Monday, Feb 08, 2010
Economy in Tatters ( J Davies )
Bbc radio 2: Credit Rating
Johnathan Davies speaks to Jeremy Vine about the state of the economy (on air @ 1.47)
Posted by happy mondays @ 04:28 PM (1442 views) Add Comment
26 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. enuii said...
Richrard Murphy director of Tax Research UK (who over they are and their clients) is an interesting follow up to JD in his extreme opposite view (pension companies are begging for more government debt).
Opinions below please!
2. str 2007 said...
Worth a listen.
JD undeterred against what will probably happen.
And that is keeping interest rates low and letting inflation rip (even if they do fudge the figures to show it isn't).
The massive bailout & low interest rates seems to have turned things and I can't help wondering if approaching the next 2-5 year period you'd be better off cashing in your savings for some debt.
IE buying a house.
Let's face it, you need one and if you don't have your own you'll need to rent someone elses.
3. neo-serf said...
J Davies - Correct - bang on.
Richard Murphy - words fail me. You are exactly the reason UK PLC is in this almighty mess.
Listen to the difference in the two voices one is stating the truth gently the other is rambing, shaky, inentelligible and desperate.
Notice the people who got us here are starting to crumble.
G Brown on Saturday A Campbell on Sunday this bafoon today. You guys can run but....
4. str 2007 said...
Sorry neo-surf, I miised that
What did GB say on Saturday & A Campell say on Sunday?
5. Nuskabud said...
Yep ... I heard the Jeremy Vine interview.... neo -surf is bang on.... Richard Murphy's voice depicted a man who has spent too much time reading text books and little else.... he had no conviction, just fear and anger... I've been on his site and left an opinion on his performance....
6. hpwatcher said...
Richard Murphy - words fail me. You are exactly the reason UK PLC is in this almighty mess
The problem is that Murphy is a Kenysian, and this seems to be the dominant type of thinking at the moment....everybody is at it. Until Kenysian economics can be discredited in a major way, we are simply going to get more spending and more artificially low interest rates.
The problem is that it makes a very big assumption...that is, that the underlying economy is sound - which in my view it isn't. The problem is that the basic economy is very sick from years & years of low interest rates, high borrowing and more importantly, the free market has been unable to assert itself.
Start planning for the worst, those in charge are simply unable to accept that there is anything wrong..
7. quiet guy said...
I don't think I've heard such sharply differing views about economics before on mainstream media. My observations:
- JD comparing Greece with the UK left him vulnerable to appearing over the top. Rightly or wrongly, I suspect that many listeners might have been put off by the comparison.
- JD predicts £200bn deficit spending for every year from 2010 to 2013.
- Murphy thinks that more government debt is good because we will be forced to pay higher interest rates on gilts to pension funds?!
- Murphy actually said "you clearly do not understand Keynesian economics ..." and made his case that we have to spend our way out of the crisis.
Unfortunately, I don't think JD really landed an blows on Murphy. I'd love to see Murphy have to debate economics with Schiff.
Also, Murphy has a blog here: http://www.taxresearch.org.uk/Blog/author/admin/
8. hpwatcher said...
Unfortunately, I don't think JD really landed an blows on Murphy. I'd love to see Murphy have to debate economics with Schiff.
Yes, it was a slightly weak performance...though I definitely agree with JD's sentiment. I think Schiff would have mashed him.
9. str 2007 said...
The trouble is what will the politicians do, listen to Murphy or JD.
hpwatcher - you say prepare for the worst - to a degree I agree with you.
However, what do you consider to be a prudent move in preparing for the worst.
My gut feeling is now to do something with cash because I think there's a real chance savings will be obliterated in the rush to reduce debt with low interest rates and more printing.
Murphy BTW contradicts himself I feel suggesting higher levels of debt and higher interest rates.
How does he think these 2 things will work together ?
10. braindeed said...
2. str 2007 said...
Let's face it, you need one and if you don't have your own you'll need to rent someone elses.
Looking that way ....make sure you can afford it....enjoy
11. hpwatcher said...
hpwatcher - you say prepare for the worst - to a degree I agree with you.
However, what do you consider to be a prudent move in preparing for the worst.
I guess the key word is diversification. I am keen on metals, but also hold a number of currencies.
12. techieman said...
str 2007 - http://www.elliottwave.com/freeupdates/archives/2009/07/24/Everything-Rises-and-Falls-Together-in-All-the-Same-Markets-Index.aspx
That might help.
13. icarus said...
Let's try to square this circle. Keynes was concerned that as incomes rose people would save more and spend less. This drop in demand would cause a downward spiral unless the government stepped in and undertook the required spending and job creation. If enough is spent there is a circular flow in which workers earn enough to buy the goods and services they produce and employers make enough profit to undertake sufficient investment to make all this possible. Too much saving and too little spending and investing was the danger, and government spending / job creation was the stabiliser to avoid this danger.
The problem we face now, however, is not too much saving but too much debt. The thing that prevents the circular flow that sees wages and profits spent, respectively, on consumption and investment is something Keynes did not fully take into account - the financialisation of the economy that sees wages and profits siphoned off to the top of the pyramid. The new circular flow is between banks and their customers, between lending and debt repayment. The top 10% do the saving in order to lend it to the bottom 90%. Consumption is falling not because the majority of people are saving but because they are going into debt, especially to buy houses
The main reason for this now is government policy to inflate asset prices - property, shares and bonds. Bernanke, the "expert" on the Great Depression, thinks the prime aim is to avoid the problem of lack of liquidity caused by low prices and a subsequent deflationary spiral. But he doesn't think this problem is caused by lack of spending by workers on what they produce. He thinks it's caused by falling asset prices. In his world buoyant asset prices provide collateral for bank loans, i.e., the credit which will get the economy going again. But because all this means that people have to go into serious debt to have a house to live in it means they can't spend enough on goods and services to keep the economy afloat.
And when the debt gets too much and the economy crashes the only "Keynesian" policy he can produce is bank bailouts which, together with asset price inflation, is designed to maintain the circular flow of lending and debt repayment, which siphons off critical amounts of the of the real economy's circular flow of wages spent on goods and services. Bernanke's (and of course Brown / Badger / King's) answer works - rising asset prices leads to a wealth effect, to credit/debt and to spending - until just before the crash.
14. techieman said...
http://www.cnbc.com/id/35086130 - and that might also help.... or to be fair.... it might not.
icarus.... circle squared! However Keynes also suggested that even if one person dug a hole and another filled it, then as you paid em both this plus the multiplier would create aggregate demand, and take economies out of depression. So yes deficit spending BUT in times of surplus you repay that money that you have borrowed. [you don't fritter it away]. In any case when this was introduced enough of the debt had been destroyed and we were at a point where we couldn't get much lower. That doesn't sound like where we are now, deficit spending wont work if people dont want to borrow until we are at the bottom of the cycle. If it was going to work it would have done by now, GDP would be growing at a substantial rate and there would be no fear of the double dip.
Perhaps it will work, but its currently a poor return for the amount invested. If they can stave off the deflation until such time as the confidence returns, (and some would argue thats already happened) then you have got to hand it to them, they have basically bastardised Keynes but made it work... but it looks like a bit of string pushing from where i sit.
I think whoever takes charge there will be a WTF moment. Thats when the electorate will realise they (the politicians - whatever colour) have thrown vast amount of money at this thing and yet it hasnt worked... thats when things might get really nasty.
15. techieman said...
This might be of interest: http://www.progress.org/2009/keynes.htm
16. techieman said...
or even: "Japan's Keynesian Flop"
http://www.j-bradford-delong.net/economists/keynes_wsj.html
17. str 2007 said...
braindeed
I'll need to afford to pay someones rent aswell. Having said that I've just renewed my rent for another year today, so I haven't lost the faith completely. Mind you, at an increase of £15 per month rent is going in the opposite direction to mortgages which are 1/2 the price they were 5 years ago.
hpwatcher
Although I have a bullionvault account my monies in cash there not metal as to be honest I'm just not convinced with the metal thing. When I say convinced, for me it would be a risky stratergy to hold enough in metal to make a difference, if indeed it went in my direction. But if it didn't, and metals move quickly, it could really hurt.
We've got a few Euros, as we are l;ikely to use them as some point no matter what happens.
As for any other currencies $ for example, not having any intention of going to the US it seemed to me not alot of point in holding them, as there is no intention to visit - should things of gone against that strategy.
What I need is a big useful machine that I can sublet out for 10 times the price it costs me. LOL.
Techieman.
Unfortunately your 1st link seems to have an address change now applied to it so didn't lead me to the article.
But I enjoyed the Pretcher interview on CNBC. Thanks. (At least he agrees with me on Gold).
Thanks all. Will continue to ponder.
18. happy mondays said...
str 2007
The massive bailout & low interest rates seems to have turned things and I can't help wondering if approaching the next 2-5 year period you'd be better off cashing in your savings for some debt.
IE buying a house.
NOooooooooooooooooooooooooooooo ! It does not matter if mortgages are lower now than 5 yrs ago, we are having to buy a HOME at extortionate rates, obscene, insane, disgusting , p*ss take in fact.. I personally could not bear the fact that i had to succumb to bow down to this fast.. This is injustice, not market forces keeping house prices criminally high..
19. str 2007 said...
happy mondays
I fully agree they're overpriced and don't like it anymore than you. But just because they're overpriced now doesn't mean they can't be made to be MORE overpriced.
If the average homeowner refused to sell for anything less than 2007 rates over the last 2 years. Now they've seen the bubble re-inflate so quickly, there's no way they'll sell at a lower figure now.
You just have to read all the commentry to realise everyone in charge of the mechanism has their own vested interest and is doing ALL possible to keep the bubble inflated. Generally under the guise that if they let it deflate it would uncover all the bad loans and debt.
They're not letting the tide go out.
Wether or not this can be maintained remains to be seen.
20. Hp Sceptic said...
Don't lose hope!
I see a strong contrarian signal in the fact that certain housing bears are preparing to capitulate and buy a house. For a reality check, read this piece from Prechter:
http://economictimes.indiatimes.com/news/international-business/Next-bear-market-phase-starting-Prechter/articleshow/5500592.cms
21. luckyjim said...
Jonathan Davies (aka Private Fraser) clearly doesn't understand economics (Keynsian or otherwise) and his judgement is clouded by a desperate desire to be proven right. He has even lied about his previous predictions to avoid looking foolish.
You have to remember he is a Financial Advisor - a profession that deserves about as much respect as Estate Agents.
22. icarus said...
techieman 13. Digging holes and filling them in again would probably pay little more than the benefits people get for being unemployed. The real problem, as I said, is the dominance of finance capital over industrial capital and the critical reduction in the industrial circular flow that Keynesian policies won't cure - partly because any funding that would go to infrastructure projects (I'm leaving aside any discussion of if and how they might work) goes instead to bailing out creditors (sometimes in the guise of bailing out debtors) to the point where there's a sovereign debt crisis and raising taxes would reduce demand further.
23. hpsceptic said...
str 2007.
You're sentiment is a strong contrary signal. At this time more than any other, it is important to examine your convictions. Perhaps this article quoting Prechter will help:
http://economictimes.indiatimes.com/news/international-business/Next-bear-market-phase-starting-Prechter/articleshow/5500592.cms
24. hpsceptic said...
Remember that the bubble contains the seeds of its own demise. The longer it persists, the more painful it will be.
House prices at 7-9 times median income cannot last. Who are the Greater Fools?
25. str 2007 said...
hpsceptic
Thanks, techieman posted the interview earlier.
I still can't help thinking that the powers that be will attempt to inflat the problem away, whch will be a further blow to savers.
26. luckyjim said...
str 2007
Inflation is Keynes's achiles heal. I think the government has already relaxed its inflation target but obviously can't say so before the election. I have said this many times but inflation is the most politically acceptable way of making us all a little bit poorer. And we are all going to be a little bit poorer one way or another.
Inflation getting out of the control is the worst case scenario and, in my view, quite likely. It's not a disater though. Whichever way you think things will go it is possible to position yourself to benefit.