Jump to content
House Price Crash Forum

blue skies

  • Posts

  • Joined

  • Last visited

Posts posted by blue skies

  1. Time’s Person of the Year Drives the Crisis Spiral

    by Claus Vogt 12-23-09

    Claus Vogt

    Fed President Ben Bernanke has been named Time magazine’s Person of the Year for 2009. However, in looking back at former People of the Year it becomes crystal clear that this title doesn’t necessarily mean that the honored person has done something good for the world …

    It only meant that he or she had made a big influence on the course of history during the preceding year. Some have brought us blessings, while others have brought plagues.

    And this year it surely seems that Time’s journalists think of Bernanke as a blessing for the world.

    Well, I have to strongly disagree …

    It Didn’t Work in Zimbabwe,

    And it Won’t Work in the U.S.

    It’s really surprising how acclaimed a monetary politician can become nowadays by doing just one thing: Printing money like there’s no tomorrow.

    Yet it didn’t come to pass for Leonard Tsumba and Osborne Gono, respectively the former and the current Governors of the Reserve Bank of Zimbabwe. So they may very well feel snubbed by Time’s choice for Person of the Year.

    You see, both central bank chiefs were printing boatloads of money long before Bernanke ordered the helicopters into overtime.

    If you stop looking for a job, you’re not considered unemployed in the official data .

    Zimbabweans have felt the pain of irresponsible monetary policies.

    And under their policies, prices for basic necessities were doubling as fast as every 24.7 hours!

    Then this past January, with inflation running at 500 billion percent, the Zimbabwe government ditched their dollar in favor of various currencies such as the U.S. dollar, South African rand, sterling and Botswana pula.

    Consequently, the government hasn’t been able to attract any budgetary support because donors distrust Zimbabwe’s central bank.

    Only a few months ago Mr. Gono was interviewed by Newsweek. And I think one his answers should have been given much more media attention than it received. Read it for yourself and see what I mean:

    Newsweek: “Your critics blame your monetary policies for Zimbabwe’s economic problems.”

    Gono: “I’ve been condemned by traditional economists who said that printing money is responsible for inflation. Out of the necessity to exist, to ensure my people survive, I had to find myself printing money. I found myself doing extraordinary things that aren’t in the textbooks.

    “Then the IMF asked the U.S. to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not.

    “I decided that God had been on my side and had come to vindicate me.”

    At least Mr. Gono is fully aware of the similarities of his and Mr. Bernanke’s monetary policies. So maybe, just maybe, the same reckless policies will yield the same hyperinflationary results!

    We’ll soon find out.

    What’s more, we have the undeniable conclusion that …

    The Great Recession is the Result

    Of Unsound Monetary and Fiscal Policy

    By now there is the widely held consensus that the crisis of the last two years is the result of a burst real estate bubble. Even the economists who didn’t see it coming and who had no clue about the bubble and its unavoidable aftermath have finally come to this conclusion.

    If you stop looking for a job, you’re not considered unemployed in the official data .

    The central bank is responsible for monetary growth.

    But here their analysis and their economic curiosity stop. It’s hard to believe, but mainstream economists do not even raise the obvious question about what caused this huge bubble. They don’t seem to be interested in truth and cognizance.

    That’s very sad … because the answer to this question gives us very important insights into what I call the “Crisis Spiral” or the “Inflation Trap.” And it’s theoretically well founded and empirically well documented by financial history. Here it is:

    The necessary condition for the development of speculative bubbles is superabundant money and credit growth.

    Of course you know who is ultimately responsible for money and credit growth: The central bank, that is Mr. Bernanke himself.

    After all, the central bank laid the necessary groundwork for this huge bubble to develop. Hence, the central bank is also responsible for the devastating outcome of the unavoidable bursting of this bubble.

  2. WESTPAC CEO Gail Kelly is cashed up for Christmas, capping off a turbulent month by selling more than $7 million worth of shares.

    But, despite the move believed to be triggered by a desire to clear some debt, the highly paid bank boss is far from crying poor.

    She still has shares in her own bank worth a whopping $32 million.

    The bank yesterday revealed the huge share sale in which Mrs Kelly dumped 300,000 shares in the bank.

    Westpac told the stock market that Mrs Kelly had sold the shares "as part of the management of her personal financial affairs". It is believed that Mrs Kelly will use proceeds from the monster share sale to clear some of her debts, which include a margin loan from the Commonwealth Bank.

  3. Osborne warns over debt crisis

    (UKPA) – 4 hours ago

    Britain is at risk of following Greece with rising interest rates and soaring debt repayments, Shadow Chancellor George Osborne has warned.

    Mr Osborne said the Pre-Budget Report (PBR) published earlier this month by Chancellor Alistair Darling was "playing with economic fire" by failing to produce a credible plan to tackle the national debt.

    In an article for the Daily Telegraph, Mr Osborne said only the election of a Conservative government would avert a crisis for Britain in the wake of Labour's alleged mismanagement of the economy.

    He warned that investors were already demanding higher interest rates on the national debt.

    "The people of Greece know what happens when the world loses confidence in your ability to pay your bills," he wrote.

    "It's costing them an additional 2.5% on the interest rates they are paying to borrow."

    If Britain follows Greece, he said, the interest bill on a £150,000 mortgage could go up by more than £200 a month.

    His remarks come after Mr Darling revealed in the PBR that borrowing will hit £178 billion this year, higher than the £175 billion forecast in April's Budget.

    The Chancellor has insisted that he would halve the deficit over the next four years in an "orderly way" which would not threaten the recovery.

    Speaking in Delhi, Business Secretary Lord Mandelson said: "I have been speaking to dozens of business leaders in Bangalore and Delhi since arriving in India last Friday, explaining that Britain's economic recovery is firmly under way and promoting investment in the UK."

  4. FOOD FOR THOUGHT: With Christmas around the corner and poverty deepening for many, it is food for thought that while the bankers take millions, energy companies continually hike prices and politicians mock by preaching penny-pinching virtues, that as a people we are unable to challenge the system we are controlled by.

    To best understand this enigma, perhaps we have to look back to the late 18th century when English children were deposed from the horrors of the parish workhouses in the south to the heinous cotton mills of the north to face unimaginable horrors. In this era, in a society governed by the hierarchy, even the lowest paupers ascribed to a pecking order.

    Those with families looked down on the orphans, elders looked down on the younger and bastards were reviled by all. Simultaneously, the lower classes looked up to and would gladly take the place of their privileged enslavers. When the children were sold to the mills they were lured by their own aspirations to subjugate others like they had been subjugated themselves. The parish authorities that oversaw the workhouses promised the children nobility, standing, money and roast beef and plum pudding every day when they took their rightful place as a noble.

    Of course it was a ruse, but on hearing the news and believing their salvation had come, the impoverished children assumed the character of the upper classes as they swaggered about lauding it up, and refusing to bow down to the overseers of the workhouse.

    However, this tragic enactment begs an interesting question; is it the real reason the class system has survived for centuries because we aspire to be what our masters are? Or is the premise of suffering from the affliction of having no backbone inherently an English disease? This can be best answered by a situation that arose in Rouen in 1812. When one of the English cotton mill tyrants tried to impose the inhumane cotton mill regulations onto the French factory workers, a strike was called and the army called in.



  5. Greek financial sector is hit by new credit doubts

    (AFP) – 2 hours ago

    ATHENS — Greece suffered a fresh blow to its financial standing on Friday when Standard & Poor's downgraded two top banks and warned that the Greek economy was in worse shape than it had thought.

    The latest move by the ratings agency followed its downgrade late Wednesday of Greece's sovereign credit despite pledges by the government to tame a huge national debt and a gaping public deficit.

    And it came before a critical crisis weekend debate on budget action to shore up the economy, which is drowning in debt, while also shoring up market and EU confidence that the government will make urgent reforms.

    The actions by S&P will make it even harder for the government to borrow money on international markets to overcome the shortfalls at a time when its eventual solvency, as well as the viability of public finances in other indebted eurozone members, has been called into question.

    The Socialist government of Prime Minister George Papandreou is also facing mounting trades union resistance to planned austerity measures drafted under pressure from financial markets and the European Union.

    In addition, several district offices in Athens of Papandreou's Socialist party were targeted by an arson barrage early Friday just hours after protest strikes and demonstrations were staged in more than 60 Greek cities.

    Standard & Poor's said on Friday that it had downgraded the long-term ratings on Eurobank, Greece's second-biggest bank, and Alphabank, the third biggest, to BBB from BBB plus.

    Both the long and short-term ratings on the banks were placed on the agency's negative watch list.

    The agency also put the biggest private bank, the National Bank of Greece, under negative watch with regard to its equivalent BBB plus and A2 ratings.

    It took the same action on the fifth-biggest bank, the Banque of Piraeus for its BBB and A2 ratings.

    "Our near-term economic prospects for Greece incorporate a more pronounced and faster economic deterioration than we previously anticipated," Standard & Poor's said.

    "We believe that the challenges Greece faces in terms of fiscal adjustment and structural competitiveness issues increase the likelihood of a protracted hard landing for the national economy."

    Greece's debt is now estimated at 300 billion euros (436 billion dollars), three times the size of Germany's. Its public deficit is likely to rise to 12.7 percent of output this year, far exceeding the limit of 3.0 percent for countries that use the euro currency.

    The interest rate which Greece has to offer to attract savers to finance its overspending has shot up in recent weeks and is now about twice the interest rate which Germany has to offer, and is approaching 6.0 percent, often considered to be a new red line for an advanced nation such as Greece.

    The country is also mired in recession and has an unemployment rate that authorities said Thursday had risen to 9.3 percent in the third quarter, up from 7.2 percent in the same period in 2008.

    The deteriorating economic climate will make it tougher for banks to do business, according to the agency, which added that the institutions are already exposed to "capital market disruption."

    The banks in addition are directly exposed to the effects of the sovereign credit rating since they hold large government debt portfolios.

    But several foreign analysts here insist that the underlying financial health of the banks targeted by S&P is not in jeopardy, notably as they all reported making a profit in the third quarter.

    "The survival of Greek banks is not in danger and their situation is not at all alarming," said Arnaud Tellier, the head of a large French bank operating in Athens.

  6. Bank of England Says Property-Loan Default Risk Is Increasing

    Share Business ExchangeTwitterFacebook| Email | Print | A A A

    By Simon Packard

    Dec. 18 (Bloomberg) -- U.K. banks face an increased risk of default on some of the country’s 250 billion pounds ($403 billion) of commercial real-estate loans, the Bank of England said today.

    In the past year, the longest recession on record meant the “probability of default by U.K. real estate companies has increased significantly,” the central bank said in its Financial Stability Report, which is published every six months.

    Property owners may struggle to service loans as the recession and mounting unemployment boost building vacancies and depress rents. Falling property values and larger down payments for new loans mean investors, particularly smaller companies, face “significant” challenges in refinancing 160 billion pounds of loans coming due through 2013, the bank said.

    Lenders wrote down real-estate loans by 10 billion pounds in the 18 months through June and “substantial further impairments” may follow if defaults increase, the central bank said. Standard & Poor’s Ratings Services estimates banks may need to write down 23 billion pounds of real estate loans in 2009 to 2011, with the losses increasing to 37 billion pounds in the eventuality of a “stress scenario,” the central bank said.

    So far, most lenders have held on to repossessed properties during foreclosures, the Bank of England said. If the number of repossessed assets mounts, the companies might trigger a negative spiral if they try to sell too many.

    A flood of sales would spark a fresh wave of price declines that would drive more loans into default, the central bank said in today’s report. “It could leave banks less able to supply credit to the wider economy,” it said.

    ‘Further to Fall’

    A rise in real estate values on a monthly basis since August is largely the result of pricing for prime buildings, and “non-prime capital values may have further to fall,” the central bank said.

    While the Financial Stability Report highlighted the risks banks face from their commercial real-estate loans, this was balanced by reports on how lenders have responded and signs that the worst of the global financial crisis may be over.

    Property prices fell 45 percent from the market’s peak in mid-2007 to July 2009, according to Investment Property Databank Ltd., a London-based research firm. So far, that’s had a limited impact on the banks, the Bank of England said.

    Lenders have overlooked technical breaches of loans caused by lower property values, provided interest payments are met. They have also avoided revaluing properties backing their loans, the central bank said, citing “market contacts” and a study by De Montfort University.

    Separately, property investors said banks are more willing to renegotiate loans with borrowers, often charging higher rates of interest, which allows them to avoid booking losses.

    “A rolling loan gathers no loss,” said Don Jordison, managing director of Threadneedle Property Investments, describing one of the reasons why he’s more confident about the outlook for the U.K. property market.

  7. ap

    European stocks, euro slip on Austria bank worries

    European stocks slip amid concernts about Austrian banks; euro down at 2-1/2 month dollar low

    * By Pan Pylas, AP Business Writer

    * On 7:02 am EST, Tuesday December 15, 2009


    Buzz up! 0

    o Print

    LONDON (AP) -- European stocks and fell Tuesday and the euro slid to a two and a half month low against the dollar on worries about the Greek government's debts and the financial health of Austria's banks.

    The FTSE 100 index of leading British shares was down 39.93 points, or 0.8 percent, at 5,275.41 while Germany's DAX fell 15.25 points, or 0.3 percent, to 5,787.01. The CAC-40 in France was 9.93 points, or 0.3 percent, lower at 3,820.51.

    Alongside the fall in stocks, the euro continued to slide, falling 0.7 percent to $1.4551.

    Analysts said worries about Greece and Austria, two of the 16 countries that use the euro, continued to dog the currency as well as stocks.

    In Greece, new Prime Minister George Papandreou sought to calm frayed nerves Monday about the shaky state of the country's public finances by announcing a package of spending cuts as part of a drive to bring borrowing down from over 12 percent of economic output to under 3 percent by 2013.

    "Whether or not a debt crisis can be avoided in Greece remains to be seen, but the whole affair has once more raised questions about the political and structural mechanisms of the eurozone," said Neil Mellor, an analyst at Bank of New York Mellon.

    As if Greece's problems weren't enough, investors are also beginning to fret about the exposure of Austria's banks to Eastern Europe, where the recession has been particularly acute.

    On Monday, Austria nationalized Hypo Alpe Adria, a unit of German public-sector bank BayernLB -- the move was designed to prevent the bank from sliding into a bankruptcy fueled in part by bad loans, much of them in Eastern Europe.

    There's also been talk Tuesday that other banks may face a similar fate having notched big losses too.

    Austria's Die Presse newspaper said the country's three banking supervisory bodies have put OeVAG, the country's fourth largest bank, under surveillance.

    "Just as fears about Dubai fade somewhat, the last thing the market needs is to find a fresh source of worry in the European banking system," said Kit Juckes, chief economist at ECU Group. Worries last month over state-owned Dubai World's ability to pay its debts caused jitters about government finances generally, but Dubai's troubles appear to have eased with a $10 billion bailout from Abu Dhabi.

    "These banks are not of themselves a huge threat to Austria's finances but there will naturally be fears about the wider potential for Eastern European losses among European banks and this will just add to concerns about the final extent of the bailout burden for European countries," he added.

  8. Anger as families at the mercy of lenders

    By Juno McEnroe

    Tuesday, December 15, 2009

    GOVERNMENT and bank pledges to protect mortgage holders have been rubbished after a couple with a special needs son had their home repossessed despite offering to repay €800 a month.

    The mother of the 17-year-old special needs boy told the High Court yesterday that the family had been to "hell and back" with lender Stepstone Mortgage Funding.

    The couple were both let go at Waterford Crystal last year but were left facing mortgage repayments of €1,900 a month.

    They had taken out a €277,000 mortgage with an interest rate of nearly 11% with the lender for their Waterford home in early 2008. The couple put an additional €70,000 in savings towards the purchase and later adapted the house for their special needs son.

    Both were now unemployed, the mother said, and the home was worth less than €240,000, €100,000 less than what they had paid.

    The mother said efforts were made to contact the lender about their financial difficulties and to offer alternative payments.

    She was getting €220 a week as a full-time carer while the husband was receiving €204 on the dole.

    But mortgage arrears had now mounted to nearly €40,000, the court heard.

    Stepstone Mortgage Funding had refused to consolidate the arrears and mortgage payments into one debt so the family would be accepted for HSE mortgage interest relief payments, the mother said.

    The couple offered to pay €800 a month, including all the carer’s allowance, but the lender refused in court to accept the offer.

    Judge Brian McGovern told the mother: "I wouldn’t hold out much hope. Your situation is becoming more common now."

    The mother told the court: "I’m sorry I ever went to them [the lender]... they brought me to hell and back and they can have the house."

    She later conceded to the possession order: "I think I’m only putting off the inevitable. I have to think of my child... he’s my main priority."

    Judge McGovern granted a six-month stay on the possession order, saying: "I have to say I think you’re doing the right thing because the figures don’t stock up for you even if you were paying €800 a month, things would only get worse."

    Counsel for the lender was also granted legal costs from the defendant despite the judge suggesting he hoped this wouldn’t be requested because of the woman’s predicament.

    Eight repossession orders were granted in court.

    The opposition reacted furiously to the Waterford case calling for robust support for troubled mortgage holders.

    Fine Gael environment spokesman Phil Hogan said: "There has been no bailout in the NAMA legislation for the hard-pressed mortgage holder."

    Labour’s Ciarán Lynch called for a home mortgage agency with statutory powers which would attend court cases and assess mortgage holders.

    A spokesperson for the charity Barnardos said: "We wouldn’t wish this to happen to anyone at any time of year. There should be support measures in place."

    Focus Ireland advocacy director Mike Allen said: "This just shouldn’t happen. The Government needs to put through legal protection for those in arrears.

    Well this is one of the faces of the people who are the loosers in this down turn. It may be that this becomes commonplace, To all who have bein looking forward to this I ask if you feel a little less happy than you imagined you would (I know I do) soon people will become indifferent to people loosing there houses and it will not be worth a mention in the news .I gess one mans loss is anothers gain,

    But I got to wonder at how the government saved the banking sector ( now giving themselfs bonuses), yet have allowed simple minded people to become victums.

    In the past I had confidence in Government and what they are trying to achive.

    More the fool me

    I must not give to much credit or faith in the way I think about governments,

  9. Feeling disenfrachised?

    Maybe you are no longer conected with the comunity.

    All that hope thats come with youth is it slowly leaving, replaced by want and boredom ?

    Is it true that the more you put into some thing the more you get out of it?

    Try to honestly examine your present situalion and future,

    Yes how many old people who are at the end of there lifes look back with the realisation that life is totaly unfair and that all of the injustices and rewards are all just fairy stories.

    Waiting for that big break or for your luck to change, well its not going to happen.

    Give up all hope for the future and feel better!

    I have come to the realisation I would rather live in a tent at the ends of the world that have to be a servant for the better part of a life.

  10. Ratings Agencies Put Spain on Negative Debt Watch

    By Dr. Alex Cowie • December 10th, 2009 • Related Articles • Filed Under

    About the Author

    Dr. Alex CowieDr. Alex Cowie is the editor of Diggers and Drillers, Australia's premier resource stock tip sheet.

    The ratings agencies are having such a busy week. You wonder if their staff get Christmas bonuses based on how often they change the ratings.

    Standard and Poor's (S&P) put Spain on negative debt watch last night, making another re-rating likely in the next few years. S&P has already dropped Spain's rating once this year. The country's finances are a shambles.

    Spain's debt has grown from 36% to 66% of GDP in the last two years. This is thanks to a budget deficit of 11.2 per cent this year, and will still be around 10.2 per cent for next year.

    Not only that, but the unemployment level in Spain is heading for twenty per cent in 2010. Already a staggering 43 per cent of people under the age of twenty five are out of work.

    This matters because we're talking about the NINTH biggest economy in the world. The Spanish economy is bigger than Australia's, Canada's or even Brazil's.

    And it's not just Spain that's in trouble. As technical analyst Murray Dawes pointed out yesterday, Fitch rating agency downgraded the Greek economy from A- to BBB+, as well as putting it on negative credit watch for future re-ratings.

    Greece's economy looks to be on the skids.

    And the Dubai story is still bubbling away and it's starting to give off all sorts of bad smells. Moody's rating agency downgraded some of Dubai's state-owned company debt, as well as putting some of the state-owned enterprises on negative watch as well.

    In the middle of all these re-ratings, the monumental news that Moody's thinks the US and UK "are testing the limits of their ratings" has almost slipped under the radar.

    If Moody's actually put its money where its mouth is, the effect on the market would be far bigger than anything we've seen so far.

  11. Greek Banks Playing the Carry Trade and Investing in Government Bonds

    By Murray Dawes • December 9th, 2009 • Related Articles • Filed Under

    About the Author

    Murray DawesMurray began his career on the Sydney Futures Exchange trading floor in 1993 with Swiss Banking Corporation (SBC). He spent a couple of years in the 3 and 10 year bond and option pits before moving on to the Share Price Index (SPI) futures and options pit. From there he became a broker with SBC specialising in SPI futures and options to institutional clients. After leaving SBC Murray continued his career in broking at Bankers Trust Australia. Then in 2001 Murray moved to Melbourne to work as a hedge fund trader for one of Australia’s wealthiest families. In 2003 he was ready to set up his own firm providing the same proprietary technical trading system to some of Australia’s boutique hedge funds. The success of Murray’s system lead to him trading a $10 million account for a high net worth individual. This involved trading Australian and US futures and Australian stocks. Now Murray heads up the technical analysis desk for us passing on to readers some of his experience from 16 years of trading.

    Another day, another country looks to be heading towards bankruptcy.

    Greece was last night downgraded by ratings agency Fitch from A- to BBB+ and was placed on negative credit watch. That means there could be more downgrades to come.

    The Greek budget deficit is currently 12% of GDP. And that makes a mockery of the stability and growth pact of the Euro Zone which requires member nations to have a 3% deficit limit. What a farce.

    Not only that, but the Greek government debt will reach 130% of GDP next year.

    But the really interesting thing about this situation is to understand what the repercussions of the downgrade are.

    The Greek banks have been playing the carry trade by borrowing from the European Central Bank (ECB) and then investing in Greek government bonds. This is a fun game where you borrow low and lend high and then laugh all the way to the bank.

    Well, actually they are the bank. So they just laugh.

    This is a merry old dance until someone does something really unfair like downgrade the bonds that you're buying! In the last month 10-year Greek government bonds have sold off from 137 basis points over 10 year German bunds (German bonds) to 220 points over German bunds.

    The wider the spread, the greater the perceived risk. That's nearly a full percentage point in a month.

    When interest rates go up the value of the bond naturally goes down. A full percentage point sell off in yields corresponds to a large fall in the value of the bonds. And Greek banks are full to the eyeballs with Greek bonds.

    Now suddenly, the fun game of making free money doesn't seem like so much fun. Because they're losing money instead. Poor banks.

    Now let me think, is there anywhere else in the world where banks are borrowing money from their central bank at really low interest rates? Is there anywhere else where they're using that money to load up on long term government debt?

    And is there anywhere else where government's interest rates are kept low by all of this buying by the banks?

    Hmmm. How about America? The land of the free... lunch... for banks.

    This is the most enormous carry trade. The government gets what they want by keeping their interest rates low at a time when they need to borrow a huge amount of money.

    The Chinese aren't buying as many bonds as they used to because they're not selling as much stuff to the Yanks. Plus they don't trust the Americans not to turn their currency into little more than toilet paper.

    Not only that but the price of oil is a lot lower than it was a few years ago so the Middle East isn't recycling as many petro dollars into US bonds either. Therefore the banks have been enticed into buying US bonds by lending them money for nothing so that they can make the difference in the yield.

    The only problem with this game is that the banks are loading up on bonds at a time when interest rates are at their lowest in a generation. Which way do you think yields are going to go from here over the next few years?

    Especially since last night we were told that both the UK and the US are at risk of having their AAA credit rating downgraded as well!

    Oh dear. Suddenly it's starting to look a lot like Greece. Except 1,000 times larger.

    What appears to be free money for US banks now, could end up being a noose around their neck before long. Who's going to bail them out then?

    That's led to the markets taking a battering on the back of the news about Greece.

    The main point to take out of this is that Dubai has been found to have no clothes on, and now the Greeks a few weeks later. Who else is swimming naked?

    Credit default swaps on sovereign debt around the world have been going higher and higher in the past few months. The term "treasury yields" has become an oxymoron because there is no yield and stock markets are resting near their highs after rallying 60% in less than a year.

    Something has to give before long.

    The free money from the Fed is coming face to face with the reality of economics.

  12. Greek troubles hit Irish bond spreads

    The spread between Irish and German bonds widened today, as the fallout from Greece's downgrading affected the market.

    The spread is now 1.8 per centage points, or 182 basis points, and remains the second highest in Europe.

    Traders blamed the fallout from Greece's recent troubles, saying it acted as a "contagion" for the market. Investors feared a domino effect, they said, if Greece does default.

    Greece's credit ratings were downgraded to the lowest level in the euro zone yesterday, amid fears over its deteriorating public finances. Fitch cut ratings on Greek debt to BBB plus, with a negative outlook, the first time in 10 years a leading ratings agency has given Greece a rating of below A grade.

    Fitch said the downgrade “reflects concerns over the medium-term outlook for public finances, given the weak credibility of fiscal institutions and the policy framework in Greece, exacerbated by uncertainty over the prospects for a balanced and sustained economic recovery”.

    One Dublin trader noted that the Budget, due later today, may have a further impact on the spread between Irish and German bonds, although it would depend on the actions taken by Minister for Finance Brian Lenihan.

    The spread between Irish and German bonds is down from 210 points in July and a high of 282 points this year.

    Do you think government bonds will have to pay more interest?

  13. British taxpayers back Irish loans

    By Niamh Hennessy

    Wednesday, December 09, 2009

    BRITISH taxpayers are standing behind almost £3 billion (€3.3bn) in negative equity mortgages in Ireland.

    As part of the British government’s Asset Protection Scheme (APS) more than £167bn of Royal Bank of Scotland’s (RBS) risky assets outside Britain are being insured.

    It is understood that €20bn of the total £282bn of assets covered by the APS are based in Ireland.

    RBS put £75.4bn of European Union assets, £43.6bn of US assets and £48.4bn from other countries into the programme, the British Treasury said. The remaining £114.5bn pounds of insured assets are from Britain.

    RBS is taking part in the APS to avoid nationalisation after receiving £45.5bn of taxpayers’ funds since October last year. The bank posted the biggest loss in British corporate history last year after its acquisition of ABN Amro Holding.

    In Ireland the bank has a vast portfolio of loans to Irish and Northern Irish businesses and customers, including £2.9bn worth of negative equity mortgages throughout Ireland.

    RBS, which owns Ulster Bank, has already injected close to €2bn into the Irish bank this year.

    A spokeswoman for Ulster Bank said yesterday that it is still reviewing any possible application to join NAMA. The Government has said foreign banks can apply to join NAMA.

    At the peak of the banking crisis, RBS had become the world’s biggest bank in terms of assets.

    The British Treasury said that its central expectation is that overall net losses on the insured pool will not exceed the £60bn, which will be borne by RBS meaning the direct cost to the taxpayer from the APS is expected to be nil.

    Under the agreement, RBS will manage the assets in the scheme but hand control to a "step-in manager" appointed by the Treasury if losses reach £75bn.

    The British government did not reveal whether any loans to Dubai, to which RBS is believed to have the greatest exposure of any British bank, are included in the APS.

    RBS shareholders will vote next week on the bank’s participation in the APS. The plan, in principle agreed on in February to ring-fence assets that were turning sour amid the global recession, originally covered £325bn of assets.

    Read more: http://www.examiner.ie/business/british-taxpayers-back-irish-loans-107437.html#ixzz0ZC8V845m

  14. * Perth mansion sells for $57.5m

    * Eclipses $45m for Sydney property

    * Home owned by mining heiress

    MINING heiress Angela Bennett has sold her Perth waterfront mansion for an Australian record price of $57.5 million.

    The Saunders Street, Mosman Park property was sold to fellow mining magnate Chris Ellison well below the original asking price of $70 million.

    The selling agent for the property was Willie Porteous, husband of Rose Porteous, whose former husband the late Lang Hancock was the business partner of Ms Bennett's father, the late Peter Wright.

    The property has been on the market since 2007.

    Mr Ellison, the executive director of publicly listed mining contracting and engineering firm Mineral Resources, has a reported stake in the company of about $300 million.

    A former managing director of the CSI Group, his company's website says he was instrumental in developing the "build, own, operate concept of contract crushing in the resource and mining sec

    Ms Bennett fell out with the late Mr Hancock's daughter Gina Rinehart in 2001, initiating legal action with her brother Michael Wright to claim ownership of a 25 per cent stake in the $4 billion Rhodes Ridge iron tenement in the Pilbara.

    The 7567 square metre riverside mansion is made up of three self-contained buildings and has its own cinema, gym, pool, boathouse, private jetty and tennis court.

    Its sale price beat the record set last year by a $45 million Vaucluse waterfront property in Sydney's east.

    The previous Perth record was a Claremont property sold in 2007 for $23 million.

    Mr Porteous told Perthnow that he last held the record for selling Australia's most expensive house in 1980 with a sale of just $2,150,000.

    "A lot of people who have been hesitant about taking positions in the market are now going to be very relaxed, knowing that investing in the top end of the market is the way to go,'' he told Perthnow.

    "Also, with all the predictions about population growth, a lot of these people coming to WA are from the higher socio-economic group and will be wanting good properties, so I think it's going to have a significant effect on the marketplace over the next three or four years.''

    Mr Porteous said that in his opinion, the property was the best buy in town.

  15. Housing market ‘has bottomed out’

    By Niamh Hennessy

    Tuesday, December 08, 2009

    THE housing market is showing signs it has bottomed out with figures indicating house prices have plunged by a third from their peak.

    A survey of mortgage brokers by KBC Ireland found that their view on the 36% house price drop is similar to their response in the last survey.

    KBC economist Austin Hughes said this hints that there has been some bottoming out in prices in recent months.

    "It would be dangerous to draw definitive conclusions in this regard in the light of the generally soft tone of activity reported in this survey. However, it can be argued that the survey at least suggests the pace of price decline has eased notably compared to the large adjustments seen earlier in the year. This would be the sort of development that might be expected as a bottoming out process begins," he said.

    The survey also found that, although brokers have been reporting weaker conditions in the past three months, the tone of responses from those in Dublin was stronger than elsewhere with roughly twice as many Dublin-based brokers reporting an improvement as elsewhere in the country.

    Brokers said they believe that constraints on the availability of credit was the most significant influence on the weakness of the market in the past three months, with just under half saying this was the most important factor.

    Overall the survey said the mortgage market will remain "difficult" through the first quarter of 2010 as tighter lending standards and unemployment concerns curb borrowing.

    About one-third of the 160 mortgage brokers surveyed see conditions remaining "weak," while a further 25% expect "sluggish" activity. About one third see a "tentative improvement" emerging.

    Meanwhile, mortgage holders on variable rates have been advised to consider fixing for five or more years. The Professional Insurance Brokers Association (PIBA) said lenders are likely to hike rates next year independent of the European Central Bank (ECB).

    Read more: http://www.examiner.ie/business/housing-market-has-bottomed-out-107351.html#ixzz0Z5yrsMPG

  16. The interest rate rise is a mistake! Dont forget the RBA Governer Glen Stevens responce to the begining of the ressesion was to up interest rates. Unbelivable !

    I recon that too soon he will be unable to lower interest rates as countries will have to compete with each other in a globe awash with inflation.

    If the AUD Dollar is loosing value when its interest rates are going up it can mean only one thing and I will now share my insight with you all.

    The investment comunity must think it is the end of the rally for comodities.

    The China story is just that, after getting lumbered with a pile of devaluating US dollars they have bein trading there dollars for Mineral companies, and stocking up on any thing it can get.

    Even main stream economists are talking about the possability of another dip.

  17. Over 33% of Aussies plan to buy property

    Over 33% of Aussies plan to buy property

    More than one third of Australians plan to buy a property in the next two years despite concerns over higher living costs and interest rates, a survey shows.

    26.11.2009 09:15 PM

    More than one third of Australians plan to buy a property in the next two years despite concerns over higher living costs and rising interest rates, a survey shows.

    And 40 per cent of Australians plan to revisit their financial plans as the nation emerges with a more positive economic outlook, the survey, commissioned by mortgage broker Mortgage Choice, found.

    Mortgage Choice corporate affairs manager Kristy Sheppard said more borrowers were now taking "ownership" over their financial situation.

    "As a housing market service provider, Mortgage Choice is pleased to see 41 per cent of respondents planning to buy property in the next two years and 43 per cent of them planning on an investment property.

    "Hopefully, increasing demand from this buyer group will stimulate more housing construction," Ms Sheppard said.

    "The Australian housing market has emerged from the financial crisis relatively unscathed compared to its global counterparts, which would probably be part of the reason why 64 per cent of respondents believe house prices will rise in the period to November 2010," Ms Sheppard said in a statement.

    "In turn, this trend may be influencing the 35 per cent of respondents with an existing property plan to renovate rather than purchase a new one."

    It also found 40 per cent of mortgage holders believed they could afford to make repayments at an interest rate of more than 11 per cent.

    The online survey of 1,025 Australians, conducted in early November 2009, found 19 per cent of respondents were most concerned about rate rises while 16 per cent were concerned about job security.

    It follows a similar survey last year that found 20 per cent of Australians had concerns over job security and 18 per cent were concerned by the federal government's economic management.

    Ms Sheppard said that while many borrowers were concerned about rate rises, 40 per cent were prepared for increases of at least five percentage points, a much higher figure than was forecast for the next few years.

    "This suggests many borrowers can comfortably repay their home loan sooner, if they put their mind and budget to it," she said.

    "Improved sentiment from Australians around their livelihoods is also terrific to see."

    Almost three quarters of respondents were confident the Australian economy would be strong during 2010.

    In a further sign of consumer confidence, 17 per cent said they could afford "any increase".

    Two thirds of participants believe rates will rise by between 0.25 per cent and 1.5 per cent before June, 2010.

    The survey also found more than 60 per cent of West Australian baby boomers believed investing in property was safer than investing in shares.

  18. Averting currency disaster

    Having averted disaster in the GFC, next on the 'to do' list for authorities is to devise a strategy of withdrawing the stimuli, without causing 'GFC mark II'. It’s a tricky proposition. And Australia’s recent interest rate rises (the first for a G20 country since the GFC), highlight their dilemma.

    Like many Asian countries, Australia sailed through the GFC storm with hardly an economic scratch. The western world’s leading economies, the US and UK, are 'leaking below the water line'. These economic super-tankers didn’t sink, but they are lying low in the water and have certainly lost momentum.

    The economic damage resulting from the GFC is severe. And it is impacting their respective property markets and particularly the banks holding property collateral. The property (and credit) meltdown has seen the equity of many US and UK banks evaporate. Only government equity injections saved them from the same fate as Lehmans.

    Unlike Australia, however, neither the US nor UK have seen a significant property recovery. As a result, bank collateral holdings remain thin. To facilitate the healing process and let their banks continue the recapitalisation process, authorities in both countries have said official interest rates are likely to stay at multi-century lows – for up to another 15 months.

    Meanwhile Australia has started raising rates and a small number of Asian countries contemplate both raising rates and adopting other tightening measures. Australia’s recent interest rate rises have catapulted the Australian dollar above $US0.90. Further interest rate rises will only provide further fuel for the $A.

    It's the $US...

    Bill Clinton famously used the phrase “it’s the economy stupid” to refocus his campaign and win the 1992 US presidential election. Today he might say “it’s the $US stupid”. So far in 2009 the $US has fallen about 14 per cent. Sterling has also declined. These falls have helped repair some of their GFC damage.

    US and UK exports have become more competitive. Imports have become more expensive. That helps both their economies and employment. Currency depreciation also fuels inflation and I have long thought that given the enormity of the economic problem facing these countries, an economic reflation is one of the few viable recovery options. So up to a point depreciating currencies assists the healing process in both countries. And I think this is the unofficial policy of both countries.

    But US and UK income seeking investors can’t be too happy. For example US investors receive a paltry 0.15 per cent on their treasury bills, less than 1 per cent on their two-year notes and about 3.4 per cent on the longer dated 10-year maturities. In their quest for greater income I suspect many have already begun to move their capital offshore. This pressures the $US.

    Then there is the new 'carry' trade', which Alan Kohler described in September – borrow at low interest rates in the UK and US and invest in countries with high interest rates, like Australia. By its very nature this trade puts downward pressure on the $US and sterling and upward pressure on the $A. So if they’re early to the trade, they’ll pick up a positive movement in currencies – ie, a rising $A where they are invested and a falling $US and sterling where they have borrowed. Then there is the positive interest rate differential. What a winner.

    Currency doublespeak

    No country ever talks down its own value, or that of its currency. So the official US and UK policy is they want strong currencies. This official line was repeated again by US Treasury Secretary Timothy Geithner in Tokyo on November 11. Geithner said: “I believe deeply that it’s very important to the … economic health of the US, that we maintain a strong dollar.”

    But the very next day in Singapore Geithner said: “Asia-Pacific nations need 'market-oriented' currencies that are in line with their economic fundamentals.” In other words, their currencies need to rise – against the $US. Sounds like he’s talking out of both sides of his mouth at the same time.

    What happens when investors decide the same thing? If they begin to fret about the long term direction of the $US or sterling, the steady currency depreciation could quickly turn into a rout. And that is the risk now facing both the US and UK as they attempt to reflate their way out of the GFC.

    US and UK monetary authorities face a high wire act. A little currency depreciation is good. A currency collapse is bad, very bad. At that point their only defence is to rapidly raise interest rates as both countries try to then support their currencies. And those actions would imperil any further post-GFC recovery.

    This is where Australia’s monetary actions become critical. If Australia and other Asian countries tighten, while the US and UK don’t, investors will continue switching out of the latter currencies. At a certain point in the future, unknowable now, but obvious in hindsight, a steady depreciation could turn into a currency collapse.

    While I wouldn’t say such an outcome is probable, it’s certainly possible. And in terms of probabilities, it’s something less than 50 per cent. But maybe not a lot less. One solution would be for both the US and UK to begin nudging interest rates higher sooner than many think. When rates are already at multi century lows, a 0.25 per cent interest rate rise now shouldn’t make that much of a difference to bank profitability and the restoration of their balance sheets. However, it could send a powerful message to investors and provide support for their respective currencies. I think this is a likely scenario i.e. the occasional 0.25 per cent rise in US and UK interest rates at judicious times throughout 2010

  19. Strength of UK recovery 'highly uncertain'

    From correspondents in London

    Agence France-Presse

    November 12, 2009 07:32am

    THE strength of Britain's economic recovery from the country's longest recession on record is "highly uncertain" amid "sharply" rising inflation, the Bank of England warned overnight.

    The "strength of the recovery" remains "highly uncertain," the central bank said in its quarterly economic report.

    Analysts said the study indicated that British interest rates would remain close to record low levels of 0.5 per cent for some time.

    In reaction, London's FTSE 100 index of leading shares soared to the highest level so far this year, while the British pound slid.

    The Bank of England (BoE) also forecast a sharp spike in British 12-month consumer price index inflation before the end of 2009, although this was likely to fall back to around the current levels in late 2010.

    "CPI inflation fell to 1.1 per cent in September, but is likely to rise sharply to above the two per cent target in the near term," said the BoE.

    Addressing media after the report's publication, BoE governor Mervyn King said Britain has "only just started along the road to recovery."

    The country has yet to follow the United States, Japan, Germany and France out of recession following the world's strongest downturn since the 1930s.

    "The world economy showed signs of recovery, although global activity remained significantly below pre-crisis levels," the BoE said in its latest quarterly report.

    "In the United Kingdom, output had fallen by about 6 per cent over six quarters, but a number of indicators suggested that economic activity had begun to stabilise.

    "A recovery in output is likely, driven by the considerable stimulus from the past easing in monetary and fiscal policy and the depreciation of sterling.

    "But constraints on the supply of bank credit and concerns over balance sheets will weigh on spending.

    "A degree of economic slack is likely to persist over the forecast period, although its extent will depend on the strength of the recovery and on developments in supply, both of which remain highly uncertain," the BoE added.

    The central bank also predicted that British inflation would "likely to rise sharply to above the two per cent target in the near term," or by the end of 2009, according to a fan chart published by the BoE.

    The annual inflation rate was then forecast to pull back to about 1.0 per cent by the end of 2010 before again reaching two per cent in 2012.

    The BoE's forecasts were based on the assumption that interest rates move in line with market expectations and that the central bank makes no changes to its radical policy of pumping the economy with STG200 billion ($359.74 billion) of new money.

  20. NI economy in 'worst ever' downturn

    A report on the Irish economy has claimed that Northern Ireland is in the grip of its worst ever downturn.

    Tuesday, 10 November 2009


    * Local News

    * business

    The study, by accountants Ernst and Young, has revealed the all-island economy could contract by almost 7% this year.

    It added that both Northern Ireland and the Republic could still be one to two years away from economic growth.

    While there are some signs of recovery, there is a possibility of a "double-dip" recession, according to the report.

    Article Continues

    It also predicted there will be 35,000 job losses in Northern Ireland during the recession, with the construction and manufacturing sectors the hardest hit.

    'Double-dip recession'

    "Northern Ireland job losses are at levels more severe than in any other region in the UK - falling back only modestly from highs of 7.5% to 6.75% in 2013," the report claimed.

    The forecast highlighted the prospect of public sector cuts as a means to control costs in Northern Ireland and the likelihood of major spending cuts and further tax rises in the Republic.

    Neil Gibson, Special Advisor to the Ernst & Young Economic Eye said there were some signs of recovery but there were still tough times ahead.

    Hmmmmmmmmm look things are picking up for one reason borrowed and printed money, just a nother bubble

  21. Why Britain's Economy is Near Death

    Monday, 9 November 2009 - Melbourne Australia

    By Kris Sayce

    Last week we briefly mentioned how Britain was now "actually insolvent" compared to being "technically insolvent" when it went begging to the International Monetary Fund (IMF) in 1976.

    As we explained:

    "In 1976, the UK government went begging to the International Monetary Fund (IMF) for £2.3 billion. In today's money that's the equivalent of around £12.4 billion. At the time it was labeled as an embarrassment for the UK, with claims it made the UK technically insolvent. Well, in practical terms apart from the much bigger number, there is little difference between the £2.3 billion bailout in 1976 and yesterday's announcement that the Bank of England will increase its money printing programme to £200 billion."

    You'd think that would be enough to get the financial markets concerned with what's happening in the UK and global markets.

    Wouldn't you think that if a nation is unable to pay its bills with free cash flow that the alarm bells would start ringing?

    I mean, stop and think about it.

    When you strip away the fancy terminology the banks like to use - quantitative easing - what you're left with is money printing. Or to be precise, clicking a mouse and suddenly £200 billion appears.

    In other words, the UK government has spent all of its tax receipts, and it has spent all of the money it has from selling government bonds...

    The cupboards are bare.

    It does not have one single dollar of spare cash left.

    And so to remedy that, what does it do? It does exactly what every 'good' government should do, it opts for Plan B.

    It knows increasing taxes is never a good look, especially when the next election is just round the corner.

    And of course it's worried about increasing the amount of debt on the market. Plus the government wants to 'inject' cash into the economy so that it's spent rather than invested.

    So the only option is to do what only a government and central bank can do. It prints money.

    If anyone else came up with the same idea it would be called counterfeiting and you'd get hauled off to jail.

    But that's not the case with governments and central bankers. They can get away with almost anything.

    And they're helped by the hopeless analysis of the mainstream press. As evidenced by these comments from BBC economics editor, Stephanie Flanders:

    "By voting to inject a further £25bn into the economy, the Bank's policy makers have signalled that they do not think the economy is out of the woods yet. But they have halved the rate at which that money is being spent. In the first five months of QE, the bank was spending £25bn a month. Since August, the monthly purchases have fallen to about £17bn. Now the MPC plans to spend three months purchasing assets of £25bn - a monthly average of about £8bn. If the economy behaves more or less as the MPC expects, you could say they have put themselves on a path to put an end to QE at their February meeting, or at least put the policy on hold."

    Got that? At least it now only plans to spend £8 billion per month. Which is down from £25 billion per month.

    But can we really believe the Bank of England will stop printing money next February?

    We wouldn't have thought so.

    The interesting point about all this is that we could be witnessing firsthand the death of an economy.

    Seriously. It's something the UK has come close to experiencing several times in the last hundred years. Each time it's either been bailed out by another economy or by a group of economies.

    The United States helped it out of trouble after the first world war and second world war. The IMF bailed it out during the 1970s.

    And then during the 1980s and 1990s, the growth in the global economy and the increase in financial market sophistication helped bail out the UK economy.

    But who will bail it out this time?

    Well, the US doesn't have any money left. It can barely take care of itself let alone throw a few bones to the partner in its 'special relationship.'

    The European Union (EU) is hardly likely to bail out an economy that's scoffed at it from the sidelines for the last twenty years. And besides, the EU is nothing more than an imperialist oligarchy anyway.

    There would certainly be nothing to gain by Britain falling further into the clutches of the Europe. The phrase, "out of the frying pan, into the fire" springs to mind.

    But then again, things could get so bad for the UK that it has no other choice.

    Is there a chance the new superpowers of Asia and the Middle East will come to the rescue? Again, we don't see this as being very likely either.

    The main reason is, why would they want or need to?

    You know, we're struggling on that one. We're struggling to figure out just what China, Japan, South Korea, Dubai or Bahrain would get out of propping up the UK economy.

    Besides, they seem more interested in just buying up the Premier League football teams than anything else.

    Quite frankly, it's very hard to see how Britain can get itself out of the current pickle without causing itself and its citizens a massive amount of pain.

    With the billions of pounds of debt and the billions of pounds spent each year on unaffordable and bankruptcy-inducing social programmes (such as the National Health Service) there is absolutely no way it can get itself out of the mire without doing something drastic.

    It can't merely hoped for an economic recovery. After all, where is the economic growth going to come from?

    It's rested on the laurels of growth in the financial sector since the 1980s. Even if global financial markets do recover and even if they do start flogging more fancy products, the odds are London won't be the centre of the action anymore.

    Its natural resources from the North Sea are coming to an end, and thanks to the heavy hand of regulation and social engineering, its manufacturing industry is virtually dead.

    That's why I believe we are potentially seeing the death of an economy.

    The only possible solution for Britain is to default on its obligations directly or indirectly. It can do this openly by defaulting on its debt, or it can do it by continuing the programme of quantitative easing.

    The second option is of course the coward's way.

    By continuing with this programme, the government and central bank are in the process of unleashing the cruel fate of rampant inflation and the destruction of any wealth its citizens have left.

    Until that happens, the hapless economic analysis from mainstream economists and the mainstream press will continue to idolize the efforts of the Bank of England to drag the UK economy out of trouble.

    The reality is the Bank of England is dragging it further into trouble.



  22. Hey cut the crap!

    People are leaving Ireland like rats from a sinking ship.

    this will equate to empty houses that can NOT BE RENTED.

    Hmmmm yer there is no money left it was all pissed up long ago.

    Prices drop because people sell.

    prices rise because people buy.

    Simple as that. Who can the banks loan money too now?

    Ireland home land to tens of millions of people who were forced to strange shores, there children dreaming of grandmother and grandfather they will never see, stone houses now roofless and bare green mountains covered in mist.

  23. This Bloke bet that there was going to be a property crash , but the government has stoped it. now he has to pay the bet he made!


    by Steve Keen

    RSS feed

    Posted 5 Nov 2009 10:31 AM

    It's the leverage, stupid

    So I'm walking to Kosciusko – now that the ABS Established House Price Index has cracked its September 2008 peak of 131 to reach an all-time high of 134.4 (as of September one year later). This renewed bubble reversed the trend of falling nominal house prices that had dropped the index to a low of 123.8 in March 2009.

    This level of price volatility – down 5.5 per cent in six months, only to rise 8.5 per cent in the subsequent six months – almost matches the stock market's manic-depressive performance.

    click the image to enlarge

    Though you'd see no mention of it if it you only read Chris Joye (Keen concedes defeat), the main factor behind the revival of the bubble is what is formally known as the First Home Owners Boost (FHOB), but more accurately described as the First Home Vendors Boost.

    As at the end of September – the date of the latest ABS house price data – 171,000 applicants had received this $7,000 bribe. Since many are couples, more than 1 per cent of Australia's population has leapt into the property market pool at the behest of a government stimulus.

    So, how has a mere $1.2 billion injection of government money driven the average house price up by 8 per cent in six months? By the 'magic' of leverage: the typical First Home Buyer (FHB) took that $7,000 to the bank and leveraged it up to another $40-50,000, which then was handed over to the First Home Vendor (FHV) as cold, hard cash.

    The FHV then took that extra $40-50,000 and leveraged it to an additional $200,000-$250,000, which meant that that new place which had been just out of reach prior to the FHOB was now well within range. Competing with other lucky recipients of government and bank largesse, he drove up the price of that middle to upper tier house by an additional $100,000 or more.

    The aggregate impact of this government enticement into private debt was that Australian households reversed the deleveraging process that had begun in late 2008, and as a result the mortgage debt to GDP ratio, which had been falling, began to rise once more. The FHOB has led to Australians taking on an additional $50 billion of mortgage debt. That 'demand' factor, far more than any other, is why I've lost the second half of Rory's bet with me.

    click the image to enlarge

    Normally I regard the 'ceteris paribus' assumption of conventional economic theory as a cop-out – in a market economy everything is connected to everything else, and you can't assume that, for example, a firm's output can change without affecting the market price. But I think I'm entitled to ask the 'ceteris paribus' question here: what would have happened to house prices had the government not spiked the market with the FHVB? I somehow doubt that Rory would be crowing today had that irresponsible policy move not been made.

    click the image to enlarge

    In fact, there's a good argument that we wouldn't be having a property bubble here at all, were it not for the FHB policy. I'm not one for making arguments solely on statistical correlations – I'm only too aware of the 'correlation isn't causation' argument – but I think I can also spot a smoking gun when I see one.

    click the image to enlarge

    Prior to the FHB, though real house prices were rising, so was real household disposable income. Then add two dollops of the FHB – one its introduction as a 'temporary' measure to get us over the shock of the GST in 2000, the other its doubling to boost the economy during the brief 2001 recession – and off go real house prices relative to real household disposable income.

    Last year, as the market starts to head back towards parity between house prices and incomes again, Rudd throws in another temporary doubling (of this temporary measure that is now almost a decade old), and off goes the house price bubble once more.

    In the main, I've been a critic of banking practices as the underlying cause of the global financial crisis. But I also believe that the crisis would have occurred long ago (in 1987) and been far less severe if governments and central banks hadn't attempted to rescue the system from its own follies.

    The FHOB is a classic government folly, and its doubling last year is the main reason I'll be walking to Kosciusko some time in April 2010.

  24. National debt is likely to double in just four years

    By Sam Fleming

    Last updated at 1:33 AM on 04th November 2009

    * Comments (0)

    * Add to My Stories

    The fiscal chaos wrought by the banking crisis was exposed yesterday in a major report warning of an 'extraordinary deterioration' in the Treasury finances.

    In research released as the Treasury unveiled its latest City rescue, the European Commission warned Britain's national debt is likely to double between 2007 and 2011 - a leap only exceeded in the EU by Ireland and Latvia.

    It lashed Gordon Brown's government for entering the downturn with fraying public finances, releasing estimates showing we are running the worst underlying, or 'structural' budget deficit in the EU, at twice the regional average.


    In the red: The survey criticised the treasury for entering the downturn with with already fraying public finances echoing Conservative party views

    'The high level of the structural government deficit before the outbreak of the present economic crisis limited the government's capacity to pursue a looser fiscal stance without comprising budgetary sustainability,' the Commission said in its staff report.

    The findings came as the Treasury said it will pump billions more into crippled state- controlled giants Royal Bank of Scotland and Lloyds Banking Group.

    The latest bailout brings the total amount of public money committed to Bank Aid to £1.2trillion, approaching the value of Britain's entire annual economic output.

    The Treasury argued the revised terms of the intervention should ease the burden of banking bailouts.

    RBS will reduce its reliance on the government's Asset Protection Scheme and Lloyds will tap shareholders in order to avoid the insurance plan entirely.


    * £50billion bailout for banks as Alistair Darling more than doubles Lloyds and RBS rescue...but gets a chilling warning

    * How to cope with the recession (thisismoney.co.uk)

    * Funds and shares to beat the crunch (thisismoney.co.uk)

    In the March Budget, the Treasury projected the direct cost of financial sector interventions at between £20billion and £50billion. This will be lowered in the forthcoming Pre-Budget Report, 'subject to wider factors', the Treasury said yesterday.

    However, City analysts warned the latest capital injection may well not be the last. Michael Saunders of Citigroup said the move 'goes some way' to addressing concerns at the International Monetary Fund and the Bank of England that the UK banks need more capital.

    'Nevertheless,' Saunders added, 'these measures probably do not quite fill the gap highlighted by the IMF in aggregate banking sector capital needs'.

    Vicky Redwood of Capital Economics said: 'We would not be surprised if the government has to inject even more capital over the next couple of years. As the IMF recently calculated, UK banks have still absorbed only 40 per cent of their likely losses.'

    Indeed, the immediate impact of the financial package will be to increase the amount of borrowing the Treasury needs to do this year.

    It announced it will have to tap the markets for an additional £13billion in cash to pay for capital injections into the banks, adding to the vast mountain of gilts being sold.

    The markets appeared relatively sanguine about the UK's latest cash infusion, with the pound holding at $1.64 against the dollar and slipping just 0.1 per cent to 1.11 against the euro.

    But the European Commission's research highlighted the mountain future governments will have to climb to restore the public finances to sustainability.

    Measured as a share of the total economy, the UK's national debt will double from 44 per cent of gross domestic product to 88 per cent between 2007 and 2011.

    If the government fails to take action, gross public debt will continue to rise to more than 140 per cent of GDP by 2020, it forecast.

    Read more: http://www.dailymail.co.uk/money/article-1225079/National-debt-likely-double-just-years.html#ixzz0VtiP6hDZ

  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.