Tuesday, May 20, 2008
George said...
Times: George Soros: Crunch will bite deeper in UK
“In the UK we’ve had a housing bubble that in terms of price increases has been greater than in the United States. “That’s also now going to be corrected - it is taking longer than in the States because you haven’t had over-building like in America."
Posted by confused76 @ 04:35 PM (1039 views) Add Comment
13 Comments
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1. hpwatcher said...
The key quote for me ''...property prices relative to people’s income were higher in Britain than “anywhere else in the world."
No vi can argue against that, as much as they would like us to go on borrowing & borrowing so they can make money on the shackles of our misery.
2. plato said...
Don't think anyone will believe this because Soros soungs like an HPC blogger.(lol)
3. enuii said...
With living costs going through the roof and wages more or less static many people cannot take onboard anymore debt. The banks know this which is why their interest rates are rising and the government knows this which is why they are desperately trying to lower interest rates.
4. notaneconomicsguru said...
Don't think much of Soros. I rtegard him as little more than a thief. He most probably is right about the econonmy though. Funny thing though. I followed the link on the same Times page under 3 random posts -> http://timesbusiness.typepad.com/money_weblog/2008/05/house-prices-th.html & found that apparently I live in the most recession proof county - prices up more than 12%. Woweee fancy that. Now, I don't know whether to be smug or depressed. So in a mixed state of anger and euphoria I shout at my PC screen to tell the newly depressive Soros to shut the **** up. He can stick his billions right back where he got them from. Very sorry but he really naffs me off.
5. stillthinking said...
"As for the Bank of the England, he said, "it was like a Greek tragedy", because they "couldn't do a U-turn" until there was a full-blown recession, which would finally take away the price pressures."
The BoE can't lower rates until we have a recession because they are behind the curve, and when they do lower them, too too late.
=DEFLATION
I feel like I am talking to myself on this blog because nobody ever agrees with me.
6. inbreda said...
I agree with you stillthinking.
I'm not sure about deflation though - one thing I still can't get my head around is the possibility of deflation when the BoE is printing GBP like they needed wallpaper for buckingham palace - I can't see that leading to anything but inflation.
7. notaneconomicsguru said...
5. StillThinking.
I think the current price pressures are largely externally driven due to shortages of supply versus demand. High UK interest rates won't bring those down and neither will lowered interest rates. Those goods simply find a new equilibrium price in the UK market based on demand and supply. Strictly speaking that's not inflation at all. Inflation (or deflation) is really only about money supply growth not prices. Too much money supply growth (stimulated by low interest rates) well exceeding economic growth has directly caused the recent house price bubble. Raining back on money supply growth by holding interest rates high and reducing credit availability (as now) will reverse the effect. This has bad consequences because money for business investment also costs more and is less available so they reduce investment, which leads to job cuts, loss of profits and a shrinking economy. The price of the external commodities remains high throughout however because external factors have not changed. You are right that there will be a slowing or even a recession, but that's caused by deflation (reduction in money supply growth), rather than the other way round. Its a tough thing to balance, but the key is to not let too much inflation (by not creating too much money) out of the bag in the first place, so that when you do have to nudge it back down again you don't kill off all of the green shoots.
8. plato said...
stillthinking @ 5
Just to stop the loneliness : Agree with you 100% up to the Deflation bit. As notaneco......... says : "Inflation (or deflation) is really only about money supply growth not prices."
BTW : Can I borrow you last sentence for some of my comments?
9. bystander said...
"The price of the external commodities remains high throughout however because external factors have not changed."@notaneconomicsguru
.....agreed, except, as with housing the supply/demand theory has been over exaggerated so that the boys and girls in fund management, investment banks etc can keep making profits. American pension funds have sunk more than $40bln into oil and soft commodities since the begining of the year, now tell me this isn't going to cause prices to rise drastically, as we have seen. Yes there have been droughts, 'weather' etc. but that only goes half way to explaining these massive gains (losses for the poorest). The change in diet of China , India etc. is also a much stated reason, but this change will take many many years to truly take hold, if at all........do you honestly believe that all the emerging markets are about to give up rice and start chowing down on maccy D's. The Central Banks , to save their financial buddies and avert a major monetary disaster, have flooded the world with 'HUGE' amounts of 'printed' (not created money) and this has been diverted from it's intended course to enable bankers and their shareholders to keep profits and therefore bonuses and dividends high. IMHO this current massive rise in commodity prices, which is having such a detrimental affect on the poorest and wealthiest (to vastly different degrees ofcourse) is caused by the very banks who now find themselves dealing with rocketing inflation, casued by the very liquidity schemes (bailouts) they have used to try to save their own economies.
10. bystander said...
Oh and just as an aside....anyone here think old Soros has a major interest in shorting sterling, as he did in the 90's?
11. plato said...
I think Mr Soros is going to be shorting the euro. That would be a big,big wnner.
12. notaneconomicsguru said...
9 . Bystander. Yes of course you are right. I was thinking purely about an abstract local economy. In Global terms the increased amount of money will tend to cause a general rise in prices because more money is chasing the same goods. Clearly this happened, hugely with property and equities, less so with consumer goods & that I think is because we benefited from super cheap imports which presumably would have been even cheaper without the increase in amount of money. The excess money has to go somewhere and if it makes sense to 'invest' in oil & food stocks because of an actual fundamental shortage of supply versus demand (there is no doubt there has been that), then it is quite likely the excess money will go there forcing the prices even higher. If you are into hedging/speculative investment then its a great rouse to blame the ongoing price rises (which as with property go way beyond fundamental supply and demand) on China & India than to acknowledge you are in effect deliberately stoking the market for your own selfish ends, but it seems fairly clear to me that is what is happening. I do not believe there is suddenly a shortage that would justify the current rise of prices. For me its the new bubble after Tech stocks & Property. Notice they seem now so keen to switch their (actually our future) money away from property - its got to be going somewhere else. This time its even more dangerous for all of us because its the basics of life - food & heat that they are playing with and yes so long as the money taps are fully open it will keep on getting worse.
Its very, very insidious I think. If I have understood it correctly, they are actually using our expected future income (higher taxes in future paying for excess paper money printed today) to make us pay more of our current income for the goods we need. The government is always complicit because it benefits from the increased tax revenues. It has to stop.
13. notaneconomicsguru said...
I was even wondering whether Soros is really right about the UK after all. In US weren't IRs less than 2% for quite a while? And didn't they ramp up to over 5% And weren't there fewer controls on credit? And isn't there a much less lax planning regime in US which allows land to be freed up for building more readily? Could it be that the fundamentals of the UK market mean that a higher price to income ratio is a natural outcome? Could it be that the fundamentals are so different that price falls will be less severe in the UK than in the US? I don't know the answers to those questions, but it seems to me a mistake to assume that the UK will go the same way as the US has done because there are some real differences.