Monday, Jun 15, 2009
Raising rates= house price capitulation.
Telegraph: Rates may rise later this year, warns CBI
Ian McCafferty, the business lobby group's chief economic adviser, said the Bank's Monetary Policy Committee will continue its programme of quantitative easing for some months before "nudging up" interest rates from its historic low of 0.5pc.
Posted by flintster1994 @ 08:36 AM (1609 views) Add Comment
15 Comments
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1. paul said...
This talk of unwinding the nuclear option to a more sensible fiscal stance is unlikely to be supported by many at the Bank of England.
Once you start printing, your backout options become severely restricted.
Still there's a spring bounce, and The Bank of England has started to be more open about its house price reinflation strategy, so all is well, right?
2. mark wadsworth said...
I think talk of 'capitulation' is exaggerated, the most likely outcome is a long slide, lasting years, whereby house prices fall ten per cent or so every year for at least another two years, i.e. the slides are big enough to make it worthwhile renting. Even if the slide is only five per cent, a lot of people will still be better off renting for the time being.
The intial 20% fall in prices was thoroughly enjoyable from our point of view, but that's over now, we're looking at two months down, one month up with the occasional Spring Bounce just to add a bit of excitement.
3. paul said...
In other words mark, we are going to replicate Japan's Lost Generation.
In truth, I never really thought we would see any other fate. Central bankers' failures are extraordinarily predictable and are made worse by their arrogance in thinking that they will succeed where their peers couldn't.
4. mark wadsworth said...
Paul, given overall debt deflation and hideous government debts and rising, perhaps we are going to follow Japan, that is still on the downward slide.
But OTOH, don't forget that the UK economy (in terms of unemployment and so on) started picking up as early as 1993 but house prices didn't start rising again until 1995.
5. paul said...
Mark, as a point of reference, Japan started quantitative easing in the mid to late 1990s. It ultimately failed because consumers didn't want more debt.
Japan's economy is no longer in intensive care, but is definitely not in outpatients yet. japanese residential house prices have staged the first signs of a very ... very slow recovery - nearly 20 years later.
6. icarus said...
"I am as much in favour of sound money as any" said Professor Congdon....er, except when it doesn't suit.
The UK labour market is 'flexible' i.e. people are accepting pay cuts or working shorter hours (and therefore getting paid less). So where is the demand going to come from to fuel the recovery that's supposed to start early next year?
7. stillthinking said...
This is the unemployment chart for the Japanese lost decade(s) against Europe, but unemployment was always below the UK even during our faux boom.
http://www.bls.gov/spotlight/2008/around_the_world/images/figure04_unemp.jpg
8. Bendecko said...
Paul - during the previous 20 years in Japan do you have any figures/idea on how renting compared to house prices. Has it been cheaper to rent there than buy or other way round?
9. techieman said...
Paul "It ultimately failed because consumers didn't want more debt." - Amen!
Are we seeing / will we see a move to that here? Thats the interesting question, if the government tries to reflate by pumping credit into the economy for it to work someone must want to borrow it and consume with those borowings .... er mustnt they?
10. mr g said...
icarus@6 said: "The UK labour market is 'flexible' i.e. people are accepting pay cuts or working shorter hours (and therefore getting paid less). So where is the demand going to come from to fuel the recovery that's supposed to start early next year?"
From public sector employees of course!
That's why Crash is looking after them and creating a "nomenklatura", as in the Soviet Union, with decent pay and pensions.
Just the sort of socialist paradise that this rotten, corrupt and inept prime minister as always admired!!
11. denzil said...
Paul said: "It ultimately failed because consumers didn't want more debt."
I appreciate you reference was to Japan but it would be interesting to know whether you see a similar move here.
My gut feeling is that the debt culture is a feel-good drug like smack to a junkie. Most people know it's bad but simply cannot resist. At present the dealers (lenders) are short on "gear", which has forced the nation into abstinence. Eventually the supply of "gear" will improve but will the nation indulge?
Though there will be many who will remain "clean", I do believe the majority will take what's on offer in both arms and off we will all go again.
12. icarus said...
@9 mr g - yep, the government can stimulate the economy - as long as it can keep borrowing.....against the promise of next year's "recovery".
This is like Darling's song to Brown, ending with the line
But there's a HOLE in my bucket, dear Gordon......
13. last_days_of_disco said...
I think the important thing to remember about these cycles is that they have recoveries all the way to the bottom and dips all the way to the top. The idea that a ten year up cycle can be followed by a one year not so deep recession is just stupid. Anyone who believes that should just put all their money in an envelope and send it to me so that George Soros doesn't get it. I am at least more deserving.
I am confident that those who can keep paying their mortgage will profit out of this. QE is about saving home owners by generating inflation to pay off their debt. No political party is going to destroy their main backers no matter how immoral it is. The UK has a fundamentally different culture to Japan and therefore will not behave the same way. Its about culture not economics. Culture drives economics not the other way around (yes they do interact but ultimately culture wins). Really really.
14. japanese uncle said...
Rothschild Bank NA is currently offering 4.35% IR for two-year fixed term savings bond, meaning IR will skyrocket within a year.
15. voiceofreason said...
JU @14
Doesn't sound like a Japanese lost decade to me. They never had skyrocketing IRs.