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House Price Crash Forum


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Everything posted by Dorkins

  1. I am in my mid 20s and used to get all worked up about this too, but now that house prices are falling, why worry? I feel bad for any young person foolish enough to pay anything more than 2007-50% over the next few years, because they as individuals will be boosting an older person's retirement pot. Just be smart and don't make the same mistake yourself. The fact that you are on this site suggests that you won't. P.S. I would be careful about overstretching based on predictions of your partner's future wage. Just as income inequality went through the roof in the 1920s, it came back down again during the Great Depression. I think the same thing will happen with this depression, where people in jobs which underwent massive salary inflation relative to the rest of the population in the 90s and 00s (financiers, lawyers, doctors, high level management in general) will slowly come back towards the median wage. Not trying to be mean about your personal situation, just my hunch about the future labour market.
  2. Wage inflation in the last 30 years has been very low compared to economic growth and has been virtually wiped out recently by high rents/property prices. I think this trend needs to be reversed for things to stabilise (i.e. real wages need to increase relative to the size of the economy). All those businesses wondering why consumers have stopped buying their products: it's because the wages you pay your staff are too low and your prices are too high. Consumers are wage-earning staff. Until wages rise relative to prices, demand will stay low and businesses will struggle to shift stock.
  3. I suspect that quite a few of the oldies are not as rich as they think/tell people they are. We are going through a period of wealth destruction in property and equities (and maybe cash too if we get high inflation), and whose wealth is being destroyed? It's not people in their mid-20s, we have nothing to lose but our student debts.
  4. Agreed, it's all about the total price you end up paying and what you actually own at the end of it. I think a major attraction of part-buy schemes is psychological pricing. It looks nicer to potential buyers to see a flat with a big red £125k sticker on it than a £250k sticker, and the fact that you are only buying half the flat and paying rent forever on the other half is buried under the emotional decision that has already been made.
  5. P.S. The high inflation scenario completely screws the banks by massively reducing the future value of income from mortgages. Added bonus!
  6. I think this is the intended point of the story, and while it may be true that some financial institutions are in the situation where Bank A owes Bank B who owes Bank C who owes Bank A, this isn't the main kind of debt problem we have. It's more like the rich tourist paid his life savings into the bank for a rainy day, the bank "invested" the money with a snake oil salesman who came through town but shortly after it received a letter from him saying he is very sick and will not be able to come back with the profits for a while, the bank is unable to give money back to tourist and is technically insolvent, the tourist has lost his life savings so the mayor steps in and promises to make good on the tourist's occasional withdrawals while everybody waits for the snake oil salesman's recovereh, the mayor has to borrow money from the old prospector who lives up on the hill as well as his cousin in China because town hall finances don't stretch that far. Pretty soon the old prospector and the Chinese cousin get worried that nobody has the money to pay them back and refuse to lend any more unless the mayor pays them high interest rates. The mayor has to raise taxes to pay the interest and clear the loan and the town is poor for a generation, though eventually it does manage to pay the tourist back his life savings and clear the debt with the old prospector and the mayor's Chinese cousin. Meanwhile the banker continues to pay himself a handsome salary through an overseas subsidiary which is not subject to tax. ALTERNATIVE SCENARIO 1: The mayor refuses to honour the bank's debts and it collapses. The tourist and most of the townspeople lose their life savings, creating severe hardship and discouraging saving in banks in general, making it difficult for people to save for old age or for local businessman to obtain loans for new business schemes. The town is poor for a generation. ALTERNATIVE SCENARIO 2: Rather than raise taxes to repay the town's debts, the mayor decides that the town is itself insolvent and is not going to honour them. The town loses face, and the default causes hardship for the old prospector and the Chinese cousin. Outsiders later refuse to lend money to the town when it wants to build a new schoolhouse, so the townspeople have to make do with the old one while the mayor raises taxes to save money for years so he can buy the schoolhouse with cash. The town is poor for a generation. ALTERNATIVE SCENARIO 3: The mayor hires a local bandit to issue some perfect counterfeit notes, and uses these to pay back the Chinese cousin and the old prospector. However, the Chinese cousin and the old geezer use the money to buy bacon from the town's butcher, causing the price of bacon to triple. The old prospector and the Chinese cousin are unhappy that the new high price of bacon means they are able to buy less bacon than if they had ever lent the money in the first place. The sudden high price of bacon causes some food shortages in the town and it is a number of years before bacon becomes affordable again. Take your pick! Personally I prefer alternative scenario 3, the pain is shared and the lenders learn a valuable lesson about looking before you leap. However, the real moral of the story is: keep an eye on your bankers and make sure they are not lending all the money to snake oil salesman.
  7. Funny how right wing analogies are usually based on war/fighting to the death/struggling to survive. Honestly guys, life doesn't need to be so hard, maybe you should go for a walk or have a cuppa.
  8. £125bn in QE and City banks are getting ready to pay out tens of billions in salaries and bonuses this year. Coincidence? The banks have no individual incentive to reform, only governments can force them to come clean about what's on their books so the cancelling of debts owed by A to B , B to C, and C to A as in the story can proceed (and reveal what the real value/debt at the core is) but nobody seems interested or up to the job. Obama is pushing healthcare, Brown is dead in the water, Japan has had the same problem for decades.
  9. Well, more fool whoever is taking dollars and sterling from the Chinese right now. Probably the best thing for rebalancing the global economy would be if they spent them buying goods from the USA and UK. I guess eventually that currency will make its way home anyway though, and we will have to pay for it by exporting real goods and services and receive only our own worthless paper in return. Being a net exporter is actually not that much fun, Britain did it post-WWII in the austerity years to repay the war debt. You're basically working for the rest of the world for free (or in return for promises of repayment one day in the far, far future).
  10. This is a global economic crisis, and Planet Earth is an internally financed system. Probably
  11. This only works if every individual is holding the same amount in savings (money they are owed by others) as they hold in debts (money they owe others). In reality we have some people who have net savings (older people with pensions and cash in the bank, sovereign wealth funds, creditor nations like China and Japan) and some people who have net debts (younger people with student loans, those with personal loans/credit cards/negative equity, debtor nations like the UK and USA). The huge question is: what is the real price that net debtors are going to have to pay to net savers to repay the loans? This is going to be a real transfer of wealth/future income. I think the general consensus is that the debtors have promised to pay more than they can realistically afford, which means the real value of the debt (=the real value of savings) is going to have to fall. This can be done the messy way, with individual bankruptcies and defaults, or it can be done the smooth way, with high inflation which devalues the currency in which debts are denominated and reduces the real value of all debts. Right now, high inflation would probably be a good thing overall. Long live QE.
  12. It doesn't seem like a great bill anyway, America already spends too much on healthcare as it is. The system needs reorganising to become more efficient (and equitable along the lines of the NHS), not more money throwing at it. Not that we didn't overspend on the NHS in recent years, mind.
  13. I suddenly have an urge to buy a 50% share in a block of flats called something+wharf/bridge/gate
  14. I think it might be fool's gold, this idea that governments should try to dampen the economy during booms and stimulate during busts, so that an idealised economy would keep ticking over at some steady 1.5%pa growth rate forever... Enthusiasm/cynicism, optimism/pessimism, fashion/contrarianism, these are important dualities at the heart of being human. The bad times are necessary as they give society a chance to cut out the dead wood (though admittedly some healthy wood is lost too) and create a breathing space for new growth in the future, and the good times are necessary as they give fledgling ideas a chance to get going in an unusually gentle environment (though this will also give stupid people and ideas a chance to temporarily take hold too). I wonder if it wouldn't be better to see economic cycles not as a regrettable evil, but rather as the natural path of real economic growth. Although it might also be nice if politicians didn't interfere to make cycles worse than they need to be!
  15. Sounds like a good time to STR, if you can be bothered with the hassle.
  16. For me and almost all of my friends (mid 20s) it doesn't really matter who gets it or not. Fact is, we just can't afford to buy at these silly prices on normal (i.e. non-banker) wages. Yes there are a few idiots about who can tap their parents for massive deposits (guaranteed source of future Christmas Day rows) and are willing to sign up to leaden mortgages which will require them and their other halves to work full time every day for the next 25 years and leave little disposable income for, you know, living. However, most of us don't have the 'blessing' of relatives keen to wave us off on the coming 20 year voyage of HMS Negative Equity and will keep renting. One of the nice things about HPC is knowing that the renting years are not going to last forever. I know many young people who had more or less given up on ever owning a family home. They are going to be pleasantly surprised.
  17. Hell, let's make it a round quadrillion dollars. How much those dollars will actually be worth... Oops, did I just give the game away? Shhh, the Chinese might be listening!
  18. Ta very much for the graph FreeTrader, it's really good to see. Looking at the rate of increase it seems that 1914 to mid 1921 was a more 'normal' time where the price index and monetary base more or less kept pace with one another (except for some lagging around the end of the war - price controls?), so during this time the rate of inflation was equal to the rate of increase in the monetary base. However, the rate of inflation was about 40%pa! It's only after mid 1921 that everything really goes haywire, and what's weird is that hyperinflation of prices actually comes before the lunatic rise in the money supply. I guess that's due to (self-fulfilling) inflationary expectations. So it took 7 years of very high inflation and monetary expansion before faith in the future value of the currency snapped completely. I just wonder how comparable this is to the UK in 2009, where we have a fairly long record of low inflation (though I don't know what the trend growth rates in the monetary base or broad money supply are), a deflationary environment in the real economy, and have only been printing for a few months. I'm not saying the goons at the top couldn't destroy sterling if they really put their backs into it, I just think it's premature to say it's either 1- already broken or 2- definitely going to break because QE will continue at a crazy rate for too long.
  19. Okay, to be less glib: Yes I'm sure QE is inflationary, but the deflationary pressures we have right now are immense. Consumer demand has collapsed, borrowing has collapsed and saving is up, incomes are falling. The BoE is in a marvellous situation for arbitrage in this situation, and the money they are making is not from some imaginary fountain of wealth, it is being taken from savers through future inflation. My feeling is that this inflation will be quite a long way in the future since banks are just sitting on the cash and might barely be noticed amidst the deflationary sh1tstorm. It's easy to say "printy printy = Weimar", but what we really need is some hard data. By how much did the monetary base expand in the Weimar Republic, and over what period of time? Unfortunately I don't have this data, but it would help us to understand whether our central bankers really are sloshing gallons of petrol around the house right now or just arsing around with a wet barbeque out back.
  20. I love the smell of a gold thread in the morning, smells like tin foil.
  21. In a perfect market, profits should tend to zero as firms undercut each other and get closer to providing services at cost. The cost of providing most financial transactions (i.e. boring non-magical ones like loans) should really be quite low with modern IT. As mirage says, the huge profits that have been reaped from financial services have been caused by massive market inefficiencies, especially informational problems. Now that people have started to realise that the 1997-2007 bubble was all a ridiculous fantasy it's time to stop handing over real taxpayer money, let the market work, and let these firms fight to survive by slashing wages etc.
  22. Repossessing and selling 2007 properties for much less than the mortgage cost them to provide is not really going to be 'light at the end of the tunnel', it's going to be 'holy cr4p we lost a lot of money ow that hurts'. This is going to hurt governments, banks, and recent buyers (though at least the latter will be one step closer to freedom from eternal wage slavery). It's in a lot of powerful people's short term interests to put off the pain as long as possible.
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