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Realistbear

H P I - M E W "greatest Misallocation Of Wealth Ever"

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http://observer.guardian.co.uk/world/story...1838162,00.html

Dead zone' threat to US suburban dream

Petrol price rises may cause the housing bubble to burst, triggering global recession and the fall of America's Eden, writes Paul Harris in New York

Sunday August 6, 2006

The Observer

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Now there are fears it is coming to an end. For the past five years America has been gripped by a housing price bubble. It has funded a huge expansion of suburbia as Americans poured their wealth into their homes. Yet many think that bubble may be about to burst. That would send shock waves through the US economy and into the rest of the world. Nor is that the only threat. The rising price of oil is squeezing suburbanites. It threatens a way of life where pavements are rare and everyone moves by car.
'We have invested all our wealth in a living arrangement with no future,' said James Howard Kunstler, author of the Long Emergency which postulates the end of suburbia. 'In building suburbia we embarked on
the greatest misallocation of wealth in the history of the world.'
Yet there are real signs America's long and profitable love affair with the suburbs may be over. The past five years have seen an unprecedented rise in house prices, which in turn has triggered a massive building boom. But the pace of house sales in America has now declined nine months in a row after setting a record last summer. Across the US once booming markets are stagnant or prices slipping. One recent survey showed home builders have started offering free add-ons, like pools or garages, in order to sell their houses. Home builder confidence is at its lowest level in 14 years. Fortune magazine recently headlined a piece on the housing bubble with the words: 'Welcome to the Dead Zone'.

The Miracle Economies that have been blighted by HPI-MEW are in danger of a significant collapse. IF the US goes into recession, or even depression, there will be hell to pay in Europe also. High house prices is no subtsitute for production and Gordon's plan to exchange HPI-MEW for a solid manufacturing/services/retail basis is ending in disaster. We cannot say that there no warnings as even Mervyn King said house prices are illusory opinion whereas the debt we are creating to support them is reality. He also said, correctly IMO, that there is a bumpy road ahead. Let's hope its not over the cliff into an economic abyss. The meteroric rise in personal bankruptcies are the first early signs that it is coming to an end. And things tend to happen quickly in our technological information age so make your plans now because the storm is rising.

:o

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To be fair though RB, I get the feeling that you wouldn't mind a crash into an economic abyss!

And let's be honest here, most of the die hard bears on here are probably better financially set up to weather the worst of such a storm.. :)

I'm not critising you. Far from it, although I've never been on fantastic wages, however I was fortunate enough to be taught the value of money and I'd like to think at least, I can think further than the end of next month's wage packet!

The other point I'd make is I have always tried to live within my means and as such was never one to have to get the latest gradets etc.

So, if or should that be when the great moronic masses are hurting through misfinancial mgt, I can be forgiven for smiling to myself if I make it through, or at least had the intellect to wheather the coming recssionarystorm. B)

I would not like to see a severe recession as it will be miserable for all of us including the STRs who have stayed mostly in cash. However, it does seem that a severe recession is inevitable as the housing bubble is unsustainable with IR having to rise to keep inflation at bay. IMO, the central banks are hoping HPI will be all that will suffer when the correction comes but we all know that the collateral damage will be widespread as houses are a huge part of our economies. The article has got it right in suggesting that HPI-MEW is not the vehicle for stable wealth as it is cyclical and, as Mervyn said, just opinion whereas the debt it creates is a grim reality.

Where do we go from here? I think it will be more of the same. Rising debt and bankruptcies gathering pace. Repossessions going skyward by the Autum and the BoE having to hike again due to an out of control CPI brought on by the rises in fuel--which are huge by any standard. Discretionary income will soon dry up and businesses will start to falter and close due to lack of customers. Unemployment will pick up and our twin deficits will grow far beyond Gordon's goalposts.

In short, it will be a mess. Sterling is riding high at the moment but when the currency traders see the poisons hatching out a little more it will be all into the Yen, Swiss Franc and maybe even Yuan. I just do not see how we can continue on the current path of HPI-MEW (albeit in the South only now), rising IR, rising deficts, overvalued pound, inflation, unemployment without consequences of a severe nature.

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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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