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The Interest Rate Chimaera

by Soothsayer  17 Aug 2005  01:55 PM FT Forum

The real reason Labour won a third term was because the electorate has not yet realised the extent of the structural weakness of the economy and the real legacy of Blair and Brown.

As I forecast in an earlier post the wealth creation process has stopped. We now learn that there has been no net private sector job creation essentially since the millennium.

The major "growth" areas have been the Public Sector payroll, Government white elephant IT contracts funded from taxes and so-called financial "services" busy getting the rest of the population into debt to fund the retail consumption of imports. Meanwhile real wealth creation is being transferred relentlessly to the East.

There is record private sector debt, rocketing Public Sector debt and an even larger public and private sector pensions liability. Total liabilities are in excess of GBP 3 trillion. Taxation is already way too high and wealth creation will now contract. Private sector jobs will reduce, tax revenue will fall short, Public Sector debt will continue to rise and eventually there will have to be a massive Public Sector shakeout with pensions, in all probability, not being fully honoured.

I also forecast in an earlier post that sometime, quite soon, the Pound will be subject to some deadly serious bullying. In the shark pool of the financial markets preliminary nibbling has already begun in a classic "testing the defences" manoeuvre. Any further signs of weakness by the BoE and the nibbling will become a feeding frenzy.

The BoE will not be able to lower interest rates to any significant extent. Unlike America, with the Dollar as a reserve currency and a low tax economy, or Japan (or even Europe to a certain extent) with retained productive expertise and capacity, Britain is structurally very weak, reliant on huge borrowing to enjoy the labours of others. The lowering of interest rates is a financial engineering device which, in itself, does not address the fundamental problem. Britain isn't doing anything very useful anymore, its' debt will be worth little to emerging economies in future and therefore it will have to accept a much lower standard of living.

The historic adjustment is always via the mechanism of recession. Except in the scale, which will be very large, it will be no different this time. Wealth will be reduced by a combination of asset value depreciation and monetary inflation. Britain will have to restore itself on the long road somehow by creating real wealth again.

The prognosis for house prices is, as I have repeatedly stated on this forum for the past 18 months, at least a 50% fall in real terms from the peak by the next decade. Doubt it not.

try posting that on the C4 homes forum and see what you get .....an instant ban I should think :rolleyes:

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ouch!

What a post.

But like I said a HPC is not the problem - its a symptom.

In spite of all this I do NOT believe the "meltdown" scenario.

I have recently met some very forward looking, positive people in British business.

There are opportunities aplenty in Britain (and Ireland - the UKs proxy in Europe).

What people are picking up on - the British disease, if you will - is a fear of change.

If the UK can adapt to new environments and adopt new views things can be very different.

China and India are taking all the 20th century jobs - call centres, heavy industry, manufacturing etc... But this is the 21st century.

It seems to me, as an "auslander", that it takes a huge event or something to shake the UK out of its torpor and get it moving. Perhaps those events are coming, perhaps not.

A lot of what I read on this site is "little englander" stuff - blame everyone, anyone else... but dont do anything about it. Dont recycle. Dont consume less. Leave the lights on. Call the council. Blame the parents.

The housing market correcting itself, slaughtering the landlords and raining manna down on the FTBs is pure fantasy - people are sitting back waiting for it to happen so that they can profit from others misfortune. Sad really.

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The following is from the FT forum :-

meltdown ahead

by estateman -  15 Aug 2005  12:27 PM

I hate to say it but I can see my business going under if things get much worse. A crash is on the way and I hold the govenment responsible for fueling the market so prices became overstretched. I worry about how I'm going to tell employees I took on over recent years.

That's quite sad, he's just an honest joe innocent Estate Agent faced with a government fueling house prices to silly levels! Poor guy.

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Britain will have to restore itself on the long road somehow by creating real wealth again.

Now that's the real challenge isn't it? Who would have thought that the advent of the knowledge age would be pre-empted by a rush to feudal landlording? You can see it in the collective mentality of the sheeple: I didn't really get that technology stuff anyway...I'd rather dig for grubs in the garden.

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The housing market correcting itself, slaughtering the landlords and raining manna down on the FTBs is pure fantasy - people are sitting back waiting for it to happen so that they can profit from others misfortune. Sad really.

That is a pretty insulting post to people (not me) who cannot afford even a poor quality property even if they enslave themselves with the debt burden for the rest of their lives (most FTBs at this point). They are not "sitting back waiting for it to happen so that they can profit from others misfortune". Their misfortune is here and now and regardless of how hard they work, there is little they can do about it.

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"...Britain isn't doing anything very useful anymore, its' debt will be worth little to emerging economies in future and therefore it will have to accept a much lower standard of living..."

I'm not trying to be contrary but, this is the kind of thing that has been said before - a long long time before - about the UK which has, after one or two years of slump, emerged strong again. I am talking about statements to the effect of UK manufacturing has all but disapeared and all we do is provide services that no one really needs.

Why is this more of a problem now than in the past ?

EDIT: Good find by the way.

Edited by Losing Faith

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The problem is that we are now a debt driven economy.

Added wealth of percieved wealth has been in financial gain in asset value.

I.e house prices.

But as people have kept their properties this increased wealth has been freed and spent by borrowing against the property.

now a debt driven economy. (it cannot be argued that this is not that) can ownly grow whilst people get more into debt. which means that each month debt repayments also grow.. Which means that debt has to grow exponentially.

this cannot work.

and now the party has ended.. The borrowing has stopped.

and now we repay.. and while we are doing that the economy suffers.

crunch.

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The Interest Rate Chimaera

by Soothsayer  17 Aug 2005  01:55 PM FT Forum

The real reason Labour won a third term was because the electorate has not yet realised the extent of the structural weakness of the economy and the real legacy of Blair and Brown.

As I forecast in an earlier post the wealth creation process has stopped. We now learn that there has been no net private sector job creation essentially since the millennium.

The major "growth" areas have been the Public Sector payroll, Government white elephant IT contracts funded from taxes and so-called financial "services" busy getting the rest of the population into debt to fund the retail consumption of imports. Meanwhile real wealth creation is being transferred relentlessly to the East.

There is record private sector debt, rocketing Public Sector debt and an even larger public and private sector pensions liability. Total liabilities are in excess of GBP 3 trillion. Taxation is already way too high and wealth creation will now contract. Private sector jobs will reduce, tax revenue will fall short, Public Sector debt will continue to rise and eventually there will have to be a massive Public Sector shakeout with pensions, in all probability, not being fully honoured.

I also forecast in an earlier post that sometime, quite soon, the Pound will be subject to some deadly serious bullying. In the shark pool of the financial markets preliminary nibbling has already begun in a classic "testing the defences" manoeuvre. Any further signs of weakness by the BoE and the nibbling will become a feeding frenzy.

The BoE will not be able to lower interest rates to any significant extent. Unlike America, with the Dollar as a reserve currency and a low tax economy, or Japan (or even Europe to a certain extent) with retained productive expertise and capacity, Britain is structurally very weak, reliant on huge borrowing to enjoy the labours of others. The lowering of interest rates is a financial engineering device which, in itself, does not address the fundamental problem. Britain isn't doing anything very useful anymore, its' debt will be worth little to emerging economies in future and therefore it will have to accept a much lower standard of living.

The historic adjustment is always via the mechanism of recession. Except in the scale, which will be very large, it will be no different this time. Wealth will be reduced by a combination of asset value depreciation and monetary inflation. Britain will have to restore itself on the long road somehow by creating real wealth again.

The prognosis for house prices is, as I have repeatedly stated on this forum for the past 18 months, at least a 50% fall in real terms from the peak by the next decade. Doubt it not.

..that's without a word of exaggeration!

p

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That is a pretty insulting post to people (not me) who cannot afford even a poor quality property even if they enslave themselves with the debt burden for the rest of their lives (most FTBs at this point). They are not "sitting back waiting for it to happen so that they can profit from others misfortune". Their misfortune is here and now and regardless of how hard they work, there is little they can do about it.

Quite right gone west - I'm not sitting, waiting for a crash - I cannot (sensibly - and that's important) afford to buy a house and don't want to risk my and my family-to-be's financial future by buying one.

In fact NOT BUYING is in a sense DOING SOMETHING by witholding the oxygen of new (real) money from the cycle. I would like to be more active but with this government that is actually DANGEROUS!!

'Profit from misfortune' - 'PROFIT FROM MISFORTUNE'?? How dare you! I am experiencing misfortune NOW because I happen to be of house-buying age at the top of a peak!!

Profit from misfortune indeed.

And all this 'Little England' carp is just too much. Being incensed and angry and refusing to play this lethal game is brave and proud and maybe not what police-state Australians like but English I am and cross I will be - if you don't like it then go back to the beach and get stung by a massive jelly-fish whilst putting another shrimp on the barby.

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I refuse to buy even though I could purchase a house for cash; property is simply over-priced and is currently a poor asset to hold.

It is my prerogative to refuse to buy anything I see as over-valued whether it is a house, a car, or a washing machine. The decision to defer my property purchase until prices return to sanity has nothing to do with wishing misery on others.

Edited by Red Baron

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"...Britain isn't doing anything very useful anymore, its' debt will be worth little to emerging economies in future and therefore it will have to accept a much lower standard of living..."

I'm not trying to be contrary but, this is the kind of thing that has been said before - a long long time before - about the UK which has, after one or two years of slump, emerged strong again. I am talking about statements to the effect of UK manufacturing has all but disapeared and all we do is provide services that no one really needs.

Why is this more of a problem now than in the past ?

EDIT: Good find by the way.

This is not a new problem IMO, it has been a gradual slide over the past fifty odd years.

Britain used to be the "workshop of the world", engineering and manufacturing everything. What do we produce now ? Not alot of any use as the original post said.

The problem we have in this country is people don't really want to work for a living, and they certainly don't want to get their hands dirty !!

We value accountants more than engineers, but what do they actually produce ?

I have recently gone back to a job "on the tools" and it gives so much more job satisfaction than my previous job, but many peoples attitude is "oh my god why on earth did you do that"

Part of the reason is because many of these pointless Head office jobs will soon be history, companies everywhere have become way to top heavy and has produced a "tail wagging the dog" effect. At my last company I spent as much time producing pointless reports to all of the faceless suits at H.O. as I did actually meeting customers and bringing in the business.

I really hope that Britain can find another useful and productive niche for itself, but for the life of me I can't think what it might be.

Any ideas anybody ?

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This is not a new problem IMO, it has been a gradual slide over the past fifty odd years.

Britain used to be the "workshop of the world", engineering and manufacturing everything. What do we produce now ? Not alot of any use as the original post said.

The problem we have in this country is people don't really want to work for a living, and they certainly don't want to get their hands dirty !!

We value accountants more than engineers, but what do they actually produce ?

I have recently gone back to a job "on the tools" and it gives so much more job satisfaction than my previous job, but many peoples attitude is "oh my god why on earth did you do that"

Part of the reason is because many of these pointless Head office jobs will soon be history, companies everywhere have become way to top heavy and has produced a "tail wagging the dog" effect. At my last company I spent as much time producing pointless reports to all of the faceless suits at H.O. as I did actually meeting customers and bringing in the business.

I really hope that Britain can find another useful and productive niche for itself, but for the life of me I can't think what it might be. 

Any ideas anybody ?

Maybe gas exists in the North Sea...

Oh bugger!

Edited by Losing Faith

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I agree with this article apart from the 'added value' stuff about manufacturing vs services. We have this blinkered view that manufacturing is somehow better than service and accountants are 'better' than engineers. Fact is, any form of specialised job is valuable. Britain specialises is business services and it generates huge sums for our economy. Contrast this with Germany and Japan who have ten times as many engineers as Britain. Their recent record is not great. The world needs business services. If they buy them from us there's nowt wrong with that.

I still think we are headed for recession though.

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That is a pretty insulting post to people (not me) who cannot afford even a poor quality property

Apologies if anyone found it insulting - it wasnt meant to be. Still I dont see why people have to own a property. Whats wrong with renting? Most of Europe rents, as do the East cost of America (particularily NY). The rest of the world gets by without owning much at all.

Quite right gone west - I'm not sitting, waiting for a crash - I cannot (sensibly - and that's important) afford to buy a house and don't want to risk my and my family-to-be's financial future by buying one.

So you've made a decision, based on how you see the market.

Why have a pop at someone else? As it happens I'm in the same position but I just accept it and look for alternatives.

I dont get what you mean by "sensibly" - it implies that you could afford to buy but choose not to. You are in effect "waiting for a crash".

"...Britain isn't doing anything very useful anymore, its' debt will be worth little to emerging economies in future and therefore it will have to accept a much lower standard of living..."

I'm not trying to be contrary but, this is the kind of thing that has been said before - a long long time before - about the UK which has, after one or two years of slump, emerged strong again. I am talking about statements to the effect of UK manufacturing has all but disapeared and all we do is provide services that no one really needs.

Why is this more of a problem now than in the past ?

I agree. There is stuff going on in the UK, technology-wise, that would make your eyes water. What is lacking is a workforce with the requisite skills.

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i think we need a mixed economy with a greater emphasis on science and technology. If we change our complacent poorly managed ways we could create new industries like vodafone in telecoms.the rateof techological change could allow the uk to leap frog our competetors.

a new thatcher revolution is required in public services making them more dynamic.

if only we were more honest. less vain and stupid.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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