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

[zugzwang]

Workers don't earn enough.........part time, self employed etc. etc. and indeed the rise in the personal allowance to £10,600 is drawing more and more people out of it.

I think that is right. There are areas where you could easily raises tax. IMO the broadest shoulders are the dead and you could raise loads on IHT, but that is out of bounds for the Tories, family is too precious, even though the deceased have run up public debts of £250,000 each on average and there should be pay back.

There's something Lovecraftian about the concept of using the dead to balance the books, though. Or is it just me?

[R K]

Totally agree that you can't turn the trajectory of debt around when you have inherited a massive deficit. You can't just cut old age pensions and public sector wages, you have inherited promises that you can't unmake.

However, we have been less than serious about cutting the deficit in the last three years or so. We have gone for growth, topping the European growth league table in the process, where as the rest of Europe has gone for austerity; even Greece runs a primary surplus now.

Some would say that is the right way to go, but actually all we have done is steal growth from the future bought on debt. This is destabilising and dangerous.

So you think 25% unemployment, 50% young people out of work, a 25% smaller economy and doubling the debt / gdp is the "right way to go"?

Seriously? That's your economic plan for the UK? Words fail me, truly.

[crashmonitor]

When people talk about the "debt" they usually do so in nominal terms.

What's important over the long run is the debt as a proportion of the size of the economy. So if the debt increases £500b but the economy increases £600bn then the debt is falling as a % of GDP. If the economy increases only £400bn then the debt is increasing as a % of GDP.

In the short run and with unemployed resources in the economy, the objective ought to be to get people back to work and to increase the size of the economy, increasing tax revenues, investing for increased productivity and reducing social welfare payments automatically as a result.

In the long run you can then gradually reduce the debt / GDP ratio (if you think that's a good idea).

What Osborne sought to do was just slash spending because he has an ideological obsession with a "smaller state". The end result is both nominal debt and debt / GDP are much higher than planned because it DOESNT WORK.

Your argument is shot out of the water by the fact we top the GDP league table 2010-2015 for any large country in the EU. Germany trail a close second, France, Spain and Italy nowhere.

We have had the growth comparatively for a world recession, we got there by borrowing like there was no tomorrow.

[crashmonitor]

So you think 25% unemployment, 50% young people out of work, a 25% smaller economy and doubling the debt / gdp is the "right way to go"?

Seriously? That's your economic plan for the UK? Words fail me, truly.

that sounds like the rest of Europe not the UK.

[MarkWeston]

When people talk about the "debt" they usually do so in nominal terms.

What's important over the long run is the debt as a proportion of the size of the economy. So if the debt increases £500b but the economy increases £600bn then the debt is falling as a % of GDP. If the economy increases only £400bn then the debt is increasing as a % of GDP.

In the short run and with unemployed resources in the economy, the objective ought to be to get people back to work and to increase the size of the economy, increasing tax revenues, investing for increased productivity and reducing social welfare payments automatically as a result.

In the long run you can then gradually reduce the debt / GDP ratio (if you think that's a good idea).

What Osborne sought to do was just slash spending because he has an ideological obsession with a "smaller state". The end result is both nominal debt and debt / GDP are much higher than planned because it DOESNT WORK.

I agree with the first part of your post but then think you contradict yourself. You talk about the long run but then say it doesn't work based on one term of 5 years.

I realise that opinions on this are extremely polarised and can cause tensions to rise. So without antagonism, I'm interested in how you formed your opinion that "it DOESN'T WORK". Based on short term observations (flawed imo)? Ideology? Longer term observations (would love to see cites)?

[Steppenpig]

What's important over the long run is the debt as a proportion of the size of the economy. So if the debt increases £500b but the economy increases £600bn then the debt is falling as a % of GDP. If the economy increases only £400bn then the debt is increasing as a % of GDP.

Ha! Fail!

Normally I wouldn't be so impolite, but I knew you would want me to point it out.

edit: Gottverdammt, I've just realised it would be right based on the UK's current debt-gdp ratio, but I'm only letting you have half marks.

Edited April 15, 2015 by Steppenpig

[interestrateripoff]

So you think 25% unemployment, 50% young people out of work, a 25% smaller economy and doubling the debt / gdp is the "right way to go"?

Seriously? That's your economic plan for the UK? Words fail me, truly.

And perpetual debt growth/GDP growth is sustainable? I think basic maths indicates the exponential issue.

The only solution is a a debt jubilee, it's clear in antiquity they had a greater understanding of the consequences of debt than we do and the only way to break the debt bondage was to eradicate the debt.

[Executive Sadman]

They've borrowed £500Bn in 5 years. The debt was c. £1,000,000,000,000 in 2010. It's now c. £1,500,000,000,000. The numbers don't lie, but the Tories do when they open their mouths and say things like "paying down the debt". Our economy needs an extra £100Bn a year to service it. That is unsustainable. Nobody talks about this. Labour do not talk about it. No other parties talk about it. The BBC/MSM do not talk about it.

Peston did for a while. Then forgot about it and went along with the coalitions 'nothing to see here, move along' line.

I guess he was probably told in no uncertain terms if you want to keep you're job, shut up.

[Assume The Opposite]

I don't understand how they can have cut the deficit yet borrowed more, so increasing the debt? They have cut the deficit but increased the debt. But even if they cut the deficit to 0, it makes no difference if the debt has increased by £500 billion. Isn't it the equivalent of buying a property for £500 more than it was last sold but reducing the interest rate slightly? You are paying less interest but nothing towards the capital?

The deficit is merely an indication of how well the economy is doing. If Osbourne has cut but the deficit is stubborn it's obviously not going to be solved with cutting. It's kind of like taking off your clothes so you run faster but then shooting yourself in the foot. It's common sense that cutting too much will strangle future growth. This happened in 2010-2012.

In 2013 Osbooune decided on Plan B. A housing boom with HTB. Probably just coindenence that Carney joined the BoE at the same time whilst leaving Canada with a housing bubble of it's own. Make of that what you will, I'm just saying

[19 year mortgage 8itch]

So you think 25% unemployment, 50% young people out of work, a 25% smaller economy and doubling the debt / gdp is the "right way to go"?

Seriously? That's your economic plan for the UK? Words fail me, truly.

Thats a very myopic view of Greece. Things were not exactly rosy before the music stopped. There were institutionalised issues in Greek society whereby you couldn't just climb in from the ledge.

[zugzwang]

There's been no meaningful deleveraging anywhere since 2007. All that's happened is that the BRICs and emerging markets have been encouraged to join the debt party.

What have we learnt about Keynesianism from Japan? That deficit spending can meliorate the worst excesses of a private debt bubble in the short term but is counter-productive if maintained indefinitely. Ultimately it overwhelms the process of price discovery, inhibits debt clearing and results in zombification. The macroeconomic equivalent of a creeping paralysis.

[R K]

There's been no meaningful deleveraging anywhere since 2007.

Because the meme has been "austerity" in Europe and the UK.

If you make the wrong policy decisions then you'll get the wrong outcome.

[LiveinHope]

Because the meme has been "austerity" in Europe and the UK.

If you make the wrong policy decisions then you'll get the wrong outcome.

Can your tenet be summarised as 'speculate to accumulate'

Serious question. (I may be naive).

[Hairy1305]

Maybe I am not too bright, but when I looked at Government debt in 2010, we had a structural debt of £760bn with a deficit of £100bn. The tories came in and said by 2013-2014 we'd no longer have a deficit. Now looking at that, one could take that statement and reasonably think they'd not have got us into double the structural debt with the same size of deficit. I did expect around £1tr in structural debt, but how come we're where we are and they're asking for another 5 years? Why aren't people out there with pitchforks killing these skits?

[Venger]

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

I don't really see it having that much effect - can understand why the EAs push that line though. Maybe they'll have their own problems... and what about existing owners losing money-value in their UK prime houses vs such a sterling fall...?

Then of course, if the banks want to turn it on... allow hpc get some of their own debt on prime. Ideal situation being interest rate rises.. credit crunch etc.

Was going to post this up the other day...

http://citywire.co.uk/wealth-manager/news/behavioural-finance-currency-is-now-the-greatest-macro-risk/a808203?ref=wealth-manager-comment-list&linkSource=article-mini-hp

Drukenmiller (he bet hard against the £ for Soros) suggests Euro might have long way to fall...

http://www.zerohedge.com/news/2015-04-11/stan-druckenmillers-horrific-sense-deja-vu-i-know-its-tempting-invest-will-end-very-

Bill Bonner: hold on to your cash, the real financial crisis is yet to come

By: Merryn Somerset Webb

03/03/2015

http://moneyweek.com/bill-bonner-interview/

Edited April 15, 2015 by Venger

[The Masked Tulip]

This is a great thread - one of the most interesting ones on HPC in recent times. Shame it can't be down the pub.

[R K]

Can your tenet be summarised as 'speculate to accumulate'

Serious question. (I may be naive).

I'd prefer 'invest to prosper' (at the danger of sounding too Orwellian).

But in all seriousness, the financial (banking) crisis transferred massive private sector liabilities onto the public sector. The error was attempting to rapidly reduce these deficits by cutting public spending during a time of high unemployment and without the option of further monetary easing due to interest rates being at the zero bound (there's some debate about whether they actually are at the ZLB, but let's say for arguments sakes they are as a broad principle).

In global terms what is really needed is for the West in general (countries like Germany, US, UK for instance) to embark on infrastructure renewal & investment and countries like China to increase household consumption and run down their excess and least productive capacity, but clearly this is going to be a rather long and drawn out process and will inevitably be difficult not least politically.

UK for instance needs lots of new housing but also to transition away from fossil fuel infrastructure. So there are obvious opportunities there which we are failing to grasp at present.

[Venger]

Yet another who gets the big picture but has been calling the crash for 5 years. Eventually they will be right (and claim they were right all along) while for years their investments have stopped people building for their retirements.

Just wait when the next crash does come for the Keisers, ZHs, Schiffs etc shout how right they were.

Unfortunately HPCers will lap it up.

It is not a gamble. It is arrogant and egocentric. Get rid of ego and you improve your probability of markets' success leaps and bounds.

HPCers may be busy buying at crashed distressed prices this time... without authorities blocking it so early on as they did last time for UK mainland?

I'm having difficulty understanding your position lately, including you seemingly not finding MSM stories/headlines of "fastest collapse in London prices since 2008" anything to feel slightly encouraged about.

And I'm positioned totally against this fella of yours, in this posts and the ones that follow that investigate and expand on the risks.

http://www.housepricecrash.co.uk/forum/index.php?/topic/202018-christmas-is-cancelleda-little-anecdote/#entry1102627313

Couple I know took out c £400k mortgage in March (50-60%). Few months later he's made redundant. He's 60/65.

So sounds terrible? Actually no. Assuming his pte equity shares come up in 2-4 years they'll pay off mortgage. They're paying £650/m on a lovely home v £2200 for rent.

Made me think that's for sure.

[winkie]

https://www.youtube.com/watch?v=VB5HOYdlGE8

[billybong]

If they get in again apparently the Conservatives are projecting that the debt will start to decline soon after the start of the next parliament.

As if.

[Si1]

Roger Bootle said something similar but more measured

http://www.telegraph.co.uk/finance/comment/rogerbootle/11517297/The-exchange-rate-is-the-most-important-price-in-our-whole-economy.html

[Venger]

UK for instance needs lots of new housing but also to transition away from fossil fuel infrastructure. So there are obvious opportunities there which we are failing to grasp at present.

It's a speculation demand that feeds upon itself, causing further speculation demand, at higher prices... some reports suggest 200,000 properties sold to investors/BTLers year after year going back.

Yes we can do great stuff, but the focus is on rentierism, speculation, feeding on the young, MSM 'average house price worth £800,00 by 2040 - and all the boomer comments saying 'bought for £15K and now worth £500K, so certainly likely' - and even you seem to want, or expect, more wasteful monies to go into long-term HPI. Give young people a chance to get these things done, to buy at better value than on an AST and dumb landlord - instead of an economy in love with HPI at extreme levels - gap between boomer positions and young people (generally).

In terms of long run nominal wages and nominal house prices that tells you all you need to know. Will real wages and real house prices oscillate around that? Of course. But if you have nominal debt (mortgage), even during the 1 in 100 years depression we've had nominal price level has risen above central bank target rate. It ought not come as a surprise then that nominal house prices have also risen (and imo over the long run will continue to do so).

We've got to this stage by Govs/CBs taking on much of the liabilities onto their books yes... what comes next. These positions could force things... currencies the next test area in the markets.

Market participants will seek to preserve the value of their assets denominated in money. To the extent that they succeed, they will make it harder to repay excessive debt in cheap money, and thus make the system more vulnerable to overt default and deflation.

You can expect additional currency crises and worse. Governments facing the need to finance massive structural deficits due to the slowdown in economic activity may find that the markets can set the price of funding high enough to offset any stimulative gains from inflation. If so, there will be no alternative to direct debt liquidation, and the second, deeper stage of depression.

Watch bond prices carefully. There is a limit to everything, including the good credit of governments. When theirs is exhausted, even governments of the richest industrial countries will face the dilemma Sweden answered with 500 percent interest rates (September 1992) and deep cuts in government spending. When it appears that authorities are most determined to inflate depression away that very perception could put the economy on the verge of again slipping into the deflationary vortex.

Deflation and hyperinflation are not remote polar opposites, but the male and female of the same species. You should prepare yourself for either outcome, which means remaining alert to the dangers of both.

This is all very interesting but, with respect, entirely academic.

Building may lag immigration by a few percent, but this shortage is nothing compared to the 5 million homes lost to BTL scroungers. That's about 1 in 5 homes.

The supply demand argument, shortage or not, is just insignificant in comparison.

It's quite clear that the housing emergency is demand driven, and that the demand is for other people's money, not accommodation.

200,000 homes to investors/BTLers each year... it's a demand for financial speculation.

Edited April 15, 2015 by Venger

[MarkWeston]

If they get in again apparently the Conservatives are projecting that the debt will start to decline soon after the start of the next parliament.

As if.

I don't think they're projecting that. How could they when we still have a structural deficit? The only time the debt can decline is if we start paying it off and to that we need surplus which we don't have. They're projecting a continued decline in the deficit with an eventual surplus around 2020 I think?

[Sancho Panza]

When people talk about the "debt" they usually do so in nominal terms.

What's important over the long run is the debt as a proportion of the size of the economy. So if the debt increases £500b but the economy increases £600bn then the debt is falling as a % of GDP. If the economy increases only £400bn then the debt is increasing as a % of GDP.

In the short run and with unemployed resources in the economy, the objective ought to be to get people back to work and to increase the size of the economy, increasing tax revenues, investing for increased productivity and reducing social welfare payments automatically as a result.

In the long run you can then gradually reduce the debt / GDP ratio (if you think that's a good idea).

What Osborne sought to do was just slash spending because he has an ideological obsession with a "smaller state". The end result is both nominal debt and debt / GDP are much higher than planned because it DOESNT WORK.

Which all works if GDP is an accurate gauge of economic activity.

[Jack's Creation]

Wrong. Economically literate governments (ie: not Btitain) make capital investments in ways that will increase productivity.

E.G. Help to buy a robot production line or a laser milling machine. Not help to buy overpriced houses.

Sound's lovely.

Trouble is, the cabbages who inhabit the Labour party / civil service / Quango's tend not to be very good at picking investment winners, as most of them have never worked in the private sector ( I'd include Bald Dave and The Selfridges Towel-folder in this list as well).

They also have to get a positive return on any capital or structural investment that will beat the increased inflation and currency devaluation caused by the gilt issuance/money printing needed to fund that ' investment'. Plus, they have to also beat the interest payment on the loans ( and repay the principal), as well as having to price in the incurred costs of the replaced work force- the loss of tax revenue-the increased welfare spending etc ...etc....

Good fuçking luck with all that.