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VeryMeanReversion

Trade Imbalances Caused House Price Boom?

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With much of the UK total debt being owned externally, I wonder if the house price boom and subsequent recession were really caused by trade imbalances. Some countries (e.g UK) just kept importing more than they exported for many years, the money used just came back into the housing markets and other loans, artificially labelled as AAA super safe. Trade doesn't seem to be much of a financial media issue in the current crisis as far as I can see.

Funny really that by buying an excess of foreign products, the money is lent back to us again to buy more foreign products and simultaneously make our houses more expensive via bank leverage.

Until trade is balanced (via much lower real wages), I think the debt can only be shifted back and forth between the public and private sectors. An austerity plan that doesn't result in rebalancing trade will just cause a permanent downward spiral IMHO.

So an austerity plan really needs to be a lower-real-wage plan (disguised for minimum public acceptance and why no one will ever vote for it).

Another funny thing is that by bailing out the worst banks, we missed a big chance to stiff a lot of external creditors (where the risk belonged) and instead, dump it fully on the UK taxpayers.

Your thoughts please.

VMR.

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Yes of course!

The problem as I keep saying is that China and Germany need to spend more, consume and inflate and stop accumulating surpluses which they don't need.

We've spent a decade lowering living standards by scrapping private pensions, lowering real wages (I'm not convinced house prices have risen so much rather real wages have relatively declined) and public sector has been forced to take up the slack.

Now the public sector is the last shoe to drop as it were.

But the underlying problem remains - China and Germany's trade surplus policy.

(We ought also of course have not permitted the money flows from the US into our housing market via US lenders pumped up by Chinese recycled debt and securitisation. Protectionism would have helped us here, as it would the piggies in relation to Germany).

Bottom line is the glow ball rich get richer, you get poorer until these imbalances reverse.

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With much of the UK total debt being owned externally, I wonder if the house price boom and subsequent recession were really caused by trade imbalances. Some countries (e.g UK) just kept importing more than they exported for many years, the money used just came back into the housing markets and other loans, artificially labelled as AAA super safe. Trade doesn't seem to be much of a financial media issue in the current crisis as far as I can see.

Funny really that by buying an excess of foreign products, the money is lent back to us again to buy more foreign products and simultaneously make our houses more expensive via bank leverage.

Until trade is balanced (via much lower real wages), I think the debt can only be shifted back and forth between the public and private sectors. An austerity plan that doesn't result in rebalancing trade will just cause a permanent downward spiral IMHO.

So an austerity plan really needs to be a lower-real-wage plan (disguised for minimum public acceptance and why no one will ever vote for it).

Another funny thing is that by bailing out the worst banks, we missed a big chance to stiff a lot of external creditors (where the risk belonged) and instead, dump it fully on the UK taxpayers.

Your thoughts please.

VMR.

Trade inbalances are a big factor.

But mainly it was globalisation that has kept wages down here and in the US which was the reason people and countries got into so much debt in order to maintain their standard of living.

Without the economic boom which was mainly down to the housing bubble economic growth over the last 10 years would have been very weak

and there would have been much resistance to globalisation including the offshoring of jobs.

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With much of the UK total debt being owned externally, I wonder if the house price boom and subsequent recession were really caused by trade imbalances. Some countries (e.g UK) just kept importing more than they exported for many years, the money used just came back into the housing markets and other loans, artificially labelled as AAA super safe. Trade doesn't seem to be much of a financial media issue in the current crisis as far as I can see.

Funny really that by buying an excess of foreign products, the money is lent back to us again to buy more foreign products and simultaneously make our houses more expensive via bank leverage.

Until trade is balanced (via much lower real wages), I think the debt can only be shifted back and forth between the public and private sectors. An austerity plan that doesn't result in rebalancing trade will just cause a permanent downward spiral IMHO.

So an austerity plan really needs to be a lower-real-wage plan (disguised for minimum public acceptance and why no one will ever vote for it).

Another funny thing is that by bailing out the worst banks, we missed a big chance to stiff a lot of external creditors (where the risk belonged) and instead, dump it fully on the UK taxpayers.

Your thoughts please.

VMR.

I don't know why people continually state the myth that we need real-terms lower wages. As a share of national income wages are at a historic low at 53% of GDP as compared to the long run average of 60%.

Yet individuals here also state we need lower asset prices. But that is more or less the same as a real terms wage increase given that when we look at asset prices we look at them in relation to wages.

I'm sure somebody will mention china hire-10-for-the-price-of-1-westerner, but the issue there isnt that western wages are too high but that asian wages are too low. Its madness that they cannot afford the products they themselves make.

Overall wages in real terms need to increase a bit in the uk, via large scale asset price deflation (pretty much all types), which is mostly offset by substantial increases in prices of imported goods. The overall affect however would be to make the vast majority of uk citizens better off.

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Yes of course!

The problem as I keep saying is that China and Germany need to spend more, consume and inflate and stop accumulating surpluses which they don't need.

We've spent a decade lowering living standards by scrapping private pensions, lowering real wages (I'm not convinced house prices have risen so much rather real wages have relatively declined) and public sector has been forced to take up the slack.

Now the public sector is the last shoe to drop as it were.

But the underlying problem remains - China and Germany's trade surplus policy.

(We ought also of course have not permitted the money flows from the US into our housing market via US lenders pumped up by Chinese recycled debt and securitisation. Protectionism would have helped us here, as it would the piggies in relation to Germany).

Bottom line is the glow ball rich get richer, you get poorer until these imbalances reverse.

Meh, China and Germany have been using the tried and true "loss leading" method for nuking the competition.

When they stop, the competition will return so they either have to keep giving away stuff (no problem with that, is there?) or they have to stop and let comp[etition back in (again, can't see any problem.)

The big myth of the current situation is that by taking voluntary debts and making them mandatory by law on the taxpayer there will be a higher return than in the private sector.

Which there won't be!

As for the elite - forget about it, dead men walking.

The manufacturing nations are going to get levelled by default and the service economies already are ******ed and can only go one way and that's up - that's why it's a depression, baby.

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I don't know why people continually state the myth that we need real-terms lower wages.

Just to compete in a global economy. Someone out there can do the higher skill work cheaper than us so they will get the work. Our national competitive advantages are draining away.

Wages may be a lower % of total income now but maybe thats because there is a lot of profitable companies out there that are not labour intensive.

but the issue there isnt that western wages are too high but that asian wages are too low.

Same thing if you think in real-terms rather than nominal wages in their own country.

Its madness that they cannot afford the products they themselves make.

Overall wages in real terms need to increase a bit in the uk, via large scale asset price deflation (pretty much all types), which is mostly offset by substantial increases in prices of imported goods. The overall affect however would be to make the vast majority of uk citizens better off.

I think the Yuan-Dollar peg may help us here, Chinese imports will become more expensive in Sterling terms. I know the owner of one UK plastics manufacturer that says he can compete with Chinese prices once the cost of shipping is included for large items (even before the 25% sterling drop).

VMR.

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Just to compete in a global economy. Someone out there can do the higher skill work cheaper than us so they will get the work. Our national competitive advantages are draining away.

I don't understand why that has to be a truism.

There are all kinds of things we pay over the odds for in strict effeciency terms because it actually makes us richer.

Ford had it right.

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Meh, China and Germany have been using the tried and true "loss leading" method for nuking the competition.

China had the currency peg forcing down wages but what did Germany do?

The manufacturing nations are going to get levelled by default and the service economies already are ******ed and can only go one way and that's up - that's why it's a depression, baby.

Trying to translate into something I can follow......

I think you are saying the surplus/manufacturing type nations are going to find it difficult to export to the rest of us when we are all implementing austerity packages. However, they have acquired savings which can now be used to pick our assets up on the cheap (if we allow it).

VMR.

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China had the currency peg forcing down wages but what did Germany do?

Made half of europe eat their shit via the ECB?

Trying to translate into something I can follow......

I think you are saying the surplus/manufacturing type nations are going to find it difficult to export to the rest of us when we are all implementing austerity packages. However, they have acquired savings which can now be used to pick our assets up on the cheap (if we allow it).

VMR.

So they can pick us up to the point where they can be paid back?

That's not gonna fly.

Monopoly is over, one guy won, time to pack up the board and play something else.

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China had the currency peg forcing down wages but what did Germany do?

Trying to translate into something I can follow......

I think you are saying the surplus/manufacturing type nations are going to find it difficult to export to the rest of us when we are all implementing austerity packages. However, they have acquired savings which can now be used to pick our assets up on the cheap (if we allow it).

VMR.

Sound of another penny dropping.

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I don't understand why that has to be a truism.

The old approach seemed to be to destabilise the rest of the world so we can use them for cheap labour, get them in debt and then pick up assets cheap. The new approach of global free(ish) trade with a fair(ish) playing field means a levelling of incomes. Any advantage in one country can be quickly copied by another.

VMR.

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I really have trouble following your posts since there are so many possible meanings. So I will attempt another translation.

So they can pick us up to the point where they can be paid back?

Just buy all the assets that are worth anything.

That's not gonna fly.

For which side?

Monopoly is over, one guy won, time to pack up the board and play something else.

Who won? The one with all the cheap goods or the one with the money that may or may not be useful.

VMR.

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Peg theirs to the rest of europes.

Good point, but I wonder if the peg was initially reasonable but the Germans chose to save and the rest of Europe choose to borrow.

The single currency just couldn't adapt to that.

VMR.

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The old approach seemed to be to destabilise the rest of the world so we can use them for cheap labour, get them in debt and then pick up assets cheap. The new approach of global free(ish) trade with a fair(ish) playing field means a levelling of incomes. Any advantage in one country can be quickly copied by another.

VMR.

Sure, which means that the east starts copying the wests social and envronmental programs and stops treating it's workers like slaves?

I've said this before, but the period in history the current fiasco is most like is the US civil war. Comes a time when people realise either the slaves have to be freed or everyone working has the same conditions and pay as them.

Oh and my strong contention why we are in this mess is because the material products and the practical science of the enlightenment were shipped abroad but the core social philosophy (all men are equal, reason and evidence > whims of authority and so forth) that comes with it was not.

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I really have trouble following your posts since there are so many possible meanings. So I will attempt another translation.

Of course, that's the point of my posts.

Just buy all the assets that are worth anything.

And what will they do with the rest of the tenner?

For which side?

Either.

Who won? The one with all the cheap goods or the one with the money that may or may not be useful.

VMR.

The guy who has control, which is what monopoly is all about.

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And what will they do with the rest of the tenner?

Well, there are still a few profitable companies in the UK like BP!

The guy who has control, which is what monopoly is all about.

Who has control? The one with the guns (mostly us), the one with the plasma TV's and plastic toys, or the one with the bag of promises (cash)

I the feeling that an austerity package means we are going to pay our debts honestly (ish) and give up control voluntarily.

VMR.

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Sure, which means that the east starts copying the wests social and envronmental programs and stops treating it's workers like slaves?

It will head that way slowly.

I've said this before, but the period in history the current fiasco is most like is the US civil war. Comes a time when people realise either the slaves have to be freed or everyone working has the same conditions and pay as them.

Oh and my strong contention why we are in this mess is because the material products and the practical science of the enlightenment were shipped abroad but the core social philosophy (all men are equal, reason and evidence > whims of authority and so forth) that comes with it was not.

I could understand that without having to look anything up. You're losing your style :)

VMR.

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  • 260 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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