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anonguest

How Middle Classes Beat The Downturn

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http://www.dailymail.co.uk/news/article-2598443/How-middle-classes-beat-downturn-Mum-went-work-granny-looked-children-shopped-budget-supermarkets.html

Basically, to their credit, the middle classes have apparently largely managed to ride out the downturn so far by 'adapting' and making 'sacrifices' in their lifestyles. Seems to me though that all that has been achieved is that they have, mostly, only managed to keep their heads above water - and not actually properly pull themselves out of it?

Putting aside the implicit assertion of the article that the worst of the downturn is past us now....it does not really address the issue of just how much longer can they 'hang on' and just how little it could take to finally push them under good and proper, if new or added economic pressures came to bear down on them. The only such is the briefest of mentions of rising interest rates as being the likely culprit.

Isn't the reality though that their fight is ongoing and they WILL eventually lose, so long as cost of living rises at a pace faster than wages?

Edited by anonguest

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Isn't the reality though that their fight is ongoing and they WILL eventually lose, so long as cost of living rises at a pace faster than wages?

Unless commodities start ramping again (which I think is possible as other asset classes lose momentum) then it is starting to look like wages will start to outpace again.

I don't believe GO etc. are mindlessly ramping HPI for the sake of HPI right now - I think they've bet it will kickstart business investment and when that starts to show results they'll more aggressively tighten HPI (through regulation not IR).

Right now this has the added benefit of helping them electorally too.

I guess the best endgame they can hope for is that London tops-out near where it is now, then the regions boom for a couple of years and top-out too.

There doesn't need to be a hard landing on houseprices if TPTB are willing to socialise the support for high prices (bringing in MIRAS, longer mortgages etc.)

I know this sounds a bit 'this time it's different' but if you look at what has been done with bank debt since 2008, it's clear that it is possible to achieve if you're going to throw everything at the 'problem'.

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Unless commodities start ramping again (which I think is possible as other asset classes lose momentum) then it is starting to look like wages will start to outpace again.

I don't believe GO etc. are mindlessly ramping HPI for the sake of HPI right now - I think they've bet it will kickstart business investment and when that starts to show results they'll more aggressively tighten HPI (through regulation not IR).

Right now this has the added benefit of helping them electorally too.

I guess the best endgame they can hope for is that London tops-out near where it is now, then the regions boom for a couple of years and top-out too.

There doesn't need to be a hard landing on houseprices if TPTB are willing to socialise the support for high prices (bringing in MIRAS, longer mortgages etc.)

I know this sounds a bit 'this time it's different' but if you look at what has been done with bank debt since 2008, it's clear that it is possible to achieve if you're going to throw everything at the 'problem'.

You're seriously saying you believe that, apart from perhaps the odd anomalous month or even quarter, we will see wages outstrip price growth going forward? and I am not referring to the 'real world' inflation figures that most experience, compared with the official CPI and RPI numbers.

Hasn't the BoE repeatedly said that wage growth is something they watch very very carefully and, unlike being endlessly 'diligent' in respect of other things that really matter like HPI, is something they will very likely act on swiftly if they even smell a whiff of prolonged wage inflation? The entire economic growth model of the last 20+ years has been based on keeping wage costs suppressed. Allowing wages to rise again, consistently, to make up for loss of living standards incurred thus far, will undo all that has been achieved - in their eyes at least.

Thus, I find it hard to swallow that this will be the outcome. Not saying it won't happen, just that it seems at odds with everything we see and know.

Edited by anonguest

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The author inexplicably fails to mention the part played by George Osborne in borrowing and printing over a trillion pounds to keep the middle-classes in continuous employment and their assets wildly inflated. dry.gif

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You're seriously saying you believe that, apart from perhaps the odd anomalous month or even quarter, we will see wages outstrip price growth going forward? and I am not referring to the 'real world' inflation figures that most experience, compared with the official CPI and RPI numbers.

Hasn't the BoE repeatedly said that wage growth is something they watch very very carefully and, unlike being endlessly 'diligent' in respect of other things that really matter like HPI, is something they will very likely act on swiftly if they even smell a whiff of prolonged wage inflation? The entire economic growth model of the last 20+ years has been based on keeping wage costs suppressed. Allowing wages to rise again, consistently, to make up for loss of living standards incurred thus far, will undo all that has been achieved - in their eyes at least.

Thus, I find it hard to swallow that this will be the outcome. Not saying it won't happen, just that it seems at odds with everything we see and know.

Wholesale gas prices down 43%, petrol lowest for three year, new car price deflation..........just some of the deflationary forces now in play. You can pretend that inflation is at 10%, but 7 years on we should be double 2007. You can big up inflation over one year, you can't big it up over a length of years.

Inflation is only good for property/ gold lovers, it justifies their inflationary hedge

Edited by crashmonitor

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Unless commodities start ramping again (which I think is possible as other asset classes lose momentum) then it is starting to look like wages will start to outpace again.

I don't believe GO etc. are mindlessly ramping HPI for the sake of HPI right now - I think they've bet it will kickstart business investment and when that starts to show results they'll more aggressively tighten HPI (through regulation not IR).

Right now this has the added benefit of helping them electorally too.

I guess the best endgame they can hope for is that London tops-out near where it is now, then the regions boom for a couple of years and top-out too.

There doesn't need to be a hard landing on houseprices if TPTB are willing to socialise the support for high prices (bringing in MIRAS, longer mortgages etc.)

I know this sounds a bit 'this time it's different' but if you look at what has been done with bank debt since 2008, it's clear that it is possible to achieve if you're going to throw everything at the 'problem'.

I think it would be hard for the government to directly subsidise mortgage holders via MIRAS whilst kicking the disabled out of their 2 bedroom council flats. To me this looks like wishful thinking.

The government gain from HPI via their own property portfolios. Increasing house prices enables people to move home as they can cover the costs from the HPI, in turn this brings the government more money from stamp duty and other taxes paid from the transaction costs.

All in all it wouldn't be a problem if people at the bottom of the ponzi didn't have to take out larger and larger debt to maintain ever increasing house prices.

Every 5% - 6% house price 'growth' every year means that the people at the bottom of the ponzi have to increase borrowing by 5% - 6% every year to maintain rising prices.

For example: For the same home to be bought and sold every year the 'first time buyer' (person at the bottom of the ponzi) would have to borrow the following:

  • Year 1 100k,

  • Year 2 106k

  • Year 3 112k

  • Year 4 119k

  • Year 5 126k

Does this look sustainable to you? It has only been possible to maintain via lowering interest rates so the people who are borrowing more and more can service their mortgages.

If wages were rising at 6% it would also be sustainable, but for asset prices to rocket away from earnings it is unsustainable 'unless' borrowing costs can be lowered further.

We could be looking at 2% mortgage rates within 5 years time, otherwise the whole thing has to come crashing down with a 6% growth rate.

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I'm looking forward to How Middle Classes caused the collapse of the Uk economy.

Had Brother in law tell me at the weekn how the housing market had recovered and everything was booming/hunky dorey.

he lives in London.

I told him I had friends who were being repo-d and had were reliant on food banks to eat.

he seemed shocked.

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Wholesale gas prices down 43%, petrol lowest for three year, new car price deflation..........just some of the deflationary forces now in play. You can pretend that inflation is at 10%, but 7 years on we should be double 2007. You can big up inflation over one year, you can't big it up over a length of years.

Inflation is only good for property/ gold lovers, it justifies their inflationary hedge

Wholesale gas prices may well be down, but has it translated into lower gas bills for end users??!!

Petrol prices do, i grant you, appear to be offering a temporary respite of sorts - but will it be sustained for a meaningfully long enough time?

As for new car prices? That's hardly one to put near the top of the list of considerations, even for the materialistic middle class! Even they will focus more on bread and meat prices, home insurance costs, clothing costs, commuting costs, etc before they worry about replacing their car?!

These few, isolated, examples you cite do not powerfully persuade that, going forward, the rise in the overall cost of living is going to abate.

Edited by anonguest

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Wholesale gas prices may well be down, but has it translated into lower gas bills for end users??!!

Petrol prices do, i grant you, appear to be offering a temporary respite of sorts - but will it be sustained for a meaningfully long enough time?

As for new car prices? That's hardly one to put near the top of the list of considerations, even for the materialistic middle class! Even they will focus more on bread and meat prices, home insurance costs, clothing costs, commuting costs, etc before they worry about replacing their car?!

These few, isolated, examples you cite do not powerfully persuade that, going forward, the rise in the overall cost of living is going to abate.

The official stats have shop prices in deflation, even food they can only manage 1.1% YOY. Even I would agree the food one looks dodgy. But it still comes down to the fact that you can only hide/ undercook inflation stats for one or two years, over a period it becomes apparent.

http://www.theguardian.com/business/2014/mar/04/shop-prices-falling-retail-deflation

Deflation, bring it on and punish the speculators.

Edited by crashmonitor

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The official stats have shop prices in deflation, even food they can only manage 1.1% YOY. Even I would agree the food one looks dodgy. But it still comes down to the fact that you can only hide/ undercook inflation stats for one or two years, over a period it becomes apparent.

http://www.theguardian.com/business/2014/mar/04/shop-prices-falling-retail-deflation

Deflation, bring it on.

Which is why I explictly mentioned that one needs to ignore the inevitable 'anomalous' occasional months or odd quarter or two - as their impact is negligible on the longer term established pattern.

Bread is up how much in last 5-ish years? But we are meant to assume the worst is over and the ship of economic fortune is now sailing towards calmer and sunnier waters just because food inflation has fallen to only 1-ish percent. Only IF this can be maintained for long enough will it be justified in being referred to as important.

I would also add that the rise in the cost of living is not just through consumer inflation. Yes, petrol prices may well stabilise or even fall a wee bit BUT before one starts to celebrate lower motoring costs one needs to account for rising road tax, MOT costs, insurance costs, etc. Net overall cost of motoring/transport continues to rise.

Edited by anonguest

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The official stats have shop prices in deflation, even food they can only manage 1.1% YOY. Even I would agree the food one looks dodgy. But it still comes down to the fact that you can only hide/ undercook inflation stats for one or two years, over a period it becomes apparent.

http://www.theguardi...etail-deflation

Deflation, bring it on and punish the speculators.

A lot of food inflation is disguised by shrinkage.

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I'm looking forward to How Middle Classes caused the collapse of the Uk economy.

Had Brother in law tell me at the weekn how the housing market had recovered and everything was booming/hunky dorey.

he lives in London.

I told him I had friends who were being repo-d and had were reliant on food banks to eat.

he seemed shocked.

Been getting a lot of this from family members too. That everything is hunky dorey and how I was wrong to point out in the past that house prices were unsustainable, should have bought a house, look at how much money I am spending on rent, etc, etc. I don't know anyone reliant on food banks, so I just put my hands up and say yes I am a idiot but no I'm not planning on take out a 4.5 x my wages mortgage to buy a house!

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The problem is not so much how much people are paid but how long they will be paid it.......the middle class are tightening their belts, finding new ways to save money, saving via spending and saving for the rainy days that are becoming more frequent....... Jobs are not as stable, guaranteed, more short-term contract work, fewer jobs with security for life......how can people take on a long-term mortgage liability when on a 12 month contract? ;)

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A lot of food inflation is disguised by shrinkage.

Agreed - and by reduction in quality too. Similarly for clothing. Sizes may not be getting smaller but the quality is, etc.

BUT....I deliberately did not raise these points, as I didn't want to turn the thread into another CPI/RPI versus 'real' inflation thread.

The issue being debated, and my assertion, was that the middle classes have done pretty much all they can to keep their heads above water - but won't be able to withstand any further shocks or prolonged pressures.

Edited by anonguest

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The problem is not so much how much people are paid but how long they will be paid it.......the middle class are tightening their belts, finding new ways to save money, saving via spending and saving for the rainy days that are becoming more frequent....... Jobs are not as stable, guaranteed, more short-term contract work, fewer jobs with security for life......how can people take on a long-term mortgage liability when on a 12 month contract? ;)

Not being a slave to consumerism is one way out of labour servitude; a thing not bought is an hour less to work. Belt tightening can make you happier.

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Wholesale gas prices down 43%, petrol lowest for three year, new car price deflation..........just some of the deflationary forces now in play. You can pretend that inflation is at 10%, but 7 years on we should be double 2007. You can big up inflation over one year, you can't big it up over a length of years.

Inflation is only good for property/ gold lovers, it justifies their inflationary hedge

Gold isn't only an inflationary hedge. That isn't why most people are holding gold.

But actually, inflation is at at least 10% for many items. Beef, for instance (high quality beef). Or indeed any quality meat. Have you purchased say minced lamb from a high quality butchers lately?

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Gold isn't only an inflationary hedge. That isn't why most people are holding gold.

But actually, inflation is at at least 10% for many items. Beef, for instance (high quality beef). Or indeed any quality meat. Have you purchased say minced lamb from a high quality butchers lately?

As it so happens I haven't for a while, although I do like it. Go on.....depress me!

Edited by anonguest

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Gold isn't only an inflationary hedge. That isn't why most people are holding gold.

But actually, inflation is at at least 10% for many items. Beef, for instance (high quality beef). Or indeed any quality meat. Have you purchased say minced lamb from a high quality butchers lately?

.....high quality meat I agree has risen in price over the last few years, over double the rate of inflation....... So you eat less of it and use it in a way that makes it go further...... Nice moussaka that can make a few tasty meals for the family for the price of a couple of thin burgers and greesy portions of chips......there are good reasons why good meat is expensive and it will continue to do so. ;)

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http://www.dailymail...permarkets.html

Basically, to their credit, the middle classes have apparently largely managed to ride out the downturn so far by 'adapting' and making 'sacrifices' in their lifestyles. Seems to me though that all that has been achieved is that they have, mostly, only managed to keep their heads above water - and not actually properly pull themselves out of it?

Putting aside the implicit assertion of the article that the worst of the downturn is past us now....it does not really address the issue of just how much longer can they 'hang on' and just how little it could take to finally push them under good and proper, if new or added economic pressures came to bear down on them. The only such is the briefest of mentions of rising interest rates as being the likely culprit.

Isn't the reality though that their fight is ongoing and they WILL eventually lose, so long as cost of living rises at a pace faster than wages?

Eating is cheap if you plan meals, rent has gone nowhere for decades, and there is plenty that the average UK citizen can cut back on to save money (In my own case it was alcohol and take away sandwiches/meals recently, freeing up easily two or three hundred a month extra to save/invest) Many middle class types will agonise over taking the kids out of fee paying schools maybe, but they can do it and the world won`t end. The biggest decider of who goes under in the future will be mortgage debt, because when rates rise those who overstretched will be punished. If you have no or low mortgage, or are renting cheaply living expenses can be very low IMO.

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Agreed - and by reduction in quality too. Similarly for clothing. Sizes may not be getting smaller but the quality is, etc.

BUT....I deliberately did not raise these points, as I didn't want to turn the thread into another CPI/RPI versus 'real' inflation thread.

The issue being debated, and my assertion, was that the middle classes have done pretty much all they can to keep their heads above water - but won't be able to withstand any further shocks or prolonged pressures.

When interest rates start to rise those who borrowed too much house will pay the price, it is all about mortgage costs and general borrowing costs now.

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When interest rates start to rise those who borrowed too much house will pay the price, it is all about mortgage costs and general borrowing costs now.

...true, so they will have to cut back in other areas, like not changing the car so often, going out so often, turning the heating down and switching the lights out.......this is not unusual, rates of interest on debt used to vary greatly.....today a one percent rise would be like an old four percent rise.....doing things differently does not always mean doing things badly. ;)

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Which is why I explictly mentioned that one needs to ignore the inevitable 'anomalous' occasional months or odd quarter or two - as their impact is negligible on the longer term established pattern.

Bread is up how much in last 5-ish years? But we are meant to assume the worst is over and the ship of economic fortune is now sailing towards calmer and sunnier waters just because food inflation has fallen to only 1-ish percent. Only IF this can be maintained for long enough will it be justified in being referred to as important.

I would also add that the rise in the cost of living is not just through consumer inflation. Yes, petrol prices may well stabilise or even fall a wee bit BUT before one starts to celebrate lower motoring costs one needs to account for rising road tax, MOT costs, insurance costs, etc. Net overall cost of motoring/transport continues to rise.

Core inflation has risen hugely and had a disinflationary impact on consumer demand for everything else. Since 2000, a barrel of crude oil has risen around 320%, a gallon of petrol around 100% and a litre of fuel oil something like 250%. The UN Food Index is still close to its recent high of 2011, and again demonstrates the massive commodity price inflation that's occured worldwide since 2005.

yrnxpdtt-1366955131.jpg

Edited by zugzwang

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They shop at budget supermarkets and both work: lower class. They are not keeping their heads above water at all, they are falling down the social ladder.

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Weetabix plans to cut workers' pay and hours to cope with the budget supermarket price squeeze.

No word yet from govt about a Help to Breakfast scheme...

Weetabix is planning to cut the pay and reduce the working hours of its British labour force in a drastic reaction to pressure from supermarket own-brands and the discount food retailers.

The iconic cereal company, which also owns Alpen, Ready Brek and Weetos, has warned staff that it needs to cut costs by millions of pounds within the next three months, The Telegraph can reveal.

In a bid to avoid compulsory redundancies, Weetabix has told workers it wants to scrap a promised 2.5pc pay rise this year.

The company, which has been based in Kettering, Northamptonshire, since the Thirties and employs 2,000 people, has also proposed a reduction in premium rate pay for workers on long shifts. Weekend and night work may also be reduced.

http://www.telegraph...sh-workers.html

Edited by zugzwang

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Weetabix plans to cut workers' pay and hours to cope with the budget supermarket price squeeze.

No word yet from govt about a Help to Breakfast scheme...

My link

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