Saturday, Jan 26, 2008
Ambrose - The biggest bear
Daily Telegraph: US slides into dangerous 1930s 'liquidity trap'
The United States is sliding towards a dangerous 1930s-style "liquidity trap" that cannot easily be stopped by drastic cuts in interest rates, Nobel economist Joseph Stiglitz has warned.
Posted by holding out @ 04:30 PM (791 views) Add Comment
7 Comments
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1. quiet guy said...
"People have been drawing home equity out of the houses at a rate of $700bn or $800bn a year. It's been a huge boost to consumption, but that game is now up."
I'd have been a lot more impressed if warnings about equity withdrawal had been published a few years ago. None of the mainstream commentators seemed to mind all that much when the property market was raging. It's a bit like a friend at a party feeding you booze while you're drunk then lecturing you about the dangers of alchol in the morning. Too late.
2. japanese uncle said...
Indeed. Full-scale blasting of equity release was heard only on this website.
3. paul said...
David Smith on his daft blog proclaimed that mortgage equity withdrawal is actually generating wealth. I argued that it can't be because it's still creating a debt that people have to repay. He didn't have an answer.
4. planning4acrash said...
Paul, David was talking in relation to individuals and missed the whole picture, because credit can generate wealth, but MEWING is a particularly stupid way of doing it. For those who are the recipients of MEW cash, they feel like wealth is being generated, and industry's are supported, albeit artificially. To some extent, that process will have long term wealth generating benefits, via innovation and efficiency gains, which will remain once the MEW money has disappeared, and that's it, the MEW tap is totally periodic, so not good for consistent wealth generation.
In reality, we would have been much better off if government had put the same levels of liquidity into national priorities like getting TGV's to the North, Scotland, Wales and South West, sorting out renewable energy and subsidising energy efficiency in our industry's and actually investing in industry, instead of focusing solely on bloody housing!! This money has been allowed to be given to the controls of the self-serving middle class house owners for one reason, VOTES!! Maybe voting reform may help the process?
5. Duncan said...
People might be interested in this link. I remember seeing article when it was published.
Obviously no one read the warning at the end.
http://www.baker-re.com/baker/baker_news/pmiscm111d03302002.pdf
6. it_is_going_with_a_bang said...
$800bn a year withdrawl from equity.
Thats the whole point. Even stagnation which almost every VI is predicting as an ok scenario is still a disaster for the economy.
Neither the economy of this country or the US can adjust after nearly 10 years, to 'not' having this pot of cash on tap to perfrom the miracle.
They have, for the sake of easy votes and short term feel good, allowed the economy to become dependant on house prices increases and equity.
If Gordon Brown really meant it in 1997 when he said 'No more Boom and Bust' then he should have made a little more effort in avoiding the BOOOOOOOOOOOMMMMMMMMMMMMMMMMMM! and BUUUUU.......
I think I may finish that sentence with some S and T's in the next year or so whereas poor Alistair and Gordon will be using couple of GG's and ER.
7. uncle tom said...
An interesting detail is that the scale of UK equity withdrawal, when adjusted for population difference, is very similar to that in the USA
As in the US, it's impact on the economy has been huge, and the economy will soon have to live without it..