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El_Pirata

Folks I Need Back-up

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There is quite a lively debate going on with David Smith on his new forum. He believes that UK consumer debt levels are absolutely nothing to worry about and that the economy is roaring success story:

(edited for brevity's sake)

David Smith:

As always at this time of year there is a flurry of data and surveys, much of which points in opposite directions. Thus the latest figures showed a rise in mortgage approvals but a drop in demand for unsecured credit. The surveys you point up are equally contradictory. Mortgage equity withdrawal undoubtedly boosted consumer spending. I never really had a problem with that, seeing it as just another form of borrowing. The problem that existed in the past of people using tax-relieved mortgage borrowing to finance general spending no longer exists now that mortgage interest tax relief is history.

El_Pirata:

David I'm surprised that you don't have a problem with MEW when it reached almost a massive 10% of post-tax income! I don't have a problem with borrowing per se when used to invest in productive assets, but we all know that much of this was spent on plasma screen TVs, holidays and flash cars by people who thought they had "earned" the money by owning their house.

Borrowing binges like this are not conducive to sustainable growth.

When this flow of money dries up (as it inevitably must and is already), then the sectors of the economy that it fed will shrivel. This will lead to a vicious circle of economic contraction and, I believe, deflation.

The long-term outlook for our economy would be much brighter if we behaved like sensible German consumers - living within our means and borrowing to invest in productive assets.

David Smith:

In the long run ..... as somebody once said. If we'd behaved like German consumers over the past 10 years we'd have had 1% a year growth and 10% (or more) unemployment.

Jason:

Exactly. Sustainable growth.

But for the UK? 5 years of binge borrowing, followed 5 years of paying it off. Boom and Bust at its best.

The only active debate is how much longer can UKPLC hold it's breath??? And will the BoE pass another set of disposable breathing apparatus so we can all dive deeper???

El_Pirata:

And maybe also be the world's largest exporter?

I still don't understand why you think it is ok for us as a nation to be living beyond our means, David. The growth in borrowing has far outstripped the growth in productivity - and the money is not being invested, unless you call sticking laminate flooring in some dodgy buy-to-let flat and flogging it on to the next mug investment.

At some point we have to pay this money back. Or inflate away the debt. Both options are painful!

David Smith:

Three points:

1. In the context of mortgage equity withdrawal tax relief is a non-issue. It exists no more for individual homeowners.

2. What a depressing lot you are if you think 1% growth is the best that the UK can achieve, and that Germany is to be commended for its overall growth record. I accept that Britain has been over-reliant on consumer spending and that exports and investment have underperformed - and have written that often. I also think Germany's export record is to be commended. But this does not mean we should have behaved like angst-ridden German consumers. There's a happy medium here.

3. I can't get hung up on debt. Personal sector debt, £1,150 billion, compares with personal sector net assets of around £7,000 billion. The rise in debt - more than 80% of which is in the form of mortgages - has been far less than the rise in assets (even including the bear market in shares). All the surveys suggest debt problems are concentrated and relatively small. The consumer boom is mainly explained by strong growth in real incomes and employment - not a borrowing binge. Those factors are now unwinding.

El_Pirata:

Much of that £7,000 billion assets is property based on current evaluations, am I right?

To quote Mervyn King - "House prices are a matter of opinion. Debt is real"

I believe you're looking at it the wrong way round. The rise in "value" of these assets (on paper) has precisely been fuelled by the rise in mortgage-based debt.

When credit become tighter, when people can no longer take out 6x, even 10x salary mortgages, the value of these assets will collapse. But the debt will still be there (barring a bout of hyperinflation).

Where is the productivity growth? The only reason there is more money in the economy is because the printing presses have been whiring.

http://www.economicsuk.com/discussion/viewtopic.php?t=13

Perhaps some of you learned folks would like to drop by and give David your 2p worth.

I find some of his ideas remarkable.

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ask him what he thinks of the fact that we had 600 bill of debt 6 years ago, acquired over the last half a millenium, and yet in teh last 6 years we have doubled it.

And if 'he doesnt have a problem with that' ask him if it would therefore be ok for itto DOUBLE AGAIN in the next 6 years.

If he agrees THAT is risky, ask him why.

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The consumer boom is mainly explained by strong growth in real incomes and employment - not a borrowing binge.

Strong growth in real incomes? Not a borrowing binge?

What the F!

To claim "Strong growth in incomes" is bad enough, but in REAL incomes is even worse!

No offence but, you don't need back-up, El, you need to find another web site to read.

Edited by megaflop

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Am I right in understanding that this guy is basically saying, the country is fine as all our houses are worth more than the debt? :blink: The value of a house, as quoted, being a matter of opinion? Isnt this the same as just printing out more and more money and saying look we are all rich?

Edited by sllabres

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m I right in understanding that this guy is basically saying, the country is fine as all our houses are worth more than the debt? The value of a house, as quoted, being a matter of opinion? Isnt this the same as just printing out more and more money and saying look we are all rich?

thats more or less the long and short of it.

they could keep rising asking prices to just out of reach of most from now on.

everytime wages rise. raise the bar. whatever the point is at where it hurts too much. well thats the new price.

it seems.

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Guest Charlie The Tramp

Does anyone know a site where I can post an image?

I want to post a graph on David's website, but can't include images, so it will have to be a url.

Could you not post it here in this post and copy the url in properties to post it on his site? :unsure:

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Could you not post it here in this post and copy the url in properties to post it on his site? :unsure:

Yes I could, but it doesn't work as well, and I'd prefer to keep the debate separate from the hpc website.

Edited by BandWagon

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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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