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Wealth Destruction The New Normal

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A nice cheery read for a Wednesday morning:

Wealth destruction the new normal

Allister Heath, Wednesday 24th August 2011

WEALTH preservation is now the name of the game in the West. The challenge, for most people, is not to make more money: it is to try and preserve what they have. Declining equity and property prices, ultra-low interest rates, lowish pay rises, elevated inflation and increasing taxes are combining to squeeze nearly everybody. This shouldn’t come as a surprise: the UK economy shrank by about six per cent during the recession; and there has been far too much borrowing from future expected production to fund consumption today. A country that produces less (which is what it means to have a smaller economy) must consume less; the value of its land and companies will also be worth less.

There is wealth destruction almost everywhere one looks. Inflation on the retail price index is at five per cent: the real value of everything is falling by that amount. Take cash. To beat inflation, a basic rate taxpayer needs to find a savings account paying 5.50 per cent, a 40 per cent taxpayer needs to find an account paying at least 7.33 per cent, and somebody paying the 50 per cent tax rate...well, they shouldn’t even bother. Basic rate taxpayers can choose from just eight accounts that negate the effects of tax and inflation, all of which are fixed-rate ISAs; in the main, it is a disaster for savers, especially for those who have cash that is not eligible for tax protection and who pay higher rates of tax. Moneyfacts calculates that the effect of inflation on savings means that £10,000 invested five years ago allowing for average interest and tax at 20 per cent would have the spending power of just £9,374 today.

Average total pay is increasing at 2.6 per cent a year, which translates into an annual real pay cut of around 2.4 per cent. No wonder an Ipsos Mori poll for the Resolution Foundation reveals that just 48 per cent of people in low-to-middle income households have cash left over at the end of each month. Just 27 per cent of these make monthly savings. The middle classes are also being hammered.

What about property? Prices in London, especially in prime areas, are holding up or even increasing as a result of global demand from investors keen to protect themselves against instability. But across the UK, they are down 0.3 per cent over the past year – which in real terms is a drop of over five per cent. Residential property in the UK as a whole has further to fall, especially in real terms; prices have yet to readjust to earnings.

Full article here >

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Guest UK Debt Slave

A nice cheery read for a Wednesday morning:

Welcome to the new KLEPTOCRACY

They are brazenly destroying the middle class, not that anyone seems to care

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Welcome to the new KLEPTOCRACY

They are brazenly destroying the middle class, not that anyone seems to care

Isn't it just regression to mean though? Most of the "wealth" was made off the back of a credit bubble through inflated property prices and debt fuelled spending, why should we be surprised? The mechanism for realingning will have winners and losers but the fact it happens is inevitable.

As an aside, has the term Middle class here became like the American political platitude which effectively means anybody bar Millionaires and Crack addicts? Like the good old New Labour term of "hard working families"

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Isn't it just regression to mean though? Most of the "wealth" was made off the back of a credit bubble through inflated property prices and debt fuelled spending, why should we be surprised? The mechanism for realingning will have winners and losers but the fact it happens is inevitable.

As an aside, has the term Middle class here became like the American political platitude which effectively means anybody bar Millionaires and Crack addicts? Like the good old New Labour term of "hard working families"

Yes I agree. Middle class, Middle England and similar terms have long been very fluid. Partly to allow a politician to appear to be 'on the side' of as many people as possible. Us vs them is standard political fare.

Decades ago middle class would have carried assumptions about differences in education, literacy, values, housing and so on. 'Owner occupiers' were middle class, renters were not. They had a certain level of academic qualifications, they wrote with good grammar and spelling and worked in certain kinds of occupation. They had not bothered the long arm of the law, even in their youth.. Most importantly middle class was only a fraction of the population. A fair sized fraction but not the majority.

Times have changed.

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Decades ago middle class would have carried assumptions about differences in education, literacy, values, housing and so on. 'Owner occupiers' were middle class, renters were not. They had a certain level of academic qualifications, they wrote with good grammar and spelling and worked in certain kinds of occupation. They had not bothered the long arm of the law, even in their youth.. Most importantly middle class was only a fraction of the population. A fair sized fraction but not the majority.

Times have changed.

Yeah, I think this is a positive thing, no? In that we arguably have a larger "middle class" in terms of being able to aspire to homeownership and decent-ish white collar careers.

The problem being that now this greater number of us who have gone to Uni, got middle class-y white collar jobs, we're now looking around thinking "hey, but I've done all the middle-classy things to get on in life, how come I can't afford to buy a middle-classy home in the leafy suburbs and I'm still only able to afford to buy in the working class terraces/council estates?"

The reason being i) a crazy credit bubble and II) everyone's become "middle class" = zero sum game in terms of climbing the "housing ladder".

We (younger aspiring middle class generation) have definitely all set our sights too high. Particularly with current global labour forces and declining Western economic power. Unless we magic up a boom in some new industry. Can't see where that would be though unless it's more of the same (finance).

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Wealth is all relative, particulary in regards to housing in this country, which is essentially run as an auction to the highest bidder. That's a pretty pure way of defining wealth I guess.

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  • 334 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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