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BlackSwan

Explanation For Downshift In Economic Mood

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Reading through a few threads over the last couple of weeks it seems that the economic mood is less positive. Furthermore, the "recovery" seems to be running out of steam. This shift coincides with the recent property "boom".

To my eyes this is clear evidence of how little has been added to our economy in the last 5 years. I see a simple correlation between the boom in property prices and the decline in investment elsewhere as a result of demand being redirected to our favourite non-productive assets.

It wrankles that a simple reallocation of demand away from property will achieve far more than misguided attempts to "boost" overall demand. Constant over-investment in property assets has left us without the ability for demand to grow.

If property price growth was as a result of a genuine increase in demand then there would now be a building boom. There isn't and the housrbuilders are content to suck as much out of the economy as possible for the minimal amount of investment.

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The impact of HPI on demand is not often talked about, but it must be quite significant- more and more of the income of the great unwashed is being redirected into the hands of the rent seekers in the banking sector in the form of increased mortgage repayments.

The joke is that this debt is only sustainable if there is enough disposable income to create the demand that supports the jobs of those paying the debt- so the more the bankers extract in rents the closer they bring the day when the entire edifice collapses under it's own weight.

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Agreed. Meanwhile, in La La land, everyone bangs on about how we are finally on the upswing after five years of pain.

What pain? Where's the much needed creative destruction of zombie businesses and households?

No destruction, no recovery

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I was reading today that Kingfisher is now extracting 'rents' from suppliers, to stay on the suppliers list. This can only be a sign of failing in my opinion.

I suspect we get 'peak rent seeking' before a final collapse.

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Feels to me we had a boost but everyone thought the party is back on from before and got really greedy really fast.

I see houses and even business kite flying like crazy now and not negotiating because with these low rates what are they going to do with the money even when they have it?

It feels like what it is a recession halted less than halfway with cheap money.

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On here maybe.

There is a potential issue of consumers expecting discounts over and over. Firms have the ability and seem to be passing on discounts. The weak Euro may become a problem as to me sets it up for the current account deficit adjusting through domestic deflation. The BOE has said it has the tools to combat deflation but they are primarily looking at the labour market slack and interest rate rises are forecasted by market for 2016. This is in divergence to Eurozone. Not sure we want all the eurozone deflation?

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Feels to me we had a boost but everyone thought the party is back on from before and got really greedy really fast.

I see houses and even business kite flying like crazy now and not negotiating because with these low rates what are they going to do with the money even when they have it?

It feels like what it is a recession halted less than halfway with cheap money.

You can see the effect of ZIRP, QE and FLS:

goldcore_bloomberg_chart2_03-12-14.png

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At any rate for those desperate for good news fuel prices are gradually creeping up again so in due course the inflation figures will be increasing.

It was so awful when fuel prices fell and people had more spare money.

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expect the gubberment to start to talk the economy up very vigorously nearer the election

now is too soon for that, they need to keep the little bit of powder they have dry for the coming battle

maybe april time it will start

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I don't think the recovery is anywhere near as good as previous recoveries have been, but that isn't what is affecting people's moods, in my opinion.

The bigger issue is the gulf or disparity in wealth. The UK is the only G7 country to record rising wealth inequality in 2000-14. Wealth inequality has risen four times faster in the seven years after the crash compared with the seven years before. The rich in the UK are becoming richer faster than ever.

The UK is almost replicating Japan in the 80s, the UK’s 2007 wealth-to-income ratio was the highest level recorded for any country apart from Japan at the peak of its asset price bubble in the late 1980s, house prices in Japan in the late 1980s reached record levels, and subsequently halved in value in the great property crash around 1990.

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I think the public are finally getting around to the truth out there, the state of greece and the EU/IMF shenanigans the constant racking up of US and UK debt to levels which can;t be repaid are all hitting home to all but those who will never lose out and so rise above it - namely the top 1% as it is known.

the people know that recapitalising the banks and QE helped no one but the bankers and bond traders at the expense of the many. just like current anger at tax avoidance where the bulk of the population are not in a position to avoid tax like those who tell us what a good thing it is to only pay what you really have to. QE has destroyed pensions while low rates have decimated savers. yet they cling to the belief that a property bubble can save us and the chancellor can claim economic growth where the emperor actually has no clothes on.

help to buy did nothing but allow developers rack up house prices and claw back lost profits something known to everyone including the treasury, but the chancellors agenda was to get the banks lending again which failed. the banks however have stated that with interest rates so low they don't need depositors nor have they any reason to deal with customers or lend to them. we nationalised two banks and yet can't form a decent lending policy. the bust of 2008 was kept at bay which means the next one has to be worse.

and now we see a 20% scheme which will also fail, even though the ideal outcome would be a mass take up from first time buyers collapsing the buy to let market and freeing up more housing stock. personally I'd like to see a return of the fair rents councils and large fines for landlords renting substandard accommodation. we also need a right to buy for renters if they have lived somewhere for 5 years and legislation to stop landlords kicking tenants out without good reason. there are too many crap landlords out there who think they can pay off the mortgage and get an income from a single rented property.

the public increasingly knows that the world economy is on a knife edge thanks to the US and the global bankers led by it and the city of london yet fortunately don't realise just how close the total economic collapse of the west is if they continue to wage war against russia and hurl insults at china.

Greece has shown how fragile the eurozone is and how evil the EU can be when protecting its cherished misguided ideals, but westminster keeps quiet about how much we will have to fork out to bail it out when it fails, if they told us the truth the public would be clamouring for not only an out of the EU immediately without a referendum but a refund of the money we have been conned out of for 50 years. MPs wont rule out a source of employment which is why we are stuck in and cameron keeps announcing what he wants to do so the other side know he will never advocate leaving.

meanwhile the wars to prop up the dollar have made the US weaker as it goes around the world knocking off everyone who signed up for the gold dinar and I for one can;t wait to see them unable to threaten anyone else and end up like russia in the 90's my only concern is that whereas the transition from pound to dollar came about after britain exhausted itself fighting hitler the US is quite likely to nuke the planet out of spite when the dollar dies as the BRICS pact puts itself to the gold standard and trades in a gold backed currency.

russia china and india have been buying gold like its running out and exchanging dollar debts to do it, the US has caught wind of it and has stopped china from buying US assets with treasury bonds something actually illegal for them to do but when has the US respected the law recently?

200 trillion of global debt - most of it derivatives which actually do not exist. a debt jubilee is the only answer followed by deglobalisation and proper regulation. otherwise we are all going down and it will hurt.

a lot.....

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Good first post!

TA - sorry to be on such a downer and it is somewhat compressed. I've taken to listening to real world people on you tube, the kind of people max kaiser asks for advice. there are some very interesting theories using simple statistics for example we have had an economic crisis every seven years or so since nixon took the dollar off the gold standard. seeing as the last one was 2008 this is the year.

and my missus is wants to go up a notch on the housing ladder. needless to say I am hesitant to the say the least, she keep saying we can stay three years and then move on, I am pointing out that anywhere we look at we need to consider staying for ten plus to let the market catch up after the crash.

the 80s wiped out my parents so I have a jaded view on the housing market.

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At any rate for those desperate for good news fuel prices are gradually creeping up again so in due course the inflation figures will be increasing.

It was so awful when fuel prices fell and people had more spare money.

Yes, Osborne telling the country a little deflation caused by lower oil and petrol prices is good for the economy as it was like a little tax break. We get to keep a little more of our hard earned for discretionary spending, yet rampant house price inflation is strangely beneficial?

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