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Andrew Lilico, Shadow Mpc - 'nightmare Scenario Now Upon Us'

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http://www.economicsuk.com/blog/000920.html

Comment by Andrew Lilico

(Europe Economics)

Vote: Hold

Bias: Neutral

On the real economy side, the picture of a three- to six-month stimulus-induced temporary reprieve from 2009 Q4 to 2010 Q1 seems ever more likely. Further recession through the latter half of 2010 and into early 2011 seems almost equally assured. House price falls continue unabated. Financial markets have stabilised, but only in the sense of a patient described as ‘critical but stable’. The threat of wage deflation is now acute. Average weekly wages fell an incredible 6% in the year to February, and overall employee compensation fell 1.1% in the first three months of 2009. The nightmare scenario of heavily indebted households facing nominal wage falls now seems upon us. If matters do not turn around on the wages front as a matter of urgency, we could yet see widespread prime defaulting on a scale to dwarf the subprime issue.

Quantitative easing is continuing apace - our last weapon to try to limit nominal wage falls and the defaulting they would herald. The scale is enormous, and must surely result in high inflation down the line. I find it implausible that quantitative easing could be extracted so precisely that deflation can be safely averted without inflation spiking upwards. I would now consider it a success if deflation does not go beyond 5% and if there is only one year of 10% plus inflation on exit. Neither of these is assured. We must also worry about the implications of the policy measures required to get inflation down from 10% - will the economy be ready, by 2012 or 2013, to tolerate the high interest rates that might be required? Can we escape with only a mild tightening-induced recession in 2013?

Public expenditure is totally out of control, and must be brought under control as a matter of extreme urgency. Spending on current levels must have a material impact on the UK's long-term growth rate, and might undermine confidence amongst international lenders in the UK's creditworthiness. Politicians must understand that it is the spending itself, not merely the debt or even the deficit (serious though the deficit is), that is the real issue. This cannot be solved by tax rises or by hopes of future growth. The spending nettle must be seized, and seized urgently.

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Heey , didn't we reached the bottom earlier?

What is this guy saying? Is it that all bottom fans out there are simply reaching for their own bum in hope to really feel and prove the bottom?

For all these who reached the bottom, please take a shower before showing us what is around the bottom, because is smells like shit.

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Fantastic!

Falling wages and rapidly rising prices through QE - what a combination!

Deadly.

Worst of the lot. Worse than recession, worse than depression.

Every time the economy tries to rebalance itself via the market the central bankers stick their oar in and make the situation worse.

Edited by OnlyMe

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Quantitative easing is continuing apace - our last weapon to try to limit nominal wage falls and the defaulting they would herald.

The theory of QE is that it drives down borrowing costs by central banks overpaying for gilts with printed money. Well the bond market said balls to that idea this week.

It's a broken theory. This guys a numbnut for even suggesting QE works in the face of all available evidence to the contrary.

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Deadly.

Worst of the lot. Worse than recession, worse than depression.

Every time the economy tries to rebalance itself via the market the central bankers stick their oar in and make the situation worse.

This is where all this was always leading,and where HPC posters were saying all along.Inflation in goods/services and falling wages.The government refuses to cut benefits,or spending yet wages are falling,more money left will go on none taxed items like food.

This is the doomsday situation for the over leveraged,but a fantastic time for those who saw it coming.It will reach the point where the BOE has no choice but to ramp up interest rates.

I thought this crash in house prices would bottom around spring next year.I now think it could be spring 2012-2013 before they hit bottom.

In real terms,for those who bought around peak,or MEWed up to almost peak only 2 scenarios.1 they lose the house and maybe bankrupt alongside.2 they spend a decade or more with no disposable income.

The government must implode soon.Then massive spending cuts right across the board are certain.

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Deadly.

Worst of the lot. Worse than recession, worse than depression.

Every time the economy tries to rebalance itself via the market the central bankers stick their oar in and make the situation worse.

This would be starting to be over soon without the madness we have seen like you say.They are turning what would of been a very nasty recession into something that destroys the welfare state,destroys almost anything or anyone in its path with leverage.This rests 100% at the doors of government.

The markets are telling them government spending is 50% too high,but they just wont accept it.So it becomes 60% too high,70% too high until the whole thing collapses.

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Deadly.

Worst of the lot. Worse than recession, worse than depression.

Every time the economy tries to rebalance itself via the market the central bankers stick their oar in and make the situation worse.

Exactly,. the Bank of England and the politicians are to blame

makes me laugh all the self-congrats the politicians gave themselves for "making the Bank independent"! Cameron is going to have to jack up rates and get control of monetary policy

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Interesting to see that Dave S was even suggesting tightening would/might be needed by the end of the year.

Its tightening now very fast.The action is in US treasuries on the 10 year.Next stop UK gilts.

Everything they print is going straight into equities and commods pushing up inflation in all the wrong areas.

Somebody shoot them please.

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This would be starting to be over soon without the madness we have seen like you say.They are turning what would of been a very nasty recession into something that destroys the welfare state,destroys almost anything or anyone in its path with leverage.This rests 100% at the doors of government.

The markets are telling them government spending is 50% too high,but they just wont accept it.So it becomes 60% too high,70% too high until the whole thing collapses.

QE is always destructive, we warned about this when the BBC, The Times and the evil government were all telling us how wonderful it is. it will only get more destructive over the next 2 years as the state printer runs out of control to buy up the unsellable bonds. now is the time to prepare yourself

Edited by punter

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Its tightening now very fast.The action is in US treasuries on the 10 year.Next stop UK gilts.

Everything they print is going straight into equities and commods pushing up inflation in all the wrong areas.

Somebody shoot them please.

Don't think they'll reverse anything now. Too late.

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QE is always destructive, we warned about this when the BBC, The Times and the evil government were all telling us how wonderful it is. it will only get more destructive over the next 2 years as the state printer goes runs out of control to buy up the unsellable bonds. now is the time to prepare yourself

Isn't it interesting how the MSM is barely questioning the logic of QE.

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This would be starting to be over soon without the madness we have seen like you say.They are turning what would of been a very nasty recession into something that destroys the welfare state,destroys almost anything or anyone in its path with leverage.This rests 100% at the doors of government.

The markets are telling them government spending is 50% too high,but they just wont accept it.So it becomes 60% too high,70% too high until the whole thing collapses.

I think this has been stretched out to a 10 year downturn as a result.

What is horrific is the continuing pace of offshoring/outsourcing, the situation is getting worse, not better. Absolutely no rebalancing at all part from devaluation of the pound, which in itself brings its own problems and is now way out of the situation.

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Isn't it interesting how the MSM is barely questioning the logic of QE.

they haven't since before it started, they all claim it is a "weapon" like this idiot. I remember the Times running a piece of unbelievable guff, it's made to sound like some complicated operation. They will never admit that the Bank of England doesn't have a clue and is destroying the economy. Just like their stupid predictions, they're hailed as saints, the central Bank is lauded as some special institution working for the good of country when it is anything but.

our only hope is that Cameron will get a grip, sooner or later the IMF will force them to get a grip.

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Public expenditure is totally out of control, and must be brought under control as a matter of extreme urgency. Spending on current levels must have a material impact on the UK's long-term growth rate, and might undermine confidence amongst international lenders in the UK's creditworthiness.

Well, it's quite plain Brown couldn't give a monkeys about any of this. He'll squander however

many billions is necessary in a vain attempt to win votes as his ten years as Chancellor has

now proven, the man hasn't got a clue about money management especially when it's not his

money he's squandering. Let's just hope the people realise it's their money he's squandering

in an attempt to win votes and their kids and their kids and their kids will be paying it back for

decades.

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they haven't since before it started, they all claim it is a "weapon" like this idiot. I remember the Times running a piece of unbelievable guff, it's made to sound like some complicated operation. They will never admit that the Bank of England doesn't have a clue and is destroying the economy. Just like their stupid predictions, they're hailed as saints, the central Bank is lauded as some special institution working for the good of country when it is anything but.

our only hope is that Cameron will get a grip, sooner or later the IMF will force them to get a grip.

MMmm. I feel a fan chart coming on :lol::lol::lol:

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they haven't since before it started, they all claim it is a "weapon" like this idiot. I remember the Times running a piece of unbelievable guff, it's made to sound like some complicated operation. They will never admit that the Bank of England doesn't have a clue and is destroying the economy. Just like their stupid predictions, they're hailed as saints, the central Bank is lauded as some special institution working for the good of country when it is anything but.

our only hope is that Cameron will get a grip, sooner or later the IMF will force them to get a grip.

I would have thought the IMF would have raise dthe appropriate signals at qeuasing .. that they dont condemn this is totally surprising .?

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And in other news, on other threads, our resident useful idiots, aka trolls, are convinced that the current uptick in the housing market is in fact a sustainable recovereh rather than a DCB or noise caused by low transaction volumes, interest rates artificially as low as they could be or ever have been and irrational exhuberance. Sound fundamentals, that's what.... ;)

(I will become a bull, BTW, but when the time is right, not when some clueless numpty tells me to become one).

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The theory of QE is that it drives down borrowing costs by central banks overpaying for gilts with printed money. Well the bond market said balls to that idea this week.

It's a broken theory. This guys a numbnut for even suggesting QE works in the face of all available evidence to the contrary.

I think that what this QE is trying to achieve in practice is strenghten the Financial institutions balance sheets. They hold gilts at the moment, they sell these to the BoE which gives them freshly printed money in return. Financial institustions now have cash burning a hole in thier pockets that can be lent out to businesses and consumers. Hence it is inflationary.

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Summed up well.

http://www.safehaven.com/article-12946.htm

The quantitative easing programs in the United States and United Kingdom are not about preventing Japanese-style deflation. On the contrary, quantitative easing today is about helping to fund new debt issuances by an insolvent borrower. However, the bond purchases are only temporarily delaying our country's day of reckoning. Every entity that has come into contact with the unwinding credit bubble has been unable to survive. Now that various governments are showing signs of instability after getting involved with the unwinding credit bubble, it is clear that their actions will also prove fatal. The real crisis lies ahead.

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Interesting to see all the alarm bells about inflation.

Edited to reflect general comments...

You selectively picked only the comments from one member of the shadow MPC. If you read all of the blog posts by the memebrs of the shadow MPC you can see the range of views that illustrate that we are in uncharted waters.

The one you cut and pasted was the one predicting the armaggedon scenario.

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