It has just occurred to me how significant all that is happening in the world of economics at the moment. Some might think we are going through just another minor blip, which will soon pass and all will be alright in the world again before long banks will start dishing out mortgages again and house prices will soon rise again.

I am sorry for those people who believe this for what ever reason but they will be disappointed or worse still dispossessed! I believe what is happening now will be looked back upon just like the thirties depression !!! It could even be worse.

The prosperity that has been created since WW2 has been based on an expansion of credit the like of which will not be seen again in our life times!!!!

If I am right then the implications for asset values is dire. 500K for an average semi will be seen like tulip mania. Asset values like that of house prices have not risen because of supply problems but because of available credit and greed just like all bubbles.

An asset like a house can only be bought for what some one can afford to pay. If credit dries up the the price of houses will collapse. Poor Tony Dye Dr Doom who just passed away was an optimist in predicting a 30% fall in house prices I feel it could be a whole lot worse.

Wadisgod cash is king

"The prosperity that has been created since WW2 has been based on an expansion of credit the like of which will not be seen again in our life times!!!! "

Not entirely fair. There have been massive improvements in productivity and technology-led growth since WWII. Think of the qaulity and cost of mechanical and electrical goods, everything from vacuum cleaners to computers. That's not to say credit expansion hasn't been overdone although I would argue the problem is more from the 80's onwards.

A depression may be coming but hopefully it will be a high-tech one ;-)

UM

Not entirely fair. There have been massive improvements in productivity and technology-led growth since WWII. Think of the qaulity and cost of mechanical and electrical goods, everything from vacuum cleaners to computers. That's not to say credit expansion hasn't been overdone although I would argue the problem is more from the 80's onwards.

A depression may be coming but hopefully it will be a high-tech one ;-)


What planet are you from?

the cost of electrical goods has fallen because of the deflation effect of china and India etc (BRIC economies) this will not be repeated! It is not a product of of increased productivity!Just temporary slave labour!

I could be wrong , but not by much!!

And the last few years have all been financial engineering and derivatives. The creation of wealth has been illusory.

Sorry but can you read the original post as you are quoting from two different posts.

I agree that improvements in productivity and technology have lead growth; BUT. The entire economy has evolved around cheap transportation costs. Part of a productive organisations job is to maximise efficiency but in times of easily available labour they don't consider the transportation costs of thier workers. At the turn of this century all workers lived in close proximity to thier respective points of productivity and the goods travelled the distance. Now; the goods travel the distance but so do the workers.

Energy efficient, I don't think so.

The current economic philosophy is based on the true value of money in the minds of people that value it. The reallity is that the economy does not have a pshcology, it is not a person, it is just a machine.

If we experience a collapse of the economy and our politicians start spewing the same old crap about the value of money, competition, globalisation, cheap labour; I can assure you they will create hell on earth for the people of this country.

RANT over.

QUOTE (Decom @ Mar 19 2008, 09:09 PM)

I agree that improvements in productivity and technology have lead growth; BUT. The entire economy has evolved around cheap transportation costs. Part of a productive organisations job is to maximise efficiency but in times of easily available labour they don't consider the transportation costs of thier workers. At the turn of this century all workers lived in close proximity to thier respective points of productivity and the goods travelled the distance. Now; the goods travel the distance but so do the workers.

Energy efficient, I don't think so.

The current economic philosophy is based on the true value of money in the minds of people that value it. The reallity is that the economy does not have a pshcology, it is not a person, it is just a machine.

If we experience a collapse of the economy and our politicians start spewing the same old crap about the value of money, competition, globalisation, cheap labour; I can assure you they will create hell on earth for the people of this country.

RANT over.

I am not sure I have a clue what you are talking about!

At the turn of the century manufacture took place at the point of easy availability of raw materials.

As for the rant at the end I can only imagine that LSD is cheap where you live!!

http://www.telegraph.co.uk/money/main.jhtm.../cnsoros101.xml


Sorry my son says I am a bit aggressive!

He has just corrected me says I am an A hole

I accept your wisdom great sage.

Part of the problem is that economics doesn't reflect what happens in the real world. The most wealthy nations are often the most indebted. This debt has been successfully rolled over, becoming ever larger. At some point the credibility of the system must come into question. How are the debts to be repaid with a finite amount of world resources ?

Historically fiat money systems never work for long. We could be about to witness the collapse of the present system, or it could limp along for a bit longer. One day however, it will fail. Our money system has a built in terminal illness- compound interest on debt. You simply can't sustain an exponential growth curve to pay off the interest forever.

sikejsudjek has it partly right. I am not sure most economists have grasped that something profound has changed in the world economy. In particular, there has been a massive increase in labour without a commensurate increase in the supply of commodities. As such we are now in a position in which there will, for many years, be competition over the available resources. I discuss this with an analogy here. The problem would, in any event, be severe but the mountain of debt in the Western economies, including in particular the US and UK, are going to make the problems even worse. Personally, I believe that the UK economy will shrink back by a minimum of 10% of current GDP, and am predicting an economic meltdown.

Just a note, as I have added what I hope is a better explanation of what is going on in the world economy. The post can be found here...

I'm a 'middle of the road' kind of guy and don't believe in the idea of fundamental changes.

At the the height of the boom, optimists were talking about a 'paradigm shift' where we had broken the pattern of boom and bust for one of perpetual growth. That was stupid. Similarly, I don't think we can talk about the house price cycle or credit industry being fundamentally broken.

Interesting idea though. Credit in it's current forms (mortgages/credit cards) is a product. In the UK and US, that product is now what the marketing guys call 'Mature' (everyone has about as much as they want). So the banks have been playing around to try and extend the life of the product by 1) Offering lots of quirky new 'features' and variants to existing users and 2) finding new markets with little or no usage. Every bank in the US/UK is opening up new Russian and eastern european offices because they know credit really has nowhere left to go in the UK.

http://www.quickmba.com/marketing/product/lifecycle/

As you said, much of the post-war growth (especially post-80's) has been fuelled by people's willingness to borrow to the point where it's described an 'engine' for the economy. If people really do start to shy away from credit, we lose that engine. Be interesting to see what impact that has on house prices and the economy in general. Maybe what credit has done is just AMPLIFY the last two cycles - made the highs and lows higher and lower than they would otherwise have been?

For what it's worth, people have always borrowed (remember Shylock?) and will always borrow. But the way that credit is packaged to us, and our willingness/desire to use it may alter. Who knows where that leads...

You have a fair point about amplification and product life cycle. However, I would argue that the real difference that credit has made is that it has hidden some underlying changes in the world economy. A simple way of considering this is to measure the growth in various forms of debt with growth in GDP. It is when you do this that you realise how much recent 'growth' is built on debt. The trouble is that debt is the spending of future wealth. In the up cycle, it expands the economy, in the down cycle it amplifies the contraction, so you are 100% right in the current situation. We have reached the peak and now and, with the future wealth having been consumed such that there is very little available cash, it is causing a massive contraction. However, this is not the only factor driving the economic contraction. I will not link to my blog again for fear of being seen as spam, but this is discussed in many places on the blog.

I fully agree with comments that a lot of recent economic growth has been driven by increases in borrowing / spending of future wealth. And that can't last forever.

But sooner or later, something has to come along to replace borrowing as the engine of the economy. I'm not saying that will happen tomorrow and I'm not saying it will be in time to prevent a sustained contraction - I just wonder what it will be?

If the problem is scarce resource and an expanded labour market, what we need is productivity gains so we make more efficient use of our resources.

What about Moore's Law, and the idea you can have a computer system in India doing the job of 500 accountants?

What about utilizing new/alternative resources? Should we be spending our money on sustainable energy R&D rather than drilling Florida in to the ground?

I don't pretend to be smart enough to have the answers here, I'm just trying to add to the debate

And to go back to your original post wad, yes - the specifics of the modern economic system may change, we might see some power shifts and housing will probably be the next south sea company/tulip farm for a couple of decades. But is that a fundamental shift or just a progression?

I agree to put it another way for the sheeple it goes something like this ................Farmers grow potatoes and sell them .....Volkswagen build good cars and sell them too. Since when the fekkin hell did we allow central banks to print money out of thin air and high street banks to magic it through the fractional reserve banking system. And do you know what the really great thing is????? nope, well if you cant pay this funny money back they have every right to come and take your house/ car etc basically any material wealth. What a bloody con. So by increasing the money supply they create booms and by decreasing they create busts. All man made of course including inflation. If anyone thinks this is funny please note both parents now have to go out to work in order to bring up a family. And very shortly there wont be many jobs around. I really wish people would wake up to this scam because thats truly what it is.

This is one view I can never quite get my head around.

Central banks don't create down cycles on purpose. Basically Governments are hungry for power, so want a strong economy. Private banks are hungry for cash so get greedy. Between the two of them they artificially prolong the up-swings in an economic cycle so they can make the most of it.

The down cycle is just the side-effect of the up - if governments and banks could create permanent growth, they (generally) would. In fact that's exactly what they thought they'd achieved this time around...

Not sure I buy all this twelve men in a dark room business....where some perople see conspiracy, I just see greed, stupidity and a lot of incompetence.

Baaa!

below energy saving for you! LED your life!

There's some truth to what you say but I wonder whether if people were willing to have 1948 standards of living there would be any need for both parents to work.

However, I don't think people want to have 1948 standards of living.