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Ftav: British Economy In Trouble, 58% Of The Economy Relates To Borrowing And Public Spending

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http://ftalphaville.ft.com/blog/2011/05/26/578626/why-the-british-economy-is-in-very-deep-trouble/

Public sector spending cuts are modest, but growth is now a thing of the past.

- Net mortgage borrowing, critical to the real estate and construction sectors, has crashed, from £113bn in 2007-08 to a derisory £3bn last year.

- The aggregate of private (mortgage and credit) borrowing has now turned negative.

Challenges ahead are huge...

Edited by easybetman

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FT alphaville link

So what are these debt addicted sectors?

Unsurprisingly they are real estate, finance, health, education, construction and public administration. And the outlook for each of them is grim says Morgan

Some folk never stop moaning, do they?

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OK. So in order for all these sectors to grow, their customers need to continue to take on more and more debt?

Hmmm, good business model that, except for the fact that Brits are already heavily loaded with debt compared with other countries.

It's obvious that the current economy, and not just house prices, isn't sustainable.

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Guest spp

My favourite from the comments -

"Real estate, finance, and construction cannot really get much lower and proposing that they stand completely still seems unlikely. There is big demand for council housing and I think we might see housing associations trying to expand."

:blink: ffsk

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Sorry I posted this in another thread before seeing you had started a specific one. To be honest I considered it to be important enough for its thread. A very good article and well worth a read to anyone who thinks we are near the bottom and about to start recovering. They say it's darkets before dawn. I think it's probably darkest just before you die.

SOLUTION?

MORE GIANT ZOMBIE PREDATORY

LIAR LOANS? :rolleyes:

Methinks not. :rolleyes:

Edited by eric pebble

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- Net mortgage borrowing, critical to the real estate and construction sectors, has crashed, from £113bn in 2007-08 to a derisory £3bn last year.

- The aggregate of private (mortgage and credit) borrowing has now turned negative.

Indeed, it's hard disagree with Morgan who reckons the likelihood of mortgage borrowing increasing materially is close to zero until property prices return to a reasonable level, which he puts at 22 per cent below their 2010 average.

Dr Tim Morgan, the global head of research at Tullett Prebon.......................... is living in a complete fantasy land.

A 22% crash from 2010 prices, will only take house prices back to Q1 2004 levels.

[Almost the exact week when Brown the clown switched Housing inflation figures from RPI to CPI]

But from 1999 to 2004, house prices doubled in less than 4 years.

We need a return to 1997 levels minimum. Or a combination of wage inflation and reduced prices.

From 1996 to 2006, the average house price rose by 300%, whilst the median wage rose by just £6.5k

Edited by Dan1

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Lovely article. the Uk is ******ed 100%.

Not sure about house prices being only 22% over valued though. He must have just had a toot of the pipe before writing that sentence.

Edited by neil324

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This article is ludicrously out of date. It has been obvious since 2008 that the UK economic model was completely stuffed. HPI, Consumption, Debt and public spending made the crisis inevitable. Pretty clear things have to change and this will involve some economic pain. Other solutions please?

What is remarkable is how well the UK has been doing considering the massive problems faced.

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This article is ludicrously out of date. It has been obvious since 2008 that the UK economic model was completely stuffed. HPI, Consumption, Debt and public spending made the crisis inevitable. Pretty clear things have to change and this will involve some economic pain. Other solutions please?

What is remarkable is how well the UK has been doing considering the massive problems faced.

Just kicking the can down the road really...

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They say it's darkest before dawn. I think it's probably darkest just before you die.

:lol: I shouldn't laugh but what else is there but gallows humour in the face of this?

Dr Tim Morgan, the global head of research at Tullett Prebon.......................... is living in a complete fantasy land.

I thought his definition of affordable house prices was way too optimistic too.

I love simple, logical explanations.

+1

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The solution is clearly more debt. It always is. Debt solves everything. Same with alcohol and alcoholics.

Well clearly more debt helps alcoholics they can buy more alcohol.

But in a debt based monetary system more debt is the solution, up until it becomes obvious it's ponzi.

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Well clearly more debt helps alcoholics they can buy more alcohol.

But in a debt based monetary system more debt is the solution, up until it becomes obvious it's ponzi.

Yup - the greatest EVER Pyramid/Ponzi Scam of all time.... :rolleyes:

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If the truth be known....the only way the economy can continue to exist, expand and grow is if we are all 'born with debt and die with debt'......they will be no point in trying to be debt free, just load it on throughout life then leave it to the next generation to add it on to their new debt creation. ;)

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Here's a link to their full report:

http://www.tullettpr...SIN20110526.pdf

More research is on their web site:

http://www.tullettpr...tegy_notes.aspx

During the boom years, British banks customarily funded their domestic lending from international wholesale markets, a process which not only contributed to a massive escalation in gross external debt (from £1.9 trillion at the end of 1999 to £6.4 trillion by end-2008) but put the banking system into an immediate crisis when, in 2007, the supply of wholesale debt dried up virtually overnight.

If one needs a reason for the pound being so resilient this would be a good one. Those £6 trillions were most likely borrowed in dollars, euros and yens. A pound in free fall would be catastrophic.

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The report issued a few months ago by the OBR quietly had a section which showed private sector debt increasing by around £300bn IIRC over the next few years; personally I can't see this at all and I think this report is quite right in its general conclusions.

Tin hat time.

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Those figures for debt are probably misleading...probably related to London's position as a financial centre.

I believe the total mortgage market is about £1.3 trillion. The Bank of England printed £200 billion to cover withdrawals of 'on call' wholesale funds that just upped and left (hence why one of the BoE's priorities is to get the banks to match their funding and lending more closely!).

Those figures are nearer the mark. But yes, the money was borrowed abroad, pumped into the property markets, extracted as wages, dividends and taxes and general leakage into consumption. And now the currency has crashed and overseas investors are picking over our bones as more and more natives are forced to rent...and Housing Benefit effectively goes to paying overseas investors.

[/rant over]

Top of the head thought and I have no idea how the taxation of overseas national works on this - but perhaps one 'solution' might be a property purchase tax on non-residents. There's little point securistisation funding being replaced with asset purchases (except for the sellers of course, but not for the wider 'economy'). If the Chinese businessman wants a Candy flat let him pay a surcharge.

We might have avoided this mess if the BoE had 'control' over the banks and the securitisation monies in the first place however but that ship has sailed and we need a new one rather urgently. I realise The Bullingdon Boys will never go for anything like that of course, they're too busy selling England off one sod at a time.

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Those figures for debt are probably misleading...probably related to London's position as a financial centre.

True, I think I read that borrowing by UK banks (for their own book) was 'only' $4 trillion. Much of this will have been used to lend abroad but it is fair to assume some of it has gone towards fueling the credit bubble here.

[/rant over]

:D

To be honest I don't see anything in the UK market for foreign investors to be excited about. There are much better value investments in other countries.

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Thanks. That is brilliant. And look at this:

(page 7)

The biggest single debt increment during the period between 2002 and 2009 was mortgage

borrowing, which increased by £590bn between those years. Many borrowers saw this as

investment, a view which was profoundly mistaken even though many policymakers and even

bankers managed to delude themselves otherwise. As average property prices soared from

£121,000 in 2002 to £197,000 in 2007 (a real terms increase of almost 70%), escalating mortgage

debt looked like an investment, and a good one at that. But to believe this was to overlook two critical

points.

The first point that was generally misunderstood was that property prices, whilst realisable on an

individual basis, are not realisable in the aggregate. Therefore, and as borrowers and lenders alike

were to discover, property prices, far from being an absolute, are an example of ‘notional value’.

The second reason why the escalation in mortgages was not an investment was that a steadily

diminishing proportion of new issuance was actually going into the purchase of homes – by 2007,

only 35% was being used for this purpose, with the balance going into buy-to-let (BTL) (26%) and

equity release (39%)2. Whilst BTL might have looked like an investment, the reality was that it was a

low- or negative-return punt on property prices continuing to rise ad infinitum. Equity release,

meanwhile, amounted to the direct leveraging of balance sheets into consumption

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If the Chinese businessman wants a Candy flat let him pay a surcharge.

:lol:

Come on, have a heart. Don't you think he will have been ripped off enough already!?

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Thanks. That is brilliant. And look at this:

The first point that was generally misunderstood was that property prices, whilst realisable on an

individual basis, are not realisable in the aggregate.

The above is a killer quote. Most people fail to understand it, this alone should destroy the 'wealth' of both pre and boomer generations

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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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