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Calm Down Hpcers, Recovery Is Real

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1.43 trillion in personal debt....lower in nominal terms than 2008, 15% in real terms. And chicken feed compared to our household assets of over 10 trillion.

Hmmm, no mention of QE or the soaring public sector debt excluding these financial interventions..

Edited by crashmonitor

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1.43 trillion in personal debt....lower in nominal terms than 2008, 15% in real terms. And chicken feed compared to our household assets of over 10 trillion.

Hmmm, no mention of QE or the soaring public sector debt excluding these financial interventions..

Student loans must rack up a bit as well.

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Essentially, he is correct. The UK economy is improving. Some might say that our economy doesn't manufacture enough but money is money wherever it comes from. The odds on a HPC seem very remote in the next five years. There are two big questions to be addressed after the next general election:

Will our politicians have the courage to terminate the totally unnecessary 'Help to Buy' scheme? (in 2017 I think)

When will interest rates for savers start rising?

Perhaps when the election is out of the way our leaders will stop tinkering with the markets for a while.

Food bank usage rising 6 fold in some regions of the UK?

I suspect that the recovery is concentrated on the South East and perhaps is being primarily enjoyed by those on the higher end of the salaries spectrum.

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1.43 trillion in personal debt....lower in nominal terms than 2008, 15% in real terms. And chicken feed compared to our household assets of over 10 trillion.

Hmmm, no mention of QE or the soaring public sector debt excluding these financial interventions..

UK household wealth = Phantom equity. The value of an asset is only what the market is currently able to sustain.

Plus, the average wage is now ~10% lower in real terms than in 2008.

%E2%80%98Real%E2%80%99-Wage-Growth-in-the-UK-Ex.-Bonuses.png

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If you havent got any real evidence, just quote inane statistics. David Smith is probably a fan of the Wrekin Ruby too.

The normal condition is for overall household debt to rise, though we should never forget that household assets, at over £10 trillion according to the Office for National Statistics, are more than seven times the total of outstanding debt.

Same was said during the late 90s dotcom bubble, the 2000s housing bubble. Asset value's are irrelevant. Debt's are actual transactions. Values are not transactions.

As the BoE gov said, prices are a matter of opinion, the debt is real.

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If you havent got any real evidence, just quote inane statistics. David Smith is probably a fan of the Wrekin Ruby too.

The normal condition is for overall household debt to rise, though we should never forget that household assets, at over £10 trillion according to the Office for National Statistics, are more than seven times the total of outstanding debt.

Same was said during the late 90s dotcom bubble, the 2000s housing bubble. Asset value's are irrelevant. Debt's are actual transactions. Values are not transactions.

As the BoE gov said, prices are a matter of opinion, the debt is real.

Exactly

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1.43 trillion in personal debt....lower in nominal terms than 2008, 15% in real terms. And chicken feed compared to our household assets of over 10 trillion.

Hmmm, no mention of QE or the soaring public sector debt excluding these financial interventions..

Slightly myopic view of that debt level from the gentleman at The Times. As repeatedly argued here, saying debt is more affordable because other prices have gone up when wages are static is in point of fact exactly wrong - it becomes harder to service the debt - not easier.

United-Kingdom-outstanding-lending-households-graph-1.gif

Source: Global Property Guide

The article is bonkers vested interest nonsense.

The people who hold the assets are not the same people who hold the debt. Hence a 20% drop in house prices caused by a rise in interest rates would totally wipe out a non-trivial proportion of the debt holders, even though the net position (£10tn x 80% - £1tn = £7tn) still looks robust.

Of course, wiping out these debtors would kill the banks stone dead (again) as these debtors are the banking sector's assets.

This is why we're being flooded with cheap money to prevent the chain of events from occurring.

However, the fundamental problem with the line of argument is that a significant proportion of mortgaged private households are hugely over-extended and thus a sign of health would not be steady but minimal credit growth and static or rising house prices, but a decrease in the amount of credit backed by lending on property and an increase in the credit extended to productive parts of the economy. Further, IMO GDP is too blunt a tool to analyse the situation. The problem we face is that we have a banking sector that is hugely vulnerable to movements in interest rates. The root of this vulnerability is their enormous exposure to the ability of their customers to service their boom mortgages. In order for the banks' position to become more robust (leaving aside whether or not that is a good thing in the absence of other important reforms) the ability of customers to service their mortgages must improve. Unless there is compelling evidence that GDP growth is leading directly to an increase in the ease with which the median household can service their boom debts, its not really enormously relevant to the UK's problems.

Increasing income inequality may mean that even though the economy grows, the income left to median households once they've paid the bills and fed themselves could mean that the mortgage gets tougher to service. Finally, the fact that a material proportion of the weakest lending is interest only means that the weakest hands are not even strengthening as they gradually pay down the mortgage.

Most importantly of all, we cannot just ignore the fact that interest rates are being aggressively manipulated down so we are living in a Fool's Paradise. Essentially, if we cannot deleverage and grow in nominal terms given the monetary policy fire power that is being brought to bear on the problem by the world's Central Banks then that fact alone is suggestive evidence of the extent to which all the growth and all the increase in wealth of the past decade was totally illusory and based only on a collective willingness to pass fake cheques.

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Sunday Times also seems to think that the falling Euro is a god opportunity to buy a house in Europe.

I think any HPC 'event' has to come from outside of the UK - mainly from the US. If it comes from China then I just see more Chinese fleeing to the UK to buy houses. Ditto Europe.

I think some kind of stock market crash might be our onlu chance and then, perhaps, just a brief window of opportunity at that.

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Essentially, he is correct. The UK economy is improving. Some might say that our economy doesn't manufacture enough but money is money wherever it comes from.

This is totally, totally wrong. Money is money if it behaves like money - unit of account, means of exchange and store of value. State backed currency may be called money, but calling something money doesn't make it money. Even something that a government calls money can be spurned by people if it fails to act like money.

800px-Zimbabwean_%24100_million_dollar_note.JPG

One way to look at house price inflation is that it is represents the extent to which your state backed currency has not behaved as money should. As plain as the nose on your face, this is inflation caused by excessive expansion of the money supply by the private banks, who collectively create money out of nothing and then charge interest when they lend it.

If this hypothesis was correct, what would you see? Inflated house prices and people feeling compelled to take on debts that they can barely service even at comedy low interest rates in order to buy houses before the prices inflate yet further. Tell me, what do you see?

The tragedy is that in 2008 the wholesale money markets who funded our predatory banks took fright, sceptical of the ability of the borrowers to service their mortgages. In essence we received a compelling market signal that the lending had gone too far and that many of the weak loans created were fantasy and would never be paid back. And what was the government response? The public balance sheet through UKAR has begun the process of soaking up the losses on the worst of the worst and the government has stepped in behind the (barely) surviving banks to ensure that the greatest possible amount of wealth can be extracted from the population as a whole in order to minimise the extent to which loans that should never have been made go bad.

How does this process manifest? Help to Buy mortgage guarantees, adverts at the cinema from the Lloyds banking group telling young people to man up and take on a massive mortgage on a shithole and goons at the Times telling everyone everything is hunky dory.

And how is it possible? Because too many people have such naive ideas about money that they can't understand why a banking sector with the ability to create new money and the legal power to enforce the debt created can enrich itself whilst the median household gets poorer despite working all the ours that God sends.

Money is not some bland unambiguous given like the density of lead at room temperature, and the ability to create new money is a powerful tool to effect wealth transfers.

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Sunday Times also seems to think that the falling Euro is a god opportunity to buy a house in Europe.

I think any HPC 'event' has to come from outside of the UK - mainly from the US. If it comes from China then I just see more Chinese fleeing to the UK to buy houses. Ditto Europe.

I think some kind of stock market crash might be our onlu chance and then, perhaps, just a brief window of opportunity at that.

If there is a collapse in China that means the ruling elites are bumped out of power, and a more democratic government appears, Chinese will flood back in their millions?

http://www.espc.com/properties/details.aspx?pid=329252 Just to remind people that the HPC is an on going event, happening right now, admittedly at different speeds up and down the country, it is not some "outside chance" IMO. Most BTL`ers etc are not involved in the stock market to any great extent IMO, and that can be just f*ucked around with endlessly with QE irrespective of what is happening in the real world? As base rate can`t help mortgage rate much, crashing or soaring stock markets can`t help malinvestment in the property market much. IMO.

Edited by dances with sheeple

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Sunday Times also seems to think that the falling Euro is a god opportunity to buy a house in Europe.

I think any HPC 'event' has to come from outside of the UK - mainly from the US. If it comes from China then I just see more Chinese fleeing to the UK to buy houses. Ditto Europe.

I think some kind of stock market crash might be our onlu chance and then, perhaps, just a brief window of opportunity at that.

Almost certainly from outside, but IMO it definitely will come and rather than a brief window of opportunity the downturn will be nigh on biblical.

  • Change in market sentiment regarding the ability of Fed asset purchases to hold up the prices of bonds and other fixed income securities like mortgage backed securities indefinitely leads to a rush for the exit. When increased Fed buying doesn't stem the rout, the Fed can throw in the towel without having to justify themselves to the political classes. Yields on 10-year US Treasuries find a new home somewhere a long way north of where they are today. UK gilts follow them all the way up.

  • No taper and no panic but yields on Treasuries just maintain their steady march up, pulling up UK mortgage rates with them, (even FLS only allows the banks to borrow as if they were only a slightly worse credit risk than the government, so if the government's cost of borrowing goes up, the cost of borrowing for the UK banks goes up to).

  • Changes in the Chinese land ownership rights causes a massive repatriation of capital directed to speculation on Chinese land. Beautiful act of economic warfare where the Chinese move from the current Japanese growth model to a model with a greater reliance on internal demand fed by credit expansion (backed by land speculation...). Triggers the first or second item on the above list also, hence UK rates shoot up or must be held down by massive QE, leading to high inflation and/or currency crisis. Either route results in hugely impaired ability of UK median households to service mortgages.

I buy Merv's apres la deluge analysis in his penultimate inflation report briefing where he repeatedly argued that during the credit boom we had acted as if the economy was on one growth trajectory, whereas in reality it was on a much weaker trajectory. That was a long boom and since then we've neither material deleveraged nor grown, so we are still in exactly the same place. We have levels of debt that are sustainable if we had been an economy that was growing rapidly and was going to continue to grow rapidly. Actually we were an economy that was growing a little and then stopped growing. Hence the debts (largely private and largely mortgages) and the management of the debts becomes the only story in town.

Osborne and friends have now had long enough to work out that this is the problem but just like generations of UK politicians they have no way to produce growth other than by borrowing money, coercing the population to borrow money and then everyone spending the borrowed money, but there is suggestive evidence that we have reached the point where that option is essentially off the table.

LPMBZ2A+to+August+2013.png

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The tragedy is that in 2008 the wholesale money markets who funded our predatory banks took fright, sceptical of the ability of the borrowers to service their mortgages. In essence we received a compelling market signal that the lending had gone too far and that many of the weak loans created were fantasy and would never be paid back. And what was the government response? The public balance sheet through UKAR has begun the process of soaking up the losses on the worst of the worst and the government has stepped in behind the (barely) surviving banks to ensure that the greatest possible amount of wealth can be extracted from the population as a whole in order to minimise the extent to which loans that should never have been made go bad.

So- as the economic patient was wheeled into the emergency room the monetary doctors took one look at the huge bloodsucking parasite of bankster debt that was sucking the patient dry and immediately sprang into action- in order to save the parasite. :lol:

Now they stand around the bed watching as the patient grows weaker and scratching their heads- apparently unconcerned as the parasite grows ever larger and more voracious.

But I guess if debt is wealth then it makes perfect sense to preserve that debt even at the expense of the future wealth creating potential of the economy- a debt in the hand being worth more than two genuinely productive enterprises in the bush.

The true genius of the people running the system is their ability to confuse claims on wealth with actual wealth- which then allows them to justify massive bailouts of creditors as an exercise in 'wealth preservation'.

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An illustrative Merv quote on this subject, (emphasis added).

And this goes right to the heart of the paradox of policy, as I've called it, which is that we do need to get back to normal levels of interest rates so that a market economy can prosper again. But if we were to try to get back today, or this year, we would simply turn the economy down into a deeper recession. And trying to reconcile those two positions is the challenge of the paradox of policy. And it's proving exceptionally difficult, and I don't have an easy answer to it.

But that's why I think - I stressed earlier on - that we do need now to recognise that there are limits to what might otherwise appear an attractive strategy of just trying to boost aggregate demand, in the belief that the reason aggregate demand is weak is because it's a temporary deviation from a fixed, long-run path, when in fact we are having to adjust for to a new path for domestic demand. And therefore we do need to take measures which would boost external demand and the supply side of the economy, to boost expected future incomes. And that real adjustment is fundamental to finding our way through this paradox of policy

Source: Quarterly Inflation Report - 13th February 2013: Q&A

In short, after twenty years where people's incomes didn't go up but we were able to make the shortfall with mortgage equity withdrawal, we are apparently to be convinced that our incomes are going to up because we've trashed the pound and continued the "supply side" reforms that have also been in train for decades. I'm not buying, (and my wage slips give further grounds for scepticism). The current account deficit suggests that even if this is going to work, it isn't working yet.

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So- as the economic patient was wheeled into the emergency room the monetary doctors took one look at the huge bloodsucking parasite of bankster debt that was sucking the patient dry and immediately sprang into action- in order to save the parasite. :lol:

Now they stand around the bed watching as the patient grows weaker and scratching their heads- apparently unconcerned as the parasite grows ever larger and more voracious.

That's largely the way I see it.

I think that with a little more political courage things could have been done much better - an acknowledgement of the the extent of the underlying insolvency of the weakest borrowers and the banks, with a more equitable settlement between the net debtors and the net creditors within the electorate and a desperately needed re-purposing of the High Street banks from engines of speculation to well regulated utilities. It was just that with Brown at the helm and an election around the corner, that was never on the cards. The political class are taking a long time to reconcile themselves to the fact that the narrative they've sold for so long is pure moonshine. It's hardly a surprise that they were not able to see to the heart of things in the midst of a crisis.

One of the things that surprises me is that rather than have anything that could pass muster as an informed public debate about what we want our banks to do and how best to keep them in check we've moved from 'banker bashing', which somehow reduces the problem to greed and wrong doing by individuals, to just forgetting about it and going 'back to normal'.

Bizarre really.

House prices are too high. They have reached this level because of the willingness of the banking sector to extend credit. This has effected both a debasement of the currency and an enormous transfer of wealth in favour of older cohorts, who already have plenty, to the detriment of younger cohorts who as a consequence must raise their families in horrid little slave boxes (in a country with ample land) and are unable to make adequate provision for their futures. This is going nowhere good. The man in the street in the past could understand the debasement of the currency and the significance of a bank run. Why can't we? If the interpolation of the state and central banks in the problem has led to this collective blindness, and our political classes won't even talk openly about the problem, then haven't we just given away our economic and political freedoms, swayed by idiotic Neo-Liberal economic nonsense?

Savings rates are very, very low. That means we've created a situation where the banks don't need our savings. However, we must borrow many multiples of our salaries, taking on enormous interest rate risk in order to buy something nasty and small. Who then has the power? Us, or institutions that we should only tolerate to the extent that they can serve our needs? And as the answer is that the banks have the power, when and how are we going to do something about it?

[Edit: typo]

Edited by ChairmanOfTheBored

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And as the answer is that the banks have the power, when and how are we going to do something about it?

I think that the thing is self limiting in the sense that the more the 1% succeed in looting the rest of us the more instability they introduce into the system- and I see no real evidence that they have the capability to control themselves.

One of the downsides of managing to subvert the system for short term greed is that you have eliminated the moderating influence that might have stepped in to prevent you from self immolation.

I think the question is not 'who will save us from the 1%' it's more 'who will save the 1% from themselves.

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I think that the thing is self limiting in the sense that the more the 1% succeed in looting the rest of us the more instability they introduce into the system- and I see no real evidence that they have the capability to control themselves.

One of the downsides of managing to subvert the system for short term greed is that you have eliminated the moderating influence that might have stepped in to prevent you from self immolation.

I think the question is not 'who will save us from the 1%' it's more 'who will save the 1% from themselves.

Control themselves? When you get that big you can't even see what you're crapping on let alone step around it.

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Sunday Times also seems to think that the falling Euro is a god opportunity to buy a house in Europe.

I think any HPC 'event' has to come from outside of the UK - mainly from the US. If it comes from China then I just see more Chinese fleeing to the UK to buy houses. Ditto Europe.

I think some kind of stock market crash might be our onlu chance and then, perhaps, just a brief window of opportunity at that.

China isn't going to save the UK housing market. The Chinese shadow banking system is the global Ponzi's greatest threat. It plays the same role now that AIG Financial Products (London) and Lehman Brothers International (London) etc. did in the run up to 2008: taking garbage off the books of legitimate investment banks and distributing it through a myriad of securities firms, hedge funds and regional govt development offices - so the banks can carry on lending and thereby circumvent the rate caps and loan controls that central govt has introduced in the last two years to take some heat out of mainland property.

From 2008-10, a series of exceptional stimulus measures from the BRICs absorbed the excess QE liquidity created by the Fed, BoE etc, and generated sufficient demand in the global economy to prevent it collapsing into a depression. As their respective property markets became overextended in 2011, however, so one by one they got into difficulty. First Brazil, then Russia and then last year, spectacularly, India. China has avoided their fate thus far but only because of the mountain of fictional wealth supported by underground credit. When that balloon goes pop the entire world is on an express elevator to hell.

How much longer have we got to wait? The merest hint of a taper following last week's US employment number took the yield on Brazil's 10yr over 12% (below).

Whoa!

:huh::ph34r:

Brazil+10y+bonds.PNG

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http://www.bbc.co.uk/news/business-24895428

"Flybe to cut 500 jobs despite return to profit"

Great recovery.

Profits up....cost of living up...wages down...savings down.

House prices will save us though. We need more more expensive houses so we can feel rich. When the return of the 120% mortgage happens I'm going all in and buying a nice house in London with and a Ferrari with the extra 20%. Inflation will eventually cover my debt and I'll be rich. :rolleyes:

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