Sunday, Mar 25, 2007
The past week in focus
Firstrung: Firstrung, the week in focus 25/03/07
What caught the eye of the Firstrung team eye during the past week? Undoubtedly Lord George's interview regarding the actions the BoE believed they had to take after 9/11...In order to avoid the imminent recession (which was already on course) becoming a global collapse, the BoE, (under the former Governor's remit) increased the money supply and lowered interest rates to stimulate consumer demand. This led to the legacy of high house prices. It's important to remember this when faced with the usual anodyne argument that a "shortgage of supply has caused house price rises", it's nosense. Speculation caused by cheap credit is the reason, tell 'em "Lord George said so".
Posted by converted lurker @ 11:59 AM (169 views) Add Comment
11 Comments
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1. royston said...
The Eddie George "I did it!" story is being way over-played on this forum.
If he had maintained interest rates and allowed a recession, deflation could well have ensued. That would have been a breach of his remit for 'price stability'. Why would have deflation ensued? Because the Chinese were expanding production as a very fast rate - if we in the west had not expanded our consumption (which we did on credit), prices would have been competed downward and our businesses and jobs would have moved east at an even faster rate than we have seen.
The real issue now is what can be done at a policy to correct house price imbalances and enable citizens to buy dwellings.
2. paul said...
"The real issue now is what can be done at a policy to correct house price imbalances and enable citizens to buy dwellings."
I'm not sure if you've been out of the country for a week or so, but Gordon Brown's just delivered his last budget. To address the alarming rise in house prices, he took two measures:
1. Do nothing for first time buyers - they are less likely to vote anyway.
2. Help out the ageing property-rich with a concession on inheritance tax.
In other words he's already made it clear that they're going to do absolutely nothing to correct the imbalance. Therefore the original policy to overheat the housing market is significant, because it was a deliberate means to take money from younger people to put it in the hands of the old.
It's got a name too - generational theft.
http://www.newstatesman.com/200703050030
3. paul said...
And the real reason that we make a big thing of it but no-one else chooses to is because it undermines the idea that supply and demand is driving the property market. This makes it obvious that it never was and is only cheap credit.
4. enuii said...
As I have said before on this site we are robbing the young to fund the retirement dreams of the older generation, I didn't have a term for this but thanks to Paul we can call it generational theft. Can anyone think of a better, more catchier buzzword.
5. Tangara said...
"Generational theft"... sounds like "carry trade"... :)
6. Converted Lurker said...
Royston you're wrong IMHO. In 2001 a recession was on its way, elves printing monopoly money past midnight and banks flooding markets with invisible digits only delays a recession. If you are suggesting it was some kind of 'ops' v China/India you're off course again. Have we genuinely felt the benefits of real currency devaluation of over the past six years? No, as Eddie George said he's left a legacy of sorts, a mess for others to sort out. It's insoluble and a future recession can only be avoided by continuing to break a natural economic cycle by interrupting that cycle with: new money, easier credit, more consumption, therefore eradicating the value of your currency by hyper inflation.
7. japanese uncle said...
I think 'generation conflict' is the word, exactly as in the pensionｓ. Generation theft sounds too much, does't it?
8. royston said...
Paul,
I agree with you on the supply / demand argument. The restricted supply is often trotted out but is rubbish. There is only excess demand because there are so many BTL or BRS speculators.
I am also well aware that Gordon did nothing for us in the budget.
However, my point is that we need to figure out what the government can do to fix this (because they clearly do not see the need to do so) and focus pressure on them to do it. By pressure, I mean e-petitions, lobbying MPs and even public marches. If we can come up with good workable ideas, it should not be too hard to get others to row in behind.
9. royston said...
Paul,
I agree with you on the supply / demand argument. The restricted supply is often trotted out but is rubbish. There is only excess demand because there are so many BTL or BRS speculators.
I am also well aware that Gordon did nothing for us in the budget.
However, my point is that we need to figure out what the government can do to fix this (because they clearly do not see the need to do so) and focus pressure on them to do it. By pressure, I mean e-petitions, lobbying MPs and even public marches. If we can come up with good workable ideas, it should not be too hard to get others to row in behind.
10. royston said...
I also wonder to what extent the British monetary policy is independent of American monetary policy. Clearly, New Labour copied the Clinton / Greenspan policies when they came to power 10 years ago. However, interest rates in both countries move surprising closely together. Coincidence?
11. converted lurker said...
Does the UK really set its own monetary policy or is it set (indirectly) by America? I suspect our interest rates won't change for some while whilst they have parity with the U.S.