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House Price Crash Forum


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About scepticus

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  1. This is my point, since there is not much inter bank lending these days, using libor which is an interbank rate, as a proxy for future CB base rates doesn't make much sense.
  2. All that means is that libor will reflect imminent base rate rises that the market expects and that the central banks have telegraphed to some extent. I do agree that libor should price in expected near term CB rate rises; if it did not it wouldn't be much use. I think the original point of this thread was that Libor is indicating base rate rises that the market does not expect and which the CB has not communicated about, and it is this that I find dubious reasoning.
  3. Nope, stress in the banking system causes interest rates to go down, or rate rises that were imminent to not appear, which is what happened with the GFC. It seems to me that we are due another recession before very long, which suggests rates stay pat or go down. Whether these libor movements are related to that I don't know. Don't waste your life waiting for that soaring interest rate which always just a year or two away. We'll need to look for other reasons for house prices to come down.
  4. Sorry to piss on your parade but Libor is not a good predictor for IRs. A "soaring" Libor is indicative of stress in the banking system, and/or a fall in interbank lending. Interbank lending has fallen steadily since 2008.
  5. scepticus

    Impact of Technology on Creative work

    Yeah I've got a little book full of 'em. You're the first person any of them has worked on ... PM me xx
  6. The course of action you suggested would in my view have led to a good deal more QE than would otherwise have been required. Winding up lots of our big banks makes the whole system lock up so half the banks (and related non bank entities like MMFs) go down just like in the first Great Depression - although in the GD there was no deposit protection! Would have been extremely deflationary from macro perspective and it is fending off that deflationary pressure that requires the greatest amount of QE on top of the FSCS, if there is no recourse to negative interest rates. In any case, like I said before, much of the nominal wealth in our retail banking scheme comes from past HPI, so by bailing out those savings you are basically locking in the gains from past decades of HPI by changing essentially unsafe bank deposits to state money. Finally, using QE to pay out FSCS rather than buy bonds as in QE is highly inflationary in the long run. QE does not add net private sector wealth but helicopter money (which is what your FSCS payout is) certainly does. However in the short term the economic disruptions from all the above would certainly have been extremely deflationary and would have ruined the employment prospects of many young people and houses would thus be as unaffordable to them as they are now. The ones who benefited would be rich property holders who are mortgage free who would then have been able to hoover up the housing stock at bargain prices, and perhaps the odd well placed and lucky younger person who keeps their job and can raise enough for a very high deposit to value ratio. Then to make things worse, once the situation stabilises a decade or more down the road and the young people hit by all the above are just getting back on their feet, now the inflationary impact of all that new private sector nominal wealth created for FSCS comes back to bite and you end up with another massive HPI as a result. And rising interest rates doesn't stop it, what the rising interest rates do is juice up the ponzi banking sector just like it did in the early 00s. Essentially these actions would have done absolutely nothing to put right long standing issues of generational unfairness. Ultimately, bailing out the already rich - by whatever means - at the expense of the cash and asset poor has always been the MO and I see nothing in your proposal which essentially changes that calculus. For prices to fall and wealth distribution to be more balanced, nominal wealth must be REMOVED from the economy. The options for this are either for the government to run a long term budget surplus, or negative interest rates in which the CB receipts from interest on reserves are deleted. Note that both of these are deflationary, so what we need is deflation but without that creating a situation of high real interest rates that will hurt the young and the marginally employed.
  7. 1: That would have arrived at the same place we are today, just more painfully. Also bear in mind that HPI is not really driven by QE per se, its driven by deficit spending which is as much money printing as QE is. QE does not actually create new nominal wealth for the private sector since it takes away bonds and gives cash. Deficit spending OTOH does increase private sector nominal wealth - unless the CB withdraws cash from the economy to offset the creation of the new bond. And because bonds are backed by the CB, they are as good as cash and in many cases better because there is no FSCS limit. 2: Wrong. Negative interest rates withdraw cash from the economy because the interest paid to the central bank are deleted, unless they are used to buy government bonds, in which case its neutral in terms of new nominal wealth creation. The irrational societial distrust of negative interest rates is what put us on the course of the last 50 years and has led to where we are today. Ultimately this distrust can be traced to the phenomenon known as "inflation illusion".
  8. QE was done to protect savings. QE added liquidity to keep banks going, which meant we didn't have to wind up a big load of banks, because if we had, no way would the deposit insurance fund have been big enough to cover because it would have been most all banks. Think Cyprus++, where a bunch of people would have taken losses on savings - not just those with really big deposits. Savings underpin house prices, because that is what much of mine, yours and their savings is invested in. So bailing out savings by extension bails out property prices. In an ideal world when the 2008 crash hit, there would have been an initial period of QE etc just to stabilise things, and then instead of all the rest of the reflation QE and related measures (including currency swaps between FED/BOE/ECB) we'd have let some deflation run its course and instituted negative interest rates - nothing major just -0.5% or something or maybe a bit more if the deflation was really bad. That way, nominal and real house prices would have fallen (due to deflation) and those without any major savings (e.g. the young, the poor) would not have taken a hit on wealth - that would have been taken by the cash and asset rich. The BOE argument is that deflation if taken hold would have hit employment and would have hit the young first. That is only true if interest rates are kept above 0 during deflation, which represents a big rise in real rates which does generate unemployment since people with cash hoard it to take advtange of those high real rates. If however the central bank interest rate is set sufficiently negative to offset that hoarding impulse, then spending would not decline and neither would employment. In this scenario, negative rates don't juice asset prices since the effect of the negative interest rate is less than the effect of deflation on those assets. Until this regime, which is beneficial to the young, the poor, and those whose employment is marginal, then nothing will change. The minority sector of society who rely on cash savings for retirement income and would be hit by this outcome could be underpinned by suitable welfare arrangements. Overall it would be a lot cheaper an a lot fairer.
  9. Of course they can be cut. Plenty more room for cuts.
  10. Its worth noting that this drastic fall in Japanese real estate values - affecting both households and corporations (but mainly the latter) did not cause the money that was in those assets to disappear. Instead what happened is that via various bailouts the government massively expanded its debt and monetary base and corporations and households made whole for the most part. So where did this money (zombie money if you like) go? It went overseas and pushed up prices of various foreign assets. So in a way, Japanese investors have recovered much of the losses from their property bust by pushing up prices elsewhere and then riding that back up. Were we to see a similar bust here, the money currently circulating in real estate assets would have to go elsewhere - eventually. The picture below gives the analogy. On the right is money in real estate and related assts accumulated over multiple decades. On the left is the "real economy"
  11. scepticus

    Housing - it's a global problem

    No they have not, real prices are up everywhere, and not just in the UK, and have been rising for 70 years. See: https://www.weforum.org/agenda/2017/04/four-charts-which-should-worry-you-about-rising-house-prices-and-inequality/ Chart titled "averaged real house prices"
  12. scepticus

    Housing - it's a global problem

    I agree with the general thrust. But, the lingering issues I have are: (A) If prices are discounted rents, then low interest rates imply high prices. The problem then simplifies to explaining low interest rates. Like real estate, this particular problem is also global, and has a long term secular trend that begins a long time before any so called debt boom. It also implies that if growth is low (which would give us low nominal interest rates) then prices must necessarily be high. And growth cannot be manufactured at will. (B) If the cost of living has decreased as you suggest in (3), how is it that it can be said housing is less affordable? If one needs a smaller percentage of ones income to secure the (non housing) essentials, is this really a drop in affordability or an expected balancing in a competitive society? (C) Lets say we "solve" the real estate problem such that the money currently supporting this edifice now spills out of it and into the real economy (e.g. all the essentials and items in the CPI and beyond). Would that be a problem?
  13. scepticus

    The war on cash heating up?

    I would have thought any half way decent state intelligence service could cause absolute chaos and go a long way to discrediting cryptos just by hacking a few big wallets and exchanges. Doesn't seem very hard to do given recents events. Who knows perhaps some of them are already trying it out on a small scale.
  14. Regarding LIBOR see : https://www.moneyandbanking.com/commentary/2018/3/4/bank-financing-the-disappearance-of-interbank-lending Rises in Libor suggest that banks are not keen to lend to one another on a short term, unsecured basis. Further, Libor is according to the above, and another article linked from the above, mainly generated from surveys of participants rather than actual transactions. In general a rise in libor away from CB rates suggests either that there is not much inter bank lending going on, which could be a systemic changes as suggested above, or alternatively might be a sign of bank stress (e.g. during 2008). I don't think rises in libor specifically foreshadow rises in CB rates - or even in market rates more generally, which is not to say that either won't tise, merely that libor is a dubious predictor.
  15. scepticus

    Housing - it's a global problem

    Poppie, just look at the chart on the front page of the HPC website. Explain the red (inflation adjusted) trend line that is curving up since the start of the chart in 1975 in terms of your credit expansion these if you please. I think you missed my whole point which is that your thesis can account just fine for nominal price rises, but not for the rise in *real* prices, which is what drives affordability. Or put another way, why does the inflationary impulse (whatever its cause) flow (and continue to flow) through real estate more than other essentials such as energy or whatever.

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