Friday, Jan 29, 2010
Worthwhile reading
FT Alphaville: Could UK money supply collapse post-QE?
Take a look.
Posted by stillthinking @ 11:52 PM (2651 views) Add Comment
22 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. fallingbuzzard said...
You don't say
2. stillthinking said...
I thought this comment was a good one...(in a way of course...)
n a import focused economy, like the UK (or US) trade is "balanced" by exporting Pounds. If nothing was done, this would drop M4, so historically, the UK borrowed the pounds back by international gilt sales. Since that source of Pounds is drying up, they have been "printing" more Pounds, which are then "exported" to pay for imports. Once QE (printing) stops, then Pounds will drain out of the domestic economy producing deflation. If QE continues, then the Pound will be crushed in the FX market as Pounds pile-up overseas, and nobody wants anymore.
Rock, meet hard place.
Balanced trade REALLY IS IMPORTANT!
3. debtfree said...
If QE continues, then the Pound will be crushed in the FX market as Pounds pile-up overseas, and nobody wants anymore.
Yes, a currency event. Complete loss of confidence. Aka 'hyperinflation'
4. fallingbuzzard said...
This is all not far off where I see it. QE might not continue although I still think we'll see £50bn more to get over the election. Even if it doesnt continue, I dont see much strength in the pound and wouldn't buy back until I needed it or saw a policy change.
5. dill said...
May (more than likely) will be a turning point, whatever happens on the QE front between now and then. It will be a relief. At least,then, I can begin to make an informed decision on future choices. I'd recommend anyone to hold fire until the Election is over. There's nothing worse than political expediency to blight the lives of normal folk!
6. rumble said...
2. stillthinking said... I thought this comment was a good one
I think so too. What happens to uk share prices when £ devalues? Is the company's value relative to the currency or detached from it?
7. The Last Bear said...
D`oh !
This is another fine mess you've got us into, Stanley!
[Head scratch]
8. paul said...
That money supply graph should be ringing alarm bells for our central bank.
But all they seem to be concerned about is playing keepy-uppy with the housing market ... ?!
9. alan said...
The messages from the politicians and Mervyn seem to be very protective of house prices these days. This protection being achieved by low BoE rates. If buyers can't afford 4.75% interest, maybe they shouldn't have bought that property anyway?
I reckon a small interest rate rise now will save a potential calamity later. An ordered deflation of the housing bubble would avoid a big pop - especially if we suffer a sovereign debt crisis as a result. I don't think its in anyone's interest to get the IMF into the UK.
10. tenyearstogetmymoneyback said...
stillthinking said "Balanced trade REALLY IS IMPORTANT!"
I've just commented about this on the OP, asking when the last time
was you saw a British Built Police Car.
One thing I remember about the news coverage about the London G20 conference was
a shot of a huge line of Mercedes Police Vans. Angela Merkel must have been so proud.
What is wrong with Ford Transits (made in Southampton). What is really bad is the message
it gives that British Built Vehicles aren't good enough for the Police.
11. tenyearstogetmymoneyback said...
rumble asked "What happens to uk share prices when £ devalues?"
The FTSE will probably go up. Most of the large companies in the FTSE like Vodafone
and HSBC operate all over the world. Quite alot of the companies (like the mining ones) don't really
have anything to do with the UK
12. mountain goat said...
The article seems sensible. It is about a collapse in UK money supply post-QE, not a collapse in GBP. A collapse in UK money supply would probably strengthen GBP.
Although I am not trained in finance it seems clear that the longer term trend has turned to deflation and deleveraging (paying off debt). Despite a brave count-trend rally, stock markets, house prices and commodity prices are lower than in 2007. Yet many people seem convinced of inflation because of government actions! Governments are inefficient and inferior to free markets in the economy (that is why communism collapsed). Governments are experts in getting votes but not on the economy. So why do so many believe governments are capable of over-turning a market trend? As an aside I am confused how a house price crash can be expected in an inflationary environment? I don't think the government are trying to prop up house prices. I remember Merv King expressing concern about the resumption of house price inflation last year. They are trying to fight rampant deleveraging, and as a side-effect house prices are going up. Mainly because people are convinced the government can trash our savings. They rather buy a house fearing their savings will be diluted with IR below CPI. So it is mainly cash rich individuals buying, the banks certainly are lending less. The correction of an over-valued GBP has spooked people too. However, GBP itself was part of the asset bubble that is deflating. It may have further to come down but this is different from a monetary crisis.
QE was a panicky reaction to the crisis, together with nationalising banks.QE was tolerated as an emergency measure to the deleveraging panic last year. What monetary authorities do now will be closely watched. If QE continues as the new normal there will be another crisis, so it will be scaled back. Yes rock and a hard place. As I wrote above I expect the long term trend of deflation and deleveraging to continue, because the credit bubble got out of hand. If it turns to panic again I expect more QE. But it may be orderly as everyone realises we are between a rock and a hard place. Different economic activity will be needed in this environment as issuing and taking on new debt becomes less profitable or possible. I see no reason why the UK cannot be strong at whatever this new profitable economic activity will be. We have a relatively well educated work force and good infrastructure. Talk of GBP collapse, IMF intervention and hyperinflation are premature at best, delusional at worst IMO.
13. flashman said...
mountain goat: That is an extraordinarily good post. You should maybe find an excuse to re-post it in the week when more people will get a chance to see it
14. techieman said...
mg - actually i am waiting to hear the extensive and well supported counter argument from hpwatcher - might be a long wait !
15. dill said...
mountain goat@11
Agreed. Very good summary.
16. stillthinking said...
mg, I think so too. I am not so sure that government intendor are even able to maintain house prices. Keep people in their homes is better viewed as keep people in their debt so they don't have a valid case for bankruptcy. Housing benefit has gone from 12 billion to 20 billion when they need cuts. There has been an announced change to the calculation of housing benefit to exclude the expensive 15% in the sample, proposals for market rates on social housing provision(so sorry Dobson), and also the proposal to rehouse people whose social housing is no longer appropriate i.e. involuntary rehousing from a 3 bedder to a single bedder when the kids have grown up. Plus politicos of both persuasions maintain a frankly suspicious silence on housing, previously offered up as evidence of a healthy economy.
But which one will it be, the rock or the hard place. Its the old issue, deflation or the collapse of the currency in question.
17. mountain goat said...
Thanks. Becoming a dad must have sharpened my mind ;-)
18. freemanphil said...
"That’s a funding gap (customer deposits minus customer loans) equivalent to nearly half of GDP." - And note, the recent improvement was purely via quantitative easing, and this caused further moral hazard, so, the trend continues, accelerated, and at the risk of UK Govt. With no Patriots left, UK Govt will deliver us on a silver platter to the IMF with austerity in public services to maintain payments to the b(w)ankers. Could we see civil war?
19. bellwether said...
MG pretty much nailed it, although as TM says wait for HPW to come roaring but with a well thought out and reasoned conter argument or failing that a reference to the "printing press".
I get where I differ from many on here is the rate that we can switch from a largely debt consumption economy to some sort of new paradigm. We can do it for sure, but it is going to be slower and more painful in my view than many anticipate. Then in a way there is nothing wrong with a level of pain, discipline and hard work. It will help get us as a nation to get our feet back on the ground.
20. bellwether said...
Or put another way consumption got a bit out of hand, and our capacity for delayed gratification withered, a lot in my view. This withered capacity currently shapes our national perspective, and the medias stories about recovery (also incid our ludicrous obsession with house prices - its constant news afterall) , it is has always got to be now or at least very soon. Why can't we work for it and wait for a while?
21. house said...
MG @11, a very good post. I have stated in the past, nothing happens quickly, for house prices to begin to fall again will take be another 6 months or so perhaps after the election. Past personal experience have told me that it takes a lot to break someone's belief in the price of an asset. Perhaps people who are waiting for a price fall should not expect things to happen. It is like bidding on e-bay, if the price goes up to high then move on to another sale. Make an offer on property you may be interested, if it is accepted then fine if not wait for another likely property. It is always about timing ie.being at the right place at the right time. I have found that in the past do not get too disappointed if you do not get the property you liked. There is always something else turns. The problem is most of us do not like the idea of uncertainty.
MG I hope you are right and the country who is part of G20 is not going to thrash the currency. The pound will most definitely go down against other currency especially the dollar. If I remember rightly there was a threat of parity between pound and dollar.
I may have waffled a bit but I apologise for it. I have not commentted on this site for a while but that does not mean that I do not read the useful comments made by various contributors.
22. rumble said...
If markets decide UK isn't giving worthwhile returns, they go elsewhere, abandon GBP, to what degree can repatriated GBP cause inflation?