Blow For Osborne As Exports Fall To Lowest In 18 Months

[Steppenpig]

Eh - you mean the same Ireland where prices fell by about 45% and are almost competitive again,

That crash was caused by the bursting of the credit bubble. High house prices and oversupply lived together happily for a decade. I don't follow prices in Ireland, but if prices depended solely on physical supply and demand, then the current oversupply would mean prices should be below what they were before the boom began and I suspect this is not the case.

Desirable cheap property has always been hard to come by. Getting a flat in London in the 80's was hard. It's extra hard now because we're in the middle of a bubble. Getting a really nice flat in Berlin is hard, despite oversupply. The majority of us would like to live somewhere a bit bigger and nicer.

Edited March 14, 2014 by BigPig

[dances with sheeple]

Oh yes please. When?

I think only when the plebs will start a run on the banks. But they can't because they have a mortgage as well.

In Britain people would rather starve and let starve than default on their mortgage.

Yep, they need to see tumbling prices first to get them in the default mood.

[zugzwang]

Yep, they need to see tumbling prices first to get them in the default mood.

Not long to wait now.

Fire sale of US treasuries presages global recession.

[alexw]

It's interesting that Ireland has unexpectedly shrunk as well.

It's due to all the global imbalances pretty much.

Most of Europe is undertaking harsh austerity. The result of that is that they are shrinking their internal economies and consumer base. Now it does not take a genius to realize one nations imports is another nations exports.

Thus all of Europe (except us) is desperately trying to capture export share at the same time as trying to minimize their own imports. It's an entirely self-defeating process (unless there are some aliens on mars who want to import Europe's manufactured goods), and it's utter stupidity for them to destroy their internal economies in this way. The most accurate description I can give of mainland Europe's current economic plan is "The only way Europe can save it's economies is by destroying them".

We ourselves could of course attempt to join in this mad no-win game, but then given the lunacy of Europe they'd almost certainly decide that seeing their export share fall (as we would be attempting to reduce imports and increase exports), that the solution would be to impose further austerity as a means to increase their relative exports vs imports......which of course means we'd need to cut even more.....and so on and so forth.....

There are only two ways out of this. Either the creditor northern core undertakes drastic reflation of their economies so that they run deficits for a number of years, which will run down the surpluses they have built up over the last decade or two, and enable the debtor periphery to pay back their debts (something akin to this needs to be done by the asian creditor nations also - they need to pay their worker-citizens vastly more). Or we end up with trade barriers if the creditors won't do this.

At some point one of the other will happen, since eventually the people of the debtor countries will say enough is enough and option two will be chosen by default.

[tomandlu]

Expensive housing is mostly just a transfer though isn't it. Not really a competitive dis-advantage.

Cheaper housing would mean more $$$ spunked on Chinese cr4p.

Sterling rate more important for competitiveness.

Largely agree - however, it's also an issue how diverse housing costs currently are, which is related to HPI. For convenience, we can define this along generational lines, but it's really just about which decade you bought in (or didn't).

Imports are too cheap.

[long time lurking]

Largely agree - however, it's also an issue how diverse housing costs currently are, which is related to HPI. For convenience, we can define this along generational lines, but it's really just about which decade you bought in (or didn't).

Imports are too cheap.

Don`t that come back to the cost of living/housing in the countries that export to us ? or are their houses to cheap as well

[alexw]

The ridiculous thing is, everyone knows that what Osbourne (I actually wrote Brown there!) is doing is wrong. We have an unbalanced economy, that needs less consumption, less borrowing, less housebuilding, higher taxes, more exports. But we all, economists, MPs, commentators, media, cling to the hope that somehow we can sort it how without actually doing any of the unpleasant stuff, like working harder and paying ourselves less.

Right.

Let me get this correct - you think we should impose austerity to decrease internal consumption and increase our relative exports. Now what do you think the actions of our trade partners who are all trying to do this exact same thing will be?

That they will have to impose even more austerity to counteract our austerity, yes?

So then we'd in turn have to be even more "austere" ......So exactly when does all this end?

When we nor anyone else has any internal economy left to speak of, and we are all living ramshackle huts trying to live off the land or something? Exactly when?

There are no winners of that game. Flippin madness.

[Bloo Loo]

Right.

Let me get this correct - you think we should impose austerity to decrease internal consumption and increase our relative exports. Now what do you think the actions of our trade partners who are all trying to do this exact same thing will be?

That they will have to impose even more austerity to counteract our austerity, yes?

So then we'd in turn have to be even more "austere" ......So exactly when does all this end?

When we nor anyone else has any internal economy left to speak of, and we are all living ramshackle huts trying to live off the land or something? Exactly when?

There are no winners of that game. Flippin madness.

we can live within our means very well...we are not doing so, and most of the excess is going to a few. Flippin Madness

[alexw]

Expensive housing is mostly just a transfer though isn't it. Not really a competitive dis-advantage.

Cheaper housing would mean more $$$ spunked on Chinese cr4p.

Sterling rate more important for competitiveness.

Exactly so.

It's an internal transfer. I know it's "accepted" wisdom here that cheap housing makes a nation more competitive but its not true. Consider that Switzerland has an absurdly high cost of living and housing costs but runs a trade surplus.

[(Blizzard)]

The evidence for this is fairly mixed; there is a fair bit of empirical evidence suggesting that rising house prices genuinelly do fuel consumption (since a) people who experience rises in wealth have more propensity to consume, and equity release etc). But its not clear-cut, and there is enough evidence to also argue the contrary.

So the only real honest answer is probably 'we dont know'.

Nonsense.

For one thing, the evidence is clear - any increased spending due to house price increases comes from an increase in debt (mew). The fact that renters consume more when house prices rise pretty much nails the direction of causality - consumer spending and house price increases have the same cause. One does not cause the other.

Even if that were not the case, extraordinary claims require extraordinary evidence. That increases in the price of housing can, contrary to the behaviour of all other goods, actually increase consumer spending is undoubtedly an extraordinary claim.

Edited March 14, 2014 by (Blizzard)

[(Blizzard)]

Its not just lending; if someone's house goes up in value then it may make them more likely to spend more and save less, since their net worth has now increased.

Although their disposable income has not. For new entrants the disposable income has actually decreased. Oh and costs have risen for everyone.

There's a name for this wealth effect 'theory'.

It is called 'magical thinking'.

[swissy_fit]

Exactly so.

It's an internal transfer. I know it's "accepted" wisdom here that cheap housing makes a nation more competitive but its not true. Consider that Switzerland has an absurdly high cost of living and housing costs but runs a trade surplus.

Not worth comparing ch and uk, they're so different and will never be similar. The difference is much greater than it appears.

Relative to what people earn prices are still lower in ch anyway, except perhaps Geneva.

[Venger]

Expensive housing is mostly just a transfer though isn't it. Not really a competitive dis-advantage.

Cheaper housing would mean more $$ spunked on Chinese cr4p.

Sterling rate more important for competitiveness.

If I were to buy at these prices it would certainly put me at a competitive disadvantage. My savings gone + mortgage debt, when I think housing market vastly over-valued.

So cheaper housing would have meant people having extra money would spend even more on Chinese stuff / import goodies?

hat might be true for the victims who can never do anything wrong without it being the fault of society/the system... but perhaps many others would have saved, started pensions.

That money buying into productive industries/opportunities for value in UK and also abroad.. where we're buying our imports from. Less need for emergency QE and 0.5% now and fairer-balancedhousing market.

More spending and more debt seem to be the solution for many people. Not saving. The spend and debt experts are the heroes.

[(Blizzard)]

Exactly so.

It's an internal transfer. I know it's "accepted" wisdom here that cheap housing makes a nation more competitive but its not true. Consider that Switzerland has an absurdly high cost of living and housing costs but runs a trade surplus.

Wrong. House prices act exactly as a tax (they are a tax) and, all else equal, high taxes mean low competitiveness.

Of course, all else is not equal and some high tax economies do very well. Mostly because they spend the taxes on infrastructure, but not always.

Edit: the reason that taxes don't all just even out - it isn't 'just a transfer' - is that you transfer from the productive to the non productive and the anti-productive. This incentivises people to stop producing and to become parasites, which is exactly what we have seen.

It's not about money and spending, which does appear to even out but is irrelevant. it's about real productivity and incentives.

Edited March 15, 2014 by (Blizzard)

[zugzwang]

Although their disposable income has not. For new entrants the disposable income has actually decreased. Oh and costs have risen for everyone.

There's a name for this wealth effect 'theory'.

It is called 'magical thinking'.

New money is created in the banking system with every mortgage approval. FTBs spend the deposit they need to secure said mortgage. Bankers spend the profits said mortgage generates for the bank. As a general rule buyers will run down their savings to renovate/redecorate. A rising market by definition requires more buyers than sellers ergo rising prices equals more spending.

[billybong]

Cheaper housing would mean more $$$ spunked on Chinese cr4p.

The spare money could go into savings and private pensions (rather than on mortgages and tat) which would be nearer the situation before Brown changed the balance with his pension fund tax changes and general policies etc (policies continued by the current government despite the election promises).

Some of the savings could still be spent on tat rather than MEWing - but likely the banks wouldn't like that so much.

Edited March 15, 2014 by billybong

[(Blizzard)]

New money is created in the banking system with every mortgage approval. FTBs spend the deposit they need to secure said mortgage. Bankers spend the profits said mortgage generates for the bank. As a general rule buyers will run down their savings to renovate/redecorate. A rising market by definition requires more buyers than sellers ergo rising prices equals more spending.

New money in the form of debt. Debt undoubtably increases house prices and consumer spending. This isn't through the mechanism you suggest though, but simply because the money is real and lands in some landowners pocket, somewhere.

So there is no wealth effect of house prices, it's just a correlation due by the wide reaching effects of debt on the economy.

All else being equal, meaning at a constant level of debt, buyers running down their savings will have less to spend if prices have increased, all else being equal. All else being equal, house price rises - like all other tax rises - destroy wealth.

To understand the ridiculousness of the 'wealth effect' consider the policy it suggests. By simply bulldozing houses we can increases house prices and therefore consumer spending. Genius. Classic cargo cult, magical thinking.

(Oh, and a rising market requires more buyers than sellers? I think you've gone a bit wrong there...)

[Neverwhere]

A rising market by definition requires more buyers than sellers ergo rising prices equals more spending.

Why?

Every transaction requires exactly one seller and one buyer. A rising market doesn't even need rising transaction numbers, since a single transaction can set a new price point. Do you mean that in terms of supply and demand there need to be more prospective buyers than prospective sellers in order to drive up the market? If so I'm not sure that this is the situation as being played out at present given, in London at least, the amount of time properties spend on the market has risen at the same time as the number of properties on the market has dropped: http://www.home.co.uk/guides/time_on_market_report.htm?location=london&all=1

Sentiment and poor maths skills are key drivers as far as I can see.

[Venger]

A rising market by definition requires more buyers than sellers ergo rising prices equals more spending.

I don't understand this either zugzwang.

Markets can rise and fall with very few transactions.

The values determined by what those few buyer/sellers at the margin, on that particular day/month, agree to price-transact at.

[cashinmattress]

Does this thread title mean that the Chancellor is getting (more) cocaine in return for crappy export numbers?