Gravity's Rainbow

Thanks for the post. It provides a good summary of how the big picture of UK personal debt is panning out. Sadly, the bad debt figures here are still a drop in the bucket compared to the recent vast profits made by the UK banking sector. How many more years of exponential growth in insolvencies before the banks start to feel the pinch? For real life stories of how this is playing out on the ground, The Motley Fool "dealing with debt" board is enlightening. This post took my breath away:

Sorry Laurejon, but too much of what you say is merely just reiterating your preconceived political predjudices rather than engaging in informed debate. You have not raised any serious objections to road pricing other than the fact that Labour is behind it. If Cameron and the Tories came out in favour (as well they might do) what would be your objection? Come up with some original contributions and leave off the crude, misspelt insults.

Letter in the Guardian Friday 5 May: Both Polly Toynbee (Labour MPs at last seem to be ready to ditch Tony Blair, May 2) and Marcel Berlins believe in forcing people to turn out to vote. But as an increasing number of ordinary people cannot afford a place to live, why should they participate in British elections that are dominated by a majority of owner-occupiers that have to be bought off by continual house-price inflation? The political parties are lucky that the under-40s are not rioting in the street, not just supporting economic doomsday cults, such as HousePriceCrash.co.uk, which look forward to the end of the world of expensive property like religious fundamentalists awaiting the Rapture. DBC Reed Northampton

Much ignorant commentary on this thread (but what's new?). As usual It is wise to first familiarise yourself with the proposals before mouthing off. The introduction of road user charging will be "tax neutral", meaning that the tax raised from it will be offset by reducing taxes on vehicle licensing and fuel. There will be lots of winners and losers. The elderly who only take their Nissan Micras out once a week to go shopping will be big winners. Commuters travelling long distances by busy A roads and motorways will be big losers. My beef with the proposals is that someone driving a fuel efficient small car from point A to point B will be charged the same as someone driving a monster 4x4. This can't be right. Much anxiety has been expressed here in the past about the effects of peak oil. If you take peak oil seriously then road user charging has to be a good thing in that it will incentivise more sustainable communities. Finally, the thing about renting is that you can always just move closer to work. Those stuck in negative equity or overpriced houses they can't sell will have no choice but to keep commuting and being bled dry.

The overheated scare-mongering going on in this thread reminds me of similar predictions of the UK's descent into a police state when Thatcher's Criminal Justice Bill was around in the mid 80s. Yet the Bill became law and life went on. Raves didn't stop. Protests against the government weren't outlawed, indeed they intensified (witness the Poll Tax riots two years after the act was passed). Look at much legislation and you fill find alarming clauses. For example, currently licensed drivers are required to notify the DVLA every time they change address or face a £1000 fine. Yet plenty of people never get round to doing it and I have never heard of anyone being pinged for it. The people who complain about the UK being a police state should try living in a real police state like Saudi Arabia, Burma or North Korea. It's simply ludicrous to put the UK on the level of these places. Today's news about criminal gangs running passport factories when taken alongside the home office estimate of 500,000 illegal immigrants in the UK (many of whom gained entry on false documents) show the scale of the problem of identity management in modern Britain. What do you really expect the Government to do?

But the point is there is no certainty of how this is all going to unravel. Despite your prolific posts suggesting that interest rates must rise this year, no one really has a clue. Could anyone have predicted yesterday's inflation figures would have undershot the 2% target? Trawling through the financial commentariat for clues on what King is thinking is as useful as reading the entrails of a dead pigeon. It really is impossible to predict accurately when and which way interest rates will move next. Certainty about one's own powers of analysis will only backfire should things go the opposite way to how you predict. What will happen if the BoE cuts rates later this year? Would your credibility be intact?

Shop around for the largest interest only mortgage you can possibly get and buy quick before prices start rising fast again. Lie on the application form about your income if necessary -- everyone does it these days. House prices double every ten years so before long you'll be quids in. House price inflation is free money, you'd be crazy not to climb on the ladder now and get a piece of the action! Whatever you do don't listen to any of the nutters who talk about prices crashing. OK, they wobbled a bit last year but now they are up and away again, so the doom spreaders have been proven wrong. House prices are just too important for the Government to let fall. We're living in a more or less permanent low interest rate, low inflation, high employment era -- there is just nothing on the horizon that could make prices fall.

I'm sure the reason for this is because there is no more capacity in the prison system. See this story "Overcrowded prisons face 'summer of chaos'" from Monday. It is almost impossible to build new prisons thanks to UK planning laws and the power of the NIMBY brigade. Same goes for locking up asylum seekers -- despite how much the Daily Mail and other right wing papers would like to see them locked up where would these accomodation centres be based? Surely not in middle England's back yard? Government attempts to convert ex-military bases in Gosport and Bicester have failed thanks to the power of local lobby groups and protracted, expensive legal action in the courts. Given the hysterical nature of the British press it is impossible to have a grown up debate about these issues. The simple fact is if we want to lock more burglers up we will have to build more prisons and pay more tax.

penthouse apartment = loft conversion That's one I haven't seen before!

Hear Hear, at last some one is standing up to the perpetual moaners in the Daily Mail-style "we're all going to the dogs" faction that has taken over HPC. Anybody who thinks we would have been spared rampant house price inflation under the Tories is being willfully naive. The irrational exuberance of today's housing market is a global phenomenon that has occurred in countries with governments of all political colours. Whining about Gordon Brown gets us no where further down the road of analysis or solutions, because things WOULDN'T BE DIFFERENT UNDER ANY OTHER CHANCELLOR. The Lab/Con/Lib-Dem political establishment is signed-up to a low inflation, low interest rate economy with a deregulated financial sector. This model has produced record HPI and has left many of us priced out. Since home owners are the core swing voters in marginal seats, Politicians of all stripes have NO SOLUTIONS for priced-out FTBs beyond the posturing of the sort that Michael Gove is indulging in with Kirsty. In fact the Tories are the worst of the lot, because at the local level they are ones most opposed to addressing the supply side causes of this by building more houses. The faith that many people have in the Tories on here amuses me in its childish wishful thinking. Sorry, you guys really must wake up and smell the coffee, David Cameron's Conservatives will not save your sorry butts anymore than Labour will.

If life is so good on benefits why isn't everyone claiming them? If the middle classes are so oppressed by Labour why don't they just all go on the sick and get council houses and live off the state? Perhaps because life on benefits isn't as rosy as all that after all...

So we are in favour of increasing productivity in the public sector, but we are against targets? The whole point of the target culture in the public sector is to measure and increase productivity. Clearly it is not working, but I've yet to hear any better suggestions.

Why don't you just piss off then and make some space for someone who actually wants to live here? I've lived in a few countries and the UK has got a lot going for it. The worst thing about the place is so many of its citizens love nothing more than to moan.

Quite right. As one poster once wrote about the Irish Property Market, "the top has been called so often now that nobody believes it will ever crash". Compare that comment with this quote from a great Larry Elliot piece on this year's World Economic Forum in Davos: http://business.guardian.co.uk/story/0,,1697724,00.html Larry Summers, a former US treasury secretary, injected a note of caution on Saturday. If you've been waiting for a bus for a long time, he said, and one hadn't arrived, there were two possible explanations. One was that the buses were not running; the other was that the buses would all arrive together. The period of maximum risk, said Summers, was not the moment of maximum alarm, but the time when the maximum alarm had passed. "That's when complacency sets in," he commented.

I live in the south-east/M4 technology corridor. Going by the local newspaper's jobs section there are plenty of jobs vacant, many of them for unskilled workers. Wages aren't too bad either. For instance, warehouse workers seem to start on 18K a year, which is about 4K more than similar jobs I saw being advertised in East Anglia a few weeks back. I doubt that rates of unionisation are better down here. Wages are better because the cost of living is so much higher. Firms have to offer decent money to get good workers. High staff turnover costs companies money, and as the cost of living goes up the pressure on wages to rise also increases. I have no doubt that the massive increase in housing costs over the last few years will lead to big recruitment problems for UK businesses, especially for skilled and semi-skilled workers in the service sector. This is already in evidence in the public sector in the south. I forsee a large chunk of UK graduates finding themselves saddled with debts and priced out of the housing market deciding to emigrate for a better standard of living. A migratory outflow of sufficient scale would lead to skills shortages in the UK and cause rapid wage inflation. Wage inflation is one way that the imbalances in the wider economy caused by huge HPI will work itself out.

Tracking job losses is a not that useful unless you also track job creation and vacancies as well. Is there any data on the state of hiring in the economy? In my local newspaper the job vacancies section seems as large as it ever has been, and almost all of the positions advertised are in the private sector. However, I am in the south east/M4 technology corridor where employment is traditionally very strong. It may be a different story up north.

I can't abide the patronising moralism that always breaks out when the topic of bankruptcy crops up here. Who cares if someone runs up huge debt then goes belly up, how does it affect you? After all: The bankrupt's spending beyond their means has helped the economy grow The banks might take a hit, but with their massive profits it's not like they can't afford it Making bankruptcy an easier option can only encourage more responsible lending the ability to make a "fresh start" encourages entrepreneurship and risk taking. If your business idea goes belly up you can always pick yourself up and start again. Just remember: as long as an endless supply of free and easy credit remains the foundation stone of the gravity-defying economic wonderland we live in, bankruptcies will abound.

I don't see how you can argue that the closure of this factory is a case for less regulation. Many multinational manufacturers shed jobs in their British plants first because the UK is the cheapest place in Europe to lay off workers. Advocates of deregulated capitalism should look across to Europe where you can see healthy manufacturing sectors in Germany, France and Italy alongside high levels of regulation compared to the UK. A futher factor in closures of this sort is the UK's non-membership of the Euro. Given today's tight profit margins most big players want to eliminate currency risk from the equation, so why operate in non Euro areas when there are so many good places to invest in new plant in the Eurozone? My point is that every time a factory closes we hear the same tired old farts' chorus of Daily Mail-style moaning about British decline followed by the inevitable conclusion that only a dose reheated Thatcherist economics can save us. Spare me please.

But what do you expect the VIs to say? "Get your money out now, the whole house of cards is about to fall over!" It is interesting that most are retreading the same arguments for unending growth they were a year ago, e.g. the fundamentals are sound, employment and the general economy is healthy, etc. These statements are beginning to sound at odds with reality, not just to HPCers but also, I suspect, to the man in the street. I thought Stansfield was fairly balanced: And Springett wasn't bad either: Also interesting was the comment by Barret CEO David Pretty It appears they are looking to developments funding by public spending to drive growth as the private sector continues to weaken.

If I had a pound for every time I have heard the words "there won't be house price crash, because the Government won't let it happen" I would be a rich man. Many people who otherwise think Governments should stay out of economic intervention display a touching faith in its ability to stop a housing bubble popping. What doesn't occur to anyone is that unaffordable housing is a political risk to the government too. Higher house prices mean higher public sector wage demands. And a generation excluded from house ownership is not likely to vote for the governing party either.

House prices expected to start rising again soon? Excellent, that will put the mockers on an interest rate cut!

The high income multiples we have seen over the last few years only make sense in a low interest rate environment where repayments remain relatively affordable even if large sums are borrowed. Once inflation rears its head again interest rates will have to rise and the 6x + income multiples of the last few years will appear irresponsible. Lenders will retreat back to the 3.5x income rule of thumb that has served them so well in the past. The biggest mistake many players in the market are making (including lenders) is thinking that the low inflation, low interest rate environment of the last few years is now a permanent scenario for the UK economy. With the commodity and oil price rises of the last 18 mths only a fool would predict that inflation is not going to rise in the medium term. I doubt many of the homeowners leveraged to the eyeballs with IO mortgages have factored in this risk.

Savings? How unfashionable Seriously, I think the government will soon come to realise that one of the few ways it can deflate the huge consumer debt bubble is by tolerating more inflation in the economy and thus eroding the real value of the debt mountain. Oil prices will be the excuse, the policymakers will claim there is no point in raising UK interest rates to attempt to control imported inflation. Wages may not rise quite as fast as inflation but in areas of high employment such as the south of England, employers will have to match inflation to keep their workers. By this stage the inflation genie will be out of the bottle, and they will be confident of passing their increased labour costs on to their customers. Cue the inflation spiral effect. For those not on the property ladder, inflation is a good thing as long as house prices are static.

I'm not too worried about inflation: Raging inflation + static housing market = falling house prices in real terms Give it a few years and we'll be back to the 3.5 average income multiple that is the underlying trend.

Your colleague is just the tip of a massive submerged iceberg. At least he has the good sense to realise that he is better off getting out of the housing market while he still can. There are many thousands of others hanging on by their fingernails, every month sinking further into debt...