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Most People Are Still In Denial.


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In my estimation there never ever was a "boom". The entire period of 1999-2006 was predicated entirely on fluff. A real boom is indicated by a growth in real wealth, by goods and services being produced with greater efficiency, with an increased quality of life, with a SUSTAINABLE growth that is NOT based on NOTIONAL values of property.

That never was the case. Almost all of the huge amounts of dosh released into the economy in the last decade was predicated upon one thing and one thing alone: The PERCEIVED value of property. Even the apparently wealth inducing spin offs of this fantasy...generally regard as an injection of capital and other feel good factors which apparently spawned industrial and service industry growth, was nothing more than a line of dominoes waiting to collapse.

The denial is still there, and in some senses even more dangerous than the initial denials that property values would ever implode. This denial is routed in the continuing illusion that things will somehow recover if only loans were enabled. But what are those loans servicing?

Example: I would like to buy a new car, but I am not going to, not even if a car dealer grovelled, begged, and offered me zero percent finance over ten years. I'm STILL NOT going to buy a car. The reason is simple. I cannot AFFORD a new car and even if I could there are more sensible things to spend my money on.

The mass delusion that is currently sweeping over the US and the UK is that somehow injecting cash into the economy is going to prop it up. This is crass, stupid and childish. It seems to me that one banality is replaced by another: The electorate was persuaded that UK has a solid economy and we are well placed to ride a storm. Nonsense, and was quickly proven so. So the next ploy is to be seen DOING something...it doesn't matter what...as long as some frowning minister appears on TV pretending he knows the answers. So billions get injected into the banks, and the electorate is persuaded this will solve everything. It solved NOTHING.

Plant, machinery and people that have skills are easily transfered. Closing hopeless companies who rode the boom but have no solid backbone is perfectly viable. Instead the governments of both the US and the UK insist on letting the top heavy, inefficient, vast corporations survive. It will achieve nothing. You can support the fallout without having to support the edifice which precipitated it.

The problem is NOT lack of credit, but LACK OF DEMAND. You cannot create demand overnight by injection of cash. The current denial is based upon faith in throwing large sums down a black hole. Let the banks fail but protect savers and depositors. It will be cheaper in the end. Let General Motors sink, but be generous to employees. Create a new industry using the plant and machinery, and skills that are left. Sack the board. Give them no salaries or bonuses. Let them claim dole like everyone else.

Loans are not the answer. Without demand, loans are futile. This is a golden opportunity to learn a lesson: Economies that are truly successful are not demonstrated by high streets with no real shops but 20 estate agents. Successful and vibrant nations are not those which make housing too expensive for the average person. Thriving towns and cities are those which have sustainable businesses producing products and service which people NEED, not merely aspire to.

The perceived boom in the last decade was nothing of the kind. It was hopelessly skewed in favour of speculation and short term greed. Every single penny profit made in most of this fantasy is NOW being paid back, big time. And you cannot blame just the banks. Every single person who made a tidy profit out of property shares the blame. That profit has now got to be paid for, because it never did grow on trees. For every pound profit made on speculative property deals, someone, somewhere is paying for it. Now we are all paying.

The "boom" was nothing more than an enormous shift of wealth....it was never ever a creation of wealth.

The boom never existed. It was a figment of media hype and naivity and greed on the part of millions. Those who said it was hype were derided, lampooned and written off. They are owed an apology, and not the kind of apology that's followed by a drive back to the country pile in the Aston, but a REAL apology followed by, in some cases, a nice cosy stay at her majesty's pleasure and confiscation of not just bonuses, but salaries too, plus a fine, and a good spell of community service, and a removal of opportunity to act, spiv like, ever again.

VP

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In my estimation there never ever was a "boom". The entire period of 1999-2006 was predicated entirely on fluff. A real boom is indicated by a growth in real wealth, by goods and services being produced with greater efficiency, with an increased quality of life, with a SUSTAINABLE growth that is NOT based on NOTIONAL values of property.

That never was the case. Almost all of the huge amounts of dosh released into the economy in the last decade was predicated upon one thing and one thing alone: The PERCEIVED value of property. Even the apparently wealth inducing spin offs of this fantasy...generally regard as an injection of capital and other feel good factors which apparently spawned industrial and service industry growth, was nothing more than a line of dominoes waiting to collapse.

The denial is still there, and in some senses even more dangerous than the initial denials that property values would ever implode. This denial is routed in the continuing illusion that things will somehow recover if only loans were enabled. But what are those loans servicing?

Example: I would like to buy a new car, but I am not going to, not even if a car dealer grovelled, begged, and offered me zero percent finance over ten years. I'm STILL NOT going to buy a car. The reason is simple. I cannot AFFORD a new car and even if I could there are more sensible things to spend my money on.

The mass delusion that is currently sweeping over the US and the UK is that somehow injecting cash into the economy is going to prop it up. This is crass, stupid and childish. It seems to me that one banality is replaced by another: The electorate was persuaded that UK has a solid economy and we are well placed to ride a storm. Nonsense, and was quickly proven so. So the next ploy is to be seen DOING something...it doesn't matter what...as long as some frowning minister appears on TV pretending he knows the answers. So billions get injected into the banks, and the electorate is persuaded this will solve everything. It solved NOTHING.

Plant, machinery and people that have skills are easily transfered. Closing hopeless companies who rode the boom but have no solid backbone is perfectly viable. Instead the governments of both the US and the UK insist on letting the top heavy, inefficient, vast corporations survive. It will achieve nothing. You can support the fallout without having to support the edifice which precipitated it.

The problem is NOT lack of credit, but LACK OF DEMAND. You cannot create demand overnight by injection of cash. The current denial is based upon faith in throwing large sums down a black hole. Let the banks fail but protect savers and depositors. It will be cheaper in the end. Let General Motors sink, but be generous to employees. Create a new industry using the plant and machinery, and skills that are left. Sack the board. Give them no salaries or bonuses. Let them claim dole like everyone else.

Loans are not the answer. Without demand, loans are futile. This is a golden opportunity to learn a lesson: Economies that are truly successful are not demonstrated by high streets with no real shops but 20 estate agents. Successful and vibrant nations are not those which make housing too expensive for the average person. Thriving towns and cities are those which have sustainable businesses producing products and service which people NEED, not merely aspire to.

The perceived boom in the last decade was nothing of the kind. It was hopelessly skewed in favour of speculation and short term greed. Every single penny profit made in most of this fantasy is NOW being paid back, big time. And you cannot blame just the banks. Every single person who made a tidy profit out of property shares the blame. That profit has now got to be paid for, because it never did grow on trees. For every pound profit made on speculative property deals, someone, somewhere is paying for it. Now we are all paying.

The "boom" was nothing more than an enormous shift of wealth....it was never ever a creation of wealth.

The boom never existed. It was a figment of media hype and naivity and greed on the part of millions. Those who said it was hype were derided, lampooned and written off. They are owed an apology, and not the kind of apology that's followed by a drive back to the country pile in the Aston, but a REAL apology followed by, in some cases, a nice cosy stay at her majesty's pleasure and confiscation of not just bonuses, but salaries too, plus a fine, and a good spell of community service, and a removal of opportunity to act, spiv like, ever again.

VP

I tried to strikeout "nice cosy" but it didn't work. Why not?

Edited by Qetesuesi
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A few points in response to this:

In my book, an economic boom always contains speculative elements and malinvestment, they're what differentiates a boom from healthy growth. Boom leads to bust; healthy growth doesn't (hence GB's insistence on 'no more boom and bust'). But all comes down to how you define a boom, I suspect that you and I have very different definitions and that's fair enough.

The key thing for a thriving city isn't producing things people need, it's producing things for which there's genuine and sustainable demand fuelled by earnings rather than by debt. Debt-fuelled demand brings consumption from the future into the present; looked at from a slightly later vantage point, it sent present consumption into the past. So having gorged ourselves beyond all reason over the past ten years, we now find that we've already eaten today's dinner, and tomorrow's, and ...

I disagree that these problems are due directly to those who profited from property. It's not the existence of property profits that's bringing the system down, it's the existence of so much unrepayable debt. Yes, the speculative profits came from that debt (they are that debt) but if the debt could be serviced and repaid, none of this would be happening. MBSs would still be considered to be valuable paper and banks would not be bust.

So IMO it is excessive borrowing leading to default that underlies our problems -- made far worse by the unwillingness of governments (and those who have profits to protect, of course) to allow the money-destruction that ought to happen as these debts default.

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So IMO it is excessive borrowing leading to default that underlies our problems

......almost right ...but the sales led lender and the lending was the problem....they were in it for the commission built into the loan and banked at point of sale...repayment .....?.....ah ...that wasn't the consideration....the commission was the golden bullet fired at every application....risk control ...no need ...loans were 'packaged' and sold on in tinsel wrappers...without the health warning ..'all that glitters is not gold'.....regulation ...?..no.. no ...the FSA were on watch.. <_<

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I agree with the OP.

My prediction is that confidence will come back in 2010. There will be more credit expansion because the masses can't let go of their borrowed riches. In 2013 there will be a huge crash worse than the depression.

Not even when the bailiffs come round?

OP I think you misuse the word 'rout'

' This denial is routed in the continuing illusion that things will somehow recover if only loans were enabled'

–verb (used with object) 8. to disperse in defeat and disorderly flight: to rout an army.

9. to defeat decisively: to rout an opponent in conversation.

from

http://dictionary.reference.com/browse/rout

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What we've had is an anti-boom.

A period of highly destructive central bank and government encouraged insanity that has fatally undermined the economic balance of the country, its businesses and of the people that have to live and work in it.

Meddling by a bunch of ignorant control freaks who have between them not aded one happeny of real worth or growth and or added to the net sum of the lives of the majority.

Edited by OnlyMe
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Guest KingCharles1st

The housing market since around 1997-98 has been a SCAM-

the biggest SCAM in UK history-

THE SCAMMERS KNOW IT- THE BANKS KNEW IT- THE CHANCELLOR OF THE TIME DIDN'T HAVE A ***ckkING CLUE...

Edited by KingCharles1st
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@OP

By and large I’m with you. Although I do believe there was originally a strong economy underpinning the origins of the boom. The way I see it the following took place.

The Tory government handed over a strong economy growing strongly.

Brown sticks to spending plans for 2 years and the economy continues to improve.

Brown starts expansion of public sector, reducing unemployment injecting extra cash into the economy. Starts increasing public debt once again.

People decide since economy looks good to bring forward purchases. They fund purchases through debt.

More debt is created ergo more money. In the sense that the broad money supply (M4) expands.

The growth in the money supply exceeds a growth in supply. Thus an upwards pressure on prices. As more money is chasing each consumer purchase.

** Now normally, increased purchases in foreign goods would adjust the currency exchange rate. Since the demand for say yuan has increased and funded from sterling you would see yuan increase upwards, and sterling downwards.

However, China prefers to keep its currency low, to encourage further purchases (classic short term government thinking) so it buys stuff back off the west in order to keep the currency low. The best thing for them to purchase, is our debt **

Debt is now cheap, foreign goods are also cheap, people decide to borrow more and spend more. More money is created.

People notice a continued upward pressure on asset prices like houses. This justifies further debt creation in order to purchase this safe assets that keeps rising in value. This pushes prices further.

** Normally, this would mean that all prices are rising and interest rates would increase to make saving more attractive and debt less so. However, fixed assets were rising but consumer goods (imports largely) where not. Government decides to switch to CPI (Consumer price index) for its inflation measure. This blocks out the unhelpful news about fixed assets (land, houses) while focusing on consumer goods which are being held down. **

Tax revenues are up, government goes to town with public spending. Yet more public debt created, more money goes into the economy.

The money supply enters a bubble phase. With both personal and public debt soaring.

The banks respond to unprecedented increase in money by doing what they are supposed to do. Innovate to manage the money supply. This is in part achieved by packing yielding debt and selling it. This ensures that risk is always sold to the individual most willing to hold that risk.

** All the while the ‘risk premium’ the extra amount investors demand to invest in risky assets steadily decreases. The risk premium for corporate bonds for examples over gilts drops to 1-1.5%. This is to say that for every £1 you invest in a riskier assets, you will get an extra 1p a year by way of compensation. This is fuelled because too much money if chasing a body of investments that is not growing as fast as the money supply is. **

By now the following factors hold true.

Government spending and debt is out of proportion with long term incomes.

Government projections are telling people that growth will never end.

Private spending and debt is out of proportion with long term incomes.

Banks willingness to lend based on inflated asset prices is unsustainable.

The currency is be held up by the purchase of debt, both unsustainable.

Eventually, of course, someone notices and is unwilling to buy assets at the inflated value, they start to sell the assets they have, the growth reverses.

Edited by KingBingo
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Guest KingCharles1st

We fail to remember the start of it all-

The news that many Asian companies were setting up shop in the UK was taken by the Labour leadership as confidence in the UK economy.

Umm- it was taken by the parent Pacific Rim companies as cheap labour and drastically reduced shipping charges- while tapping into the high skills of the UK technology sector. Also making a whole new central european market paid for by UK drone workers on "Crack-Berry" culture..

Toneeee and Gordon thought they had cracked it- to55ers

Edited by KingCharles1st
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@OP

By and large I’m with you. Although I do believe there was originally a strong economy underpinning the origins of the boom. The way I see it the following took place.

snip.....

I agree that Labour inherited a sound economy and messed it up. Whether this was inevitable whichever government was in office is a moot point. Because of globalisation and the effect on the world economy of China's policy (as you describe) I tend to think that the boom would have occurred under the Conservatives, too. However, it is possible that they may have made some effort to put away for a rainy day so that they would have been better prepared than are Labour to deal with the inevitable fall-out.

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I agree with the OP.

My prediction is that confidence will come back in 2010. There will be more credit expansion because the masses can't let go of their borrowed riches. In 2013 there will be a huge crash worse than the depression.

What. The masses globally?

Asia have been lending us the money to buy all this tat. Why should they keep on doing that? What this country does in isolation is going to have little effect.

They aren't stupid and they are now going to change their investment strategy to regional rather than global.

Globalism is dead. The next person who attempts it will be "Damian".

Edited by GregG
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I tend to think that the boom would have occurred under the Conservatives, too. However, it is possible that they may have made some effort to put away for a rainy day so that they would have been better prepared than are Labour to deal with the inevitable fall-out.

There are some specific gripes I have with Browns handling of the economy, I shall cover them and what I believe the Tories would have done.

Massive expansion of public spending and debt.

I believe that the Tories would not have largely increased debt or spending beyond the natural growth in the economy.

Challenging China over currency controls

Unlikely they would have put on more pressure than the Americans already where.

Ignored the money supply

They did once before, it was called the Lawson Boom/Bust. Since then Monetarists thinking has become widespread and popular within the party. I find it highly unlikely that the Tories would have ignored the broad money supply.

Let assets prices increase

On this area the Tories would have been weak; they would have enjoyed the feel good factor that came along with increasing house prices. However, since they would have had a better grip on the money supply its is unlikely that assets prices would have ever got as inflated.

So we would have had HPI, but without the government creating extra money on mass through its own debt, and higher interest rates to curb the money supply, personal debt and money creation could be the main the driver for HPI, although at a much slower rate.

Reserves

The Tories almost certainly would have higher reserves right now. Gold and currency.

So yes, a boom would have occurred under the Tories, but it would have been smaller, and much easier to recover from.

Edited by KingBingo
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There are some specific gripes I have with Browns handling of the economy, I shall cover them and what I believe the Tories would have done.

Massive expansion of public spending and debt.

I believe that the Tories would not have largely increased debt or spending beyond the natural growth in the economy.

Challenging China over currency controls

Unlikely they would have put on more pressure than the Americans already where.

Ignored the money supply

They did once before, it was called the Lawson Boom/Bust. Since then Monetarists thinking has become widespread and popular within the party. I find it highly unlikely that the Tories would have ignored the broad money supply.

Let assets prices increase

On this area the Tories would have been weak; they would have enjoyed the feel good factor that came along with increasing house prices. However, since they would have had a better grip on the money supply its is unlikely that assets prices would have ever got as inflated.

So we would have had HPI, but without the government creating extra money on mass through its own debt, and higher interest rates to curb the money supply, personal debt and money creation could be the main the driver for HPI, although at a much slower rate.

Reserves

The Tories almost certainly would have higher reserves right now. Gold and currency.

So yes, a boom would have occurred under the Tories, but it would have been smaller, and much easier to recover from.

Yes, I'd agree with that analysis.

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I'd also have hoped that the Tories wouldn't have massively overexpanded the public sector, well at least not with non-jobs.

I'd also have hoped that the Tories wouldn't have done anything to stop pension money being invested in the stockmarket.

A weak stockmarket has led to mis-allocation of money into assets.

but there might've been deeper reasons for the weakness in stockmarkets (the dot-com nonsense for example).

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I'd also have hoped that the Tories wouldn't have done anything to stop pension money being invested in the stockmarket.

A weak stockmarket has led to mis-allocation of money into assets.

but there might've been deeper reasons for the weakness in stockmarkets (the dot-com nonsense for example).

Yes they almost certainly would not have launched the pension raids that Brown did. There is now a wide spread sense among my generation that pensions are over taxed pointless investments.

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