Sunday, Dec 09, 2007
"An orgy of landlords, estate agents and desperate first-time buyers"... this is what we are
FT: The UK economy is vulnerable
"In a world full of house price inflation, Britain’s boom has been extreme: an orgy of landlords, estate agents and desperate first-time buyers. A crash would cause pain for those who build houses, sell houses, and lend money against the security of houses. Tenants would profit from cheaper houses even as the owners of buy-to-let portfolios lose, but damage to the financial system would probably cause a hit to consumption."
Posted by confused76 @ 10:46 PM (355 views) Add Comment
4 Comments
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1. paul said...
Sounds just a little more realistic than David Smith's myopic cheerleading.
2. it_is_going_with_a_bang said...
"increasing numbers of lawyers, bankers, accountants and journalists"
Doesn't sound like a very nice world to live in.
It's like being told your house is infested with rats.
3. maddison said...
So many countries have a specialist area of expertise or a part of the economy that makes them rich. They all run risks in the global economy by having eggs in one basket.
Germany - high value exports ( cars, expensive household items, engineering, etc etc)
China - Toys and seriously cheap goods
Australia - Commodities
France - Cars, Tourism, Agriculture
Spain - Tourism and construction
Arab countries - Oil
Russia - Oil, Gas etc
UK - Financial services and yes high end engineering
Germany is particularly vulnerable to exchange rate risks
Australia is vulnerable to an Asian slow down and reduced demand for commodities
Arabs - well the oil could run out
China is vulnerable to any slow down in the world economy but some would say that people will still buy cheap cr*p if not porsches and expensive taps
4. drewster said...
Maddison, thanks for making that excellent point. Each country has its own specific vulnerabilities.
"increasing numbers of lawyers, bankers, accountants and journalists":
In every economy, some areas will have more of these than others. Two-hundred years ago, if a rural farmer needed access to a bank or lawyer he would go to his nearest city - regional cities like Bristol and Manchester provided these services. Today if a big company needs international banking facilities or an international lawyer, or wishes to issue a press release to an international newspaper or magazine, they have to go to London or New York. These cities will continue to boom as long as the world economy grows ever more intertwined, as long as the forces of globalisation remain strong. The only thing that could derail globalisation is the world running out of oil.
During the industrial revolution, commodities and manufactured goods were imported and exported via ports such as Liverpool, making it prosperous. In the current financial services revolution, money is imported and exported via London. Technology decimated employment in the Liverpool docks (containerised shipping, cranes, etc.), but technology hasn't yet threatened London's international lawyers and global accountants - in fact they're far more immune to technology than any other industry.
There's nothing wrong with having lawyers, bankers, accountants, and journalists. It's generally far more pleasant work than mining or manufacturing. As a country, we aren't suffocated by no-win no-fee lawyers (unlike America); our banks offer free bank accounts (unlike America); we don't appear to be suffering from too many accountants (though our tax code could be a lot simpler); and journalists are a necessary part of any democracy.
So let's have fewer cries of "bring back our factories and re-open our mines"; the UK economy could just as easily be at risk with them, and it would be a lot less pleasant!