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Krackersdave

Mortgage Madness Will End In Inflation, Inflation, Inflation

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Hmm, looks like the forum has deleted the dot from the URL again! I entered the correct one.

Put a dot before the 'php' at the end and it will work.

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http://www.sundayherald.com/search/display...n_inflation.php

I have to disagree with the basis of the whole thing though. NR haven't really been bailed out...they've stopped them collapsing but they're still going down the pan. So the theory that all banks will be happy to get into the same position doesn't hold water. The market has done far more than the BoE could have done.

On top of that, nobody is talking properly yet about interest rate cuts here. If it happens I'll change my mind but I don't see any time soon.

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Hmm, looks like the forum has deleted the dot from the URL again! I entered the correct one.

Put a dot before the 'php' at the end and it will work.

Ah yeah - .php did the trick, ta :)

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I particularly like this bit...

The Bank of England is supposed to be the independent and resolute guardian against inflation; that's what its charter says. But in saving Northern Rock it has blinked first. Other banks will see this as a sign that they can continue to behave recklessly, secure in the knowledge that the Bank will come to their aid in the end.

But the inflation unleashed by cuts in interest rates could be sensational, for we are entering a much more expensive world. Oil is stabilising at well over $70 a barrel with no signs of a fall, and food prices are increasing for the first time in a generation. A world wheat shortage has led to bread prices going up 25%, and supermarkets are forecasting shortages of eggs, and even bacon, for the first time since the second world war. Meanwhile, America is running up a huge post-Iraq deficit, China is booming out of control and stock markets are all over the place.

It's all beginning to look like a nightmare on Downing Street ... for Alistair Darling. But look on the bright side. Northern Rock may finally have crushed the prospect of an early election. If Brown went to the country now, it would look like panic, and voters might want to withdraw their political credit from the Bank of Labour. You can't call in the Bank of England to halt that.

Britain under Brown - 100 f***ed - Guaranteed!

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The Bank of England is supposed to be the independent and resolute guardian against inflation; that's what its charter says. But in saving Northern Rock it has blinked first. Other banks will see this as a sign that they can continue to behave recklessly, secure in the knowledge that the Bank will come to their aid in the end.

This is nonsense. The BoE has not "saved" Northern Rock, or "bailed them out". If NR had lost a lot of money through reckless lending, and the BoE had ridden in and replaced this money under the table to shore them up, that would be a bailout. In this case, they are offering to give them a short-term secured loan at a penalty rate of interest, in order that they have enough working capital to see them through the credit crunch without going to the wall.

Personally, I don't think it's working. NR will not last the rest of the year in its current form.

Look at the photos from Friday and Saturday. Look at the media frenzy that has been the Northern Rock debacle: the first run on a UK high-street bank for decades. Look at the NR executives being humiliated for the ruination of one of the country's biggest mortgage lenders. This is supposed to be a sign to other banks that they can continue to lend recklessly? Please!

Roll up, roll up - get your Bank of England unlimited liquidity facility here. Who wants to be the next to admit that their cash flow is shakey and they need a helping hand from the lender of last resort? You sir, would you like huge queues of angry customers outside your branches tomorrow morning?

No, I thought not.

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An excellent article, points to all the hypocrisy of Brown and his gordonomics. As we have been proclaiming in the forum for many years, the credit crunch is well on its way, but how far is it going to spread? The author talks about the long overdue HPC, but will the government keep the party going for longer?

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Guest muttley

Unilateral inflation? If the government try that then we are heading for a deep recession, as UK companies cut staff and foreign companies move abroad.

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I've heard a few comments that this will end in Deflation - not Inflation.

Can someone please explain this? Personally I'd prefer Deflation as I hold cash - but I don't get the mechanics that would drive it.

Cheers!

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http://www.sundayherald.com/news/heraldnew...1691739.0.0.php

Cgnao might be bang on the money....

Britain under Brown - 100% ******3d - Guaranteed!

A quote from the above link :-

"What the credit crunch is telling us is that the inflated asset values that underpin the debt economy are no longer sustainable. House prices must come down to earth, either by raising the cost of borrowing or by allowing inflation to rip and erode asset values by debasing the currency. Inflation is the weakest and sneakiest way of re-pricing inflated assets - it ruins savings and the livelihoods of people on fixed incomes - so it's a slam-dunk certainty that this is what the government will do."

If the government want to inflate their way out of this, they are not going about it the right way. The only kind of inflation which will erode asset values is wage inflation, not consumer price inflation. See the latest shameful 1.9% wage increase deal imposed on the nurses (thread link). With wage inflation like this, our current debt load will be with us for an awfully long time

Best,

L

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It [NR] had been financing its too-good-to-miss mortgages by dabbling in American sub-prime.

Huh? That doesn't even make any sense and leads me to question the author's understanding of what has happened.

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I've heard a few comments that this will end in Deflation - not Inflation.

Can someone please explain this? Personally I'd prefer Deflation as I hold cash - but I don't get the mechanics that would drive it.

Cheers!

Well, if the credit crunch continues then the amount lent out as mortgages will begin to drop and this I think will mean house price falls. This in turn will affect other parts of the economy, notably finance and housing related sectors. These businesses will see falling profits and will likely make people redundant. Falling HPs will aslo mean there is less equity withdrawl, which will hit retail, and also be a double whammy to the housing market as MEW is a common way to get a deposit for a BTL or a flat for you children. Anyway, as jobs are lost banks will be less willing to lend as the see defaults rising, and consumers may be less ready to borrow as they fear unemployment. As less money enters the system as credit, business profits fall further, leading to more redundancies... and so on... it's a classic positive feedback loop, and like all such loops can lead to situations spinning out of control very quickly.

The normal policy response is to cut interest rates, which should get people borrowing and spending again, resulting in the opposite process - profits up, unemployment down. IR cuts will fail to work, though, if sentiment towards borrowing has soured to such a degree that even cutting rates to 0% will not tempt people to borrow. This is what happened in Japan.

Deflation seems an attractive possibility if you have money in the bank. However, bear in mind that if we have sustained deflation, you'll get next to no interest paid and you are quite likely to lose your job.

Personally I think the public psyche in the UK is such that if IRs are cut borrowing will shoot up again, possibly for one last huzzah before everything really goes belly up.

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Well, if the credit crunch continues then the amount lent out as mortgages will begin to drop and this I think will mean house price falls. This in turn will affect other parts of the economy, notably finance and housing related sectors. These businesses will see falling profits and will likely make people redundant. Falling HPs will aslo mean there is less equity withdrawl, which will hit retail, and also be a double whammy to the housing market as MEW is a common way to get a deposit for a BTL or a flat for you children. Anyway, as jobs are lost banks will be less willing to lend as the see defaults rising, and consumers may be less ready to borrow as they fear unemployment. As less money enters the system as credit, business profits fall further, leading to more redundancies... and so on... it's a classic positive feedback loop, and like all such loops can lead to situations spinning out of control very quickly.

The normal policy response is to cut interest rates, which should get people borrowing and spending again, resulting in the opposite process - profits up, unemployment down. IR cuts will fail to work, though, if sentiment towards borrowing has soured to such a degree that even cutting rates to 0% will not tempt people to borrow. This is what happened in Japan.

Deflation seems an attractive possibility if you have money in the bank. However, bear in mind that if we have sustained deflation, you'll get next to no interest paid and you are quite likely to lose your job.

Personally I think the public psyche in the UK is such that if IRs are cut borrowing will shoot up again, possibly for one last huzzah before everything really goes belly up.

Cheers for this TDB - much appreciated.

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Well, if the credit crunch continues then the amount lent out as mortgages will begin to drop and this I think will mean house price falls. This in turn will affect other parts of the economy, notably finance and housing related sectors. These businesses will see falling profits and will likely make people redundant. Falling HPs will aslo mean there is less equity withdrawl, which will hit retail, and also be a double whammy to the housing market as MEW is a common way to get a deposit for a BTL or a flat for you children. Anyway, as jobs are lost banks will be less willing to lend as the see defaults rising, and consumers may be less ready to borrow as they fear unemployment. As less money enters the system as credit, business profits fall further, leading to more redundancies... and so on... it's a classic positive feedback loop, and like all such loops can lead to situations spinning out of control very quickly.

The normal policy response is to cut interest rates, which should get people borrowing and spending again, resulting in the opposite process - profits up, unemployment down. IR cuts will fail to work, though, if sentiment towards borrowing has soured to such a degree that even cutting rates to 0% will not tempt people to borrow. This is what happened in Japan.

Deflation seems an attractive possibility if you have money in the bank. However, bear in mind that if we have sustained deflation, you'll get next to no interest paid and you are quite likely to lose your job.

Personally I think the public psyche in the UK is such that if IRs are cut borrowing will shoot up again, possibly for one last huzzah before everything really goes belly up.

I agree, there is going to be a re-inflation again when they cut rates, but I don't the next bubble will be property. I think the next bubble will be in precious metals, food, and energy.

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