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Sir Sidney Ruff-Diamond

Why Does The Boe Not Want House Prices To Find Their Correct Level?

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I thought about it long and hard now, and I just can't quite fathom what motivates the Bank of England.

I have just finished watching 'The Love Of Money' and seen Mervyn King apparently earnestly talking to camera, explaining that it was irrational greed and speculation on overinflated property assets that led to Lehman Brothers' downfall.

Rationally, there should be every reason why the Bank of England should want UK house prices to find their true market value. This would give consumers more disposable income over the medium term and would dampen unsustainable credit bubbles and subsequent catastrophic busts. But while we have Mervyn King publically acknowledging that the credit bubble was insane, he and his Bank still pursue policies that seem hellbent on maintaining the insane property asset prices created by the credit boom.

Does it strike anyone else as odd that someone can say "Well clearly we were insane to value property at those levels, but let's keep those valuations in tact going forward"? Does that not strike anyone else as really, really odd?

I mean we can talk about political pressure from Brown in preparation for a general election, but Mervyn King has never much been bothered or apparently influenced by that and I can't see that being the case now. Of course, publically Mervyn King has told Gordon Brown and Alistair Darling not to try to prevent the housing market crash. The other rational argument is that we have just experienced the worst financial crisis since the second world war and re-stoking a speculative boom based on inflated property assets is like returning to a hornet's nest you've just felled.

It is well documented that leading up to the credit crunch, the Bank of England quite aggresively chased high house prices with interest rate cuts - in fact it can be shown by the raw data that whenever house price inflation dropped below 9%, the Bank of England whipped up the property boom again and again, regardless of what was happening to inflation. That's in the past now, and we're all supposed to know better in these post Lehman Brothers world, right?

So while Mervyn King publically condemns 'irrational exuberance' and 'speculation based on overpricing of property assets' and warns the UK government not to prevent the long-needed correction in the UK housing market why does the Bank of England pursue policies to do the exact opposite and re-stoke the housing market?

Are they just slow learners? Do they have very short memories? Do they have sizeable property portfolios themselves?

I just don't get it.

By the way, if it's not too much trouble to ask, I'd really appreciate it if Bank of England conspiracy theorists sat this one out - I just don't buy that crap. There has to be a more pedestrian and rational explanation - thanks.

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I thought about it long and hard now, and I just can't quite fathom what motivates the Bank of England.

I have just finished watching 'The Love Of Money' and seen Mervyn King apparently earnestly talking to camera, explaining that it was irrational greed and speculation on overinflated property assets that led to Lehman Brothers' downfall.

Rationally, there should be every reason why the Bank of England should want UK house prices to find their true market value. This would give consumers more disposable income over the medium term and would dampen unsustainable credit bubbles and subsequent catastrophic busts. But while we have Mervyn King publically acknowledging that the credit bubble was insane, he and his Bank still pursue policies that seem hellbent on maintaining the insane property asset prices created by the credit boom.

Does it strike anyone else as odd that someone can say "Well clearly we were insane to value property at those levels, but let's keep those valuations in tact going forward"? Does that not strike anyone else as really, really odd?

I mean we can talk about political pressure from Brown in preparation for a general election, but Mervyn King has never much been bothered or apparently influenced by that and I can't see that being the case now. Of course, publically Mervyn King has told Gordon Brown and Alistair Darling not to try to prevent the housing market crash. The other rational argument is that we have just experienced the worst financial crisis since the second world war and re-stoking a speculative boom based on inflated property assets is like returning to a hornet's nest you've just felled.

It is well documented that leading up to the credit crunch, the Bank of England quite aggresively chased high house prices with interest rate cuts - in fact it can be shown by the raw data that whenever house price inflation dropped below 9%, the Bank of England whipped up the property boom again and again, regardless of what was happening to inflation. That's in the past now, and we're all supposed to know better in these post Lehman Brothers world, right?

So while Mervyn King publically condemns 'irrational exuberance' and 'speculation based on overpricing of property assets' and warns the UK government not to prevent the long-needed correction in the UK housing market why does the Bank of England pursue policies to do the exact opposite and re-stoke the housing market?

Are they just slow learners? Do they have very short memories? Do they have sizeable property portfolios themselves?

I just don't get it.

By the way, if it's not too much trouble to ask, I'd really appreciate it if Bank of England conspiracy theorists sat this one out - I just don't buy that crap. There has to be a more pedestrian and rational explanation - thanks.

Well articulated; I often wonder the same thing myself. The guy says things which get me nodding my approval, then he does things that p me off.

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I thought about it long and hard now, and I just can't quite fathom what motivates the Bank of England.

I have just finished watching 'The Love Of Money' and seen Mervyn King apparently earnestly talking to camera, explaining that it was irrational greed and speculation on overinflated property assets that led to Lehman Brothers' downfall.

Rationally, there should be every reason why the Bank of England should want UK house prices to find their true market value. This would give consumers more disposable income over the medium term and would dampen unsustainable credit bubbles and subsequent catastrophic busts. But while we have Mervyn King publically acknowledging that the credit bubble was insane, he and his Bank still pursue policies that seem hellbent on maintaining the insane property asset prices created by the credit boom.

Does it strike anyone else as odd that someone can say "Well clearly we were insane to value property at those levels, but let's keep those valuations in tact going forward"? Does that not strike anyone else as really, really odd?

I mean we can talk about political pressure from Brown in preparation for a general election, but Mervyn King has never much been bothered or apparently influenced by that and I can't see that being the case now. Of course, publically Mervyn King has told Gordon Brown and Alistair Darling not to try to prevent the housing market crash. The other rational argument is that we have just experienced the worst financial crisis since the second world war and re-stoking a speculative boom based on inflated property assets is like returning to a hornet's nest you've just felled.

It is well documented that leading up to the credit crunch, the Bank of England quite aggresively chased high house prices with interest rate cuts - in fact it can be shown by the raw data that whenever house price inflation dropped below 9%, the Bank of England whipped up the property boom again and again, regardless of what was happening to inflation. That's in the past now, and we're all supposed to know better in these post Lehman Brothers world, right?

So while Mervyn King publically condemns 'irrational exuberance' and 'speculation based on overpricing of property assets' and warns the UK government not to prevent the long-needed correction in the UK housing market why does the Bank of England pursue policies to do the exact opposite and re-stoke the housing market?

Are they just slow learners? Do they have very short memories? Do they have sizeable property portfolios themselves?

I just don't get it.

By the way, if it's not too much trouble to ask, I'd really appreciate it if Bank of England conspiracy theorists sat this one out - I just don't buy that crap. There has to be a more pedestrian and rational explanation - thanks.

The Big Business game is called >

"Winner takes All"

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Guest KingCharles1st

Just another same old same old "WHY?" thread.

The British economy is like having a really really special toy- you know, one that was made by a fantastic magical toymaker in some Dickensian terraced house in 1862. It's fantastic, everyone loves it, but then one day it isn't working too well and somebody decides to take it apart (HPC) and find out how it works. And then nobody has a ******in' clue how it ever worked, and the guy who invented it- well- he's dead innit- and he didn't leave instructions for anyone else.

I think we HPCers have lost the faith now.

etc.

Sigh...

Edited by KingCharles1st

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I thought about it long and hard now, and I just can't quite fathom what motivates the Bank of England.

I have just finished watching 'The Love Of Money' and seen Mervyn King apparently earnestly talking to camera, explaining that it was irrational greed and speculation on overinflated property assets that led to Lehman Brothers' downfall.

Rationally, there should be every reason why the Bank of England should want UK house prices to find their true market value. This would give consumers more disposable income over the medium term and would dampen unsustainable credit bubbles and subsequent catastrophic busts. But while we have Mervyn King publically acknowledging that the credit bubble was insane, he and his Bank still pursue policies that seem hellbent on maintaining the insane property asset prices created by the credit boom.

Does it strike anyone else as odd that someone can say "Well clearly we were insane to value property at those levels, but let's keep those valuations in tact going forward"? Does that not strike anyone else as really, really odd?

I mean we can talk about political pressure from Brown in preparation for a general election, but Mervyn King has never much been bothered or apparently influenced by that and I can't see that being the case now. Of course, publically Mervyn King has told Gordon Brown and Alistair Darling not to try to prevent the housing market crash. The other rational argument is that we have just experienced the worst financial crisis since the second world war and re-stoking a speculative boom based on inflated property assets is like returning to a hornet's nest you've just felled.

It is well documented that leading up to the credit crunch, the Bank of England quite aggresively chased high house prices with interest rate cuts - in fact it can be shown by the raw data that whenever house price inflation dropped below 9%, the Bank of England whipped up the property boom again and again, regardless of what was happening to inflation. That's in the past now, and we're all supposed to know better in these post Lehman Brothers world, right?

So while Mervyn King publically condemns 'irrational exuberance' and 'speculation based on overpricing of property assets' and warns the UK government not to prevent the long-needed correction in the UK housing market why does the Bank of England pursue policies to do the exact opposite and re-stoke the housing market?

Are they just slow learners? Do they have very short memories? Do they have sizeable property portfolios themselves?

I just don't get it.

By the way, if it's not too much trouble to ask, I'd really appreciate it if Bank of England conspiracy theorists sat this one out - I just don't buy that crap. There has to be a more pedestrian and rational explanation - thanks.

I don`t see how their policies are "stoking" the property market? their policies seem to me to be preventing total collapse of the banks and the property market? If the money was being loaned to FTB`s to buy houses at current asking prices, the property market would not be seized up? It`s like someone who knows they are going to be repo`d buying new curtains,painting the house,telling the neighbours they just got a big bonus,and spunking the last of the MEW money on a new jeep, they know they are going down, they just don`t want to say when?

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I thought about it long and hard now, and I just can't quite fathom what motivates the Bank of England.

I have just finished watching 'The Love Of Money' and seen Mervyn King apparently earnestly talking to camera, explaining that it was irrational greed and speculation on overinflated property assets that led to Lehman Brothers' downfall.

Rationally, there should be every reason why the Bank of England should want UK house prices to find their true market value. This would give consumers more disposable income over the medium term and would dampen unsustainable credit bubbles and subsequent catastrophic busts. But while we have Mervyn King publically acknowledging that the credit bubble was insane, he and his Bank still pursue policies that seem hellbent on maintaining the insane property asset prices created by the credit boom.

Does it strike anyone else as odd that someone can say "Well clearly we were insane to value property at those levels, but let's keep those valuations in tact going forward"? Does that not strike anyone else as really, really odd?

I mean we can talk about political pressure from Brown in preparation for a general election, but Mervyn King has never much been bothered or apparently influenced by that and I can't see that being the case now. Of course, publically Mervyn King has told Gordon Brown and Alistair Darling not to try to prevent the housing market crash. The other rational argument is that we have just experienced the worst financial crisis since the second world war and re-stoking a speculative boom based on inflated property assets is like returning to a hornet's nest you've just felled.

It is well documented that leading up to the credit crunch, the Bank of England quite aggresively chased high house prices with interest rate cuts - in fact it can be shown by the raw data that whenever house price inflation dropped below 9%, the Bank of England whipped up the property boom again and again, regardless of what was happening to inflation. That's in the past now, and we're all supposed to know better in these post Lehman Brothers world, right?

So while Mervyn King publically condemns 'irrational exuberance' and 'speculation based on overpricing of property assets' and warns the UK government not to prevent the long-needed correction in the UK housing market why does the Bank of England pursue policies to do the exact opposite and re-stoke the housing market?

Are they just slow learners? Do they have very short memories? Do they have sizeable property portfolios themselves?

I just don't get it.

By the way, if it's not too much trouble to ask, I'd really appreciate it if Bank of England conspiracy theorists sat this one out - I just don't buy that crap. There has to be a more pedestrian and rational explanation - thanks.

None of it makes sense. Don't know if you remember this article back in March 2009Don't Try to Stop the Housing Crash ?

A top Bank of England official today warned the Government against trying to prevent the housing crash.

In a controversial call, Markets Director Paul Fisher said it would be ‘dangerous’ for policymakers to try to stem the relentless slump in the value of property.

........In testimony to the Treasury Committee, Mr Fisher said: ‘I think the most important thing for the housing market is that prices should be allowed to adjust to a level at which people can afford to buy houses.’

In recent years potential buyers were unable to get onto the property market because ‘houses were just so expensive,’ he went on.

‘We have to allow the housing market to find a new level at which people can afford to enter it.’ .........

.......‘There is a danger that policy intervention in the housing market stops these sorts adjustments from happening.

‘We have to be very careful with policy intervention that we don’t actually make it worse.’

Property prices are still 40 per cent above their historic averages, suggesting further declines are unavoidable, the Organisation for Economic Co-operation and Development said earlier this month.

Analyst Vicky Redwood of Capital Economics said: ‘The housing market correction has to happen and we may as well get it over with sooner rather than later.

‘It is obviously in the government’s interests to try to delay any adjustment in house prices and get them to fall at a slower pace for political reasons.’

Treasury Committee chairman John McFall said: ‘Policy interventions have to accept there has to be a floor in the market. There can be no artificial stimulus.’......

Was anyone listening ?

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House prices I think have become the keystone of the global economy, and asset class that can be hugely leveraged and has been.

The leverage is now so great it undermines the entire ponzi system.

Creating Fear & manipulated control over the largest purchase majority of 'people' make in their lifetime > shelter!

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Just another same old same old "WHY?" thread.

The British economy is like having a really really special toy- you know, one that was made by a fantastic magical toymaker in some Dickensian terraced house in 1862. It's fantastic, everyone loves it, but then one day it is working too well and somebody decides to take it apart (HPC) and find out how it works. And then nobody has a ******in' clue how it ever worked, and the guy who invented it- well- he's dead innit- and he didn't leave instructions for anyone else.

I think we HPCers have lost the faith now.

etc.

Sigh...

My belief in a major housing crash is stronger than ever now, the very obvious chasing of good news by the media is the sign that the end is near, the head of the snake doesn`t stop biting until the body is good and dead.

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Rationally, there should be every reason why the Bank of England should want UK house prices to find their true market value. This would give consumers more disposable income over the medium term and would dampen unsustainable credit bubbles and subsequent catastrophic busts. But while we have Mervyn King publically acknowledging that the credit bubble was insane, he and his Bank still pursue policies that seem hellbent on maintaining the insane property asset prices created by the credit boom.

But what is the normal level?

As far as most of us are concerned it is 3.5 times average income.

But that kind of assumes a fixed view of average income and price levels in the economy Overtime average incomes moves up as do average house prices, but they do occasionally diverge and sometimes they diverge for sustained periods.

Equally it is totally possible that that average income could be £200k, an average house £200k and a loaf of bread £50. This might work as a stable economy, you'd just be spending relatively more on bread and relatively less on housing than you do today.

Edited by mikelivingstone

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I think its just a concerted effort to not so much to keep houses unaffordable, but to weaken the pound. They believe reflation is politically acceptable, deflation isnt. I guess they think people would notice if their salaries fall, but will be less aware that the purchasing power of what they get paid in is eroded. Ultimately value will be destroyed in these asset classes and it will probably discourage FDI in the short to medium term, but their self interested politicians, not bothered about the real health of the economy.

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But what is the normal level?

As far as most of us are concerned it is 3.5 times average income.

But that kind of assumes a fixed view of average income and price levels in the economy Overtime average incomes moves up as do average house prices, but they do occasionally diverge and sometimes they diverge for sustained periods.

Equally it is totally possible that that average income could be £200k, an average house £200k and a loaf of bread £50. This might work as a stable economy, you'd just be spending relatively more on bread and relatively less on housing than you do today.

That`s stoned talk? It`s the MULTIPLES of income that is the problem, and how much of the agreed exchange medium you are paid for your input of time and labour? I can make bread, and I have built a couple of houses, it is mind control that is the problem, the sheeple need to break out of the pen.

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1. Political - people who live in houses that have fallen 50 percent in price not only feel miserable about losing loads of perceived or real wealth but many live in fear of losing their homes... so they do not vote for the Government at a coming election.

2. Practical - if the UK housing stock falls by 50% then the banks are worth tens of billions less and potentially they could not only go bust but also drive the country to bankruptcy.

It is that simple. Nothing more, nothing less.

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They are just going through the motions at the moment although this period is unusual as they are doing their best to seem to try to get the global saviour elected.

They admit they are doing something very very dangerous for the UK economy so they are being extremely reckless. The tab will have be picked up soon and probably immediately after the election.

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Why Does The Boe Not Want House Prices To Find Their Correct Level?

Its very simple, really.

The banks have these assets on their balance books against loans outstanding.

Someone with a 100k mortgage has a house valued at 150k.

The loan is secured against the house, so the banks has security.

If the actual value of the house is 50k, the banks loan of 100k looks very dodgy.

The loan is secured against the house, but this time the bank has no security.

Suddenly it has a major problem - its its liabilities (the money it loaned to buy the house) are far lower than 'assets' (the house itself).

And thats why the banks and govt are fighting very, very hard to stop prices from falling.

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I have come to the conclusion its down to intergenerational wealth transfer (theft). The root cause of the ills in our banking system is the greed and selfishness of our parents. They believe their children owe theM health care, pensions, and bloated asset values, and as a result policies have been set to favor the boomers. Orwell's Animal Farm, and Goldings Lord of the Flies are all you need to read to understand the ugliness facing the yoof of britain.

If you look back in 20 years you will see clearly how the boomers have manipulated the law and ignored morality to favor themselves. Thats not to say our generation would not do the same of course. But its may well be the best explanation. The yoof of britain have reason to riot but seem to sleep or live in a malaise. Why for example are bankers not in jail? Four football officials rig a few games and get years in jail yet the scum who run britains banks all walk away with bonuses. We are fools asleep.

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Its very simple, really.

The banks have these assets on their balance books against loans outstanding.

Someone with a 100k mortgage has a house valued at 150k.

The loan is secured against the house, so the banks has security.

If the actual value of the house is 50k, the banks loan of 100k looks very dodgy.

The loan is secured against the house, but this time the bank has no security.

Suddenly it has a major problem - its its liabilities (the money it loaned to buy the house) are far lower than 'assets' (the house itself).

And thats why the banks and govt are fighting very, very hard to stop prices from falling.

Very good reply

This is the truth

IRRO was also correct without the full explaination

House prices I think have become the keystone of the global economy, and asset class that can be hugely leveraged and has been.

The leverage is now so great it undermines the entire ponzi system

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Very good reply

This is the truth

IRRO was also correct without the full explaination

House prices I think have become the keystone of the global economy, and asset class that can be hugely leveraged and has been.

The leverage is now so great it undermines the entire ponzi system

Indeed. This strengthens the case that we now may entering the next upswing in prices, with a coordinated global governmental effort to drive more and more money into property.

The BoE will cut rates and print money remorselessly in an effort to achieve 2007 values as soon as possible. Any inflationary consequences will be considered desirable, with easing the public debt burden taking precedence over the plight of savers and elderly.

Edited by Turnbull2000

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Indeed. This strengthens the case that we now may entering the next upswing in prices, with a coordinated global governmental effort to drive more and more money into property.

The BoE will cut rates and print money remorselessly in an effort to achieve 2007 values as soon as possible. Any inflationary consequences will be considered desirable, with easing the public debt burden taking precedence over the plight of savers and elderly.

So we might as well buy now. Or keep our money in index linked bonds.

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Indeed. This strengthens the case that we now may entering the next upswing in prices, with a coordinated global governmental effort to drive more and more money into property.

The BoE will cut rates and print money remorselessly in an effort to achieve 2007 values as soon as possible. Any inflationary consequences will be considered desirable, with easing the public debt burden taking precedence over the plight of savers and elderly.

No, it doesn't. :angry: It's the bank/government giving you one last chance to get out. The bulls on 'ere think they are Gordons golden children, and uncle gord will look after them. Well he won't!

High asset prices suit their purpose for now (it keeps the banking system solvent, almost), but when they need another 20% of your earnings to pay for this debarcle. They will ****** you over like they have to savers, the young and the old.

Every time a house is sold, another toxic debt becomes a normal debt. We will get to a tipping point when the banks are functioning properly, and when that time comes anyone with a dodgy loan is toast. They would kill these loans tomorrow if they could.

Why would the rich and powerful ie people with real money and power, want their massive cash horde destroyed to bail out some halfwit with 3 BTL properties? They don't love you...... They hate you for destroying their golden goose with your insatiable greed.

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The bank of england uses high house prices to control inflation in the general economy. By reducing peoples' disposable income, they are reducing the amount of money available to chase available goods, so prices are forced down.

The QE measures can only reverse this effect, with general inflation making a comeback simply because people have more cash in their pockets at the end of the month.

The unintended consequences of tinkering with interest rates and failing to control the actual money supply is the biggest failing of the central banks IMHO.

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But isn't there a very basic contradiction between high housing costs and a competitive workforce?

The more we win the HPI prize, the more we price ourselves out of jobs because we need relatively high wages to pay the mortgages.

So high house prices as a mechanism of national prosperity seems a little bit flawed to me. Why on earth did anyone believe this could possibly be a good idea?

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I just don't get it.

Vested interest anyone?

I wonder how much of Kings portfolio consists of property related investment.

Never underestimate peoples self interest and selfishness.

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