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keepwatching

Houses, Debt, Inflation ?

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Inflation erodes debt....... But surely only wage inflation can erode the debt borrowed by the people who earn the money....

Say you have a silly large mortgage and 'inflation' runs at 15% whilst the interest rate is at say 5%..... Your 'average' wage increase squeezed from the boss is 3.5%/4.5% (realistic).....

The extra 'money growth' of 15% will, rather than erode your mortgage debt, make life a lot more difficult by inflating prices as wage inflation is never going to rise anywhere near the same amount........

With this in mind, how can the inflation principle dig the housing debt market out of the sh!te before it sinks ????

Those who have no debts seem to me to be in a better position to buy after a period of this particular scenario, as the 'set' amount of £GBP capital owed on the mortgage cannot suddenly be earned in half the time just because cost of living is rocketing.....

Those who have seen their house prices rise and not done anything with the extra money 'tied up' will eventually return to the same level....

Or am i wrong ? Is it possible that one weeks wages 'in cash' would be enough to pay the capital off on a large mortgage if inflation gets totally out of control ????

I cant see this as a possibility for Mr Joe Public, i dont see him being allowed by the institutions that control our country....

Forgive me if i sound confused......... :blink:

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Inflation erodes debt....... But surely only wage inflation can erode the debt borrowed by the people who earn the money....

Say you have a silly large mortgage and 'inflation' runs at 15% whilst the interest rate is at say 5%..... Your 'average' wage increase squeezed from the boss is 3.5%/4.5% (realistic).....

The extra 'money growth' of 15% will, rather than erode your mortgage debt, make life a lot more difficult by inflating prices as wage inflation is never going to rise anywhere near the same amount........

With this in mind, how can the inflation principle dig the housing debt market out of the sh!te before it sinks ????

Those who have no debts seem to me to be in a better position to buy after a period of this particular scenario, as the 'set' amount of £GBP capital owed on the mortgage cannot suddenly be earned in half the time just because cost of living is rocketing.....

Those who have seen their house prices rise and not done anything with the extra money 'tied up' will eventually return to the same level....

Or am i wrong ? Is it possible that one weeks wages 'in cash' would be enough to pay the capital off on a large mortgage if inflation gets totally out of control ????

I cant see this as a possibility for Mr Joe Public, i dont see him being allowed by the institutions that control our country....

Forgive me if i sound confused......... :blink:

Central bankers can devalue their county's currency as much as they want. At some point, exports wil pick up, interest rates have to rise to curb "inflation" and everything rebalances. They'll do it to erode the nation's debt and stem the appetite for more. Better that than have a few million people default...

It'll be sold to you and I as "growth".

As a saver you'll get the benefit of increased interest payments on your money, but it won't reflect directly what is being done to the value of your stash.

You may see house prices dip by 20% on average, but everything else will be 50% more expensive in 7 years time. I think we''ll get our house price crash in real terms, but in nominal terms it won't look that bad - it never has in the past.

Question is, what do you do with your savings in the mean time. The RPI is a bucket of lies, so NS&I inflation-linked savings are worthless...

I'm almost sleep-walking into it... I've got some gold but I feel I'm treading a fine line between gold as being currently over-valued and currency being devalued. I've not made ANY money on gold because it's so volatile. Some of the people on here are making huge lumps of money trading gold on a yearly basis. Don't get me wrong, I don't have it all stuck in an account earning 4% - I've cherry-picked every account you can think of that pays decent interest and I combine this with a few other tricks that are all the rage at the moment. But believe me, for all of this, I reckon I make less than 7% a year gross, which is pathetic.

The people with real forsight were those that realised it was necessary to pour your wealth into hard assets many, many years ago. I personally couldn't face the size of debt that comes with a mortgage back then, so I guess I'm in the same boat as many others on this forum.

I would be highly, highly surprised if central bankers chose deflation over inflation.

I feel totally p***ed that I didn't start researching all this sooner, became comfortable with wealth storage in gold and bought in low. I'm playing catch-up now, and it's far more risky than I'd like it to be, but I feel I'm being forced to take the prospect seriously.

There's no f***ing way I'm working this hard for this many years to be able to afford half a house by the time I turn middle aged. And that's the prospect facing everyone here today if you're not on a huge salary and sit back and watch the economy be manipulated around the greedy ass***es who pushed the market this far by grabbing as much debt as they could.

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Ok inflation and deflation 101,

Imagine that I live on an Island with about 1000 people called dnalgne, we are an industious group of people we hunt animals / cook / grow food / build houses / make clothes. things are good in dnalgne we do not use money and instead operate a system of barter. Ill build you a house if you grow food and cook for me :).

im an industruious type of guy so I decide to introduce a system of exchange based on rice, rice is an easy to produce food and can be stockpiled easily, I make myself a stockpile of rice and become a trader I buy things in exchange for rice. and sell them taking rice for goods and services, I even lend people rice in case they need it to fund big purchases. ( for a fee of course I want more rice back than I lend out origionally).

things are good the new rice based economy leads to a new economic boom in dnalgne with people producing more than ever. unfortunetly it also leads to a huge boom in rice production and suddenly I can't move for rice. the inflation in the quantity of rice in circulation in dnalgne means that more and more rice keeps geting produced far more than we actually need to eat and so the price of other goods and services houses, meat and clothes goes through the roof when priced in rice. suddenly this leads to a commodities boom with people stockpiling other commodities like wool and some strange yellow metal shit that is really hard to mine. the price of these goods when priced in rice keeps going up ( even though the wool and the yellow metal shit actualy command the same goods and services they always did ) any way as central rice trader I can see that this shit can't go on so I set fire to all of the rice feilds in dnalgne and declare that I am the only one who has the legal right to issue rice (anyone caught growing their own will be hung drawn and quartered) I convince the rulers of dnalgne that this is the only way to keep their economy ticking over. I have a huge stockpile of rice but now people keep borrowing rice off me and the statistics I am collecting on the total amount of rice in the Economy of dnalgne just keep going up, e.g the broad rice supply or "R3" keeps heading skyward. I don't like this the people who have been hoarding all that yellow metal shit are able to command huge sums of rice for their metal. and they are even talkling about introducing a rival mechanism of exchange based of tokens of yellow metal or "sovereign coins" as they keep calling them. this cannot go on, If they succeed in introducing this they I will we left with a pile of worthless rice. so in a dramatic attempt to stabilise prices I set up a commitiee a "cartel" of trusted rice traders and each month we meet and decide how much we will charge people to lend them rice. we decide that the current rates for rice lending are too cheap so we put up our prices to 10% p.a. for the overnight interdealer cost of rice, sooner or later R3 comes into line and stabilises as people become less keen on borrowing rice and the prices of goods in the economy of dnalgne stabilises and even goes down in some cases. unfortunetly some of the people who I lent lage sums of rice to are now unable to pay me back, haha they can come and "work" for me as my slaves until they have paid their debt to me. the people who hoarded the yellow metal stuff have been headed off and the amount of rice they can now command for their metal has now shrunk substantially, as the supply of rice has become tighter. haha all is well in the world central rice dealing of dnalgne. I have my slaves and my rice i'm rich....

give me control of a nations rice and I care not who makes her laws..... haahaha insidious central rice dealer laughing

of course I have loads of rice so I can use it to buy as many goods and "services" as I can get my dirty little paws on. O and each year I lend out slighly more rice into the economy. stop people hoarding it all for themselves and setting up their own rice dealing business ;)

Edited by jonpo

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You may see house prices dip by 20% on average, but everything else will be 50% more expensive in 7 years time. I think we''ll get our house price crash in real terms, but in nominal terms it won't look that bad - it never has in the past.

ie. HP : new car or real wages ratio reduced.... That bit i understand well (a much better time to buy IMO).

Can we have hyperinflation (I think that is the right term) as with the German currency during the war with all this debt on our hands ? I kind of believe that it would never be allowed, as the banks would technically have to right off ALL the loans = no earnings (Too much of a wealth shift/power to the people)..... Or am i missing something ?

I have an idea things will not hold up for long enough in the housing market for money to be devalued significantly as to allow savings to actually lose value quicker than houses (on average from now) as even a stagnant housing market is losing lots of value compared to the moving picture of living costs that need to ba addressed by everybody, homebuyer/owner or not...... Is the main restriction for real inflation is the inability of real wage inflation in this country... Are we seeing this through all the redundancies of late ? Or can wages suddenly increase with money supply to devalue savings without offsetting houseprice:earning ratios we have at the minute ??

Still confused, need sleep..... :lol:

Thank you for the short essay Jonpo..... Very clear way of putting things into perspective.

That shiny yellow stuff sounds like trouble though <_<

Edited by keepwatching

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Can we have hyperinflation (I think that is the right term) as with the German currency during the war with all this debt on our hands ? I kind of believe that it would never be allowed, as the banks would technically have to right off ALL the loans = no earnings (Too much of a wealth shift/power to the people)..... Or am i missing something ?

I don't think it's a case of 'allowing it to happen'. Governments are notoriously poor in controlling runaway economic markets. Look at Zimbabwe now with 1000% inflation:

http://www.npr.org/templates/story/story.php?storyId=5412126

Whether it's external factors like wars, or economic mismanagement, market forces drive the rollercoaster which dictates that you need a wheelbarrow to carry enough paper money down to the bakers to buy a loaf of bread, which has probably doubled in price from yesterday, anyway. That's why people fly to the yellow stuff when there's the merest sniff of inflation. Gold holds it's value against 'things', paper money is merely a token.

Of course if we get deflation, cash will be king.

TLM

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Of course if we get deflation, cash will be king.

TLM

And in second-guessing what it will be, do you think the problem of several million people already in debt up to their eye-balls and growing increasingly tired of their dwindling cash flow combined with the growing social problem of IVAs and bankruptcies are going to be cured by deflation?

Just wondering what people think. Would deflation be a better cure for the UK and US?

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And in second-guessing what it will be, do you think the problem of several million people already in debt up to their eye-balls and growing increasingly tired of their dwindling cash flow combined with the growing social problem of IVAs and bankruptcies are going to be cured by deflation?

Just wondering what people think. Would deflation be a better cure for the UK and US?

My brain starts to hurt when I try extrapolating further, and I'm far from qualified to give an opinion, BUT:

if you have debt in a deflationary economy, and the cash in your pocket is worth more, then any debt accrued also becomes greater in real terms. However, presumably interest rates then plummet to stimulate growth as we've seen in Japan, so that debt is easier to service, however it's likely to be with you for a long, long time, unless you default. If you're lucky enough to still be employed, you can maybe pay down some of the debt, but wages are likely to have gone down too. I have no idea what problems mass defaulting would cause, but I suspect it won't be good, and will exacerbate the problem. Deflation would also lead to reduced money supply, severely limiting discretionary cash, leading to decreased demand for manufactured goods, and higher unemployment.

Back in the late '80s and early '90s, interest rates peaked briefly at around 14-15%, and though many homeowners were in negative equity, debt was eroded relatively quickly, compounded by the housing market swinging back up around 1996. If you held on to property it probably came good for you in 6-7 years. If you handed back the keys, probably longer.

IMPO we'll see stagflation with rising IRs, but reduced high st spending as more and more cash is used to service debt. If oil and energy prices remain high, we might see something like the '70s scenario, maybe followed by deflation? With my limited economic knowledge I'd want to be debt free and liquid in both a deflationary or inflationary scenario. With inflation and presumably high interest rates I'd be looking at bonds and commodities. In a deflationary scenario I'd be sitting on cash and looking around for the best returns - not sure where, though. In both instances I'd be looking to buy in at the bottom of equity markets, in anticipation of a turnaround. Property of course would have tanked long ago, so that would be good for a punt maybe...

To answer your question, I think deflation would be more painful and would go on longer than a period of high inflation, I am discounting hyperinflation as currently experienced in Zimbabwe, though.

Bear in mind that this is just a personal view gleaned from info picked up on HPC and GEI, so take with a pinch of salt. I'm happy to be corrected by the better informed.

TLM

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  • 337 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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