Are we set for another debt binge?

[Borg1234]

What does this article mean - does it imply we are heading for another debt binge as in it will cause asset prices and houses prices to increase further??

Get set for another debt binge as real interest rates fall | MoneyWeek

[Loving The Crash]

10 minutes ago, Borg1234 said:

What does this article mean - does it imply we are heading for another debt binge as in it will cause asset prices and houses prices to increase further??

Get set for another debt binge as real interest rates fall | MoneyWeek

It means the guy who wrote it doesn't have a clue 🙂

[Borg1234]

I sure hope the guy does not have a clue but as another article seems to be saying they wont crash and others do,  I am hoping for a correction (maybe 20pc) but not sure what to do as I have saved up a  deposit of 200k and dont want inflation to eat at it in a savings accounts over the year. So I think I should wait upto a year in case there is a correction but obviously no one can predict the time of correction/crash but dont want to wait too long in case nothing happens and prices just stagnate

 

Incredible reason why house prices WON’T crash this year - ‘didn't see that coming’ | Personal Finance | Finance | Express.co.uk

[Insane]

No body knows what is going to happen. 

[andrewwk]

15 minutes ago, Borg1234 said:

I sure hope the guy does not have a clue but as another article seems to be saying they wont crash and others do,  I am hoping for a correction (maybe 20pc) but not sure what to do as I have saved up a  deposit of 200k and dont want inflation to eat at it in a savings accounts over the year. So I think I should wait upto a year in case there is a correction but obviously no one can predict the time of correction/crash but dont want to wait too long in case nothing happens and prices just stagnate

 

Incredible reason why house prices WON’T crash this year - ‘didn't see that coming’ | Personal Finance | Finance | Express.co.uk

Central bankers will HATE you! one crazy old trick to make your real estate market inflate for ever.

[byron78]

48 minutes ago, Borg1234 said:

What does this article mean - does it imply we are heading for another debt binge as in it will cause asset prices and houses prices to increase further??

Get set for another debt binge as real interest rates fall | MoneyWeek

Spectator columnist.

Which really should come as a red flag for wonk these days.

[Tony_Teacake]

I just read the article. At the end of the article they say

"We have a few decades of history to tell us that is only going to stoke another wild bubble in borrowing and asset prices – and with this one we don’t even know when it will end."

I really can't see asset prices going any higher especially house prices. To many people are over leveraged and these crazy prices cannot be sustainable. If you look at the way the economy is heading it looks like to many people are going to lose jobs due to consumers cutting back on spending. This inflation monster ain't going away overnight and will be damaging to so many businesses.

I do believe house prices have there peak and from this point we will see a decline. Expect a huge crash within the next 2 years.

[zugzwang]

It's nonsensical. The banks have been able to keep their lending rates way below the rate of inflation only because of Term Funding (the £200bn TFSME, specifically) financed by QE. The drawdown period for that subsidy ended in April 2021. They are now financing their operations at market rates, plus an additional 3% to the customer.

Inflation will peak at 10% this summer but fall dramatically thereafter as spending slows, unemployment rises and the economy contracts. Unless Sunak spunks off like a crazy madman again - pushing the debt interest over £100bn/yr and risking another sovereign debt downgrade - real interest rates should be back in positive territory within 12 months.

[Speed1987]

5 hours ago, Borg1234 said:

What does this article mean - does it imply we are heading for another debt binge as in it will cause asset prices and houses prices to increase further??

Get set for another debt binge as real interest rates fall | MoneyWeek

Seems Matthew, is thinking along the same lines as me.

[Si1]

It's the mid 2000s all over again. Morons.

[Horseradish]

6 hours ago, Borg1234 said:

not sure what to do as I have saved up a  deposit of 200k and dont want inflation to eat at it in a savings accounts over the year. So I think I should wait upto a year in case there is a correction but obviously no one can predict the time of correction/crash but dont want to wait too long in case nothing happens and prices just stagnate

I think you've neatly summed up the current core conundrum of the HPC forum.

[Horseradish]

6 hours ago, Borg1234 said:

What does this article mean - does it imply we are heading for another debt binge as in it will cause asset prices and houses prices to increase further??

Yes. The mechanism is pretty simple - if inflation is at 10% and interest rates are like 2.5% to the consumer, then if you borrow money now your debt is eroded quickly by inflation. So in the future you functionally get to pay back less. Ignoring all other factors you'd see house prices skyrocket again, but not in real terms - they'd just be staying static and adjusting to the new value of money when you've taken all that inflation into account.

6 hours ago, Loving The Crash said:

doesn't have a clue 🙂

I beg to differ. They've written something sensible, from a certain point of view. House prices could crash, but we need to see pretty steep increases in the base rate to get there. Fingers crossed.

 

[Bob8]

4 hours ago, zugzwang said:

It's nonsensical. The banks have been able to keep their lending rates way below the rate of inflation only because of Term Funding (the £200bn TFSME, specifically) financed by QE. The drawdown period for that subsidy ended in April 2021. They are now financing their operations at market rates, plus an additional 3% to the customer.

Inflation will peak at 10% this summer but fall dramatically thereafter as spending slows, unemployment rises and the economy contracts. Unless Sunak spunks off like a crazy madman again - pushing the debt interest over £100bn/yr and risking another sovereign debt downgrade - real interest rates should be back in positive territory within 12 months.

That seems possible to me.

The pound has already fallen considerably to what might be fairly stable level, about €1 or a dollar and a bit.

At that point, people will be poorer, supply chains will stabilise or get worse. But, you will be a good bit poorer.

[Si1]

https://www.telegraph.co.uk/business/2022/05/15/dont-surprised-house-prices-drop-20pc/

 

[zugzwang]

3 hours ago, Bob8 said:

That seems possible to me.

The pound has already fallen considerably to what might be fairly stable level, about €1 or a dollar and a bit.

At that point, people will be poorer, supply chains will stabilise or get worse. But, you will be a good bit poorer.

Ten Houses has the means to delay the crash for a couple of years but then what?

It's 2024. The national debt's now £3 trillion not £2.5 trillion. The interest on that debt is now £120bn/yr not £80bn/yr. The private sector is now £4 trillion in the hole not £3.5 trillion. Fitch has dropped the UK's credit rating to A.

The real economy, as opposed to the Ponzi circle jerk, has been in recession for two years barely impacted by the additional leverage. The number of havenots is increasing exponentially. The streets are no longer safe even during the day. Burning Teslas are driving by leading processions of shoeless children scattering trash...

[dances with sheeple]

4 hours ago, Horseradish said:

Yes. The mechanism is pretty simple - if inflation is at 10% and interest rates are like 2.5% to the consumer, then if you borrow money now your debt is eroded quickly by inflation. So in the future you functionally get to pay back less. Ignoring all other factors you'd see house prices skyrocket again, but not in real terms - they'd just be staying static and adjusting to the new value of money when you've taken all that inflation into account.

I beg to differ. They've written something sensible, from a certain point of view. House prices could crash, but we need to see pretty steep increases in the base rate to get there. Fingers crossed.

 

Only if your pay keeps up with inflation, which isn`t going to happen for most people, this isn`t the 1970`s when a Union could have a vote then down tools and bring large sections of the economy/country to a halt until they got what they wanted. Every interest rate increase now means less people bidding up houses and house prices coming under pressure, the idea in the article doesn`t work at the top of a mega bubble on a bubble, most likely outcome now IMO is inflation leading to demand destruction and rate increases supposedly to tame inflation just feeding into a doom loop in the property market, China property has probably already collapsed.

[Si1]

The Guardian: Cutting City regulation risks another financial crash, say economists.

https://www.theguardian.com/business/2022/may/16/cutting-city-regulation-financial-crash-economists-rishi-sunak-uk

"News of the pending bill – which comes as the UK aims to replace EU regulations following Brexit – has stoked fears about a regulatory race to the bottom, with economists saying it could force watchdogs to act as “cheerleaders” for big city institutions.

 

They argued that competitiveness objectives could be a “recipe for excessive risk-taking”, and could create the same conditions that have since been blamed for the 2008 banking crash. “After the last global financial crisis, which cost the world economy some $10tn, it was accepted that a focus on competitiveness by the then Financial Services Authority (FSA) had helped cause the disaster,” the letter said."

[winkie]

The money that one went to service the mortgage will be spent on the cost of living.....the only thing that might keep houses higher than they should be is people/firms buying the cheap pound with other currencies, earned or borrowed elsewhere.

[Si1]

https://www.thetimes.co.uk/article/insurance-plan-to-aid-first-time-buyers-wbffq3rlv

"plans to boost home ownership among those with small deposits."

Ffs

[Locke]

16 hours ago, Horseradish said:

The mechanism is pretty simple - if inflation is at 10% and interest rates are like 2.5% to the consumer, then if you borrow money now your debt is eroded quickly by inflation

That's if all prices, including labour, are rising. 

Are you in a good position if food and fuel are getting more expensive by 20% per year, your pay is rising 5% per year, and your mortgage is 2.5%?

[adarmo]

17 hours ago, Speed1987 said:

Seems Matthew, is thinking along the same lines as me.

Same. I've been saying this on other threads around real interest rates. If you're worried about inflation killing the value of your cash and are convinced we'll have high inflation then simply 'short' cash. 

The only way to do this with a very low interest rate (to make it viable) is get a mortgage.

Planning application for big extension paid and submitted today. Will either do the work or de-risk it for the next owners and move on. Either way I'll look to borrow more money. 

[Sour Mash]

22 hours ago, Borg1234 said:

I sure hope the guy does not have a clue but as another article seems to be saying they wont crash and others do,  I am hoping for a correction (maybe 20pc) but not sure what to do as I have saved up a  deposit of 200k and dont want inflation to eat at it in a savings accounts over the year. So I think I should wait upto a year in case there is a correction but obviously no one can predict the time of correction/crash but dont want to wait too long in case nothing happens and prices just stagnate

 

Incredible reason why house prices WON’T crash this year - ‘didn't see that coming’ | Personal Finance | Finance | Express.co.uk

 

If credit remains available and interest rates are negative in real terms, there are reasons to believe that people will borrow and invest...

.. Depends on whether or not there is lasting deflation.  I don't think there will be - it looks like were are heading for a major market crash soon and are probably already in recession - that generally means large deflationary pressure and people don't want to borrow and spend.  But we know that TPTB will respond to this with yet more money printing and financial repression and given that there will still be upward pressures on inflation from energy and food, it's quite likely that (after a short period of headline deflation) we'll see inflation rip and them unable/unwilling to do anything about it.

 

In that case, borrowing at negative real rates to buy assets isn't a terrible strategy.

 

[Horseradish]

12 hours ago, dances with sheeple said:

Only if your pay keeps up with inflation, which isn`t going to happen for most people

That's a guess, and unknowable in either direction. It very well could.

12 hours ago, dances with sheeple said:

the idea in the article doesn`t work at the top of a mega bubble on a bubble

I mean, it matematically does. If debt is cheap on a real basis, then people are going to borrow a lot. It's free money.

[Horseradish]

2 hours ago, Si1 said:

The Guardian: Cutting City regulation risks another financial crash, say economists.

https://www.theguardian.com/business/2022/may/16/cutting-city-regulation-financial-crash-economists-rishi-sunak-uk

Quote

City groups have, for example, been pushing for a review of capital requirements for insurers and banks that could help free up cash for new investments and loans, and make it cheaper to take riskier bets, since they would have to hold less capital to protect against potential losses.

That is on top of pushes to make changes to a wide-ranging package of regulations known as Mifid II. There are calls for firms to be allowed to bundle customer charges, and for the permanent removal of caps on “dark trading” – which obscure the size of planned trades but can give investors access to better market prices.

This seems to be the meat of it. Bin the capital requirements, what a great idea 👍.

[Horseradish]

39 minutes ago, Locke said:

That's if all prices, including labour, are rising. 

Are you in a good position if food and fuel are getting more expensive by 20% per year, your pay is rising 5% per year, and your mortgage is 2.5%?

All depends. If wages don't keep up then the broad price inflation of goods will, to some extent, definitionally stop, because good are bought by people with wages. But if things do go around and around - and, bear in mind, probably not smoothly but instead in various fits and starts - then the mechanism this article suggests is completely possible - a fact that I utterly despise!!