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Guest Barebear

Was It Possible To Abolish Boom And Bust ?

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Guest Barebear

Browns famous statement along with we wont let house prices get out of control.

Was it possible to do this and if so what would have been the consequences. Would we have had loads of foreigners from boom countrys buying our properties and renting them out ?

Or would it have been just great, no credit crunch,fewer bankruptcies.less priced out,houses never getting much above 4 times income.

But of course no HPC.co.uk.

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Browns famous statement along with we wont let house prices get out of control.

Was it possible to do this and if so what would have been the consequences. Would we have had loads of foreigners from boom countrys buying our properties and renting them out ?

Or would it have been just great, no credit crunch,fewer bankruptcies.less priced out,houses never getting much above 4 times income.

But of course no HPC.co.uk.

I think you will always get swings of temprament, fashions and manias for different types of investment but only a credit bubble can propel them to such destructive heights.

So no you could not abolish boom and bust but Gordo and his mates could have stopped BOOM and BUST

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Browns famous statement along with we wont let house prices get out of control.

Was it possible to do this and if so what would have been the consequences. Would we have had loads of foreigners from boom countrys buying our properties and renting them out ?

Or would it have been just great, no credit crunch,fewer bankruptcies.less priced out,houses never getting much above 4 times income.

But of course no HPC.co.uk.

if houses were part of the set of products used to maintain inflation then it would have kept some brakes on....as prices rose inflation would have followed and interest rates would have increased making debt more expensive and less attractive

Foreigners coming in is where the problem becomes global, that part I can't comment on

Trouble is, the government and all the service industries we now seem to excel at all benefited from house price rises and thought of it in a short term way, unfortunately that short term is over, not that most of these people will ever admit it

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Browns famous statement along with we wont let house prices get out of control.

Was it possible to do this and if so what would have been the consequences. Would we have had loads of foreigners from boom countrys buying our properties and renting them out ?

Or would it have been just great, no credit crunch,fewer bankruptcies.less priced out,houses never getting much above 4 times income.

But of course no HPC.co.uk.

No you cant abolish boom and bust...

...but it always looks as if you can in the boom, because its always "different this time"

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You can abolish the cycle by taxing land correctly so that there is no longer any incentive to buy up housing to capture its future price.

Or not restricting its supply so much via over-draconian planning laws.

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Browns famous statement along with we wont let house prices get out of control.

Was it possible to do this and if so what would have been the consequences. Would we have had loads of foreigners from boom countrys buying our properties and renting them out ?

Or would it have been just great, no credit crunch,fewer bankruptcies.less priced out,houses never getting much above 4 times income.

But of course no HPC.co.uk.

The two statements are like chalk and cheese, the boom & bust statement was pure hubris & stupidity for which Brown could only be blamed for being inept.

THe house price statement was a straight lie, as soon as he changed inflation target from RPI to CPI it was quite clear the direction he wanted house prices to go. Its further evidenced by the number of Politicians who have become millionnaire property portfolio owners over the last 10 years. They simply wouldnt have bought more than one extra property had they honestly known brown was being honest.

Edited by Tamara De Lempicka

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Or not restricting its supply so much via over-draconian planning laws.

That on its own won’t do it

Even without planning laws, landowners are incentivised to hold on to and withhold land as demand rises

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I mentioned this on another thread, but why is CPI or RPI used to control the price of credit? Surely, the ratio of broad to narrow money (M4:M0) would show very clearly how much lending was going on, which is far more appropriate when attempting to price the cost of lending?

- Too much leverage would mean the base rate would go up, discouraging borrowing.

- Too little leverage would mean the base rate would go down, encouraging borrowing.

Tracking CPI seems to be boxing shadows. There are external influences, which should be separate from monetary policy, and CPI completely ignores excessive lending going into assets (causing bubbles).

I can see why the BoE tracking CPI may be good for the bankers/speculators, but I can't see why it is conducive to a stable economy. At least monitoring M4 we are watching the cause of internal inflation (the increase in the broad money supply). Even if the money is going abroad, if it is being borrowed here, then we are still at risk of over leverage. CPI/RPI may have their usefulness, but surely they are no good for setting base rates.

What should happen if CPI shoots up because of oil prices doubling or the exchange rate halving? I would argue that the businesses either need to work around them first and foremost. If the government feels the need to get involved (or meddle, as is often the case!), it should be through fiscal changes. If oil doubles, how about reducing the duty for a while, for instance?

I agree that a land value tax (which I think is a great idea - it is hard to avoid living in a house) would stop an asset boom appearing in property, but what about stocks, commodities etc? Credit clearly helps to inflate the boom cycle and with current monetary policy, to huge levels.

Are there external factors which need to be considered when setting base rates? As far as I can see, external factors aren't a monetary problem and shouldn't be treated as such.

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Abolishing boom and bust would be simple in theory. Abolish banking and allow democratic agencies control of the means of exchange.

You could still have manias, but without banking, they would always be zero sum, because money doesn't disappear when assets fall in value, as with the current system. The only systemic risk then would be hoarding, but since there would be no return on holding cash, it's unlikely that it would be very common.

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You can abolish boom and bust by removing the humans from the planet.

VMR.

But there are ways to reduce the size of the boom and bust, to more of an ebb and flow, without removing humans.

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But there are ways to reduce the size of the boom and bust, to more of an ebb and flow, without removing humans.

If you stop one asset class booming, the speculators will find something else.

They even managed to do it in tulips. Do we need a turnip tax policy just in case?

VMR.

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I agree that a land value tax (which I think is a great idea - it is hard to avoid living in a house) would stop an asset boom appearing in property, but what about stocks, commodities etc? Credit clearly helps to inflate the boom cycle and with current monetary policy, to huge levels.

Believe it or not, neither is particularly a problem

Share prices only hit people dabbling in share speculation (nobody uses share certificates to produce)

Commodity speculation is addressed by increased production - it is a useful signal of future scarcity

Land is problematic because it is used by producers and it is not produced

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If you stop one asset class booming, the speculators will find something else.

They even managed to do it in tulips. Do we need a turnip tax policy just in case?

VMR.

Without easy credit, it can only grow so large though.

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Believe it or not, neither is particularly a problem

Share prices only hit people dabbling in share speculation (nobody uses share certificates to produce)

Commodity speculation is addressed by increased production - it is a useful signal of future scarcity

Land is problematic because it is used by producers and it is not produced

I disagree. While someone dabbling in shares may not effect you directly it may still effect you indirectly. In the great depression, there were many who never bought any shares, but it didn't stop the resulting depression crippling other businesses. For example, if you owned a shop and had no shares, if all you shoppers had loads of shares and were suddenly wiped out, you are short of business too.

For a counter example on how the boom causes problems, we need look no further to the oil price bubble a year or two ago. While it may be a sign of limited supply, it didn't stop people piling in to cash in on it. Who suffers? Everyone else, even though the only oil they buy is at the petrol pump to get from A to B.

Free and easy credit will always lead to money flooding into whatever "thing" looks like it may be the big money spinner, which then feeds on itself. With tighter credit, this process can only go so far, limiting the damaging effects of malinvestment.

Land bubbles are particularly divisive as it effects almost everyone directly as it's very hard to avoid (even rent goes up), which is why I think a land value tax is a good idea, though.

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I mentioned this on another thread, but why is CPI or RPI used to control the price of credit? Surely, the ratio of broad to narrow money (M4:M0) would show very clearly how much lending was going on, which is far more appropriate when attempting to price the cost of lending?

There are some problems with just taking M4 as the total money supply. Its not broad enough. For instance it does not allow for the build up of Credit Swaps etc. A better estimation of broad money is Divisia. If you look that up it will give you a definition. Even that does not allow for some of the more riskier aspects of credit bubbles.

http://www.informaworld.com/smpp/content~d...tent=a713758380

The calculation of the index is done.

http://www.informaworld.com/smpp/content~d...tent=a713758380

Its also been used to predict inflation quite accurately. However, the research needs to be done again in light of the Credit problems we are having.

http://www.ingentaconnect.com/content/ind/...000002/art00005

Logically the Credit problems should be a cause of inflation not being as great as expected. However, we all know the contrary arguments to that one.

Perhaps we should just wet a finger, stick it up in the air to see which way the wind is blowing? :lol:

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There is a very simple way to avoid boom and bust. Remove the Bank of England (its only purpose is to be used as a political tool anyway) and replace it with ... the Euro - controlled by the ECB and not subject to the whims of politicians looking to curry favour with a praticular class of electorate.

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If you stop one asset class booming, the speculators will find something else.

They even managed to do it in tulips. Do we need a turnip tax policy just in case?

VMR.

indeed - it is just part of human nature and the market economy

in fact, the strognest prerequisite for a larger credit boom-bust cycle is the belief that it can't happen

In the preface to 'the great crash 1929' Galbraith goes so far as to say that his basic reason for writing the book was to keep the memory fresh in order to put off a repeat as far as possible - but he did say that a repeat was inevitable.

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Guest Barebear

A lot of people believed Brown when he said it , perhaps even some who've replied to this.

I thought they would at least try.

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Browns famous statement along with we wont let house prices get out of control.

Was it possible to do this and if so what would have been the consequences. Would we have had loads of foreigners from boom countrys buying our properties and renting them out ?

Or would it have been just great, no credit crunch,fewer bankruptcies.less priced out,houses never getting much above 4 times income.

But of course no HPC.co.uk.

it is possible to reduce the boom bust cycle

link

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indeed - it is just part of human nature and the market economy

in fact, the strognest prerequisite for a larger credit boom-bust cycle is the belief that it can't happen

In the preface to 'the great crash 1929' Galbraith goes so far as to say that his basic reason for writing the book was to keep the memory fresh in order to put off a repeat as far as possible - but he did say that a repeat was inevitable.

did he say the cause was the FED

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If you read anything by Fred Harrison then the short answer is yes. We needed the labour governemnt - on the back of it's landslide majority in 97 - to get in and introduce a Land Value Tax.

I don't agree it was the only way

A ban on 100% (plus) mortgages would have surficed, at any point in the boom. If people have to find 10% from their own resources, they soon stop ramping up prices.

tim

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