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Leaving It To The 'experts', Who Don't Know What They're Doing


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Leaving it to the 'experts', who don't know what they're doing

Liam Halligan

In the early 1990s, James Carville, Bill Clinton's famously blunt advisor, suddenly realised the power buyers of US Treasury bills had over the government.

"I used to think if there was reincarnation, I'd come back as the President or the Pope," Carville quipped.

"But now I want to come back as the bond market. You can intimidate everybody."

Last week, the Bank of England began its woefully misguided policy of "quantitative easing" – or QE. With Gordon Brown's gun to its head, the Bank created money via a complex "reverse auction" procedure.

It's tough to understand, but that's the idea. Our so-called leaders hope the public find it so baffling they "leave it to the experts". But the experts don't know what they're doing.

The Bank has just created £2bn and bought UK Treasury bills – or gilts – from holders of these bonds in the market. The authorities aim to purchase £75bn of gilts over the next three months – in the hope the new money "kick-starts" commercial lending.

Short of setting fire to offices, shops and factories, I can't think of a better way to wreck the UK economy.

In last November's Pre-Budget report, the Government said the UK faced a deficit of 8pc of GDP in 2009/10 – the highest since the Second World War.

That estimate was based on the economy returning to growth by July 2009 – which is clearly nonsense. It also didn't include the massive bank bailouts and other measures to tackle recession.

In March 2008, Labour said the UK would borrow £38bn this year – already 40pc above the 2009/10 forecast made the year before. By November, that projection had ballooned to £118bn.

Since then, of course, the economy has nosedived. So in next month's Budget the new borrowing figure will be way higher.

The Treasury sold £146bn of gilts last year – the highest level ever and three times above the amount raised the year before.

Record levels of gilt sales will continue annually until 2012-13 – after which official projections stop. And given Brown's record on failing to admit future borrowing needs, even these jaw-dropping volumes of gilt issuance will be gross under-estimates.

Into this fiscal maelstrom Labour has thrown a multi-billion pound "Keynesian" boost and now QE. The authorities claim the first few days of QE have "been a "success" because Bank purchases have bid up gilt prices, so lowering yields.

Never mind that that plays havoc with the cost of financing occupational pension schemes – and will spark further scheme closures.

Lower gilt yields push down on all borrowing costs, ministers tell us, so boosting the economy. It is difficult to know how to respond to such nonsense.

The UK's problem isn't the price of credit but the lack of credit.

Households and firms can't access finance as the inter-bank market is still locked, because the banks – as I say each week – are still lying to each other about the full extent of their sub-prime liabilities. Until they're forced to "fess up", credit lines will remain frozen and jobs will be lost.

Even more worrying is the gilts market itself – which, in recent days, has been on an QE-induced high. Yields have plunged because the Bank is buying in large volumes.

The notion that the UK faces "deflation" is also crucial – giving the Government political cover to keep pursuing this absurd policy and because falling prices make a non-indexed gilt (the vast majority of those sold) seem a good bet.

But what happens when the Government starts SELLING gilts like crazy, as it must? What happens, above all, when the myth of deflation is exposed, and gilts traders start worrying about inflation instead?

High inflation is imminent. Sterling has plunged, base-money has exploded and oil prices are ticking up.

When price pressures burst through and the QE "sugar rush" fades, gilt yields will rocket. The market for UK government debt will snap from euphoria to blind panic.

Our public finances are under unprecedented pressure, given our demography, years of Brown and the last few months of fiscal abandon.

It won't be long before the UK can only sell its debt at ultra-high yields, which will spread across the economy, saddling us with mortgage costs last seen in the late 1980s.

But even that could be a rosy scenario.

Over the next few years, a whole host of highly-indebted, inflation-prone Western countries will be trying to sell vast quantities of gilts.

Creditor nations won't have it. No wonder China has just warned America that Beijing's huge US T-bill purchases may soon have to stop.

The UK faces the very real possibility of a gilts strike – as this column has been warning for months.

Who will buy our debt? And if the bond market was intimidating in the early 1990s, remember this recession will be deeper and the fiscal imbalances far, far worse.

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Plan A is to get people borrowing money

Plan B is to get people borrowing money

Plan C is to get people borrowing money

Plan D is to get people borrowing money

Plan E is to get people borrowing money

Every plan they have is to increase the debt the "experts" have no idea what they are doing they are clueless numpties.

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It won't be long before the UK can only sell its debt at ultra-high yields, which will spread across the economy, saddling us with mortgage costs last seen in the late 1980s.

So it looks like now would be a good time to pay off your debts, not take more debt on as Grodon is saying.

"Ultra-high yields" and "mortgage costs last seen in the 80s", i wonder if interest rates will go higher than 15% this

time, guess it's time 2 raise interest rates.

Edited by time 2 raise interest rates
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They appear to be taking the path to destruction.

Like somene else said - the best option would have been to increase interest rates, or have left them where they where - this would have rewarded those that had been 'prudent' (hate that word now that it has been corrupted by Zanu) - it would also have put more money into the economy in the hands of the wise ones, and needy pensioners, that would have led to increased spending eventually when assets had found their bottom (quicker).

Now we have a situation where money is being sucked out of the UK, by foreign investors, due to lack of savings returns, by dwindling business and to compound that we have money pumped in by central bankers devaluing the spending power of what we do have - which has the pervese effect of stifling compumtion furture.

Its a mess of ZanuLabours making. It will take a run on the pound and IMF intervention to get the UK back into sanity mode.

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So it looks like now would be a good time to pay off your debts, not take more debt on as Grodon is saying.

"Ultra-high yields" and "mortgage costs last seen in the 80s", i wonder if interest rates will go higher than 15% this

time, guess it's time 2 raise interest rates.

15% would take out everyone with a mortgage more or less, the highest rates can go is probably around 3%-4%, that would be around a 800% increase wouldn't it from current levels?

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They appear to be taking the path to destruction.

Like somene else said - the best option would have been to increase interest rates, or have left them where they where - this would have rewarded those that had been 'prudent' (hate that word now that it has been corrupted by Zanu) - it would also have put more money into the economy in the hands of the wise ones, and needy pensioners, that would have led to increased spending eventually when assets had found their bottom (quicker).

Now we have a situation where money is being sucked out of the UK, by foreign investors, due to lack of savings returns, by dwindling business and to compound that we have money pumped in by central bankers devaluing the spending power of what we do have - which has the pervese effect of stifling compumtion furture.

Its a mess of ZanuLabours making. It will take a run on the pound and IMF intervention to get the UK back into sanity mode.

Of course, it's looking more and more likely that NuLab will be ejected from office next year, leaving the Conservatives to clean up the mess.

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They appear to be taking the path to destruction.

Like somene else said - the best option would have been to increase interest rates, or have left them where they where - this would have rewarded those that had been 'prudent' (hate that word now that it has been corrupted by Zanu) - it would also have put more money into the economy in the hands of the wise ones, and needy pensioners, that would have led to increased spending eventually when assets had found their bottom (quicker).

Now we have a situation where money is being sucked out of the UK, by foreign investors, due to lack of savings returns, by dwindling business and to compound that we have money pumped in by central bankers devaluing the spending power of what we do have - which has the pervese effect of stifling compumtion furture.

Its a mess of ZanuLabours making. It will take a run on the pound and IMF intervention to get the UK back into sanity mode.

Agreed. In spite of all the government's and BoE's actions the inevitable course will be higher interest rates. I still maintain that the faultlines have been appearing for some time now and rates will rise significantly before the end of this year. How high rates will go is anyone's guess. Returning confidence to overseas investors does not come cheap and the IMF, should they intervene, could leave the UK in a position like Iceland ie IR at 18%!

Just as well as Mrs STA and I began overpaying the mortgage three years ago - in less than 10 weeks it will be paid off completely and we will be debt-free net savers. Hopefully our prudence will be rewarded - we can but hope!

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They appear to be taking the path to destruction.

Like somene else said - the best option would have been to increase interest rates, or have left them where they where

It was Time2, myself and some others. We've been saying right back when rates were 5% approx that they should be raised, said before the bubble burst, said after, said now. But then our judgement's not clouded by a maniacal desperation to keep the economy mirage going fuelled on debt and hence get a X in a box.

Just as well as Mrs STA and I began overpaying the mortgage three years ago - in less than 10 weeks it will be paid off completely and we will be debt-free net savers. Hopefully our prudence will be rewarded - we can but hope!

Well done! But don't tell Gord help you Brown as he hates to hear from people who do actually know what they're doing. It tortures him inwardly with well overdue self-doubts about how he somehow blagged to power and got where he is.

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Think back less than 6 months ago , where were rates then ........

Think back 6 months ago and see what 5% rates where doing to the debt based economy.

Remember didn't Fed rates peak at 5.25%??? Look what happened then to all those with debt. There is too much debt in the system to cope with high interest rates.

The only solution would be dual interest rates, anyone with existing loans to get a lower rate to keep servicing their debts and new borrowers to get higher rates and loan amounts limited by income multiples.

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Think back 6 months ago and see what 5% rates where doing to the debt based economy.

Remember didn't Fed rates peak at 5.25%??? Look what happened then to all those with debt.

Go away. Do you think for one minute the FED didn't know what thy were up to? The UK economy,

as with the US economy, revolves around house price cycles, house prices boom, the powers that

be then blow it up only for them to boom again. The FED didn't raise interest rates from one to

five and a quarter % because they were bored, they did it to blow up their housing market and take

the wind out of China and Russisa's sails.

Edited by time 2 raise interest rates
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Guest vicmac64

They have every idea what they are doing.

They are making slaves of everyone - then who will resist the Global NEW WORLD ORDER which will be provided as the solution to everything.

TOTAL CHANGE

Before you can have total change you must break the old system.

What we are seeing is a knavish conspiracy against a free people the likes of which has never been seen before.

Plan A is to get people borrowing money

Plan B is to get people borrowing money

Plan C is to get people borrowing money

Plan D is to get people borrowing money

Plan E is to get people borrowing money

Every plan they have is to increase the debt the "experts" have no idea what they are doing they are clueless numpties.

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Guest vicmac64
Go away. Do you think for one minute the FED didn't know what thy were up to? The UK economy,

as with the US economy, revolves around house price cycles, house prices boom, the powers that

be then blow it up only for them to boom again. The FED didn't raise interest rates from one to

five and a quarter % because they were bored, they did it to blow up their housing market and take

the wind out of China and Russisa's sails.

You are getting there but you need to think a little more outside the box.

China and Russia are well in bed with the NEW WORLD ORDER.

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The only solution would be dual interest rates, anyone with existing loans to get a lower rate to keep servicing their debts and new borrowers to get higher rates and loan amounts limited by income multiples.

Dual interest rates wouldn't work , new borrowers paying higher rates and sensible income multiples would mean prices would have to be much lower for these new borrowers to get a affordable loan ....

.... but IF prices did drop though for these new borrowers it would only p1ss off the first set of borrowers who perhaps now having low rates on their loans are also seeing their house value fall to accomodate the new borrowers .

Edited by grey shark
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Guest UK Debt Slave
Of course, it's looking more and more likely that NuLab will be ejected from office next year, leaving the Conservatives to clean up the mess.

The Tories wont be cleaning up this mess. It is beyond any any of our politicians to save the UK now. Better to just get out while you still can

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'Uk problem is a lack of credit' ???

And there I was thinking the Uk problem was one of MASSIVE debt!

I think the latter has caused the former. When credit is taken advantage of, it becomes debt. We've had our share of credit, used it up to become debt. Time to stop the credit and the debt that it inevitably becomes, imo.

So, yes, I think you are right and that the article is wrong on this point.

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Liam is spot on here.

Gordon is leading the sheep to the slaughter.

Right now he wants you and the Government to borrow so as to prop up the economy just in time for the election.

But, and this is key, the bond market will not take this.

It is almost 100% certain that we'll end up with punitively high interest rates within the next 18 months.

If you thought you £500k mortgage was good value, at £1600 per month interest, what are you going to do when its £4200 per month in interest alone.

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It is, it's the lack of credit that's stopping people repaying their debts, you couldn't make it up.lol

The fundamental dynamic of our commercially issued, debt-based money system.

Ever increasing amounts of new money must continuously be borrowed into existence to service existing debt.

When this systemic monetary Ponzi scheme falters, the real economy grinds to a halt.

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Guest UK Debt Slave
The fundamental dynamic of our commercially issued, debt-based money system.

Ever increasing amounts of new money must continuously be borrowed into existence to service existing debt.

When this systemic monetary Ponzi scheme falters, the real economy grinds to a halt.

Time to wheel out that famous quotation by Jefferson ain't it?

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

... The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating. -Thomas Jefferson

Edited by UK Debt Slave
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You are getting there but you need to think a little more outside the box.

China and Russia are well in bed with the NEW WORLD ORDER.

I personally don't buy the new world order scenario, but then I could be wrong. What

I do buy is the fact that China was sucking the life out of the commodity markets, oils

and metals, which was pushing up US inflation. China was booming because the US

housing market was soaring, as was the UK which enabled all and sundry to keep mewing

and buying their cheap tat. The only way to stop it was to blow up theirs and our housing

markets as they did. Russia was getting dragged along on China's coat tails as they had

all the oil and their economy runs on high oil prices.

Sorted, innit? Blow up the housing market, China and Russia are stuffed, inflation falls.

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'Uk problem is a lack of credit' ???

And there I was thinking the Uk problem was one of MASSIVE debt!

Most businesses are built on a model of borrowing for investment and using overdraft facilities to tide over any cash flow problems throughout the year. There are many strong and profitable businesses going the wall through the actions of weak, non-profitable, state backed banks!

Good article! There only seems to be Liam Halligan and Jeff Randall that speak for a pervasive majority view of those who actually understand these issues

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