Tuesday, Oct 09, 2007
The R-word
The Telegraph: Time called on extravagant decade of debt and the tab must now be paid
One possible road map for 2008 looks something like this. The credit crunch continues to bite, keeping the cost of borrowing for businesses and consumers high. The financial sector, on which Britain is dangerously dependent, contracts. This pushes unemployment higher and reduces government revenues further. Meanwhile, inflation refuses to lie down (yesterday's producer prices data are the latest indication) so the Bank of England can't cut rates as fast as it might wish. The housing market falls over and a mid-cycle pause becomes a full-blown recession.
Posted by sold 2 rent 1 @ 07:55 AM (2057 views) Add Comment
16 Comments
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1. japanese uncle said...
Forecasting "full-blown recession" may be in the realm of an optimism. Anyway it sounds much better than Great Depression, doesn't it?. I am afraid people might have to apprecaite the extreme fragility of an economy almost totally dependent on the domino of sectors that are dependent on each other without creating real value-added, but just feeding on the fictitious house price, in which each player including individual consumers are geared almost to the limit. I see UK economy as a walking time-bomb, and that not made up of the conventional explosives, but nuclear in that it involves chain reactions. All I hope is that it would at least not be an H-bomb involving fusion but an ordinary A-bomb stopping at fission.
2. David Smith's Sub Prime. . . said...
Britain now has the worst Budget deficit among the core EU members for the first time in nearly 40 years. After years of above-trend growth, a persistent deficit of more than £30bn is a sign of shocking profligacy. We (save for most on HPC of course), have all been bingeing to the extent that household saving is down to only 3pc of income, while household debts have doubled over the past 10 years when measured against our earnings. The cost of servicing debts is close to the level that burst the 1980s Lawson boom
The signs are everywhere that the economy is hitting the buffers. Last week, housing market numbers from the Halifax showed the first fall in prices this year. Yesterday, uSwitch added to the gloom with a survey showing that disposable income is the lowest for 10 years. Both point one way – to belt-tightening next year.
AND GOOOOORDOOON'S BROOOOONNNNEED HIMSELF AND RUN AWAY FROM THE ELECTORATE. WE WONDER WHY?!
3. planning4acrash said...
Debt need not be paid, why, you can pass over all your wealth to pay off a small portion of your debt and the rest is written of as bad debt, a whole heap of money leaves the system and financial organisations go under. The fact is that there is too much debt to be paid, it cannot all be paid off, only foreclosure on a significant chunk of our debt and a massive round of debt destruction (possibly via a depression) can be the only viable solution when we have more debt than GDP.
4. sold 2 rent 1 said...
Great summary JU.
Unfortunately the economic time-bomb analogy may spill over into a real terrorist-bomb reality as the economic hardship allows more young disaffected people to be guided by extremists into terrorism. The 2012 London Olympics may be one to avoid.
5. sara said...
Good point P4C. I'm just moving my savings into an off-shore account now, ready to take on an unbelievable amount of debt. Then I'll nip into my local NR branch and ask if I can possibly withdraw my tax money they appear to be spending ;-) Where's the exit door I'm tempted to leave the country?
JU - I used to think that this scenario would make me happy - now I'm starting to think that perhaps us careful people are just idiots. As time goes by I'm not too sure anymore who will have the last laugh me or the person that's lived on someone else's money for the last decade.
6. bingo said...
I kind of agree with Sara, I feel that greedy and gullible people are now being seen as victims. These are the victims who last year were sneering at the plebs (us) that weren't on the property ladder.... You just can't win...
7. pecker said...
Hey guys, if you ever want to read a good psychology book on exactly why we get in situations like this I suggest you read "Waking up" By Charles Tart. Non-financial but explains exactly how the "sheepie" effect is born! You do realise that 500 or so years ago you'd all be burnt at the stake!? ;-)
8. harold said...
"...as the economic hardship allows more young disaffected people to be guided by extremists into terrorism."
Get a grip, s2r1.
9. inbreda said...
Speak for yourself Harold - I wouldn't go within a hundred miles of the 2012 mistake-in-the-making-just-like-the-dome-but-with-more-explosions if you paid me.
It will be the last disaster to laugh at teh new labour idiots for.
10. cyril said...
@Pecker - on a more positive note, have you heard the phrase "In the kingdom of the blind, the one-eyed man is king"?
I think people got burnt at the stake because everyone got fed up with their moaning all the time.
11. japanese uncle said...
No more suicide bombers on return tickets!
12. p. doff said...
"...as the economic hardship allows more young disaffected people to be guided by extremists into terrorism."
You may have something there S2R1. I've always had a slight suspicion that the relative peace in Ireland for example, might be connected to improvements in prosperity, rather than entirely due to any political efforts made. All the potential bombers are busy watching Property Ladder and doing up their houses (like most of the UK).
I sincerely hope that if the economy does go wrong in a big way then we do not have a return to those awful times.
13. harold said...
"No more suicide bombers on return tickets!"
Good point, JU.
14. enuii said...
I noticed the BBC interviewer used the R word (forget his name) whilst interviewing some extremely young labour MP put up to comment on Darlings (sorry Broooons) aspirational pre-budget statement.
15. Mr Turner said...
The government are to blame for pandering to the powerful baby boom electorate who want valuable property, and fueling the economy on debt generated by those same baby boomers against the value of their homes (for cars ,holidays etc.)
The result was predictable. An inflated property market. Dangerous national debt, and a hollow economy.
They have no alternative but to avoid meeting house building requirements in order to reinforce property prices. If they actually built all those houses on time property prices might fall. Baby boomers would become disgruntled, the economy might falter and they would lose power. Failing to meet housing needs is better than losing power.
I think a house price crash would be good for the medium term economy. Any artificial bolstering of the market will only make a crash worse when it eventually does happen.
Government proposed changes to unmarried couple status is an example of policy designed secondarily to bolster the housing market, because more people will chose to live apart, creating further housing demand.
Meanwhile other nations like spain have a housing glut. The government is therefore completely to blame and have no intention of delivering on these vote orientated promises. Saying they will build on flood plains they rightly guess will cause massive debate and help to hinder any real progress.
They haven't fooled me and i'm not even an economist (househusband) I just hope others aren't fooled.
16. planning4acrash said...
Tell me your trick Mr Turner, I'd love to be a house husband, write books, a bit of working from home, do a spot of cooking, DIY, tend the garden, take my lady out dancing, sweet as!