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Could we be about to get a similar booting out of the ERM scenario


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https://www.telegraph.co.uk/politics/2020/05/15/boris-johnson-no-public-sector-pay-freeze-no-austerity-uk-emerges/

 

I like the sound of this, rather than retract into a ball of fear we take this head on. I have often read up on the  post ERM and the Sterling crisis where we were kicked/forced out of the ERM and Sterling tanked. Yes there was panic at the time and markets collapsed, but you ask the man/woman on the street what their thoughts were very shortly after, it was one of opportunity and aspiration and where interest rates rapidly fell and where there properties up for sale  soon after that we less than 3 x times income in many cases.

Boris is never going to get away with austerity so soon after the 2008 debacle, I am getting more hopeful by the day at the way things are going, and yes I know Boris is going to f*** up with something along the way ? and house prices falling and those with high debt being hit hard as they blame everyone but themselves.  But the only way not to mess up is to do nothing and play it safe and live in a bubble forever.

 

 

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1 hour ago, crumblingcon said:

, but you ask the man/woman on the street what their thoughts were very shortly after, it was one of opportunity and aspiration and where interest rates rapidly fell and where there properties up for sale  soon after that we less than 3 x times income in many cases

The general thought of most people was either "Thank f*** I don't have a mortage that has doubled in monthly in payments", "no way will I touch property and get ******ed like that" or "F***, lost the house, two years wages in debt, I'm never going to get out of this hole "

Its took years for property sales to recover and the reason why prices was so low was that there was no demand.

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It`s the young know it all`s that are going to get hit hard. Those in the sub 30`s buying among HTB land mine houses have been well and truly shafted.   

at least they are young though so have plenty of time to pay it off and contemplate. ;)  

probably 10-15 years extra on the mortgage i hope they picked a career they enjoy. maybe sitting on my ass for nearly a decade going on holidays and pubs every weekend was the right thing to do after all, sort of like a starter now for the main course. 

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26 minutes ago, Peter Hun said:

The general thought of most people was either "Thank f*** I don't have a mortage that has doubled in monthly in payments", "no way will I touch property and get ******ed like that" or "F***, lost the house, two years wages in debt, I'm never going to get out of this hole "

Its took years for property sales to recover and the reason why prices was so low was that there was no demand.

I have spoken to a lot of people in their 50's on the subject and many said it was the turning point for better things to come being kicked out of ERM, it was being in it and trying to peg the DM that pushed interest rates up so high, of course that does not make it true. I am hoping maybe some on here can validate that, houses were affordable, BTL wasn't really a thing back then, I dare say there were issues back then, but I would argue you will never get a period where everyone is happy.

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25 minutes ago, longgone said:

It`s the young know it all`s that are going to get hit hard. Those in the sub 30`s buying among HTB land mine houses have been well and truly shafted.   

at least they are young though so have plenty of time to pay it off and contemplate. ;)  

probably 10-15 years extra on the mortgage i hope they picked a career they enjoy. maybe sitting on my ass for nearly a decade going on holidays and pubs every weekend was the right thing to do after all, sort of like a starter now for the main course. 

Doing nothing for the past 15 years and partying like a f*****g nutter could well turn out to be the best thing some people could of done. But can you imagine how sick some people will be who sold their souls to the debt God and his disciples Kirtsy & Phil

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Good grief. More of the same. We thought we'd voted for a Conservative government but we got communists. Looking for as balance sheet trick or a clever 'wheeze' to avoid the necessity of the economy rebalancing. Confusing numbers on balance sheets with acutal resources and so on.

Yeah, sure. Put money into the eonomy by taking money out of the eonomy and putting it back in again. Take resources out of the productive economy and build some roads to nowhere. That always works.

 

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5 minutes ago, crumblingcon said:

Doing nothing for the past 15 years and partying like a f*****g nutter could well turn out to be the best thing some people could of done. But can you imagine how sick some people will be who sold their souls to the debt God and his disciples Kirtsy & Phil

Depends really, I suppose there are people who paid the mortgage off in that time.  

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9 minutes ago, crumblingcon said:

Doing nothing for the past 15 years and partying like a f*****g nutter could well turn out to be the best thing some people could of done. But can you imagine how sick some people will be who sold their souls to the debt God and his disciples Kirtsy & Phil

I do think there are people with expensive two up two down properties with leverage that might be a bit sorry though.    

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3 minutes ago, satsuma said:

Depends really, I suppose there are people who paid the mortgage off in that time.  

Yep, that is very true.

But what if we get a situation where a house can be paid for with a credit card in a few years time ?  and you would have had the best of both worlds. 

To be fair not owning my own home in the last few years has been a gap/void in my life, but if what happens what I think will happen soon then that period of time will be wiped off the slate as a positive, and besides I have had some great times as well and stuff maybe I wouldn't of done had I had my own home,

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25 minutes ago, crumblingcon said:

Yep, that is very true.

But what if we get a situation where a house can be paid for with a credit card in a few years time ?  and you would have had the best of both worlds. 

To be fair not owning my own home in the last few years has been a gap/void in my life, but if what happens what I think will happen soon then that period of time will be wiped off the slate as a positive, and besides I have had some great times as well and stuff maybe I wouldn't of done had I had my own home,

I suppose that’s possible but to be honest I don’t wish it on anyone.  If it happens I would confess that I would be buying a few properties myself.  It would be a funny situation if the people currently priced out ended up buying houses for a song.  

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Whatever you say about Major/Clarke they left Blair an economic miracle. The UK was growing at 3.5% per year and had a budget surplus. Blair/Brown managed squander that hard won legacy to turn that into a massive deficit ,debt and sluggish growth and messed everything up by 2010..  We have never recovered with Cameron/May/Boris refusing to sort out the deficit and pursuing big government. 

The Major/Clarke administration shows you how quickly a country can recover from a recession with the right policies. Despite the hated fuel duty escalator I believe the tax burden was around 33%. Right now it's closer to 40% and the public finances have never been in worse shape.

 

 

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37 minutes ago, satsuma said:

I suppose that’s possible but to be honest I don’t wish it on anyone.  If it happens I would confess that I would be buying a few properties myself.  It would be a funny situation if the people currently priced out ended up buying houses for a song.  

I wish some of the posters on here would drop that guilt thing "I don't/wish that on others" before thinking about future outcomes. I am not looking as a bonus for people to suffer while at the same time planning for better things for myself in the future, accept maybe many of the BTL lot, but neither am I in control of their past actions and what the markets are about to, just as those with mortgaged homes gave me little  thought or pity in the past

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10 minutes ago, crumblingcon said:

I wish some of the posters on here would drop that guilt thing "I don't/wish that on others" before thinking about future outcomes. I am not looking as a bonus for people to suffer while at the same time planning for better things for myself in the future, accept maybe many of the BTL lot, but neither am I in control of their past actions and what the markets are about to, just as those with mortgaged homes gave me little  thought or pity in the past

Don’t know why you think anyone sees it like that.  No one is saying your looking for any of that.  

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26 minutes ago, satsuma said:

Don’t know why you think anyone sees it like that.  No one is saying your looking for any of that.  

I was taking it personally or having a dig at you Dude ?

It was just a general point.

If things start getting nasty for many people in debt, and I suspect it will, I am not going to wasting my time on a guilt trip for something I was not part of.  Guilt  is also going to manifest itself in so many other ways, for instance the property you are negotiating on in a few years time when you have a weeping wife "but we paid £xyz for it" as if you should now take on there burden so they can walk free.

Ask anyone in the same position back in the late 1980's where sellers refused to sell unless they got the priced they paid knowing that similar properties had already sold for 25% less in todays market

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Anyone remember Gordon Brown used to say 'no more boom and bust!' then 2008 happened and the banks collapsed. He really did think he was a genius or something. The reality is he will go down as just another failed politician.

 

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7 hours ago, crumblingcon said:

I have spoken to a lot of people in their 50's on the subject and many said it was the turning point for better things to come being kicked out of ERM, it was being in it and trying to peg the DM that pushed interest rates up so high, of course that does not make it true. I am hoping maybe some on here can validate that, houses were affordable, BTL wasn't really a thing back then, I dare say there were issues back then, but I would argue you will never get a period where everyone is happy.

Just watching some of the BBC election 1964 coverage, fascinating to see people being interviewed at railway stations and bus stops who don`t yet know the result of the election because they have been commuting and didn`t get a paper or listen to the TV/radio, changed days! Guess what some of the main grievances were about from people in the street? - High rent, high ground rents. high immigration and lack of housing -  interesting to hear one politician live on air say that he was called "Nigger Lover" by some of his constituents for supporting immigration, many of the younger people in the footage will still be with us, wonder what the f*uck they make of it all now! Wonder how many of them went on later to fill their boots with BTL! The ERM thing gets overrated, interest rates went ballistic over one weekend I seem to remember then calmed down? Many people had council houses and the interest in BTL and mania about house buying was still ahead of us, you used to get juicy interest rates on savings accounts though, hard to believe now and taken so much for granted back then.

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7 hours ago, Peter Hun said:

The general thought of most people was either "Thank f*** I don't have a mortage that has doubled in monthly in payments", "no way will I touch property and get ******ed like that" or "F***, lost the house, two years wages in debt, I'm never going to get out of this hole "

Its took years for property sales to recover and the reason why prices was so low was that there was no demand.

The peak in interest rates was a couple of years before Black Wednesday.

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10 hours ago, crumblingcon said:

I have often read up on the  post ERM and the Sterling crisis where we were kicked/forced out of the ERM and Sterling tanked.

I suspect that nothing similar can happen today.  My reason for thinking this is something that confused me greatly at the time of the ERM crisis.  In a nutshell, one explanation of what happened was that Soros broke the Bank of England by speculating against the UK government having underwritten the Sterling exchange rate.  When this forced a change of policy - the BoE required £16bn - and the bond markets insisted upon a ~15% coupon to fund this - which forced up commercial interest rates and made borrowing unaffordable.

When that happened, I couldn't see why a measly £16bn could pose such a problem as the BoE could monetise the debt as soon as it had been baled out.  I have never received a satisfactory explanation about why this bond issue so dramatically affected the market in an asset that still formed part of M0.

Today, central banks - the world over - have much larger balance sheets... and a £16bn monetisation would be an insignificant drop in the ocean. I note that Haldane is reporting -today- that the Bank of England is considering both the purchase of "riskier" assets and introducing negative interest rates (just hours after the Bank of England were reported as not considering rates below 0).

I am finding it very difficult to believe, in today's monetary climate, that the "Bond Vigilantes" can drive up interest rates.  If I'm missing something - I'd love to know what.

 

 

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8 hours ago, Biggus said:

Good grief. More of the same. We thought we'd voted for a Conservative government but we got communists. Looking for as balance sheet trick or a clever 'wheeze' to avoid the necessity of the economy rebalancing. Confusing numbers on balance sheets with acutal resources and so on.

Yeah, sure. Put money into the eonomy by taking money out of the eonomy and putting it back in again. Take resources out of the productive economy and build some roads to nowhere. That always works.

 

Why did you think you voted for a Conservative government?  

This election was about did you buy into the cult of Boris. 

Boris has always been more interested in what's good for Boris than anything else, if he thought there was votes in it he would out Corbyn Corbyn. 

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1 hour ago, A.steve said:

I suspect that nothing similar can happen today.  My reason for thinking this is something that confused me greatly at the time of the ERM crisis.  In a nutshell, one explanation of what happened was that Soros broke the Bank of England by speculating against the UK government having underwritten the Sterling exchange rate.  When this forced a change of policy - the BoE required £16bn - and the bond markets insisted upon a ~15% coupon to fund this - which forced up commercial interest rates and made borrowing unaffordable.

When that happened, I couldn't see why a measly £16bn could pose such a problem as the BoE could monetise the debt as soon as it had been baled out.  I have never received a satisfactory explanation about why this bond issue so dramatically affected the market in an asset that still formed part of M0.

Today, central banks - the world over - have much larger balance sheets... and a £16bn monetisation would be an insignificant drop in the ocean. I note that Haldane is reporting -today- that the Bank of England is considering both the purchase of "riskier" assets and introducing negative interest rates (just hours after the Bank of England were reported as not considering rates below 0).

I am finding it very difficult to believe, in today's monetary climate, that the "Bond Vigilantes" can drive up interest rates.  If I'm missing something - I'd love to know what.

I think you are right  that this time it won't be the vigilantes that drive up rates, more likely the inability of the market to absorb the many trillions of money requests that will be coming very shortly.    

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16 minutes ago, Confusion of VIs said:

I think you are right  that this time it won't be the vigilantes that drive up rates, more likely the inability of the market to absorb the many trillions of money requests that will be coming very shortly.    

Possible but still unlikely.

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7 hours ago, Confusion of VIs said:

I think you are right  that this time it won't be the vigilantes that drive up rates, more likely the inability of the market to absorb the many trillions of money requests that will be coming very shortly.    

What do you mean by "money requests"?

Do you mean demand for credit - by consumers or businesses?  Do you mean demand to issue corporate or sovereign bonds?

While government demand to issue sovereign bonds allowed the (so-called) "Bond Vigilantes" to drive up rates in 1992 - they could only do this (in my opinion) because the Bank of England was not, at that time (openly at least) buying sovereign debt at scale on the open market to drive down bond yields.

Today, as far as I can tell, bond yields can rise if, and only if, the central banks intend them to rise.

Back in 1992, it was still seen as an objective to have stable exchange rates... and interest rate changes were the consequence... but that idea now seems to have been abandoned (or reversed) as policy.  Paradoxically, today, if we see a global fiscal reaction to a "global crisis", I don't see any impact on exchange rates - as long as central banks monetize debt proportionally between currencies... which seems likely.

Today, if one currency does not massively monetize debt, its currency will (probably) appreciate considerably - and this will dramatically adversely affect any export business denominated in that currency... leading to trade imbalances and - perhaps - political instability.  Today, I see not 'going with the flow' to monetize debt at scale to be a practical problem for national economies.

 

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16 hours ago, satsuma said:

I do think there are people with expensive two up two down properties with leverage that might be a bit sorry though.    

15 years into a mortgage you will have paid off most of the debt and no longer be heavily leveraged.

16 hours ago, crumblingcon said:

I am hoping maybe some on here can validate that, houses were affordable, BTL wasn't really a thing back then, I dare say there were issues back then, but I would argue you will never get a period where everyone is happy.

BTL wasn't even called that, its a recent term. No following the crash there was a period, 5 years or so, when nobody was interest in buying property because of the risk and the number of people who were badly burned by the crash.

One friend had a debt hanging over him, equivalent to two years wages, after he handed the keys back on his flat. It took him a decade to pay it back. He did pay it back becase it blocked his ability to get another mortage.

Another guy bought a flat from a developer just before the crash, part of the deal was that the developer would pay any interest over 9% if rates went up. Said friend was happy about the £500 monthly checks he received when rates went up. Other owners in the same block wern't so lucky, prices fell 33% in a couple of years and repossessions all round.

After many years of begging and pleading by Estate agents and the like "property has never been more affordable"m prices started to rocket, in 1996 I think.

To get prices that low required a lot of people to be very very badly burned.

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17 hours ago, longgone said:

It`s the young know it all`s that are going to get hit hard. Those in the sub 30`s buying among HTB land mine houses have been well and truly shafted.   

at least they are young though so have plenty of time to pay it off and contemplate. ;)  

probably 10-15 years extra on the mortgage i hope they picked a career they enjoy. maybe sitting on my ass for nearly a decade going on holidays and pubs every weekend was the right thing to do after all, sort of like a starter now for the main course. 

How do you afford this?

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