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Ok lets see,

Now this is a biggy so you might want to put the kettle on first.

EVERY HPC armchair economist should read this (at least once if need be). I'm going to look at recent data and what any future trends might entail.

UK PLC is looking OK, according to recent data.

The economy is growing at a steady rate, CPI is within the BoE remit, employment is rising, house prices have been stable. We can discredit the data all day but that is what the data says.

Gordon Brown is running the Gordon Brown economic model on his golden rules and everything seems to be stable, on course and under control.

This gives people a peace of mind, which allows them to take on larger long term debt i.e. a mortgage.

I may sound Bullish about the economy and about Brown's ability at the helm, but that is what is published.

Let's take a quick look at the most recent data

ONS United Kingdom Economic Accounts Quarter 4 2005

We are interested in section A1 of this report.

It states 2005 GDP @ £1.235 Trillion, which is healthy. Lets assume Gordon can keep it on course at 2.4%

UK GDP growth = £1.235 Trillion * 2.4% = £29.64 Billion

Next we will take data from Credit Action

Credit Action puts UK personal debt at £1.174 Trillion, which is quite large and is currently growing at 10.3%

UK debt growth = £1.174 Trillion * 10.3% = £120.92 Billion (Now bears... don't get carried away after that last bit)

The size of debt is not as important as the cost of servicing that debt (for a nation).

Lets assume a rate of 5%

Cost of servicing UK personal debt grew by £120.92 * 5% = £6.05 Billion

That £6billion additional cost is much less than the £30billion GDP growth over the same period, we CAN afford the additional costs of the debt.

Can you see how Gordon Browns economy works yet? How clever are you? Really though?

Can you spot the single most important piece of information in the above data?

The one upon which everything else is built?

Lets analyse a little further shall we...

Here is a graph that might give you a clue as to what is funding HPI and currently sustaining the market...

Debt_visible.jpg

That goes a little further than we usually do, by quantifying the current debt trend.

There is some detail at the bottom of the above graph which is easy to miss, so see it here...

debt_off.jpg

The second graph shows something of paramount importance...

Under current trends there is a point in the future where the nominal value of growth of the cost of servicing UK personal debt overtakes nominal GDP growth (in 22 years).

At this point the UK is breached, and our liabilities (already much geater than our earnings) will expand faster than GDP. That is the point of no return and the system collapses.

Creditors are aware of this and are keen to steer the UK away from such catastrophy as it would mean total default.

Lenders are treading a line, See the graph here debt_off.jpg they are trying to manipulate the light blue line to track as a percentage of the dark blue line (the percentage represents their take of GDP). The area below the light blue line is basically bank profits.

The closer they steer to the dark blue line the more they stiffle the economy. The more they steer away from it the more they lose out on profits.

If the Lenders allow the two lines in this graph GDP_debt_cost.jpg to converge the are strangling the economy and costing themselves long term profits, if the lines diverge they are missing out on future profits. Interest rates are designed to keep these two lines on a healthy offset.

Interest rates are how they steer. If rates remain low for long the lenders margin begins to encroach on GDP growth and productivity this is bad for the lenders in the long term, since all their future earnings are derived from future GDP.

As you can see they will need to steer away soon and when this happens (lending growth drops from away from 10.3% nearer to 2-4%) credit will begin to dry up.

This is the path of our macro economics on the current trends. It's overcooking with debt. The facts are hidden by mathematics within the data.

So, to conclude...

The Gordon Brown economic model does look good, it looks good for the medium and short term.

Hell it could probably see stable growth for another 5 years...

But long term i.e. any more than 10 years from now and it stinks. Infact if this continues for more than 7-8 years momentum will carry it. Very ominous over the term of a mortgage.

But according to this graph GDP_debt_cost.jpg which uses real data. Debt will soon begin to encroach on growth, if this ever happens we will struggle to compete.

I think the encroachment of debt on GDP looks about five years away. The only way to avert this is to reign in personal debt growth, the most efficient way to do that is to slowly ease rates upwards.

UPDATED THE GRAPHS

.

post-3701-1146125662.jpg

post-3701-1146125674.jpg

post-3701-1146125707.jpg

Edited by ?...!

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Nice to see such effort in explaining the unsustainable nature of debt accumulation. But how close could the BOE allow the debt bubble approach the point of implosion, investment would flee the country long before. The UK would risk a South East Asian or Argentina style meltdown if things were left unchecked.

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Thanks, much appreciated. Your narrative is great - logical, clear explanation, putting the debt question in context. Unfortunately the graphs don't seem to be working. :)

Should be? I am in a different town to when I posted and they work/ed at both ends of the journey

Nice to see such effort in explaining the unsustainable nature of debt accumulation. But how close could the BOE allow the debt bubble approach the point of implosion, investment would flee the country long before. The UK would risk a South East Asian or Argentina style meltdown if things were left unchecked.

Basically when investors get nervous the game is up.

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Why did you assume 5% service costs on the debt?

Is this including credit cards, store cards at 15-30% and unsecured loans at anything from 6% upwards?

Or is it just mortgages?

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Why did you assume 5% service costs on the debt?

Is this including credit cards, store cards at 15-30% and unsecured loans at anything from 6% upwards?

Or is it just mortgages?

It includes the lot check my link.

I selected 5% because 5% is low and therfore on the bullish side.

I am putting across the data as it is, with all of my assumptions on the bullish side of reality.

Hope this helps

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Where it all falls down is that the assets that most of the debt is borrowed against, housing, have increased by 154% in price over the past decade, while GDP has only increased by a nominal amount of 2-3% per year for 10 years - 30%?

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Nope, doesn't help at all.

You can't write a piece like that, stating lots of facts and then on one crucial part of the equation use a figure plucked out of the air cos it suits you.

A lot of the facts on that link are highly dubious anyway.

Well presented but fundamentally flawed.

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Where it all falls down is that the assets that most of the debt is borrowed against, housing, have increased by 154% in price over the past decade, while GDP has only increased by a nominal amount of 2-3% per year for 10 years - 30%?

If we continue down that road (massive HPI), we reach a point where we can no longer service the growing debt.

The fall down factor in our economy is that personal debt is growing at over 10% annually. Borrowers need to be discouraged, but we can continue on this course without imploding for a few more years (although we are building bigger problems down the road).

It all comes to a head inside the lifetime of a mortgage anyway, so mortgages should be avoided like the plague.

Nope, doesn't help at all.

You can't write a piece like that, stating lots of facts and then on one crucial part of the equation use a figure plucked out of the air cos it suits you.

A lot of the facts on that link are highly dubious anyway.

Well presented but fundamentally flawed.

I have to pluck a value out of the air because it all happens in the future! ITS A FORECAST!

It's a more bullish value than the current value, it assumes cheaper repayments!

Which facts do you want me to verify?

Could you please travel forward 30 years in time and tell me what value I should use? Then I can update it thanks.

Edited by ?...!

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I have to pluck a value out of the air because it all happens in the future! ITS A FORECAST!

If you really wanted to impress everyone with your forecast then you could have taken the average service percentage of each of the types of debt and given the percentages a loading to get to around the average of the three types.

You would get a far more accurate (read realistic) amount which would then give the argument more credibility.

You're reasoning is just cr@p.

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Basically it is saying that Gordon's model is great for the short to medium term so if you're into property investing/flipping you're safe for another 5 years!

I just don't buy it, sorry. It looks like you're being bearish when subtly you're saying "Go on investors - you've got a while yet!"

Really we should see how much Gordon's economy stinks NOW not in the future.

Oh and you can make the graphs work by clicking the zoom-style button.

The graphs still don't really say much.

Thanks but I'm calling shennanegans.

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:huh:

Dancin'Bear the repayment rates of 5% are at the lowest end of the spread you are so keen to have represented accurately. Therefore the picture painted is the most positive, and the reality is only going to be more gloomy.

Have you got your wires crossed or are you just a cretin?

You're reasoning is just cr@p.

Tis true, it pales into insignificance in the face of your own erudite analysis and use of grammar.

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If you really wanted to impress everyone with your forecast then you could have taken the average service percentage of each of the types of debt and given the percentages a loading to get to around the average of the three types.

You would get a far more accurate (read realistic) amount which would then give the argument more credibility.

You're reasoning is just cr@p.

Nah, because then all the bulls would say rates are going down.

This encorporates a rate drop, like I say my assumptions err on the bullish side.

This makes the graphs and results a little more bullish.

I thought this approach was clear from the tone at the begining of my original post?

Didn't I paint an "all is well" picture? Maybe my hints weren't clear enough?

This was to prevent bulls shouting "perma bear!"

Instead I have a Bear shouting "Bah",

I'm guessing because you feel it's not soon enough?

5% is fine for this analysis.

.

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Basically it is saying that Gordon's model is great for the short to medium term so if you're into property investing/flipping you're safe for another 5 years!

I just don't buy it, sorry. It looks like you're being bearish when subtly you're saying "Go on investors - you've got a while yet!"

Really we should see how much Gordon's economy stinks NOW not in the future.

Oh and you can make the graphs work by clicking the zoom-style button.

The graphs still don't really say much.

Thanks but I'm calling shennanegans.

I tried to paint a bullish picture at the start along with bullish rates e.t.c.

Simply because this correlates with published data.

I then took the published data from the two sources and continued it over time at rates of;

10.3% for debt growth

5% for servicing debt

and

2.4% for GDP growth

I then took current personal debt to be 1.174 Trillion and GDP to be 1.235 Trillion.

Thats all the data I used, nothing more nothing less.

I don't really post much about property, I'm more concerned with geopolitical economics, but I wouldn't take on a loan with a lifespan greater than 5 years in the UK in this climate.

That is my conclusion, also we are not in a new paradigm as I have shown the current trend to be absolutely unsustainable beyond 15-20 years.

In fact a change in direction is due soon (within 5 years) because we cannot even encroach on that phenomenon.

.

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Great analysis/forecast, but as others have said 5% service charge is very low. I remember reading in a previous credit action report that the average debt servcing charge is around 7% (it doesn't seem to be in this report).

The only other thing is it will never get to the peak, because as the figure rises people like me who doesn't take on debt will eventually leave the country. But before that even happened foreign investors would pull the plug as there would be a point when we go into recession and it wouldn't be worth investing in this country.

A recession would be enevitable before the peak because people have to spend money on things like food, some things come before debt servicing payments, but if it did get that tight for individuals they would go bankrupt - something I expect to see increase rapidly in the future. I guess you could argue the purchase of essential things like food would be on debt, so the absolute peak would be possible...

...unless you argue lenders will lend to repay debt. Rob Peter to pay Paul? Neerrrr, that's just stupid :blink:

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Great analysis/forecast, but as others have said 5% service charge is very low. I remember reading in a previous credit action report that the average debt servcing charge is around 7% (it doesn't seem to be in this report).

The only other thing is it will never get to the peak, because as the figure rises people like me who doesn't take on debt will eventually leave the country. But before that even happened foreign investors would pull the plug as there would be a point when we go into recession and it wouldn't be worth investing in this country.

A recession would be enevitable before the peak because people have to spend money on things like food, some things come before debt servicing payments, but if it did get that tight for individuals they would go bankrupt - something I expect to see increase rapidly in the future. I guess you could argue the purchase of essential things like food would be on debt, so the absolute peak would be possible...

...unless you argue lenders will lend to repay debt. Rob Peter to pay Paul? Neerrrr, that's just stupid :blink:

The whole point is more about proving how unavoidable the situation is, than the accuracy of my foresight.

Hence the bullish rates.

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OK

You have given figures for probably "best"? case senario based on current predictions, which I think you were right to do.

But change;

*Economic growth....Reliant on global factors. Could easily go into negative (even recession 3 month continuous) next few years

*Service costs of debts..........Reliant on global factors. Could easily increase dramatically over next few years.

*Balance.............Some areas of economy will be hit before others is not completely uniform.

Things could very very easily speed up dramatically from your senario (as you know) with relatively small changes.

Yes, it is possible (very little probability) for this spending based on debt to go for some time yet.

Well thought out

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?...! : I understand where you're coming from with your bullish reasoning. Thanks for the effort.

You might want to change the grey backgrounds on Excel to white, because I found them a bit difficult to see some colours.

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Credit Action puts UK personal debt at £1.174 Trillion, which is quite large and is currently growing at 10.3%

UK debt growth = £1.174 Trillion * 10.3% = £120.92 Billion (Now bears... don't get carried away after that last bit)

The size of debt is not as important as the cost of servicing that debt (for a nation).

Lets assume a rate of 5%

Cost of servicing UK personal debt grew by £120.92 * 5% = £6.05 Billion

Considering that people actually have to repay their debts if they are ever to own the assets they're held against I'd like to see how much this analysis would change when repayment of capital was included within a certain time frame. As the current demographic situation is skewed towards older people well into their repayments a time frame of 20 years would give a reasonable picture – it takes the annual cost of repaying last year’s debt up to nearer £10 billion for instance. I wonder how many years we can carry on jacking up the debt burden at this rate before we start to throttle ourselves.

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I am really stunned by some of the attitude displayed on this thread. This guy has gone to some trouble to put together a rather elegant argument, logical, well reasoned. This is a rare event on HPC - mostly we only get uber-bear statements backed up by sweet FA.

Some people have really missed the point on this - the forecast is bullish to avoid charges of being unrealistic from bull posters. The model shows that the status quo is unsustainable beyond a 5-10 year period - AT AN ABSOLUTE MAXIMUM! More likely, it will pop before then as investors/lenders see what is coming.

If you all just want to be told that it will crash at 3pm tomorrow, fair enough. There are plenty of posters who will tell you that. But it isn't going to happen that quickly.

The beauty of this model is that demonstrates that it WILL happen, for sure. Has anyone else provided a genuine argument of that strength?

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Factors which may speed the debt D day:

Credit tightening and the increases in interest rates due to factors like Japan. . .

Rising oil prices and the impact this has on decreasing spending power in the economy.

Inflation . . . due to the above.

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Ok lets see,

Now this is a biggy so you might want to put the kettle on first.

EVERY HPC armchair economist should read this (at least once if need be). I'm going to look at recent data and what any future trends might entail.

UK PLC is looking OK, according to recent data.

The economy is growing at a steady rate, CPI is within the BoE remit, employment is rising, house prices have been stable. We can discredit the data all day but that is what the data says.

Gordon Brown is running the Gordon Brown economic model on his golden rules and everything seems to be stable, on course and under control.

This gives people a peace of mind, which allows them to take on larger long term debt i.e. a mortgage.

I may sound Bullish about the economy and about Brown's ability at the helm, but that is what is published.

Let's take a quick look at the most recent data

ONS United Kingdom Economic Accounts Quarter 4 2005

We are interested in section A1 of this report.

It states 2005 GDP @ £1.235 Trillion, which is healthy. Lets assume Gordon can keep it on course at 2.4%

UK GDP growth = £1.235 Trillion * 2.4% = £29.64 Billion

Next we will take data from Credit Action

Credit Action puts UK personal debt at £1.174 Trillion, which is quite large and is currently growing at 10.3%

UK debt growth = £1.174 Trillion * 10.3% = £120.92 Billion (Now bears... don't get carried away after that last bit)

The size of debt is not as important as the cost of servicing that debt (for a nation).

Lets assume a rate of 5%

Cost of servicing UK personal debt grew by £120.92 * 5% = £6.05 Billion

That £6billion additional cost is much less than the £30billion GDP growth over the same period, we CAN afford the additional costs of the debt.

Can you see how Gordon Browns economy works yet? How clever are you? Really though?

Can you spot the single most important piece of information in the above data?

The one upon which everything else is built?

Lets analyse a little further shall we...

Here is a graph that might give you a clue as to what is funding HPI and currently sustaining the market...

That goes a little further than we usually do, by quantifying the current debt trend.

There is some detail at the bottom of the above graph which is easy to miss, so see it here...

The second graph shows something of paramount importance...

Under current trends there is a point in the future where the nominal value of growth of the cost of servicing UK personal debt overtakes nominal GDP growth (in 22 years).

At this point the UK is breached, and our liabilities (already much geater than our earnings) will expand faster than GDP. That is the point of no return and the system collapses.

Creditors are aware of this and are keen to steer the UK away from such catastrophy as it would mean total default.

Lenders are treading a line, See the graph here they are trying to manipulate the light blue line to track as a percentage of the dark blue line (the percentage represents their take of GDP). The area below the light blue line is basically bank profits.

The closer they steer to the dark blue line the more they stiffle the economy. The more they steer away from it the more they lose out on profits.

If the Lenders allow the two lines in this graph to converge the are strangling the economy and costing themselves long term profits, if the lines diverge they are missing out on future profits. Interest rates are designed to keep these two lines on a healthy offset.

Interest rates are how they steer. If rates remain low for long the lenders margin begins to encroach on GDP growth and productivity this is bad for the lenders in the long term, since all their future earnings are derived from future GDP.

As you can see they will need to steer away soon and when this happens (lending growth drops from away from 10.3% nearer to 2-4%) credit will begin to dry up.

This is the path of our macro economics on the current trends. It's overcooking with debt. The facts are hidden by mathematics within the data.

So, to conclude...

The Gordon Brown economic model does look good, it looks good for the medium and short term.

Hell it could probably see stable growth for another 5 years...

But long term i.e. any more than 10 years from now and it stinks. Infact if this continues for more than 7-8 years momentum will carry it. Very ominous over the term of a mortgage.

But according to this graph which uses real data. Debt will soon begin to encroach on growth, if this ever happens we will struggle to compete.

I think the encroachment of debt on GDP looks about five years away. The only way to avert this is to reign in personal debt growth, the most efficient way to do that is to slowly ease rates upwards.

.

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Thanks ?...!, great post - confirms the thoughts of many peeps on here about unsustainable increases in debt. Which suggests that increases in mortgage approvals, far from proving a strong housing market, show we're getting closer to the endgame.

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  • 338 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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