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Wynne Godley In Todays Observer...

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From Godleys piece in todays Observer.....

Moving on five years, the period between 1997, when Labour came to power, and 2004, has seen net lending (which has remained deregulated) rise as much as it did between 1980 and 1989. And there has again been a self-reinforcing boom in house prices, of roughly the same size as occurred during the Eighties.

Here, the Bank of England seems originally to have taken the view that the rising flow of lending since 1997 was merely adding to the personal stock of financial assets, as could happen if a lot of people living in houses which had become extremely valuable decided to trade down, swapping one kind of wealth for another.

However, revised figures in the new Blue Book report seem to vindicate the contrary view that the lending was in fact adding to expenditure. It now appears that net saving fell fairly steadily between 1997 and 2004, eventually reaching negative territory on almost the same scale as in 1989. And the Bank has generously admitted that they got this wrong (having based their forecast on wrong figures). In any case, it now looks as though a major factor driving the economy between 1997 and 2004 has again been a rise in personal spending - financed by an unsustainable rise in lending.

Since mid-2004, house prices have stalled, lending has fallen back from its peak and personal spending has stagnated. There is nothing surprising about the downturn in net lending, since indebtedness, which is at a record level relative to income, cannot rise forever, though it remains unclear why the lending peak came just when it did. As the chart shows, the present situation bears a most uncomfortable resemblance to 1989. So are we in for another crash?......cont

Observer - Wynne Godley

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nulabour=old labour. I don't think they have the whit to spend us out of recession without raising the tax burden to unacceptable limits. this as usual will destroy incentive.

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and then everyone got togetehr and wanted new things.. and the banks lent them money and they had all these shiny new things..

this was okay because they had their houses so they could borrow against that.

Okay, if I could mortgage my bottom and borrow endless amounts of money I would still owe the money and need to pay it back..

and I couldn't sell my ****.. (no down the docks comments lol..) as I need my ****..

Its still debt.. and you need your home..

and no matter how much your home is worth you can't get the money from it unless you sell it.. and you need somewhere to live..

Like I need my bottom..

Debt is still debt..

and i am getting older.. i don't think realistcally by bottom is rising too much in value.

Edited by apom

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Why does unemployment go up when growth stalls?

Because a large part of the spending in the last couple of years has come from MEW money and has filtered all through the economy keeping everyone in 'jobs'.

When this stops (like it has), people stop spending, companies have poor results and make people redundant.

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Why does unemployment go up when growth stalls?

think of it this way

mr average in an average job making/selling stuff in a 3 bed semi worth 200K 125K mortgage

mr average in 2003 income = wage 25k + increase in house equity 25k = total income 50k - spends lots - needs lots of people to produce and sell him things.

mr average 2004 income = wage 25k + increase in house equity 0k = total income 25k - spends less...

mr average 2005 income = wage 25k + increase in house equity -10k = total income 15K - spends nothing - less people needed to make/sell things....

mr average 2006 looses his job - income = wage 0k + increase in house equity -25k+ total income =-25K - cant afford mortgage - meltdown - HPC!!!!

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think of it this way

mr average in an average job making/selling stuff in a 3 bed semi worth 200K 125K mortgage

mr average in 2003 income = wage 25k + increase in house equity 25k = total income 50k - spends lots - needs lots of people to produce and sell him things.

mr average 2004 income = wage 25k + increase in house equity 0k = total income 25k - spends less...

mr average 2005 income = wage 25k + increase in house equity -10k = total income 15K - spends nothing - less people needed to make/sell things....

mr average 2006 looses his job - income = wage 0k + increase in house equity -25k+ total income =-25K - cant afford mortgage - meltdown - HPC!!!!

Plus each time MR Average re-mortgages he owes more which cuts back the amount he has when he can no longer keep borrowing more..

Mr Average realises that there is no such thing as free money.

he pays back his debt with his tail between his legs.. he does spend some time trying to work out what he was thinking.. he has moved back the time he would have completed his mortgage.. he pays more each month..

he spends less than he would have done had he not ever remortgages.

the countries debt is now working as a giant hoover on the economy.

House prices don't fall in recessions.. peole get in too much debt with property, stop spending into the economy.

House prices cause recessions.

again the kesson is.

NO SUCH THING AS FREE MONEY

DEBT IS REAL, HOUSE PRICES ARE A MATTER OF OPINION

(the last was a quote of the head of the Bank Of England as the house prices stalled)

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  • 302 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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