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winkie

The Credit Bubble

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I think most of us would agree that there are alot of people in the U.K. with a high amount of borrowing outstanding, be it manageable or not, secured and non-secured.

Our local authorities also seem to have alot of debt, (I sometimes wonder if my council tax goes towards improving the community or goes towards paying the interest on it's borrowing).

All this money we have spent before we have earned it, surely must have kept employment high over the last few years, and on the surface 'the economy healthy'

My question is, what happens when it comes to 'pay back time' when our repayments will have to become greater than our expenditure? Will not jobs become less secure and many small businesses fail? Competition for our money will become greater.

Surely we cannot keep spending on credit at this rate indefinitely :blink:

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The credit bubble could be inflated away, basically by printing more money to pay off all the debts.

That is how many countries have got by in the past. Latin America is a good example. It leads to periodic bouts of currency depreciation in which the value of their currency plummets. Anyone holding dollars benefits as they are protected against this and life in fact gets cheaper for them. It also means that a polarisation of wealth occurs as every inflation serves to wipe out the savings, pensions and businesses of those who work in the national currency.

I have lived in places like that. As an expat with dollars you live like a king. In fact I was living like a king whilst I "missed out" on the housing bonanza back here in grimy old blighty.

Could Britain be heading in this direction. London would obviously remain a world city and a source of wealth, but the rest of it? I am from Sheffield. What is the point of Sheffield in todays world economy??

And what would be the hard currency we should hold if we are really heading in this direction??

(cue gold rampers)

Alternatively....

The credit bubble could be followed by a prolonged period of stagnation and deflation in which we collectively pay off our debts and the prices of most things remain static or fall. Houses become very cheap and low inflation means that we have to pay back the FULL value of our debts, we are not helped out by wage increases and the printing of money. Japan has just gone through a decade of this. It did not stop them exporting Sony, Toshiba and Toyota goodies but (apparantly) it caused widespread misery and led to increased suicides.

I have never experienced anything like this, but I remember the real recessions under the tories.

Could Britain be heading in this direction? If it is then money in the bank is the best thing to have. Prices of everything will fall and credit will be difficult to get.

So which will it be - inflation, deflation or neither and instead a very British a muddle through?

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And what would be the hard currency we should hold if we are really heading in this direction??

(cue gold rampers)

Gold is a good idea, could also consider euros, best not to keep all your cash in the same basket ;)

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We now live in a Consumption / Debt Based Economy. Long gone are the days of a Viable Production Base in those 'Consumer Goods'. Hence we are now importing more than we export.

The UK Citizen is now encouraged to work in the 'Service' sector, become self-employed, or alternatively work for the Government.

Thus the whole nature of the economy is kept up by Taxation & Consumption - ultimately driven by peoples equity.

Unfortunately, we now live in an era of Unrestricted Global Competition, economies of scale, and comparative advantages of nations + the UK is falling by the wayside to more hungry + dynamic nations who take risks.

The UK is still 'better' than many countries - but its long term debt position - how will it be liquidated - by inflation or deflation of the economy ??

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"My question is, what happens when it comes to 'pay back time'??"

- -

MY SIMPLE answer is:

+ we have had 6 years worth of spending in 5 years, so we will get:

+ 5 years worth of spending in 6 years,

And that will mean; a big slowdown in the economy: it has started already-

as people save more, and spend less

Agreed, some people can and will save more.....So will spend less.

Some people are not in the position to save, they have their debts to pay.....So will spend less.

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I think it’s pretty clear now looking back that the virtuous borrowing and spending circle started to break down in the second half of 2004 and this year the opposite vicious circle of growing unemployment, loan delinquencies and credit tightening has started to form. Whereas before the situation before was feeding on itself, now it’s started to eat itself. The fact that it only took interest rates of 4.75% to reverse the situation shows exactly how much trouble the country is in.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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