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silver surfer

Uk Needs More Debt To Hit Growth Targets

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Household debt

Here we can clearly see the impact of Osborne’s changes over the next three years: public debt down by £43bn BUT private household debt up by £245bn – five times as much.

Osborne thinks we're saving too much.

Wonder how he's planning to achieve that then?

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For me growth seems to be a function of increased money supply over price inflation.

For the decade leading upto the crisis, M4 was increasing by 10%+ each year (debt), but we ignored HPI and measured inflation as a basket of cheap Chinese imports and European labour.

After a brief government intervention (where they took on increased debt to cover for the lack of debt demanded by or supplied to the public), we're now seeing the whole pack of cards collapse.

M4 is beginning to fall, but prices are rising. Growth as measured by GDP cannot be positive for a sustained period.

QE2 must be impossible. Rates can be kept low for now (and possibly for a long time if M4 continues to fall), which will slow the HPC, but the whole market will stagnate so badly that this could feed further into GDP collapse.

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QE2 must be impossible.

They keep voting to keep QE1 at £200bn.

Won't some of the stuff they originally bought be expiring so the £200bn is not a limit? It's a constant figure to be maintained.... oh look... it covers the yearly deficit....

So the actual figure purchased overall is much higher?

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Who's going to lend the money to fund this borrowing. We've already got poor credit ratings and increasing default rates? What sort of idiot would lend more to someone less able to repay, especially after what's recetly happened?

Just a thought but is the household debt figure the netting of debt-savings? If so the same thing could be achieved by some people spending their savings and the borrowing growing a little.

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They keep voting to keep QE1 at £200bn.

Won't some of the stuff they originally bought be expiring so the £200bn is not a limit? It's a constant figure to be maintained.... oh look... it covers the yearly deficit....

So the actual figure purchased overall is much higher?

Most UK debt is very long term - may not expire for decades

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They keep voting to keep QE1 at £200bn.

Won't some of the stuff they originally bought be expiring so the £200bn is not a limit? It's a constant figure to be maintained.... oh look... it covers the yearly deficit....

So the actual figure purchased overall is much higher?

AHA! Good point Redhat.

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Most UK debt is very long term - may not expire for decades

Read an article dealing with Alistair Darling's deft move at punting a huge chunk of our debt into the long term when this crisis kicked off. Turns out this wonder move wasn't so sublime after all. As to why I can't remember I'm afraid, but suffice to say, it seems if you peel back the curtain our long term debt maturity is nothing to crow about.

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Most UK debt is very long term - may not expire for decades

I believe at the start of the crisis it was said our average debt term was 14 years.

But with QE I thought the idea was that the BoTfSiE bought very short term debt and banks bought longer term debt so the banks could arb about the 3% difference in yields? i..e a 3% gift from taxpayers to "rebuild their balance sheets"

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They keep voting to keep QE1 at £200bn.

Won't some of the stuff they originally bought be expiring so the £200bn is not a limit? It's a constant figure to be maintained.... oh look... it covers the yearly deficit....

So the actual figure purchased overall is much higher?

Gavyn Davies muses on the impact of the FED withdrawing QE on bond yields in his blog today, touching on the stock v flow issue

http://blogs.ft.com/gavyndavies/2011/03/30/can-bonds-survive-the-feds-exit/

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Household debt

Osborne thinks we're saving too much.

Wonder how he's planning to achieve that then?

Fool. It's only possible to save too much if you never spend it. Personally I save so that overall I can spend more on things other than banks. Why don't these morons think of all the interest I would've paid on my car if I'd borrowed to buy it, for example? Instead I can spend that on other stuff (or save to do likewise in the future). More spending in shops, less in banks. To be honest they probably do understand, since it's what lines their pockets, but I can't for the life of me work out why those doing the borrowing can't.

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Who's going to lend the money to fund this borrowing. We've already got poor credit ratings and increasing default rates? What sort of idiot would lend more to someone less able to repay, especially after what's recetly happened?

Just a thought but is the household debt figure the netting of debt-savings? If so the same thing could be achieved by some people spending their savings and the borrowing growing a little.

No the household debt figure is pure liabilities. The OBR forecast doesn't seem to add a corresponding savings/asset forecast.

I'm quite interested in these figures. The following is a (corrected) extract from the OBR forecast in November, the numbers changed slightly in March this year but the gist is the same...

houshold-post-budget.jpg?w=590&h=619

So massive increases here. I think home loans are roughly 80% of this figure, investment loans 10% (predominantly btl i would guess), and 10% is credit/store cards and other unsecured.

Perhaps the forecast includes increases in student loans and other unsecured, but i'm guessing the great proportion of this increase regards mortgage loans/btl loans. I just don't see this as a sensible forecast given the environment. However, rather than assuming their ineptitude I am more inclined that discussions with banksters have resulted in them being able to make this forecast.

These figures will all be tied together in their economic models for growth, and will be a key driver of the growth (small as it is) in their long term forecasts. Hence, less of a rebalancing of the economy than they would have you believe, as much is still resting on a recovering housing market with (vast) increases in personal debt.

Finally, and perhaps this is reading too much into it, the correction was issued in February...OBR correction

... just as growth figures were coming to light that were revised down strongly to those previously forecast....

hmmmmm.....

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He seems to have completely missed the point, has he been asleep for the past 2 decades?

Why? Because the only way the economy can avoid taking a hit from government cuts is if private spending rises to fill the gap

This demonstrates the problem facing The US, UK, Spain, Ireland etc. A decade of overconsumption has led to very distorted economies with 60-70% of the economy made up of consumer spending.

Trying to grow at a fast pace (97-07) via consumption will be near impossible as private / public debt levels are too high. There can be some growth via population growth etc perhaps 1% a year at most for the UK.

More public or private debt will not help long term and will only make things worse. The debt levels will eventually cause even greater problems even if they provide a short term boost.

The other way of filling the gap is via production investment and exports. Shrinking consumption as a proportion of the economy by growing the production.

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No the household debt figure is pure liabilities. The OBR forecast doesn't seem to add a corresponding savings/asset forecast.

Thanks, that's cleared that up. So it is pure additional lending.

These figures will all be tied together in their economic models for growth, and will be a key driver of the growth (small as it is) in their long term forecasts. Hence, less of a rebalancing of the economy than they would have you believe, as much is still resting on a recovering housing market with (vast) increases in personal debt.

This was my thought too. The recovery is projected on increasing house prices with some of the equity then used to fund purchases. MEW and low deposit mortgages must be making a comeback for this to happen, but it can only work if house prices increase.

Over the five year course, GDP is expected to grow in real terms from 1.47tr to 1.95 tr per year.

................Total GDP................diff compared to 2010/11

2010-11 1,473,000

2011-12 1,544,000...................71,000

2012-13 1,625,000.................152,000

2013-14 1,717,000.................244,000

2014-15 1,814,000.................341,000

2015-16 1,915,000.................442,000

The total rise in GDP is 1.25 trillion.

Household debt is expected to rise from 1.5tr to 2.1tr total of 0.6tr.

So if £1 of borrowing equals an increase in GDP of £1 (Does it?) then half the next five years increase in GDP comes from borrowing, and most of that against houses.

I can't work out if it's time to buy housebuilder stocks or tin foil hats.

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  • 312 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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