role of interest rates, since it ignores their impact on incomes and the level of the stock market. For the 1988-99 period, however, now almost ancient history, we do find some symptoms of a policy-induced bubble.

We also examined house price developments for the period 2004-2010 on a range of assumptions about possible developments in income, population, house-building, inflation and interest rates. We find that only quite dismal scenarios – more dismal than any now contemplated by main-stream forecasters - would produce falls in nominal house prices and, even then, these would be small. London and the South are the regions where such scenarios would have the largest effects.

If we assume just a mild slowdown in the economy for a couple of years, which is more pessimistic than today’s consensus, house prices still rise in nominal terms in London and the country as whole. The figures for 2006 would be about a 3 per cent rise for London and 5 per cent overall. If we assume a gloomy scenario, instead, in which inflation rises, interest rates increase by 1.5 percentage points, real per capita income does not grow and the stock market stagnates before resuming growth in 2008, house prices in London and the South declinerise by about 1 per cent in 2006 and 2007. Needless to say, still gloomier, though less probable, scenarios can produce national house price declines. The risks may be low, but they are not zero.

Since cash from Real Estate Investment Trusts will be injected into the market in 2006 and the stock market has also been so strong, the deterioration in housing affordability is likely to continue. This would further confirm the largest redistribution of wealth from young to old in British history.

The believers in the bubble were wrong. They are still wrong. But, paradoxically, their alarmism may have helped to prevent the bubble they fear from developing. It has not, or at least not yet.

A report attacking the notion of a bubble!!!

Full Article here if you've got access.

Edited February 1, 2009 by interestrateripoff

interestrateripoff · February 1, 2009

http://neweconomist.blogs.com/new_economis...on_housing.html

Wednesday, November 30, 2005
No housing bubble in US, says OECD

OECD Economic Outlook No 78 In many OECD ountries real house prices have moved higher and for longer than in previous cycles. But in two-thirds of countries, including the United States, there is not a significant overvaluation problem, according to the latest OCED Economic Outlook, published yesterday.

In a special chapter on Recent house price developments: the role of fundamentals (PDF), it is argued that although the current housing boom is "unique", in most OECD countries house prices are not that much out of line with fundamentals and relatively few economies are vulnerable.

A number of elements in the current situation are unprecedented: the size and duration of the current real house price increases; the degree to which they have tended to move together across countries; and the extent to which they have disconnected from the business cycle.

While concerns have been expressed in several quarters about high housing prices, the evidence examined here suggests that overvaluation may only apply to a relatively small number of countries. However, the extent to which these prices look to be fairly valued depends in good part on longer-term interest rates, which exert a dominant influence on mortgage interest rates, remaining at or close to their current low levels.

In terms of affordability, "household debt service burdens have generally been relatively stable", as lower mortgage rates offset rising house prices. The "main exceptions" are Australia, the Netherlands and New Zealand.

In 2005 price-to-income ratios exceeded their long-term averages by 40% or more in one-third (6 in 18) of the countries studied: the United Kingdom, Ireland, the Netherlands, Spain, Australia and New Zealand.

In Canada, Denmark, France and the United States, the run-up has been more moderate but these values still represent historical peaks.

However, the OECD point out that price-to-income ratios are not a good measure of overvaluation:

The ratio of prices to household disposable income by itself, however, is not a sufficient metric to evaluate housing affordability. Indeed, house prices do not appear to be linked to income by a stable long-run relationship ..possibly because the cost of carrying a mortgage has varied over time.

They then provide an alternative approach which compares the actual price-to-rent ratio with that based on the user cost of housing over the past ten years. This analysis concludes there was overvaluation in australia and five European countries:

In the countries with high real house price gains (the United Kingdom, Ireland the Netherlands and Spain) and in Australia (where very high real prices have more recently been edging down) and in Norway, actual price-to-rent ratios were noticeably above their “fundamental” levels in 2004, suggesting overvaluation.

Overvaluation on this basis is "not large" in France, Canada, Denmark, Sweden or New Zealand, and "absent altogether" in Finland and Italy. House prices 'look undervalued" in Japan, Germany and Switzerland. As for the United States:

In the United States, the “fundamental” price-to-rent ratio was above its actual level until 2000, the benchmark year. Since then, the series have moved together and the gap between them has been negligible. On this measure, there does not appear to be much of a case for overvaluation, at least at the national level.

That said, the chapter also includes a box on regional housing markets in the United States, which shows that some regions - especially California and Florida - suffer from "price overheating".

The OECD also add the important caveat that housing valuation and affordability estimates would look a lot worse if interest rates were to rise significantly:

However, the extent to which these prices look to be fairly valued depends in good part on longer-term interest rates, which exert a dominant influence on mortgage interest rates, remaining at or close to their current low levels.

An important caveat.

interestrateripoff · February 1, 2009

http://209.85.229.132/search?q=cache:-CrmO...lient=firefox-a

Power point presentation.

Something more global this time?
* Something extra this time: The “first global house price bubble” (The Economist)?

* Small probability large loss events matter.

* Even if only a small chance, we should analyze the possibility.

* IMF, 2003 World Economic Outlook, 40% of booms followed by busts, and 8% cumulative GDP loss.

* State of housing markets, part of a bigger picture of global imbalances?

UK House price falls and GDP falls

* No fall in real house prices (blue line) not followed by major fall in UK GDP (gray bands)

* Will the pattern repeat?

Source: Bank of England Inflation Report, May 2004, p7, Chart 1.10.

Consumption and House Prices

* 1970-mid 1990s, rapid increase in house prices (green line) accompanied by rapid growth of consumption (red line)

* Recently, house price inflation has accelerated but the rate of growth of consumption has steadied.

Source: Bank of England Inflation Report May 2004, p12, Chart 2.1.

A breakdown?

* Misleading causation.

* Both driven by income expectations? Not directly observable.

* Credit constraints?

* A very different central bank response next time?

interestrateripoff · February 1, 2009

http://www.guardian.co.uk/commentisfree/20...eprices.comment

Thursday 6 April 2006
There have been many dire warnings about a house price bubble in the past two years, many of them from impeccable sources like the Organisation for Economic Co-operation and Development (OECD) and the IMF. If the bubble bursts, the crash in housing prices would ruin many families, as well as end Gordon Brown's reputation for economic competence.

A bubble is when market prices rise far above the levels indicated by economic conditions. For example, many economists have estimated the justified, or equilibrium, level of house prices by comparing them to personal incomes, the mortgage rate and rental charges, and have frequently found that the present level of prices is 25-33% too high. If this were true, then there would only be two ways out of the problem. Either prices would need to fall by that amount, or they would need to stagnate for long enough for incomes to catch up with the "unaffordable" house price level. If house prices froze completely for a decade, and incomes rise at their trend rate of 4.5% a year, the market would just about be restored to equilibrium.

Anyone who believes these calculations should certainly not buy a house today. But the market is not acting in such a troublesome manner. House price inflation peaked at 28% in April 2004, and fell back to -1% as mortgage rates were increased in 2004-5. But since the bottom last June, house price inflation has rebounded to 8%, and mortgage applications are now running 51% higher than they were last spring.

Why has the market defied the pessimists? Quite probably because there never was a bubble in prices in the first place. John Muellbauer and his colleagues at Oxford argue that standard equations for house prices are extremely misleading because they omit several key factors, including the availability of consumer credit, regional linkages (eg between the south-east and elsewhere), stock market effects, and demographics. If you include these variables, the level of house prices in 2004 was fully justified by fundamentals. For example, the increased availability of consumer credit, on its own, has increased the justified level of house prices by 28% since 1980.

However, even if there is little need to fear the bursting of a bubble, house prices could still fall if the fundamental economic drivers of the market turn unpleasant. Muellbauer runs a simulation in which inflation rises to 3% this year, mortgage interest rates jump to 6.5%, and both the economy and the stockmarket stagnate. On these pessimistic assumptions, house prices would rise by 2% in the north and the midlands, by zero in the south, and would actually fall by about 2% for two successive years in Greater London.

But even on this pessimistic case, there seems very little chance that prices could decline by 14%, as they did in 1991-92, when mortgage rates rose briefly to 15%. In that depressing period, mortgage interest payments absorbed 15% of household income, while today's low interest rates have kept that ratio down to only 9%

Economists are still arguing over the correct way to model the housing market, and it is easy to find pessimists arguing that the inevitable collapse will still come. But, for the moment at least, the optimists appear to have the upper hand.

interestrateripoff · February 1, 2009

http://www.independent.co.uk/news/business...ank-595617.html

Friday, 25 April 2003

Doubts over the wisdom of February's surprise interest rate cut by the Bank of England resurfaced yesterday after a leading global economic think-tank launched a veiled attack on the move and took a sideswipe at the Chancellor, Gordon Brown.
Doubts over the wisdom of February's surprise interest rate cut by the Bank of England resurfaced yesterday after a leading global economic think-tank launched a veiled attack on the move and took a sideswipe at the Chancellor, Gordon Brown.

The Organisation for Economic Co-operation and Development (OECD) said the Bank had loosened monetary policy "despite the persistent vigour of house price inflation".

The organisation cautioned against further rate cuts, hiking its inflation forecasts for both this year and 2004. "With growth more resilient and fiscal policy more stimulative than in the euro area, there seems to be much less need for further cuts," it said.

The OECD also criticised the Government's public spending plans, joining a chorus of critics saying taxes must rise eventually to fill a black hole in the public finances.

The assessment of the UK economy by the OECD is considerably more glowing than many other major countries, and especially the eurozone.

"The UK economy has so far shown greater resilience in weathering the downturn than other major European economies," the organisation said in its annual economic outlook.

"An expansionary fiscal stance and a reduced drag from net exports should ensure a slight pick-up in growth this year, despite a slowdown in consumption."

The OECD's economic forecasts were more optimistic than other institutions such as the International Monetary Fund (IMF), forecasting 2.1 per cent this year (down slightly from 2.2 per cent) and 2.6 per cent in 2004 (up from 2.5 per cent).

But the revisions to inflation were more dramatic. It expects inflation to average 3.1 per cent this year and decline to 2.8 per cent next year.

This means inflation will be above the Government's 2.5 per cent target for most of the two-year horizon that the Bank has tended to examine when setting interest rates.

Michael Saunders, European economist at Citigroup who believes rates should stay on hold, said: "The OECD has become significantly more worried about upside inflation risks for the UK."

This contrasts will the latest forecast from the Bank, published in February, which shows inflation falling steadily towards the 2.5 per cent during 2004 on a trajectory that would leave it below target by early 2005.

The OECD's view also contrasts with the IMF, which earlier this month said it believed that there was scope for "additional monetary policy easing".

For its part, the OECD said: "The recent easing of monetary policy, while justified by signs of weakening domestic and international demand, may fuel the housing market.

"And it does nothing to reduce the risk of a sudden fall in house price inflation or even possibly an abrupt fall in the level of house prices."

The housing market has become a dilemma for the Bank. Its continued strength in the midst of a downturn has helped sustain general economic growth.

But the higher prices rise, the faster the increase in borrowing either to buy a home or cash in some of the wealth, making an eventual fall in prices more damaging for the economy.

The OECD sees the latter as a real risk. "A fall in the level of house prices, which in relation to average earnings are close to the peak reached in the late 1980s, could lead to a sharp retrenchment of consumers' expenditure," it says.

But it acknowledged there were signs that the market is starting to soften, especially in London and property hot spots in the South-east where prices are falling.

interestrateripoff · February 1, 2009

http://www.encyclopedia.com/doc/1G1-102327271.html

Some two years after the technology-led boom in equity markets collapsed on Wall Street and elsewhere, the International Monetary Fund (IMF) is waiting for the other shoe to drop in the form of a house price bust. If and when this happens, it is likely to be with a thud that could reverberate throughout the global economy, the IMF suggests in its latest World Economic Outlook (WEO). The IMF does not say where a house price crash is most likely to happen but in its annual review of the economy last month, it pointed the finger at the UK .

interestrateripoff · February 1, 2009

http://news.bbc.co.uk/1/hi/business/3807937.stm

The Halifax's latest house price survey showed prices jumped by 2.2% in May, with property values up 20.4% on the previous year.
Meanwhile, Britain's biggest building society, the Nationwide, has said its prediction of 15% annual house price growth this year could be an underestimate.

But influential international organisations, such as the IMF and the OECD, have warned that a house market crash remains one of the biggest risks facing the UK economy.

interestrateripoff · February 1, 2009

http://www.independent.co.uk/opinion/comme...ent-656633.html

7 April 2002

It is like the mid-1980s all over again.
It is like the mid-1980s all over again. Outside London there is feverish talk about the impossibility of moving to the capital and other expensive cities, or in some cases of buying a house at all. Inside London and some other big cities house owners are counting their fantasy money, although most of them have no intention of selling their homes. At the same time parents ask themselves how their kids will ever be able to afford to live in the same area. They reach the alarmingly macabre conclusion that their kids will not be able to do so until they have died and left a hugely expensive property behind.

Against the expectations of most economists and housing experts house prices are still soaring upwards. The latest figures are staggering. According to the independent Institute of Housing, a salary of more than £30,000 is needed to buy an average-priced house in most of England. In many areas that figure is much higher. The average London deposit for a first-time buyer is now £30,000. That is before the buyer even contemplates the mortgage.

There was a time when political leaders proclaimed such intimidating figures with pride. "Look at the value of your houses," Mrs Thatcher boomed during the 1987 election as evidence that Britain's economy as a whole was thriving. Now the reverse is the case. Instead of being gloriously totemic figures, the unremitting rise in house prices threatens to scupper the Government's main objectives for its already stuttering second term. Housing rarely commands the front pages as an issue, but there is none bigger in terms of the impact on domestic policy. Even Mr Blair's ambition to take Britain into the euro is hugely threatened.

Many acres of newsprint have analysed the battle between Tony Blair and Gordon Brown over whether Britain should join the euro: will Brown stop Blair from joining? Will Blair shout his old friend down and insist on joining? A much bigger obstacle to Britain joining the euro than the obstinancy of Mr Brown is rising house prices. In order for Britain's economy to achieve "sustained" convergence (much the most important of the famous five tests) interest rates will have to fall yet further. Yet the cost of housing is more likely to force the Bank of England to raise interest rates, putting Britain's monetary policy further out of joint with the other leading countries in the European Union. A senior Treasury official told me in 1998 that a significant reason why Britain's economy would not converge with the eurozone in Labour's first term was rising house prices. Well into the second term they are rising further.

The Government's more explicitly declared goal of improving public services is equally threatened. Why be a teacher, a police officer or a nurse in London and the South-east when most of your wage will be swallowed up by a high mortgage? The NHS will be the centrepiece of Mr Brown's Budget in less than two weeks' time, possibly the most important political event in this Parliament. Yet the Government will not be able to make much progress if it cannot recruit nurses or trainee doctors in certain parts of the country because the housing is so expensive.

Apart from jeopardising our chances of joining the euro, screwing the public services, accentuating the divide between North and South, and preventing people from living where they would like to live, the housing market has an even more fundamental flaw. There are nowhere near enough affordable houses for those on low incomes. Until the late 1970s local authorities were building more than 150,000 new homes each year. As part of the destruction of local democracy in Britain councils do not build many new homes. Some councils may have been hopeless at managing their houses, but at least there was some housing to manage. Housing associations are in many cases excellent managers of houses, but there are nowhere near enough homes being built. It is estimated that around 80,000 new homes are required this year. Half that number are being built. Young people and families are struggling to find anywhere affordable to buy or rent, partly because there is nowhere affordable to buy or rent.

Part of the solution is for the Government to actually recognise that there is a problem that needs solving. The Housing minister is buried somewhere in Stephen Byers' traumatised department. Before that he was hidden in John Prescott's almost equally traumatised department. The current occupant of the post is Mr Blair's friend Lord Falconer. This is not a sign that Mr Blair regards the brief as more important than its lowly status suggests. Lord Falconer has been tucked away until media furore over the Millennium Dome calms down. There was a time when Housing minister was a cabinet post. Harold Macmillan made his reputation in the job by presiding over a huge expansion in affordable housing in the 1950s. As recently as the late 1980s the then Environment secretary, Chris Patten, told me he that his department was too big and that Housing and Local Government should have a separate cabinet minister. Instead, we continue to make do with a junior minister.

interestrateripoff · February 1, 2009

http://www.guardian.co.uk/business/2007/ju...ket.houseprices

House prices in the UK are more than 20% higher than they should be, making the country's housing market the third most overvalued among the world's major economies, a rating agency said today.
Strong growth in prices over the past decade have seen the market run away from household incomes so that homeowners are now vulnerable to shocks such as rising interest rates and job losses, the Fitch agency said.

Only France and Denmark have house prices further away from their long-term averages, and only France, Norway and Denmark have further diverged from the long-term price: household income ratio.

A high level of borrowers on variable rate mortgages and relatively high levels of household debt mean the UK is one of the economies most at risk from rising rates.

"Italy, Japan and Germany are at the low-risk end of the scale, while Denmark, New Zealand and the UK are the most vulnerable to adverse shocks," the report said.

Only Japan, Germany and Switzerland have seen house prices stagnate or fall, and over the past decade the average rise in prices across the 16 countries analysed was 5.3% a year.

The report said: "While a rise in house price levels can be somewhat justified by economic fundamentals, there are signs that the process has overshot in many economies."

The report warns that in Ireland, Spain and the US, recent rapid rises in the number of homes available has increased the risk of a sharp correction in prices.

Of countries near the top of its risk scale, including the UK, Denmark, Sweden and New Zealand, it says their economies "could be facing a rougher ride in the short to medium term as housing market and interest rate dynamics play out".

However, the authors point out that this doesn't mean a housing crash is unavoidable.

Recent house price figures have suggested a slowdown in growth as interest rate rises have begun to filter through to borrowers.

With more than 50% of current mortgages being taken out on a fixed-rate basis, an increasing number of borrowers are ensuring they are protected against further rate rises.

This will limit the number of people forced to sell up because they are unable to maintain mortgage repayments.

interestrateripoff · February 1, 2009

http://www.larouchepub.com/pr/2004/040326wld_hsg_bubble.html

Housing Boom: `History's First
Global Property Bust' Coming?

by Lothar Komp

March 26, 2004 (EIRNS)—Since the "LTCM crisis" of 1998 and the start of the meltdown of global stock markets in March 2000, central banks around the world geared up their money printing machines to postpone a systemic collapse. Within two years, starting in January 2001, Federal Reserve chairman Alan Greenspan pushed down short-term interest rates from 6.0% to 1.0%, with European central banks following. And while Fed governor Ben S. Bernanke repeatedly refers to the use of "helicopter money" as the next possible escalation, the Bank of Japan, with its zero-interest-rate regime, tries to assure the markets every day that it can print money even faster than its U.S. or European counterparts.

As a result, we are witnessing the biggest explosion in consumer and mortgage debt in history. The average American household's debt grew by 11% in the last year, for example, while its wage income grew by only 1.6%. The generation of trillions of dollars in new debt every year—about $2 trillions in the U.S. economy alone—helped to build up new bubbles which now pose an even larger threat to the financial system and the world economy, than the "new economy" stock market hype a few years ago.

In the center of these new bubbles is the global housing boom. Representing a combined financial asset value of roughly $50 trillion in the OECD countries—for the moment holding up a private debt mountain of similar dimensions—the housing market certainly has the potential to bring down the whole system. And everybody knows it might happen soon.

Following an unmistakable warning in the Bank for International Settlements (BIS) quarterly review for March 2004, on the systemic threat posed by global housing markets, a series of alarming statements on the same matter have been issued by financial officials and experts in Britain. On March 17, economics editor Pam Woodall of London's Economist magazine appeared at a conference organized by the Investment Property Databank, and declared that the global housing boom is teetering on the edge of a crash. "House prices look seriously overvalued in Australia, Ireland, Netherlands, Spain, the UK and U.S., and will fall by at least 20% in many economies over the next four years."

This time, Woodall emphasized, it wouldn't require large interest rate hikes, as in the late 1980s, to trigger a sharp fall in house prices. This is because the ratio of house prices to average income is now at record highs in the United States, Australia, and Britain. America in particular has just seen the biggest housing boom in its history, but "the U.S. has very little fiscal or monetary ammunition left to support its economy if house prices collapse. If the U.S. falls, it would be the first global property bust in history."

The Economist ran a March 13 feature headlined "Homing In on Trouble—Sell, Sell, Sell," emphasizing that "house prices are at record levels in relation to average income in America, Australia, Britain, Ireland, the Netherlands, and Spain." The prices of British, Irish and Dutch homes, relative to incomes, are now 50% above their 30-year average, according to the Economist survey, while property is thus overvalued "by 23% in America, by 33% in Australia, and by 68% in Spain."

The Bank of England (BoE) is ringing the alarm bells as well. In its latest Quarterly Bulletin, BoE economist Olaf Weeken warns that British housing prices have risen too much since 1995 to remain at current levels. The average house price was about 25 times income from rental property in 2003. That's up from less than 15 in 1995, and far above the average of about 18 over the last 37 years. It's "a situation that in the past has often been followed by periods in which real house prices have fallen," stated Tucker. He added that British house prices increased 15% last year and 25% the year before: "There is little doubt that such rates of increase are unsustainable."

Fannie/Freddie Fiascos Debated

Once the global housing boom runs into trouble, we will not just see trillions of dollars of financial asset value disappearing—though that would suffice to bankrupt millions of private households, which have expanded their mortgage and consumer debts rapidly since 2000 in the belief in ever-rising house prices. It could also sink some of the world's largest banking institutions, followed by a domino-like collapse of smaller banks.

The two U.S. mortgage-finance giants, known as Fannie Mae and Freddie Mac, are of particular concern in this respect. Multi-trillion-dollar-asset institutions known as government-sponsored enterprises (GSEs), with only a few tens of billions in core capital, they are in fact not explicitly government-sponsored. They buy up most of the U.S. mortgage debt from banks, keep some of these obligations on their books, and sell the larger part in the form of traditional bonds or asset-backed securities to investors around the globe. To "hedge" against sudden shifts in interest rates, which could lead to enormous losses on their holdings, Fannie and Freddie furthermore have become top players in the worldwide casino of financial derivatives contracts.

A debate has erupted in the United States about the "systemic risk" posed by the high concentration of the mortgage-debt balloon, and related derivatives bets, at these two mortgage-financing entities. The question has been raised whether the government should explicitly renounce any public guarantee for Fannie and Freddie's debt operations; the neo-conservative American Enterprise Institute, claiming Fed Chairman Alan Greenspan's support, has even called for a full privatization. The reasoning is that the widespread assumption of a public bail-out of the GSEs in the case of default is the primary cause of the incredible rise of their obligations; remove this cause, and the systemic threats just go away. Unfortunately, this isn't going to work, because for Fannie's and Freddie's problems, it's "too late to correct."

The U.S. National Association of Homebuilders (NAHB), in a March 24 press conference call held to deny any possible "impending bubble in housing prices," expressed extreme concern at Sen. Richard Shelby's (R-Ala.) bill, said to be backed by Greenspan, that would provide for "receivorship" for Fannie or Freddie in a crisis. This, lamented NAHB, would attempt to protect holders of Fannie or Freddie's debt by quickly pushing up the mortgage interest rates underlying that debt. "Before you pull that plug," warned NAHB vice president David Crowe, "you'd better be sure you're bigger than the drain!"

A hint of the systemic threats posted by the U.S. housing market was revealed by Fannie Mae itself on March 15. In its annual report, the mortgage bank admitted to $14.4 billion of derivatives losses during 2001-2003. Reported losses on closed derivatives contracts were $1.7 billion for 2001, $5.8 billion for 2002, and $6.9 billion for 2003. In a filing with the Securities and Exchange Commission (SEC) on the same day, Fannie Mae further announced that due to "volatility in the market last year" its derivatives holdings surged by an incredible 59%, to above $1 trillion. Fannie's short-term debt—due within 12 months—increased by 27%, to $484.1 billion.

Any problem at Fannie and Freddie would immediately hit numerous American and other banks. In a special report March 1, the Federal Deposit Insurance Corporation (FDIC) issued a strong warning concerning the exposure of U.S. commercial banks and S&Ls to debt issued by Fannie Mae and Freddie Mac. Not only in the case of a liquidity crisis at one of the GSEs, but simply as a consequence of a formal withdrawal of their implicit public guarantees, this debt could plunge in value, thereby causing massive losses at commercial banks and S&Ls. Total, unsecured GSE debt held by FDIC-insured banks and savings associations amounted to $296 billion at the end of the third quarter 2003. On top of this, the same banks and savings associations held $763 billion of mortgage-backed securities (MBS) issued by Fannie and Freddie.

U.S. Home-Price Bubble Is Global

These holdings add up, on average, to 151% of their core capital of commercial banks involved; in the case of the savings associations, it's 181%. There are actually a number of FDIC-insured institutions which "have very high concentrations of GSE-related securities that amount to more than 500% of their TIER 1 Capital." This means that a 20% plunge of Fannie and Freddie debt titles could wipe out the entire core capital of such banks.

International investors, including not least the Asian central banks, would be hit hard as well. Just as an example, about 30% of the $92 billion in net capital flows into the United States in January 2004 constituted foreign buying of bonds issued by the GSEs.

But what about the derivatives couterparties? According to its annual filing with the SEC, Fannie Mae has 23 derivatives counterparties, and seven of those institutions, each holding between 6% and 16% of the total, account for 74% of Fannie's $1.04 trillion derivatives portfolio. Those "counterparties consist of large banks, broker-dealers and other financial institutions that have a significant presence in the derivatives market, most of which are based in the United States," Fannie Mae said. The counterparties were not named, but they are likely led by the usual suspects—JP Morgan Chase, Bank of America, and Citigroup.

The housing market time bomb is ticking. A number of authorities in Britain and elsewhere are now openly talking about systemic threats and are demanding a tightening of liquidity—that is, interest rate increases—in order to "cool down" the financial bubbles. But it's too late to cool them down. Bubbles can only be fed, or they burst. Any considerable rate increase could now bring down the worldwide pyramid of mortgage and other debt titles.

There are only two alternatives: the LaRouche approach of a "New Bretton Woods"-type global financial reform, including a bankruptcy procedure for existing financial obligations and a "New Deal" program to rebuild the physical economies; or a disorderly collapse that would then be used by the financial oligarchy to ram through Schachtian policies on a global scale.

interestrateripoff · February 1, 2009

http://www.antibuerokratieteam.net/2007/10...e-than-miracle/

More mirage than miracle

Assessing the UK’s economic performance

Oliver Marc Hartwich, Briar Lipson and Holger Schmieding

How often have we heard this story? For the past 15 years, Britain has enjoyed unprecedented economic growth. More than 60 consecutive quarters of growth coincided with low interest rates, low inflation and high employment. While other economies around the world faltered at one point or another during this period, Britain kept steaming ahead, achieving strong and sustained growth.

The British economy has expanded in every single quarter since the 1992 recession - the period we are examining in this research note. That is indeed a remarkable performance. However, the picture is less impressive when we look behind the headline figures. UK growth was built partly on unsustainable foundations. Even worse, a rising tide of regulations and higher taxes threatens to erode some of the pillars of UK growth.

Overall GDP growth figures only give a part of the picture. This is not because GDP is the wrong indicator for the overall economy (we believe it is), but because it is not the only indicator that matters. But even if we look merely at GDP and not at, say, life expectancy and education, the UK record may not be that spectacular. It very much depends on the countries with which we compare ourselves. The UK has grown by less than all other industrialised English-speaking economies.

Our growth was built on a number of factors - factors which we believe cannot continue for much longer. The exceptionally buoyant housing market had a number of side effects. First it eroded our savings culture as bricks and mortar seemed to offer a better investment. Second, as we needed higher mortgages, we became ever more reliant on private debt.

The growing private indebtedness was mirrored by an increase in public debt. Despite strong economic growth, the public debt continued to expand, more than doubling in real terms over this period. The expansion of the public sector artificially inflates the GDP growth data. And it cannot continue much longer. Judging by the fiscal deficit trend, the UK is now in worse fiscal shape than almost any other major Western country.

It is also worth differentiating between GDP and per capita growth. The UK population has increased substantially since 1992, adding another three million people to the economy as consumers. The working age population grew even faster than the overall population. Part of our economic growth is due to this. Whether we can continue to rely on a strong inflow of well-qualified immigrants is an open question. As Poland gets richer, more Poles may want to stay at home.

The purpose of this note is twofold. First, to highlight some key factors behind the economic growth of the past 15 years. House prices, personal debt, public debt and population growth. But more importantly, we want to draw attention to our over-reliance on these factors. Growth can be boosted for a while by fast rising house prices and massive increases in personal and public debt. But such factors are not sustainable in the long run. We only need to look at the recent trouble in financial markets for evidence of this.

Other European economies have recently embarked on a process of economic modernisation. However, the UK’s tax, spending and regulation policies have gone in the other direction. We need to find more sustainable foundations for our future economic prosperity than house prices and debt.

matroskin · February 1, 2009

WTF is a matter with the press, it's like they are all asleep at the wheel

10 years ago the navigator on Titanic warned about inadequate iceberg warning system. Yet he plotted the course thru iceberg-infested area and calcuated that in order to arrive in record time she needs to steam at full speed ahead most of the voyage.

The men on lookout were told to trust the navigator as he is the best. That's what happened to press.

Now the crew and passengers are trying to squeeze into remaining lifeboats as she sinks, the engine room is flooded and cracks are appearing in the hull. Lookout men are told to keep faith and maintain discipline.

bomberbrown · February 1, 2009

7 April 2002
Against the expectations of most economists and housing experts house prices are still soaring upwards. The latest figures are staggering. According to the independent Institute of Housing, a salary of more than £30,000 is needed to buy an average-priced house in most of England. In many areas that figure is much higher. The average London deposit for a first-time buyer is now £30,000. That is before the buyer even contemplates the mortgage.

This is why myself, and probably many more FTB's in London have ended chasing the market up for the past 7 years.

Interesting to see that in 2002 you still needed a hefty deposit and that self cert and 125% mortgages weren't even dreamt of then.

interestrateripoff · February 1, 2009

http://larouchepub.com/other/2000/hoefle_b...rning_2724.html

This article appeared in the June 16, 2000 issue of Executive Intelligence Review.
The BIS Issues a Warning,

But It Doesn't Have the Solution

by John Hoefle

The Bank for International Settlements (BIS), in a report issued on June 5, and in a major international press conference accompanying the release of the report at its headquarters in Basel, Switzerland the same day, confirmed what Democratic Presidential candidate Lyndon LaRouche has been warning about for years: that a global financial crash is right around the corner. While that assessment has been given banner headlines throughout Europe, the warning has been blacked out of the U.S. press.

"One point on which virtually everyone would agree is that the current rate of expansion of domestic demand in the United States is unsustainable and potentially inflationary," the BIS stated in its 70th Annual Report. The report goes on to say that "it could be argued that the sooner the bubble deflates, the better."

In remarks at the BIS Annual Meeting the same day, BIS President Urban Bäckström threw cold water on the assertions by the U.S. President's Working Group on Financial Markets (a.k.a. the Plunge Protection Group) that the U.S. economy was headed for a "soft landing."

"We have witnessed too many crises in the last decade not to know that market confidence can shift suddenly," Bäckström said. "A soft landing is by no means assured."

He also warned of the rising levels of household and corporate debt in the United States, and the growing dependence of the United States upon foreign goods and money-flows. "Household and corporate balance sheets may look healthy when asset prices are stable or increasing, but what will they look like if prices fall?" he asked.

To underscore the BIS's warnings, the German economic daily Handelsblatt, in a commentary by Klaus Engelen on June 6 entitled "Dangerous Dynamic on Financial Markets," noted that while the International Monetary Fund, the World Bank, and the Organization for Economic Cooperation and Development had proven records of not seeing financial crises in advance, the BIS had warned of instability in the emerging markets before the Mexican and Asian crises erupted. However, Engelen said, "all such earlier warnings from Basel had been ignored by euphoric markets." Market participants are still not paying sufficient attention to the "emphatic warnings of the BIS concerning ever higher financial asset prices and the unsustainable foreign trade imbalances, in particular the U.S. current account deficit which is running out of control." Engelen said that the issue was not one of how big the chances were of a soft landing, but rather whether there is any chance at all to prevent a hard landing.

The blunt warnings reflect the realization by the BIS that the current global financial and monetary system is unsustainable, and that major changes are required to keep the system together. Such warnings, as far as they go, are valid, and represent a better understanding of the state of the world than anything flowing out of official Washington, but they still fall far short of reality.

Hard Landing, or Mid-Air Explosion?

The whole debate about "soft landing" versus "hard landing" is a fraud. The idea behind the soft landing is that the U.S. economy is growing so fast, that the pace of growth is unsustainable and might trigger inflation. Therefore, to slow the pace of growth and head off potential inflation, Federal Reserve Chairman Alan Greenspan has been raising interest rates. By gently putting the brakes on the economy, to use the aircraft metaphor, the Fed hopes to bring the economy down from its lofty heights to a safe and soft landing. The hard-landing crowd likewise assumes that the plane will land, but perhaps with significant damage. What is absent from this controlled discussion is a third possibility, that of a mid-air explosion.

In citing "the record U.S. current account deficit," the BIS pointed squarely to the fact that the U.S. economy is being subsidized by the rest of the world. The current account balance (Figure 1), which hit a record $100 billion deficit for the fourth quarter of 1999, represents the extent to which the U.S. economy is dependent upon foreign goods and investments. The deficit reflects both the inadequacy of U.S. goods-production to meet the needs of the nation's population, and the extent to which foreign funds have flooded into the country to participate in the U.S. market bubble and purchase other U.S. assets. Were this inflow to be interrupted or reversed, by a stock market crash or a sharp decline in the value of the dollar, the "soaring" U.S. economy would be lucky to make it to the ground in one piece.

Gordon Brown: "i Called For Global Financial Reform Ten Years Ago"

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