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Will!

Electoral Uncertainty And H P C

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http://www.bbc.co.uk/news/business-32203874

Quite a long piece by Robert Peston - starts off with some familiar stuff about pre-election uncertainty but then we get to this:


...uncertainty about who governs us would probably be less benign if it were to persist for some time after 7 May's general election.

Weeks of wrangling about the composition of the government, an extended period of uncertainty about the policies of a minority government dependent on the support of smaller parties, could do serious economic damage.

How so?

Well, recent figures show there has already been something of a hiatus in business investment, and businesses have a habit of postponing and cancelling big investments till they are in a position to assess a government's direction.

So any prolonged weakness in investment would lessen the momentum of our economic recovery, would make our recovery more dependent on household consumption and thus reinforce its unbalanced character, and - perhaps more worryingly - would hold back a longed-for productivity revival.

And it is that stagnation of productivity, of output per hour worked, which is the rotten heart of our economic rehabilitation.

Without a return to growth in productivity, the two glaring flaws in our economic recovery - the record deficit on the money we earn from trading and investing internationally, or the current account deficit, and the government's still-big deficit - would become much harder to mend.

Just to remind you, the current account deficit was £97.9bn in 2014, equivalent to 5.5% of GDP or national output, which was the biggest annual deficit since records began in 1948.

And the deficit turned from being annoyingly negative to worryingly negative in the middle of 2013, when our persistent inability to earn a surplus on trade was seriously exacerbated by a collapse in what we earn on our overseas investments.

To put it another way, the rest of the world is increasing its loans to the UK at a record rate, at a time when the indebtedness of the UK is also at a record - equivalent to around 500% of GDP, according to McKinsey (that is the sum of household, business, City and government debts).

Now in the absence of a productivity resurgence that led to a rise in the UK's earning capacity, questions would at some point be asked about the ability of the UK to repay its debts - including government debts that rose at a rate of 5% of GDP last year and are forecast to reach a peak of 80% of GDP (the point is that when productivity is low, earnings tend to stagnate, so tax revenues are lacklustre).

At that ill-starred juncture, sterling would weaken, not because the UK economy was thought to be a little less robust than America's, but because of rather more profound anxieties about its (our) ability to pay for the standard of living we take for granted.

And as the Bank of England acknowledged in its so-called stress tests last year of UK banks, after a fall in sterling of some unspecified magnitude, the Bank's monetary policy committee would have to significantly increase interest rates - to ward off the seriously inflationary consequences of a collapsing currency.

At that point, house prices would plummet, as would the spending of households still shouldering debts that are very high by historic standards.

The UK would be back in the recessionary poo.

Now for the avoidance of doubt, the probability of this kind of calamity is low, though not negligible.

It would become a bigger risk, the longer it takes for investors to understand and put a price on the policies of a new government.


Vote as you see fit.

Edited by Will!

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And as the Bank of England acknowledged in its so-called stress tests last year of UK banks, after a fall in sterling of some unspecified magnitude, the Bank's monetary policy committee would have to significantly increase interest rates - to ward off the seriously inflationary consequences of a collapsing currency.

Would they raise rate though? Would like to think they would, but have doubts. Without doing so, imports would become more expensive. Others I know will lust that it makes UK property cheaper for those overseas; some HPC-HPIers still hark on that we had big HPC in other currencies.

Rate rises damage the precious HPI, including that of 21 year old scout recent buyers (And so the wisdom was passed generation to generation, renting is dead money, forever HPI - blame banks for any HPI pause) who many give a total-forgiving-pass towards as victims of media and blameless for buying and wanting HPI profits, and culture of no one can lose in property... renting-dead-money.

We so need HPC and fresh lending on all that owner outright positions £Tns, with transactions boosted.

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Would they raise rate though? Would like to think they would, but have doubts.

With a proper Sterling collapse, at some point they'd have to step in to save the pound - witness Russian right now (14% rates, peaked at 17) or any other number of historical examples. Carnage would ensue, of course.

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Would they raise rate though? Would like to think they would, but have doubts. Without doing so, imports would become more expensive. Others I know will lust that it makes UK property cheaper for those overseas; some HPC-HPIers still hark on that we had big HPC in other currencies.

Rate rises damage the precious HPI, including that of 21 year old scout recent buyers (And so the wisdom was passed generation to generation, renting is dead money, forever HPI - blame banks for any HPI pause) who many give a total-forgiving-pass towards as victims of media and blameless for buying and wanting HPI profits, and culture of no one can lose in property... renting-dead-money.

We so need HPC and fresh lending on all that owner outright positions £Tns, with transactions boosted.

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Would they raise rate though? Would like to think they would, but have doubts. Without doing so, imports would become more expensive. Others I know will lust that it makes UK property cheaper for those overseas; some HPC-HPIers still hark on that we had big HPC in other currencies.

If currency falls sterling bond yields will rise to compensate. Boe only really controls short end of yield curve.

If sterling falls property does not become a more favourable investment. Yields stay the same as rents denominated in sterling too. Currency falls will attract capital into assets that derive their income stream in foreign currency.

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With a proper Sterling collapse, at some point they'd have to step in to save the pound - witness Russian right now (14% rates, peaked at 17) or any other number of historical examples. Carnage would ensue, of course.

We couldn't cope with 14% rates, hell I doubt we'd survive rates of 1.4%!

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Without a return to growth in productivity, the two glaring flaws in our economic recovery - the record deficit on the money we earn from trading and investing internationally, or the current account deficit, and the government's still-big deficit - would become much harder to mend.

Just to remind you, the current account deficit was £97.9bn in 2014, equivalent to 5.5% of GDP or national output, which was the biggest annual deficit since records began in 1948.

And the deficit turned from being annoyingly negative to worryingly negative in the middle of 2013, when our persistent inability to earn a surplus on trade was seriously exacerbated by a collapse in what we earn on our overseas investments.

To put it another way, the rest of the world is increasing its loans to the UK at a record rate, at a time when the indebtedness of the UK is also at a record - equivalent to around 500% of GDP, according to McKinsey (that is the sum of household, business, City and government debts).

Now in the absence of a productivity resurgence that led to a rise in the UK's earning capacity, questions would at some point be asked about the ability of the UK to repay its debts - including government debts that rose at a rate of 5% of GDP last year and are forecast to reach a peak of 80% of GDP (the point is that when productivity is low, earnings tend to stagnate, so tax revenues are lacklustre).

All Greek to me.

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In 2010 - 11 Belgium was without a government for 589 days because a coalition couldn't be formed.

I'm pretty sure Belgium is still there.

But their currency isn't.

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With a proper Sterling collapse, at some point they'd have to step in to save the pound - witness Russian right now (14% rates, peaked at 17) or any other number of historical examples. Carnage would ensue, of course.

The prospect of a Brexit vote might help things along.

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Well it seems like the most likely election result will be a coalition between either SNP and the Tories or SNP and Labour

So if you have a strong preference for one or the other you should just vote Tory/Labour, but if like me you can't fit a fly paper between the differences in their policies, then you should vote for either SNP or whatever other party in your area will reduce support for the two main parties and thus make the coalition less stable and a HPC more likely.

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Now in the absence of a productivity resurgence that led to a rise in the UK's earning capacity,

Some indecision and uncertainty after the election will make little or no difference to that - it's been in decline for decades.

Indecision and uncertainty etc after the election might have an effect on the economy but that would be a consequence of years of incompetence and political tomfoolery - if he expects a significant resurgence of productivity under any form of government in the weeks immediately after the election he's kidding himself or maybe just trying to kid the electorate.

And it is that stagnation of productivity, of output per hour worked, which is the rotten heart of our economic rehabilitation.

No mention of the influence of crazy house prices and its effect on the UK's economy/productivity - he just doesn't want indecision or uncertainty after the election so that sounds like he wants a vote for the Lab or the Con of the LibLabCon. House prices might even "plummet". Well the UK economy has plummeted with their crazy house prices wrecking the UK economy.

Mind you the general idea of investment and productivity seems to be on the right track - but how is it that these ideas only seem to gain prominence just before a general election and then get forgotten about immediately afterwards.

Edited by billybong

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No mention of the influence of crazy house prices and its effect on the UK's economy/productivity - he just doesn't want indecision or uncertainty after the election so that sounds like he wants a vote for the Lab or the Con of the LibLabCon. House prices might even "plummet". Well the UK economy has plummeted with their crazy house prices wrecking the UK economy.

But house prices *are* the economy, we have little else generating "wealth".

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But house prices *are* the economy, we have little else generating "wealth".

Indeed - perhaps UK "standard of living has plummeted" (or maybe "real economy has plummeted") would be more accurate than just the word "economy".

Edited by billybong

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AEP is on the case also.

Basically it's the old "foreign investors dumping gilts" story.......sterling collapse......brexit fears.....

It's a re-run of the Establishment scare mongering in the run up to the Scottish indy vote only this time the general narrative is

"Vote labour and the world will end" (economic chaos, sterling crash, gilt run, Trident dumped, blah blah) so you better vote best stick to Tories and their long term economic plan / incontinence

I dare say this sort of scare mongering will be rabid towards the end of April with no doubt lots of stories of big banks dumping gilts, volatile sterling, scares about imminent double digit rates etc etc. All the usual guff

http://www.telegraph.co.uk/finance/economics/11525768/Gilts-strike-as-foreigners-shun-UK-on-gridlock-fears.html

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AEP is on the case also.

Basically it's the old "foreign investors dumping gilts" story.......sterling collapse......brexit fears.....

It's a re-run of the Establishment scare mongering in the run up to the Scottish indy vote only this time the general narrative is

"Vote labour and the world will end" (economic chaos, sterling crash, gilt run, Trident dumped, blah blah) so you better vote best stick to Tories and their long term economic plan / incontinence

I dare say this sort of scare mongering will be rabid towards the end of April with no doubt lots of stories of big banks dumping gilts, volatile sterling, scares about imminent double digit rates etc etc. All the usual guff

http://www.telegraph.co.uk/finance/economics/11525768/Gilts-strike-as-foreigners-shun-UK-on-gridlock-fears.html

And just the sort of thing we should expect if the banksters fail to install Boris Johnson as Tory leader before an EU referendum is called.

The problem they have these days is that voters get their news and opinion from a variety of online sources; the propagandistic advantage of a right wing press has been largely neutralised. As Fallon discovered to his cost this morning.

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Can't see it making any difference. It's not like there's any real difference between any of the main parties.

Not true. Its like Mass Effect ....what colour explosion do you want in the end.

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Can't see it making any difference. It's not like there's any real difference between any of the main parties.

If we get a LabCon government of national unity then you'll have been proved right in the most dismal way.

Edited by Will!

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With today's announcement on IHT I think the election result will have a big impact on HPI sentiment - and it's confidence, not fundamentals, which are driving prices higher at the moment. Take on one side a surprise Con majority with the IHT change sped through and effectively reducing supply, plus who knows what other goodies to reward the rich and grey, versus on the other an uneasy alliance of Lab/SNP bringing us the mansion tax and possibly spooking the markets to push up the cost of long-term funds. While the alternatives are not exactly attractive, for once the country has a real choice.

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If we get a LabCon government of national unity then you'll have been proved right in the most dismal way.

Won`t happen, there would be civil disorder in Scotland for a start, whoever wants power now has to deal with the SNP and other smaller parties.

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