Jump to content
House Price Crash Forum
Sign in to follow this  
Fairies Wear Boots

If We Get Inflation Soon, What Does That Mean To Hpcers?

Recommended Posts

I ask this question, because I have been reading the inflation versus deflation threads on here and see there are some recurring themes on what inflation would be like and is.

For a start, when some deflationistas are saying this is a very deflationary period, I have seen some conceed that prices of stuff might go up (food, electricity) but house prices and wages will be going down. To me, when we talk about inflation, we are talking CPI. Houses are removed from this and so are wages. When inflation was relatively high, above target a couple of years ago, Mervyn King talked about wage inflation as being "secondary inflation". We all know houses were removed. So when you say deflation are you talking negative CPI numbers?

Secondly and more importantly (to me), we have been in a low inflation environment for years now. Low inflation as in not like the 10 percent plus of the start of the 1990's. The Bank of England tries to keep inflation in the range 1 to 3 percent. But some posters on here now talk of a jump to high inflation real soon, sterling becoming worthless and the end to nominal drops. The BoE has only been able to get away with a 50 basis points base rate and QE, because the markets believe their deflationary arguements. If inflation starts to take off, then interest rates would have to rise. If we had a ten percent rate of inflation and interest rates were raised accordingly, then people and businesses with debt tied to the base rate are screwed. Nominal falls would be sharp and severe.

We have this phrase "inflate the debt away". It's just not possible is it? If we let inflation rise, then interest rates will have to rise and the indebted get some short term pain. If they don't raise interest rates the gilts market will go on strike. We definitely need to borrow. Them going printy printy in those circumstances just isn't spinable. That is Zimbabwe.

I get the feeling, some people on here think inflation means no more nominal drops. I don't think so.

So can we have some mild inflation in future, without having the inflationary holocaust Daddy Bear bangs on about?

Share this post


Link to post
Share on other sites
We have this phrase "inflate the debt away". It's just not possible is it? If we let inflation rise, then interest rates will have to rise and the indebted get some short term pain. If they don't raise interest rates the gilts market will go on strike. We definitely need to borrow. Them going printy printy in those circumstances just isn't spinable. That is Zimbabwe.

I get the feeling, some people on here think inflation means no more nominal drops. I don't think so.

So can we have some mild inflation in future, without having the inflationary holocaust Daddy Bear bangs on about?

I guess the government could subsidise the interest of all those who can't afford to pay and thus stop posessions to keep prices high (in the case of property at least).

This would reward everybody who had gambled with more debt than they could afford to pay back, and anyone holding pounds would think they were getting rich as they reap the interest from their quickly depreciating sterling.

I am feeling very cynical of late, but I can imagine that making total sense to somebody directing policy decision at the moment.

Edited by libspero

Share this post


Link to post
Share on other sites
I guess the government could subsidise the interest of all those who can't afford to pay and thus stop posessions to keep prices high (in the case of property at least).

This would reward everybody who had gambled with more debt than they could afford to pay back, and anyone holding pounds would think they were getting rich as they reap the interest from their quickly depreciating sterling.

I am feeling very cynical of late, but I can imagine that making total sense to somebody directing policy decision at the moment.

Cant say I would know what would work either, to stop bubbles in the first place, theres probably always a loophole.

Spanish property tax on transactions. Did that tax 'try to keep a lid on a property' bubble (guess who had a big property bubble then, ie Spain).

I think too few powerful people and an emporers new clothes, and a herd mentality situation, 'let the market work it out', 'too big to fail', etc etc....... did it for us.

Always as it ever was?

Share this post


Link to post
Share on other sites
I guess the government could subsidise the interest of all those who can't afford to pay and thus stop posessions to keep prices high (in the case of property at least).

This would reward everybody who had gambled with more debt than they could afford to pay back, and anyone holding pounds would think they were getting rich as they reap the interest from their quickly depreciating sterling.

I am feeling very cynical of late, but I can imagine that making total sense to somebody directing policy decision at the moment.

That's exactly what is happening right now, whether that can continue much longer I don't know, for example the government pays mortgage interest at 6% at the moment and all is ticking along, can you imagine if everyone who owns a home and has gone through JSA qualifying period then ends up on income support, as anyone with kids would/will and then suddenly the government is paying out at 10% up to £200k indefinitely ??? I just cannot see it happening.

edit to add a crucial word lol

Edited by iLegallyBlonde

Share this post


Link to post
Share on other sites

My simplistic view is that the govt's possible plan to deflate the debt away will not work. See if what I am saying makes sense:

Obviously we are not talking about a quick dose of hyper inflation. In the 70s and early 80s I guess inflation was at somewhere in the region of 5-10%. A mortgage debt debt of £20K in the early 70s might be the equivalent today of £150K (say 5 times average salary).

Interest rates during the same period were between 7-14%

HPI in the 70s and early 80s was substantial....My parents bought a 3 bed detached for 5k in the late 60s, sold it for £14K in 72, bought a bigger 4 bed for 30K and extended it and sold in 1985 for £145K (To buy a lovely country property for £170K that is now worth lots!!!!!!!)

THe plan to inflate away the debt (as ocurred in the 70s by accident) would have (back then) then looked something like this:

A debt of £20k on a £25 k property with highish interest rates would have been a big challenge but with HPI running at 10%, the house price would have reached £48k after 6 years, by which time the debt would have been down to around £16K. With wage inflation at 6%, a £5k salary would have become £7k+ in the same period. LTV of 33% and equity of £32K. DEBT IS HAPPILY BEING INFLATED AWAY AT LEVELS SUSTAINABLE FOR BORROWER, LENDER AND WIDER ECONOMY!

Move foward to today and let us suppose we are talking about a wage of £35K (both are working...say joint income of 50K), a house price of £210k (DOWN FROM £230k IN 2007), say they bought in 2006 for 190, with a 170K mortgage, MEWed to improve and buy a car and a couple of holidays and their loan is still at £195K. THey have started a family and are solely reliant on the primary income. They have a precarious£15k of equity and the loan to income multiple is over 5.5. They are probably being kept afloat right now by the fact that their lenders SVR is lower than the 2 year fix that they have just come off.

If moderate inflation kicks in and base rate goes up to 5%......Their house price has to fall....their mortgage rate heads to 9%+. Interest payment of £14 to 18K per annum...I'm no actuary.... If their loan is a repayment loan, most of his salary is going straight to the mortgage!

Rinse and repeat till repossessions hit 120K per annum and house prices hit 60% off peak. (Destroying the lenders completely!!)

Obviously the govt needs to aim at a less painful scenario, since moderate inflation will not work...

How about very low inflation???

Inflation under 2% on the back of low hyper low interest rates, steady commodity rates, stagnant house prices and a dash of deflation in parts of the economy.......THen oil hits 200 dollars a barrel, wheat prices triple due to global warming and a failed havest in Australia and a slump in the pound due to nervousness in the bond market.......

Bugger!!!!! House prices inflation and interest rates are suddenly at the mercy of influences way beyond the control of the incumbent leader!!!!

Edited by Hip to be bear

Share this post


Link to post
Share on other sites

All this talk of deflation is just propaganda to justify printing money.

My Council tax bill is going up,

My energy bills are going up,

My motoring costs are going up

My food bills are going up.

As I don't have a mortgage or any debt these items probably account for 90% of my expenditure.

So I can buy a pair of jeans for 3 quid from Asda, or flat screen TV's have come down in price, so what.

At the end of the day, the BOE and the Government can claim prices are falling, but in the real world prices are rising and as a result very few ordinary people have enough spare cash to go out and and kick start the economy.

At the moment EVERYTHING that is being said and done is geared towards trying to engineer a Labour victory at the next election and sod the consequences.

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   285 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

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.