'timebomb' Uk Economy Will Explode After Election, Says Albert Edwards

[R K]

A Evans-Pritchard ‏@AmbroseEP 2h2 hours ago

Brad DeLong at IMF: Our debt levels are "unsustainably low". Scolds Reinhart/Rogoff for inventing 90pc rule. Uhm, I need to think about this

[ManVsRecession]

No, 'Borrowing to invest' was the Labour policy they adopted when they realised that 'austerity' was killing 'the economy'.

'Borrowing to invest' means throwing money at anything that votes and boosts 'the economy' by definition.

Thus proving Labour correct - provided history stops now and you think 'the economy' is the same as the economy, which it isn't.

Words have specific meanings. You can't just re-interpret them to mean what you want, and use the your new meaning as "proof" you're correct.

But I'm intrigued. How is " "the economy" " different to "the economy"?

[Venger]

It might hypothetically have been at the start but since then it's like making your neighbour sell his car to give the money to you because the payments on your fancy new care are more than you can really afford. Leaving your neighbour without a car or a means to get to work unless he gets a loan to buy a new one. It doesn't matter who committed to the new car; if you're a grown up you admit it's your car so either accept your own priorities and finances will have to change to afford it, or cancel the lease and move on. But then that would involve personal loss somewhere.

Borrowed to invest in what?

And too often they borrowed for the blingy car to consume... 0.5%/QE has prevented the productive worker getting a position, making his savings go a bit further, against his all-consuming decades-of-hpi+++ paradise neighbours in the nicer part of town. Prevented the shift in buying power by limiting the winners from losing position/asset value.

Self-liquidating credit is a loan that is paid back, with interest, in a moderately short time from production. Production facilitated by the loan - for business start-up or expansion, for example - generates the financial return that makes repayment possible. The full transaction adds value to the economy.

Non-self-liquidating credit is a loan that is not tied to production and tends to stay in the system. When financial institutions lend for consumer purchases such as cars, boats or homes, or for speculations such as the purchase of stock certificates, no production effort is tied to the loan. Interest payments on such loans stress some other source of income.

Contrary to nearly ubiquitous belief, such lending is almost always counter-productive; it adds costs to the economy, not value. If someone needs a cheap car to get to work, then a loan to buy it adds value to the economy; if someone wants a new SUV to consume, then a loan to buy it does not add value to the economy. Advocates claim that such loans "stimulate production," but they ignore the cost of the required debt service, which burdens production. They also ignore the subtle deterioration in the quality of spending choices due to the shift of buying power from people who have demonstrated a superior ability to invest or produce (creditors) to those who have demonstrated primarily a superior ability to consume (debtors).

- Robert R. Prechter

Maybe debt is too low. Personal debt. I expect to take a £100K+ mortgage, but only when £TRILLIONS owned in housing equity by homeowner side, rebalances to some housing affordability for buyer side - vast majority of older owners around here I suspect own outright.

Homes owned outright (or nearly outright) are dead money for the banks - or will be seen that way, after they've offloaded enough of their debt-positions from previous boom cycle into this reflation. Income is being stressed to many VIs at the moment which I suggest increases the force of the eventual deflationary reaction.

Modern money starts out during credit/debt creation. The home mortgage is BY FAR the dominant source of said new money. Said money is killed off when the mortgage is paid off — or defaulted on.

[Guest_northshore_*]

And too often they borrowed for the blingy car to consume... 0.5%/QE has prevented the productive worker getting a position, making his savings go a bit further, against his all-consuming decades-of-hpi+++ paradise neighbours in the nicer part of town. Prevented the shift in buying power by limiting the winners from losing position/asset value...

I don't have a particular issue with 0.5%/QE because I don't think rates would be higher absent the BoE and I don't think QE boosts asset prices unless commensurate policy by the people we actually elect make it so. Therefore my problem is with the making it so, not any particular policy - they're just used as excuses (or in many cases, warped 'wealth' rationale).

The reason productive working hasn't been rewarded (I'm not really with you on the savings bit) is because authority has chosen to prioritise other things above rewards to productive working. And we as a whole keep cheering it on.

[TwoWolves]

I expect you were still in nappies when Labour's NEB funded Inmos (transputer) which by a circuitous route involving Acorn Computers eventually morphed into the ARM Holdings.

Possibly one of the only truly world class companies left in Blighty and still largely Blighty owned.

Lets get one thing straight, the Labour party that did that looked more like UKIP than today's neoliberal buffoons.

It was however also the same Labour party who ripped-up the tram-lines

[BorrowToLeech]

Words have specific meanings. You can't just re-interpret them to mean what you want, and use the your new meaning as "proof" you're correct.

But I'm intrigued. How is " "the economy" " different to "the economy"?

'The economy' is the set of arbitrary numbers published to justify policies favouring a handful of rich freeloaders - GDP and so on.

The economy, is y'know, the economy.

[billybong]

Words do have specific and well defined meanings except when used by politicians.

For instance from 1997 and for 13 years Labour claimed that everything they did benefited "the economy" but in reality what they meant was that it benefited the bank balances/economy of the "1%" - as well as the politicians' bank balances.

The Conservative/Libdem coalition has been no different of course.

Edited April 15, 2015 by billybong

[XswampyX]

The only thing a good government can do when the economy hits the buffers is to withdraw and not partake. They don't know what to invest in, and anything they do invest in won't draw a return. So it's best they f**k off out of it until it's recovered enough that they can start interfering in it again without killing it.

That's right, isn't it?

[porca misèria]

....BUT, if sterling plummets, won't houses become even cheaper for overseas 'investors'?

Cheaper but less attractive.

More people buy in a bubble (like ten years ago), fewer when prices are lower (five years ago).

[zugzwang]

I don't have a particular issue with 0.5%/QE because I don't think rates would be higher absent the BoE and I don't think QE boosts asset prices unless commensurate policy by the people we actually elect make it so. Therefore my problem is with the making it so, not any particular policy - they're just used as excuses (or in many cases, warped 'wealth' rationale).

The reason productive working hasn't been rewarded (I'm not really with you on the savings bit) is because authority has chosen to prioritise other things above rewards to productive working. And we as a whole keep cheering it on.

I'm curious as to why you don't you believe QE boosts asset prices? I know correlation doesn't prove causation but this chart's hard to explain otherwise, especially since the US economy was growing at best 1.75%/yr between 2009 and 2012.

What do we know? A panicked Bernanke tried to cool the US economy in late 2007, after the first signifiers of a liquidity tightening in credit markets became apparent. As ever, the Little Professor was way behind the curve, and much too late to effect an orderly unwinding after years of easy money - the economy and stock market promptly went into seizure forcing him to reverse direction hard and start throwing cash at the primary dealers like some latterday Rudy von H.

It's all here:

Edited April 15, 2015 by zugzwang

[wherebee]

In the past 12 months I've liquidated some hard assets in the UK, moved funds out of GBP, and run down my funds in UK bank accounts to a minimum (enough to cover a visit or two). I can't tell when it's going to go bang, and sterling drops sharply in value, but I am betting hard it is going to happen before 2017.

Now, I am not that smart or that organised, but if I can see the writing on the wall, just think what professionals or insiders are doing....

[Steppenpig]

, but if I can see the writing on the wall, just think what professionals or insiders are doing....

they're probably rubbing their hands together in an evil self satisfied manner, and burning small effigees of wherebee.

[MarkG]

I expect you were still in nappies when Labour's NEB funded Inmos (transputer) which by a circuitous route involving Acorn Computers eventually morphed into the ARM Holdings.

What, exactly, is Inmos supposed to have had to do with ARM?

And, as for Inmos, I worked with them in the early 90s, and they were a company with some good products combined with an apparent complete lack of interest in actually selling them to anyone. For example, whereas most CPU companies would give away development systems, or at least sell them as cheaply as they possibly could, then make the money back on CPU sales, theirs cost more than a PC; and PCs weren't cheap at that time. Complete disaster business-wise, and completely predictable.

[Venger]

I'm curious as to why you don't you believe QE boosts asset prices? I know correlation doesn't prove causation but this chart's hard to explain otherwise, especially since the US economy was growing at best 1.75%/yr between 2009 and 2012.

What do we know? A panicked Bernanke tried to cool the US economy in late 2007, after the first signifiers of a liquidity tightening in credit markets became apparent. As ever, the Little Professor was way behind the curve, and much too late to effect an orderly unwinding after years of easy money - the economy and stock market promptly went into seizure forcing him to reverse direction hard and start throwing cash at the primary dealers like some latterday Rudy von H.

It's all here:

Same; how much is DAX (German stock index) up since ECB QE began just a few months ago... some 2000 points at 12000... after a few years of trading between 8000-10,000. Guns don't kill people.. people kill... QE doesn't raise asset prices...

Against a background of floored rates where existing debtors survived without wider-market value-discovery... yet now, it appears enough doubled down again into the magnificence of they won't let hpc happen, including KB's 60+ year old associate who traded up to nice house on short-term £400,000 2% interest-only mortgage (that reverts to higher SVR)..

If QE in itself doesn't boost asset prices then it seems to stimulate behaviours in other individuals with buying power to push asset prices higher. Then we have house prices in US prime, UK... would we have had our HPC we positioned for if we hadn't had UK/US/Japan and other QE blitzing. RK will say your savings would have been wiped out, but so what when tiny terrace cottages in East Sheen are selling/worth more than £400,000 - £1/2m more than they were in silly price 2006.

I don't have a particular issue with 0.5%/QE because I don't think rates would be higher absent the BoE and I don't think QE boosts asset prices unless commensurate policy by the people we actually elect make it so. Therefore my problem is with the making it so, not any particular policy - they're just used as excuses (or in many cases, warped 'wealth' rationale).

The reason productive working hasn't been rewarded (I'm not really with you on the savings bit) is because authority has chosen to prioritise other things above rewards to productive working. And we as a whole keep cheering it on.

Whatever the causes, I don't like it nor cheer it on - it is policy by people we elect - they seem to benefit directly from the policies, as do the much of their core voters. Can only hope the long-wave extreme imbalances snaps back hard and uncontrollably - triggered by opposite reactions from younger people without mercy.

Edited April 16, 2015 by Venger

[Killer Bunny]

The Govt cut the Deficit? Yes and Santa Claus is my uncle.

#bringbackcapitalism #banQE #letmktsetrates These are what should have happened. 1-2yrs of pain followed by a generation of prosperity. Instead of a generation of Depression.

If only.

[spyguy]

Lets ask Smithers on QE:

http://blogs.ft.com/andrew-smithers/2015/04/risks-and-dangers-in-the-aftermath-of-qe/

[Guest_northshore_*]

I'm curious as to why you don't you believe QE boosts asset prices? I know correlation doesn't prove causation but this chart's hard to explain otherwise, especially since the US economy was growing at best 1.75%/yr between 2009 and 2012.

What do we know? A panicked Bernanke tried to cool the US economy in late 2007, after the first signifiers of a liquidity tightening in credit markets became apparent. As ever, the Little Professor was way behind the curve, and much too late to effect an orderly unwinding after years of easy money - the economy and stock market promptly went into seizure forcing him to reverse direction hard and start throwing cash at the primary dealers like some latterday Rudy von H...

I didn't say it doesn't boost asset prices, I said it boosts asset prices because the stated intention is to boost asset prices.

e.g. On housing - if property taxes had been raised (and income taxes lowered at the same time) then it wouldn't have raised house prices. Although I'm not that QE itself made that much upward difference anyway with housing (rather than initial rate drop, then later FLS, HTB and all the rest).

On asset prices generally, there are other charts that could question some of the QE/rates correlation. Basically, in a world without central banks and QE I think rates would have fallen more. And I don't believe that would have resulted in any straightforward low rate/high price phenomenon. Which doesn't mean I can infer there was no part played in raising say bond prices, but mechanically raising bond prices (and lowering yields) isn't the same as waves of bond prices rising (and yields lowering) because everyone knows central banks are coming to hoover them up - again and again and again.

Edit: example - http://traderscrucible.com/?s=cash+for+clunkers

Edited April 16, 2015 by northshore

[Guest_northshore_*]

Same; how much is DAX (German stock index) up since ECB QE began just a few months ago... some 2000 points at 12000... after a few years of trading between 8000-10,000. Guns don't kill people.. people kill... QE doesn't raise asset prices...

Against a background of floored rates where existing debtors survived without wider-market value-discovery... yet now, it appears enough doubled down again into the magnificence of they won't let hpc happen, including KB's 60+ year old associate who traded up to nice house on short-term £400,000 2% interest-only mortgage (that reverts to higher SVR)..

If QE in itself doesn't boost asset prices then it seems to stimulate behaviours in other individuals with buying power to push asset prices higher. Then we have house prices in US prime, UK... would we have had our HPC we positioned for if we hadn't had UK/US/Japan and other QE blitzing. RK will say your savings would have been wiped out, but so what when tiny terrace cottages in East Sheen are selling/worth more than £400,000 - £1/2m more than they were in silly price 2006.

Whatever the causes, I don't like it nor cheer it on - it is policy by people we elect - they seem to benefit directly from the policies, as do the much of their core voters. Can only hope the long-wave extreme imbalances snaps back hard and uncontrollably - triggered by opposite reactions from younger people without mercy.

The Dax is up in euros. I don't dispute the initial fall in rates/QE kept a lot of things afloat, but that was due to the backstop for lenders and borrowers not because lower rates are necessarily any great help if one still can't afford to borrow or don't have anything to lend (or have too much to lend). Yes double-down, triple-down...those are wider policy choices not just because the central bank arm of government decided to make it so. The BoE is the BANK of england, not the people's best interest fund of england. It's stimulative for the same reason productive working isn't rewarded - because they can and we let them.

[Blod]

I want proper austerity. Lots of deep painful cuts to restore normality and wipe the slate clean. Its the only way.

DC and GO have give the impression to the markets that thats exactly what they've been doing. Balls, Miliband, et all screaming about CUTS have actually played nicely into there hands. Its for that reason our borrowing costs are still as low as they are. If our lenders (the markets) sense a future government isn't going to create the same economic mood music they bump up what it costs to borrow and in turn how cheaply we've been able to service our debt.

Comments about any government "investing" is a lie, we are borrowing till not only has the deficit gone but also the debt.

Whether its the left or for that matter the current right our political classes only wish to expand their state. Year after year the public sector has expanded like an oxygen sucking algae chocking all.

What you suggest would be an excellent tonic.

[Assume The Opposite]

Novice questions:

If the £ slides and slides, is the only option for the UK Govt (whoever they are) to raise interest rates to protect it? If so, imagine the impact. Are we fast approaching a lose/lose situation in regard to almost everything tied to 'the system'? Or are there any other last ditch alternatives? It certainly seems as though politicians can magic all kinds of imaginary tools out of their backsides when it suits them. Can they magic up a useful one when push comes to shove?

Kind of related - Which would come first? Protect my £85k or bail-in?

I have no debt and have a decent amount of bank deposit. I'm about as detached from the system as I can get without stuffing my cash in the walls. But I still don't feel safe.

I think they might well go down the QE route then we'll have real inflation. That's what Peter Schiff etc expect the fed to do. Who knows what will happen. They pulled HTB out of a hat.

Your £85k is very close to the FSCS limit I believe? The bail in is already in law just in case you didn't know. The BoE have statutory power to implement it but they can change the 'rules' if needed, and could potentially reduce the protected deposit threshold or worse.

As long as your not with any of the G-SIBs then you could be okay. Gold/silver/emerging markets/stuff under a mattress? It's just impossible to know what they'll do when SHTF.

[crashmonitor]

I linked these two on the off topic forum.......I guess these are the two demons that might give the Markets something to think about come 8th May........(from about 8 seconds in)

Edited April 16, 2015 by crashmonitor

[Guest_northshore_*]

I linked these two on the off topic forum.......I guess these are the two demons that might give the Markets something to think about come 8th May........(from about 8 seconds in)

Perhaps I'm missing something but the No campaign and result means Scotland's part of the UK so Scottish votes are as valid as anyone else's. It also means the Scottish vote distribution is already fairly well understood. Thus how could the SNP impact any election result and 'markets' further than what's already been know for some time, beyond scaremongering.

Are people actually falling for the same game used for opposing purposes - fear of Scotland out and fear of Scotland in?

[R K]

And too often they borrowed for the blingy car to consume... 0.5%/QE has prevented the productive worker getting a position, making his savings go a bit further, against his all-consuming decades-of-hpi+++ paradise neighbours in the nicer part of town. Prevented the shift in buying power by limiting the winners from losing position/asset value.

Not true at all.

The vast majority of "productive workers" don't have any or very little savings. Savings were rewarded with a real rate of interest for a long time prior to 2009 so that's not true either. The vast majority of people with significant savings are older high income earners - so you are shooting your own fox there. You can argue both sides - Gifted real returns for rich rentier savers at the same time as providin plentiful cheap housing to lower paid "productive workers".

House prices were reasonably affordable in the early/mid 80s, early/mid 90s, and 2009/10 - if you could get a loan. Outside of London they're still affordable (in terms of mtge repayments).

What's more important for "productive workers" is real wages and housing supply. That's where you need to focus your anger.

Edited April 16, 2015 by R K

[crashmonitor]

Perhaps I'm missing something but the No campaign and result means Scotland's part of the UK so Scottish votes are as valid as anyone else's. It also means the Scottish vote distribution is already fairly well understood. Thus how could the SNP impact any election result and 'markets' further than what's already been know for some time, beyond scaremongering.

Are people actually falling for the same game used for opposing purposes - fear of Scotland out and fear of Scotland in?

I'm assuming that the SNP might hold the balance of power, under those circumstances they could dictate the level of fiscal responsibility. Also the fact remains that they have no interest in maintaining a stable country.......a debt crisis down the line will play well for independence.

I think we might have been better separate now, because you can't have such opposing objectives in Government...one side wanting jam today because the bill will be passed south of the border once the day of reckoning arrives and the other side who will inevitably have to live within its means eventually.

Tbf the Tory's Brexit vote would crash the markets even more initially.

I guess its all good for some on here though as either way the housing market will react badly.

Edited April 16, 2015 by crashmonitor

[sPinwheel]

Cancel election indefinitely. Problem sorted.