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alexw

Wipe Out Rentiers With Cheap Money (Cautious Savers No Longer Serve A Purpose)

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http://www.ft.com/cms/s/0/d442112e-d161-11e3-bdbb-00144feabdc0.html#ixzz316U7Kjxx

This probably going to rile a few people but martin wolf argues that we have QE and ZIRP because

These unprecedented policies are needed because of the chronic deficiency of global aggregate demand.

and that

Before the wave of post-2007 crises hit the world economy, this deficiency was met by unsustainable credit booms in a number of economies

which should be no surprise to many here. Also that because

the world’s high propensity to save is not matched by a desire to invest....additional savings are now useless.

Note how this contradicts so much of what the government wants us to do. So for example there are the auto-enrollment schemes that have been introduced. Also note how this directly contradicts the savings = good mantra and spending = bad/prolifigeracy.

Thus, overall, to rebalance the economy that we need to carry on with the

“euthanasia of the rentier”

Which means we need to keep on wiping out the savings of savers.

Edited by alexw

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Surely the whole point of banking is that my savings are used for investment in productive business?

How else is the average person supposed to invest?

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Surely the whole point of banking is that my savings are used for investment in productive business?

How else is the average person supposed to invest?

Too much savings = bad.

Savings that match societies investment needs = good.

Ergo we need to wipe excess savings. So, well, you either go out and spend or get your savings wiped out.

Which if this is the way we are heading makes me have a smidgen of sympathy for boomers who are going to loose out massively on their pensions - will see them wiped out.

Edited by alexw

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Isn't killing off the Rentiers a good thing?

By and large, yes. Except that QE and ZIRP have the opposite effect. Wolf would be aware of this if he had any idea how money and debt actually work.

The Little Professor is similarly deluded.

Hedge fund manager David Einhorn, in recounting his dinner with former Fed Chairman Ben Bernanke, shed some light on Bernanke’s motivation for ZIRP.

Bernanke told him, “And my feeling has been that by having rates at zero for a very, very long time, the harm that we’re doing to savers outweighs the benefits that might be seen elsewhere in the economy.”

It was a cost-benefit analysis: Bernanke admitted that it harmed the savers (the quintessential little people), but that it was for the benefit of the borrowers, and sure, there are homeowners and consumers who borrow, but they never really benefited that much from those low rates (a 0% mortgage?). The biggest beneficiaries were the players on Wall Street, the banks, the hedge funds, the private equity firms that can borrow nearly unlimited amounts at super-low interest rates, even near 0% in the repo markets, and large corporations that can also borrow short-term near 0%. Those were the entities Ben summarized with “elsewhere in the economy.”

And it’s only when rates are this low for “a very, very long time,” that the destruction wreaked upon savers even enters into the equation. Bernanke made it worse when he added, according to Einhorn: “The reason is if you raise interest rates for savers, somebody has to pay that interest. So you don’t create any value in the economy because for every saver there has to be a borrower.”

You don’t want to raise the cost of money for banks, that's what Bernanke was talking about. And you don't want to raise interest rates on hedge funds and private equity funds and other highly leverage speculators.

http://www.testosteronepit.com/home/2014/5/8/scorched-earth-monetary-policy-in-the-us-and-what-happened-i.html

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Markets are self-balancing, when they're allowed to be. Savers saved for reasons, including to buy at much lower prices from other market participants who chose to pay reckless prices - but they've not been allowed to fall by much and overleveraged, greedy, over-expanded protected too much.

Means having the stomach for repossessing houses of someone in a bubble job with a 100% mortgage who chose to outbid others by £100K+ for a house, that many treat as victims.

Demand is feeble in some sectors because savers, who saved for a purpose, refuse to pay the over-inflated prices. Instead lower rates and ever more schemes to prop up house prices and value of other assets.

QE/Zirp protected many VI positions from failing - including those who went on spending sprees and overpaid for assets with their chronic entitlement and greed, and that of equity rich older owners with the most valuable housing stock.

I still choose to believe savers will prevail. Additional malinvesting into property as grey-haired older owners of the FT journos age been piling into investment property at even higher prices - convinced savers are going to keep getting hit - and because "It's not earning anything in the bank." That it's a banker pump and dump, and first stage nearly over as the banks have deleveraged.

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I do agree that it doesn't feel like much there's any point in saving. Every time the FSCS advert plays on the radio, it makes me think they're getting closer to a direct-theft 'bail-in'. People who aren't about to stab you, generally don't feel the need to keep telling you 'I'm not about to stab you!'...

Plus watching my savings lose 2% a year, I'd actually rather just spend some of them on some decent 'stuff' that I would enjoy - e.g. a nicer used car, or some quality tools that would still be of use post HPC...

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Markets are self-balancing, when they're allowed to be. Savers saved for reasons, including to buy at much lower prices from other market participants who chose to pay reckless prices - but they've not been allowed to fall by much and overleveraged, greedy, over-expanded protected too much.

Means having the stomach for repossessing houses of someone in a bubble job with a 100% mortgage who chose to outbid others by £100K+ for a house, that many treat as victims.

Demand is feeble in some sectors because savers, who saved for a purpose, refuse to pay the over-inflated prices. Instead lower rates and ever more schemes to prop up house prices and value of other assets.

QE/Zirp protected many VI positions from failing - including those who went on spending sprees and overpaid for assets with their chronic entitlement and greed, and that of equity rich older owners with the most valuable housing stock.

I still choose to believe savers will prevail. Additional malinvesting into property as grey-haired older owners of the FT journos age been piling into investment property at even higher prices - convinced savers are going to keep getting hit - and because "It's not earning anything in the bank." That it's a banker pump and dump, and first stage nearly over as the banks have deleveraged.

Not true I'm afraid. The amount of savings held by people saving for homes is absolutely tiny relative to the boomers and current retirees.

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It's never been more important to save, in my view.

Too much short-term on losing 2% a year, inflation and just a little bit more HPI... against prospect of a huge house price crash, and teaching complacent older owners, and malinvestors rushing to overpay for more investment property, a hard lesson.

Buying is dead money, at this moment. Deflation. New boom coming for younger well positioned non-owners, potential upsizers.

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Savers save for a rainy day. The trouble is when it's caused by their governbankment p?ssing on them with low rates, it makes them save more. Making saving evil, works, as long as the governbankment has the money to pay for everyone who no longer has their own safety net. Also one of the building blocks of saving is working to earn surplus money. If living costs like housing are too high to be paid for from income, people will turn to the state for it. The last worker is going to have to pay a hell of a lot of tax, to pay for everyone else.

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I've been growing more fearful of this and yes it has started to make me take more risks with a % of my investments. In housing terms it has made me start to think that a nominal fall in house prices is less likely with continued almost free money to those willing to take on debt and the best I can hope for is a fall in real terms (which was happening before this latest HPI caused by HTB). I hope Martin Wolf is wrong and we see a real house price correction as I haven't save for the past 10 years just to see my savings wiped out by ultra-loose monetary policies.

Edited by renting til I die

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Here in the UK we don't really save enough, that's why our current account deficit is so massive - it's a global surplus of savings which washes over us anyway. The London housing market is a case in point - Chinese and Malaysian punters apparently have the means to buy flats in London where actual Londoners don't. It's all those excess Asian savings making there way here one way or another.

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I've been growing more fearful of this and yes it has started to make me take more risks with a % of my investments. In housing terms it has made me start to think that a nominal fall in house prices is less likely with continued almost free money to those willing to take on debt and the best I can hope for is a fall in real terms (which was happening before this latest HPI caused by HTB). I hope Martin Wolf is wrong and we see a real house price correction as I haven't save for the past 10 years just to see my savings wiped out by ultra-loose monetary policies.

Look, we've already had 1 HPCer with something like a £100K deposit, fair income refused a mortgage today on £200K property, post MMR.

There is not endless real demand, when prices reach a certain point. Rates were floored, credit loosened, simply because the banks have been trying to find mugs to borrow huge sums to overpay for property.

There's been a buyer surge in recent times (older housing-win owners emptying their savings / playing BOMAD / into investment property at high prices - "not earning anything in the bank") and they are more vulnerable than ever.

Next step higher mortgage rates, lower house prices. (IMO)

Below is US, I can see this being headlines in UK very very soon. And following consequences, still to be experienced in US, but I believe if going to lead to a hpc. We've actually got the market under siege, whereas many older owners have believed they've got non-owners under siege, to life of renting in their investment properties, and complacent forever HPI about their £1m houses.

Mortgage lending declined to the lowest level in 14 years in the first quarter as homeowners pulled back sharply from refinancing and house hunters showed little appetite for new loans, the latest sign of how rising interest rates have dented the housing recovery.

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Look, we've already had 1 HPCer with something like a £100K deposit, fair income refused a mortgage today on £200K property, post MMR.

There is not endless real demand, when prices reach a certain point. Rates were floored, credit loosened, simply because the banks have been trying to find mugs to borrow huge sums to overpay for property.

There's been a buyer surge in recent times (older housing-win owners emptying their savings / playing BOMAD / into investment property at high prices - "not earning anything in the bank") and they are more vulnerable than ever.

Next step higher mortgage rates, lower house prices. (IMO)

Below is US, I can see this being headlines in UK very very soon. And following consequences, still to be experienced in US, but I believe if going to lead to a hpc. We've actually got the market under siege, whereas many older owners have believed they've got non-owners under siege, to life of renting in their investment properties, and complacent forever HPI about their £1m houses.

Yeah, I agree the mortgage news from the US is interesting as where the US goes the UK tends to follow. Mortgage lending is curtain to tighten in the UK with the new rules and this can only have a negative impact on prices. Think I'm more worried about a currency crash in the pound as almost all my savings are in sterling.

Maybe the banks are ready for a real HPC now and all this refunding of the banks by the government was just to get the banks ready for a inevitable crash!

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savings are a form of rentierism, some are arguing.

Complete ********. Rentier activity is defined as non-economically productive investment, if you arnt spending the money you arnt investing it ergo you cannot be a rentier. By holding cash your actually making everyone else more wealthy since by reducing the supply of money, all other money in circulation increases in value - i.e. the exact opposite of rentier activity where you hold an asset that you use to capture other peoples income.

Edited by goldbug9999

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Yeah, I agree the mortgage news from the US is interesting as where the US goes the UK tends to follow. Mortgage lending is curtain to tighten in the UK with the new rules and this can only have a negative impact on prices. Think I'm more worried about a currency crash in the pound as almost all my savings are in sterling.

Maybe the banks are ready for a real HPC now and all this refunding of the banks by the government was just to get the banks ready for a inevitable crash!

Mine too (£) other than $500 in cash.

All those homes at the higher end owned outright, or equity rich.... good reason to allow crash, force supply onto market, then write mortgages in volume at lower prices? Got to be good for lenders/tax revenues?

Although some lenders in US now loosening credit restrictions (not excessively) in response to a drop in mortgage applicants.. still trying to push debt, rather than trigger lower real estate prices. Which could be the similar response here... reckless victims applicants will jump the queue again to pay high prices. Other big lenders haven't moved in lowering qualifying status for mortgages.

Bit of a deceptive fog, in my view. We make our own decisions, and I recoil on asking prices: http://www.bloomberg.com/news/2014-05-01/easier-homeowner-credit-compelling-wells-fargo-mortgages.html

01 May, 2014

Lenders are also relaxing requirements in response to a drop in demand for mortgages. In 2013, a surge in borrowing costs undercut the refinancing boom. Interest rates on 30-year fixed-rate mortgages rose from a record low of 3.31 percent in November 2012 to 4.58 percent in late August, according to Freddie Mac surveys. Rates fell last week to 4.33 percent.
Home prices that have risen 28 percent since a 10-year low in 2012 have also stymied lending, particularly to first-time buyers. Cash purchases mostly by investors have filled the void, accounting for 33 percent of sales in March compared with 12 percent in mid-2009, according to the National Association of Realtors.
In April, Mortgage Bankers Association Chief Economist Mike Fratantoni lowered his forecast for home-purchase loans in 2014 to $626 billion. That compares with $652 billion last year. He also reduced his forecast for total originations this year by $100 billion to $1.07 trillion. In 2013, lenders originated $1.76 trillion in mortgage credit.
Boosting Lending
As mortgage volumes decline, lenders are suffering losses. Only 58 percent of independent mortgage banks and bank home-loan units were profitable in the final quarter of 2013, according to a Mortgage Bankers Association survey. JPMorgan Chase & Co., the second-biggest U.S. mortgage lender, said in April that its origination business lost money last quarter and would again do so in the second period.
..Some of the largest lenders aren’t scaling back standards. JPMorgan, Bank of America Corp., the third-largest mortgage lender, and No. 5 Citigroup Inc. haven’t changed lending standards this year, according to their spokesmen.
“The regulatory environment now is just so much stricter, there’s not much you can do,” said Brian Simon, chief operating officer of New Penn Financial, the lender owned by mortgage-bond pioneer Lewis Ranieri’s Shellpoint Partners LLC. “It’s generally not our game plan to chase volume by loosening up on quality.”
..“It’s important not to mistake the claim that we should expand access to credit because many worthy borrowers remain locked out of the market, with one that we should return to the days of reckless and unsustainable lending,” he said. “The two are not the same.”
Edited by Venger

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Im a saver, not a rentier.

None of my savings have come from being a rentier.

I got up at 5am for it.

So who ever wrote that can ****** the ****** off.

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I've been growing more fearful of this and yes it has started to make me take more risks with a % of my investments. In housing terms it has made me start to think that a nominal fall in house prices is less likely with continued almost free money to those willing to take on debt and the best I can hope for is a fall in real terms (which was happening before this latest HPI caused by HTB). I hope Martin Wolf is wrong and we see a real house price correction as I haven't save for the past 10 years just to see my savings wiped out by ultra-loose monetary policies.

To be honest in a sense I agree with you. Sadly something has to be done about it since the global savings rate is at 25% and rising, and that is way beyond societies needs.

The problem as I see it is there is no way to target the "excess" savers, those who have more savings than they will ever need or are saving so they can go on x luxury cruises a year when they retire, or in fact those nations that run excessive surpluses such as china and germany

Or if there are ways those ways are diplomatically or politically impossible (imagine a boomer total wealth tax! - I wish).

So instead everyone is targeted in a shotgun approach.

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Markets are self-balancing, when they're allowed to be.

Utter rubbish.

Has someone hacked your account? A couple a days ago you were pimping the notion that the existing BTL mortgage terms and conditions should frame the course of future statute law regarding tenancies - and now this? Unreconstructed free market ideology. I like a free market when I can have one, but when a free market fails, I like a regulated market. The idea that free markets are intrinsically self-balancing is ideology - it is the ideology that gave us the financial crisis and its sidekick - the under provision of genuinely affordable decent housing anywhere in the UK where you can find a decent job.

Perhaps you believe all that militant Friedman/Hayek utopianism. Good luck with that. There will be a banker along shortly to rip your face off - oh, wait - that already happened 20 years ago...

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Complete ********. Rentier activity is defined as non-economically productive investment, if you arnt spending the money you arnt investing it ergo you cannot be a rentier. By holding cash your actually making everyone else more wealthy since by reducing the supply of money, all other money in circulation increases in value - i.e. the exact opposite of rentier activity where you hold an asset that you use to capture other peoples income.

Not true. The banks use it as capital to "invest". Moreover for any cash you hold someone on the other side is holding debt, and as you are not spending it you are reducing the chance for them to acquire that money through work to service their debts. Imagine the extreme where 50% of the population held the debt and the other 50% held the money, but none of the "savers" spent anything. The debtors would immediately all go bankrupt, at which point the savers would be wiped out.

We are not at that very extreme level, but it does show how too much cash being saved can wreck the system.

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Im a saver, not a rentier.

None of my savings have come from being a rentier.

I got up at 5am for it.

So who ever wrote that can ****** the ****** off.

Agreed. :lol:

Not true I'm afraid. The amount of savings held by people saving for homes is absolutely tiny relative to the boomers and current retirees.

Perhaps, but that makes their house prices vulnerable at these Twilight Zone price levels, especially when prices move at the margin, and a substantial number of those owning higher value homes have spent their homes, or reinvested with leverage into more investment property. Including a guy in Telegraph the other day, his 50s who bought his home for circa £300K in 2000, and now owns more that that on his mortgage 14 years later, where the current HPI situation has everyone believing its worth £1m.

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Utter rubbish.

Has someone hacked your account? A couple a days ago you were pimping the notion that the existing BTL mortgage terms and conditions should frame the course of future statute law regarding tenancies - and now this? Unreconstructed free market ideology. I like a free market when I can have one, but when a free market fails, I like a regulated market. The idea that free markets are intrinsically self-balancing is ideology - it is the ideology that gave us the financial crisis and its sidekick - the under provision of genuinely affordable decent housing anywhere in the UK where you can find a decent job.

Perhaps you believe all that militant Friedman/Hayek utopianism. Good luck with that. There will be a banker along shortly to rip your face off - oh, wait - that already happened 20 years ago...

I was worried it may lead to litigation if forced on existing landlords (having to give 3 year tenancies), allowing them to rescind their mortgage position, or escape negative equity/repossession. Also it was full of holes anyway, the way it was presented, with get-outs for landlords (including if they wanted to sell up, as I recall it.) So it was useless in that form.

Free market with basic regulation in place, such as sensible lending qualifying criteria, allowing foreclosure or seizure of security deposit. QE has bought time for a free-market coming crash/correction in my opinion, and those exposed to longwave gains of ponzi-capitalism with house prices at extremes, to have their faces ripped off - and younger people/real savers to have opportunity. Yes I'm Hayek leaning. The notion that easy money can overcome forces of contraction is going to be tested - it may actually raise asset values for time - before leading to a harder asset value crash / redistribution to savers to share at lower prices.

There is no reason to assume the crisis was started by a deliberate deflationary action on the part of the authorities, or that deflation itself is anything but a secondary phenomenon, a process induced by the maladjustments from the boom.

F. Hayek, 1933

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