Thursday, Jun 04, 2009
End QE and allow house prices to fall
John Redwoods Diary: What the Bank of England Needs to Do
Think this is just a reiteration of what the BOE official told Darling in March when he warned him "Not to Stop the Housing Crash, " saying:
" 'it would be ‘dangerous’ for policymakers to try to stem the relentless slump in the value of property.' In testimony to the Treasury Committee, Mr Fisher said: ‘I think the most important thing for the housing market is that prices should be allowed to adjust to a level at which people can afford to buy houses.’ " See: http://www.dailymail.co.uk/news/article-1172383/Dont-try-stop-housing-crash-Bank-England-official-warns-Darling.html. The Daily Mail article seems to confirm that the BOE already know what THEY think should be done.
Redwood too says END QE as : "this policy is keeping house prices higher than they need to be."
7 Comments
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1. hpwatcher said...
and the reason house prices are being kept higher than they need to be, is because everyone in the government is a property speculator....
2. japanese uncle said...
Exactly as I menioned before, this is nothing short of mad science trying to resuscitate a dead man by pumping blood into his body. Apart from the waste of precious financial resources, it could end up in a horrendous result, eg. the dead man possibly becoming a zonbi like the ones in '28 days later'. They really must stop the thing they are doing.
3. stillthinking said...
But we are in big trouble either way. If house prices are allowed to collapse then certainly we the unavoidable deflationary crunch. So for everybody attempting to support prices, well, you can see why the government would choose that path but they haven't. What they dream of is to reflate wages (after lengthily suppressing them), to lower the multiples of debt and increase government revenue.
I don't think they are attempting to hold up house prices, attempting to make it easier to service mortgage debt, yes, holding up prices, no. That isn't happening. The way to handle the damage of the last decade is to retrospectively change the real value of property purchase prices, which is possible, chop the value of savers with low rates and a collapsing sterling, and let wages spiral up.
This isn't going to happen though because too too late. The wage spiral they are dreaming of now, has already been brutally killed off by New Labour through imported EU workers, specialised non EU workers, and partly our extremely generous trading partners providing credit externally. The wage spiral is a feature of the boom, not the bust, and we are off the cliff already. Too late. Too too late.
What we are seeing -currently- is the battle of deflation against stagflation. There simply is not going to be wage inflation, and at some point the general population will realise that next year is going to be much much worse, not better, and retrench even further.
All of the recent hoo ha about New Labour ministers walking off will leave a very strong impression in the publics mind that they are going before the bad news gets out. They are leaving too easily. For greedy corrupt politicians they are leaving the public trough too soon and without a struggle. And I think thats why, not the expenses, they want to get out and their name forgotten before every dumb uk voter finally works out what is coming down the line.
4. japanese uncle said...
ST
Yes, in reality rigging of the house market is just a bi-product of the QE. The geuine purpose is to supply money to the banks not only UK banks but US/European banks, allowing them to repair their balance sheets, by stealth. Half the money printed by QE went overseas.
5. stillthinking said...
JU, I feel the UK is up the creek with no paddle. Next year is going to be terrible, awful. QE has been shameful, the foreign holders of gilts have been allowed to escape (...) and now only the UK pension funds are left. What is worse is the evil plan to sell bonds to the general public, which I feel will probably work because the government can offer a higher rate than current saving offerings. Ignoring the very real fact that historically excessive gov. bond issuance in times of crisis is -not- a safe investment at all, suffering from both a collapse in the bond price and also the devaluation of the currency they are issued in.
It will be interesting to see if when these bonds become generally available, they are index-linked or not. What is worse, is that temporary blips in prices in a totally frozen market are seen as some kind of indication of an economic recovery !? House prices sustainably rise as a consequence of natural real economic growth, but the permanently embedded media message is that the cart pushes the horse. House prices rise ergo economy grows. B*ll*x.
What is also ludicrous, is that people credibly believe there is some solution to the problem of excessive debt. There is not. Debt must be paid back or some form of default. There is -no defense or solution- for the UK.
Like children selling sweets, they blow all their capital bidding crazily against each other for the first load of sweets, then when oh lo and behold, there are still sweets for sale, there is no capital left to support that price level. So those sweets are worthless and so is property in the UK.
Or the insane reasoning that concludes that paying down debt takes the same amount of time as running it up....
Another point which is neglected is that the expansion of university education, quite aside from student debt, puts the equivalent of a three year gap in the demographics of FTBs.
6. Japanese Uncle said...
ST
By the end of 2010, GBP could well have been obliterated.
7. shipbuilder said...
3. stillthinking said...
"But we are in big trouble either way. If house prices are allowed to collapse then certainly we the unavoidable deflationary crunch. So for everybody attempting to support prices, well, you can see why the government would choose that path but they haven't. What they dream of is to reflate wages (after lengthily suppressing them), to lower the multiples of debt and increase government revenue.
I don't think they are attempting to hold up house prices, attempting to make it easier to service mortgage debt, yes, holding up prices, no. That isn't happening. The way to handle the damage of the last decade is to retrospectively change the real value of property purchase prices, which is possible, chop the value of savers with low rates and a collapsing sterling, and let wages spiral up.
This isn't going to happen though because too too late. The wage spiral they are dreaming of now, has already been brutally killed off by New Labour through imported EU workers, specialised non EU workers, and partly our extremely generous trading partners providing credit externally. The wage spiral is a feature of the boom, not the bust, and we are off the cliff already. Too late. Too too late.
What we are seeing -currently- is the battle of deflation against stagflation. There simply is not going to be wage inflation, and at some point the general population will realise that next year is going to be much much worse, not better, and retrench even further.
All of the recent hoo ha about New Labour ministers walking off will leave a very strong impression in the publics mind that they are going before the bad news gets out. They are leaving too easily. For greedy corrupt politicians they are leaving the public trough too soon and without a struggle. And I think thats why, not the expenses, they want to get out and their name forgotten before every dumb uk voter finally works out what is coming down the line."
Great post - and another rat's just left the sinking ship, it does indeed look ominous.