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porca misèria

Prisoners Dilemma

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http://bahumbug.wordpress.com/2009/08/29/p...a-and-boombust/

Bank of England prints new money, up to 20%[1] of the money supply.

Stock market rallies hugely, on thin volumes of trading. Well, that at least has some merit, given quite how far it had fallen.

-- But --

an unheard-of 18% fall in investment! A nominal fall: against what should have to be a 20% rise to retain its value in real terms! The productive economy is dropping out of competitive measures other than cost-cutting (notably staff costs).

And that 20% of new money gets soaked up by housing, where the price crash has halted since the spring, again on low numbers of transactions!

It's a prisoners dilemma: do individuals use their money for the overall good, or for personal gain? In a healthy society, the two would be, well, if not fully aligned, then at least not in stark opposition to each other.

You take out a big mortgage, get security, big tax breaks, and government bailouts if you lose your job. You rent and save for a house, you get poor security, and you have to live on the savings (including investments) if you lose your job. So here's the prisoners dilemma: if the job's not secure, get the biggest mortgage you can, and put those savings into a house! Now you've lost the flexibility to move for another job!

Repeat over lots of prisoners-dilemma-victims and the economy takes a real hit: the tax-and-benefits system has hobbled it. Not once but twice: the money sunk into a house is not being invested in the productive economy, and the homeowner has lost flexibility to move!

It seems to me we're on a timeline with this escalating boom&bust:

2005: house prices take a small fall, quickly "corrected" by low interest rates, 15-20% underlying inflation (M4 money supply), and pouring public money in.

-- leading to --

2007: lenders start going bust

2008: house prices take a bigger fall, "corrected" at mindblowing expense to the economy

-- leading to --

2010? government starts going bust

2010/11? house prices take a proper collapse, taking the currency and much else with them.

What to do about it? Well, emigrating again has appeal. Short of that, I'm putting ever more of what I have into assets that derive value from outside the UK.

[1] and counting, until they pull the plug on Denial.

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Don't agree. More security renting as housing benefit is a more long term solution if you rent and loose your job, rather than getting the DWP to pay your mortgage interest.

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Don't agree. More security renting as housing benefit is a more long term solution if you rent and loose your job, rather than getting the DWP to pay your mortgage interest.

BTDT. Wiped out many years worth of savings, that a house would've preserved.

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logic says get out of the pound surely?

Housing and stock 'values' are only going to get worse in this country printing or no printing.

That's essentially what I said: "Short of that, I'm putting ever more of what I have into assets that derive value from outside the UK." That does, however, include quite a few UK stocks, of companies whose markets are worldwide. And a small dipping of the toes into hedged investments.

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