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Crash Buyer

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  1. The Japanese government has also taken the gradualist policy option, using economic policy in an attempt to gradually reflate the economy. This is a cultural issue as well as economic - they want to salvage the system they have without destroying it. This has resulted in a long period of slow growth and periodic recessions, but Japanese society has been relatively insulated from adverse effects.

    Contrast that with Anglo-Saxon policy - a form of 'shock therapy'. For example, the Thatcher policy of keeping rates high and raising taxes in the middle of a recession. This destoyed the UK manufacturing base which the Japanese sensibly want to avoid, but it means large fiscal debt as a result.

  2. But surly so has their debt – ie if they were to owe 100% of the property then their debt would have halved and their rent income would probably go up as well

    I agree that in principle higher inflation would reduce their real debt. However, I would argue that the prospect of capital gains is the main attraction for amateur BTLers, so they would regard five years at zero growth as a poor result.

    In practice the recent BTLer (or any mortgage payer) would have to survive increases in repayments resulting from higher rates and inflation in the short term before benefitting from the long term effect of inflation reducing their debt.

  3. 50% just seems to much - a crash would take 5 years – and presumably inflation would push wages up in that time timescale – this happened last crash – house prices don’t have to come down – wages could just go up to make them affordable again – but taking inflation out of the equation halfing the house price does seem about right -

    I agree, 50% seems on the high side, but prices have also risen much more this time (7x rather than 5x earnings in the last boom).

    will it still be a crash if wages were to double?

    If wage and general prices both rise by 100%, but houses effectively stay level in nominal terms (50% drop, then inflated by 100%), most of us won't be complaining. :P

    would the BTL'er have made a bad investment?

    Yes, as their investment has fallen by 50% in real terms (for new BTL). I don't think rises in rent will make up for their desire for massive capital gains.

  4. The most likely election dates are Spring 2009 or 2010. The traditional UK election cycle is four years, if the economy is OK (Thatcher, Blair) or five years if you're in trouble (Callaghan, Major).

    Major is a good yardstick for Brown.

    • Also took over mid-term and resisted calls for an early election.
    • Managed to win unexpectedly in a recession (reduced majority).

    Major won as the alternative was Kinnock.

    Therefore expect the election in 2010 during a recession with the result a clear Tory majority.

    It won't fill up airwaves on 24 hr news channels but this is more likely than an October election.

  5. Yeah, Sky is much better! oh, hang on... well at least it's cheaper! Ah, nevemind.

    Yes, the Rupert Murdoch corporation is much better and excellent value :P

    At least you can cancel it if you want (and I did).

    Get rid of the BBC and you'll miss it. Don't watch it much, but still think it's worth the license fee for Radio and interwebery.

    We don't need to get rid of it, they just need adverts ;)

  6. The BBC always likes to boast about "the unique way it is funded".

    Unique is one way to describe it.

    I remember one ex-BBC jorno who countered these arguments by saying that you still pay for ITV etc indirectly due to the increased costs of goods as a result of advertising. Good argument except for two inconvenient facts.

    1. I can choose to buy most of those goods or not.

    2. At least that system is not regressive.

    A guaranteed source of funding simply results in a bloated civil service culture ignorant of the real world.

  7. muttley: The second option is also restricted by wage inflation (or lack of it). If the inflation target is abandoned and wages go up, companies will either have to raise their prices or get rid of staff. Both of these are bad for the UK economy.

    This is the typical wage-price spiral, which is why this option only works (badly) in the short term. The Fed is having a go, though.

    The other option, raising interest rates, will eventually have to be used (we are already in the early stages of it). A pause in the middle to cut rates will only get the BoE even further behind the curve and will require larger rate increases later on.

  8. If you believe that the UK is about to enter a recession, expect stagflation (rising prices whilst output stagnates or falls). This is what traditionally occurs at this stage of the economic cycle.

    This creates a policy dilemma - either allow a recession by increasing rates to control inflation, or try to prevent a recession by allowing inflation to spiral out of control.

    The second option is restricted by the inflation target. Rates will have to rise to contain CPI (fiddled or not), or the inflation target must be abandoned.

  9. QUOTE: "Rents are rising because people are afraid to buy."

    TRANSLATION: "Landlords want to increase rents because their mortgage payments are rising."

    Asking prices are not the same as market prices. There is still massive over supply of BTL properties in most areas. You don't need to pay over the odds (I mean in rent!).

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