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More Kaletsky Nonsense

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From today's Times:

The Times

"Indeed, the fall in real long-term rates from 4 per cent in the early 1990s to well under 1 per cent today is almost sufficient alone to explain almost all the “inflation” in housing, equities and other assets that has occurred in this period."

Three fairly obvious problems with this argument:

1. Meen (1998) finds that each 1% fall in real interest rates equates to a rise of 2-3% in house prices. So at the most generous that would allow a 10% rise in house prices, only 90% of the rise left to be explained then!

2. Most of the falls in the real interest rate occured in the early 1990's, not exactly a terribly good match for the rapid inflation post 2001.

3. The interest rate he is talking about is the government bond yield. Mortgage interest rates remain at about 6% gross (4% real), roughly in line with long term averages.

So, far from explaining almost all of the inflation, in reality it explains almost none.

Why is a previously respected commentator spouting such patent rubbish? :angry: :angry: :angry:

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i don't think he was ever previously respected......This bloke writes utter garbage in the Times every week...

and the management of the Times are economic ignoramouses for employing such a person as a commentator on a serious subject in a supposedly serious newspaper..........Next week he'll be again extolling the virtues of Anglo-Saxon capitalism vis a vis the Franco-German model ; his favourite rant

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Here’s HSBC’s managing director of economics’ take on the issue:


He points out that the regulatory constraints placed on pension funds that are putting downward pressure on long term interest rates are also causing ever weaker levels of investment in UK PLC.

It seems that unless these rules are relaxed the UK’s economic performance will continue to get worse but, if they are changed and pensions are freed up to invest elsewhere, long term interest rates, i.e. mortgage servicing costs, will rise. Neither scenario is good for the housing market.

The more time that passes the more it appears that the last few years have contained a remarkable conjunction of events that have put huge, unsustainable upward pressure on house prices. As these factors ebb away things get more and more interesting with each passing week.

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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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