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OLDFTB

It Really Is Different This Time Round

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I don't remember the last HPC being underpinned by the lack of underwriting standards coupled with massive fraud and deceit that have been perpetrated by the financial institutions in the USA,UK et al. And all that on top of rising interest rates as well. Bet they feel a right bunch of quants now.

If i recall correctly it was caused by the conventional,old fashioned Economic incompetence of politicians starting with the scrapping of double MIRAS relief which pushed prices even higher(?)and,through a chain of events including the ERM debacle,eventually leading to high interest rates,recession, high unemployment, repossesion etc.

I'm pretty sure in those days that the Banks weren't lending to "Billy Welfare-Benefit" & his missus as per tonights Panorama program?

That last HPC took a while to get going before it crept up and slapped us all in the face..... but...... this one?

It's gonna be a real doozy and at rollercoaster speed folks!

:lol::lol::lol:

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I'm pretty sure in those days that the Banks weren't lending to "Billy Welfare-Benefit" & his missus as per tonights Panorama program?

...the High Street Banks did not have a mortgage book except for their own staff in '88....it was all building societies and the lending was basically all prime.....you are right...it's a low life crooked ball game in many places this time around... :ph34r::ph34r::ph34r:

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If i recall correctly it was caused by the conventional,old fashioned Economic incompetence of politicians starting with the scrapping of double MIRAS relief which pushed prices even higher(?)and,through a chain of events including the ERM debacle,eventually leading to high interest rates,recession, high unemployment, repossesion etc.

I'm pretty sure in those days that the Banks weren't lending to "Billy Welfare-Benefit" & his missus as per tonights Panorama program?

That last HPC took a while to get going before it crept up and slapped us all in the face..... but...... this one?

It's gonna be a real doozy and at rollercoaster speed folks!

:lol::lol::lol:

Chancellor Nigel Lawson's monetary policy targetted the £ in the 1980s. (3DMs to the £)

This lead to an artificial dip in IRs and a massive influx of investment money into the UK and also a consumer spending spree. This was also fuelled by a dodgy budget in 1988.

Inflation spiralled out of control into double figures and that's why IRs went up. This happened before we joined the ERM. IIRC the whole reason JMajor favoured joining the ERM was to fight inflation and get interest rates down quickly and minimise any recession. Things didn't quite go to plan...

Edited by Without_a_Paddle

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Pretty much the worst of the widescale excesses last time around were double income mortgages to people trying to beat the double Miras deadline who relied on two wages to pay for a mortgage on the crummiest property at the bottom end of the market, even then most were only looking 2x dual income. The fact is that relying on two incomes doubels your exposure to problems - job loss, unable to work due to health etc. Even then, having beaten the deadline and getting soemthing like a third off all intert rpeyaments man were wiped out in the ensuing mess.

This is indeed nothing like the 80's.

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I can not see how the central banks can control interest rates. If inflation goes up surely the banks have to raise interest rates so that the interest income will cover the eroding principle.

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IMHO the greatest difference this time is BTL. I know quite a few people with a BTL or two. It seems as if anyone with any spare cash has used to gear up on BTL, egged on by the media programmes on these landlord/landlady millionaires(soon to be bankrupt?)

This is what has caused every FTB to feel they have to jump on the ladder so that they can have some equity from HPI.

And it is BTL IMO that are going to lead the way down through their forced sales.

VI: I am a houseowner (just the one I live in)

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There was also a little safety net called council housing for those out on the street.

Thank god we've flogged that little lot off.

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IMHO the greatest difference this time is BTL. I know quite a few people with a BTL or two. It seems as if anyone with any spare cash has used to gear up on BTL, egged on by the media programmes on these landlord/landlady millionaires(soon to be bankrupt?)

This is what has caused every FTB to feel they have to jump on the ladder so that they can have some equity from HPI.

And it is BTL IMO that are going to lead the way down through their forced sales.

VI: I am a houseowner (just the one I live in)

...good point ...BTL's only came into the UK 1995 ......it was one of the 'things' which kick started the turnaround out of the last recession......it needs to be culled now due to it's unfair tax advantages.... :ph34r::ph34r::ph34r:

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Monetary policy -- the common cause.

Chancellor Nigel Lawson's monetary policy targetted the £ in the 1980s.

This lead to an artificial dip in IRs and a massive influx of investment money into the UK and also a consumer spending spree.

Inflation spiralled out of control into double figures and that's why IRs went up. This happened before we joined the ERM. IIRC the whole reason JMajor favoured joining the ERM was to get interest rates down quickly and minimise any recession. Things didn't quite go to plan... [Without_a_Paddle]

Lawson was in effect shadowing the ERM, so the decision to join in October 1990 was largely a formality.

Setting monetary policy by targetting the exchange rate was a really dumb policy, although not nearly as dumb as setting it by targetting an artificially suppressed index of consumer prices -- as we are about to have demonstrated.

Pretty much the worst of the widescale excesses last time around were double income mortgages to people trying to beat the double Miras deadline... [OnlyMe]

The MIRAS delay just whipped up a bit of froth on top (rather like sub-prime / self-cert has today).

Fiddling RPI and hiding inflation would of cost the chancellor his job back then. [sparkie]

It will cost him his job this time.

IMHO the greatest difference this time is BTL. [bleakhouse]

BTL is far more a symptom of this bubble than a contributor. The big rise in house prices (and almost all of the rise in my part of the country) occurred before BTL became fashionable. It's importance is grossly over-hyped on this forum.

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Monetary policy -- the common cause.

Chancellor Nigel Lawson's monetary policy targetted the £ in the 1980s.

This lead to an artificial dip in IRs and a massive influx of investment money into the UK and also a consumer spending spree.

Inflation spiralled out of control into double figures and that's why IRs went up. This happened before we joined the ERM. IIRC the whole reason JMajor favoured joining the ERM was to get interest rates down quickly and minimise any recession. Things didn't quite go to plan... [Without_a_Paddle]

Lawson was in effect shadowing the ERM, so the decision to join in October 1990 was largely a formality.

Setting monetary policy by targetting the exchange rate was a really dumb policy, although not nearly as dumb as setting it by targetting an artificially suppressed index of consumer prices -- as we are about to have demonstrated.

Both have their faults, but to argue against current monetary policy over the last decade you are arguing against a policy that has brought stable low interest rates, low and stable unemployment, stable inflation and steady economic growth.

This policy of targetting inflation was set up by the tories 15 years ago (Lamont and Clarke) and Labour copied it.

If you read the monthly inflation report you will see that the MPC decisions behind IR changes take into account lots of factors including projected domestic demand, business investments, employment levels, gdp growth etc.

If it really was as simple as a response to current cpi levels the MPC could be replaced with a simple excel spreadsheet.

Edited by Without_a_Paddle

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Chancellor Nigel Lawson's monetary policy targetted the £ in the 1980s. (3DMs to the £)

This lead to an artificial dip in IRs and a massive influx of investment money into the UK and also a consumer spending spree. This was also fuelled by a dodgy budget in 1988.

Inflation spiralled out of control into double figures and that's why IRs went up. This happened before we joined the ERM. IIRC the whole reason JMajor favoured joining the ERM was to fight inflation and get interest rates down quickly and minimise any recession. Things didn't quite go to plan...

Yes it did happen before we officially joined the ERM, but Lawson was doing this because he wanted to prepare the country (and Maggie) for entry into the ERM. The last boom and bust could be laid squarely at the door of our ruling class's infatuation with Europe.

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I agree it will be different this time. Think in terms of:

Great Crash 1 X 3 = Great Crash II

3 times the drop

3 times as long

3 times as painful

Edited by Realistbear

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Its going to be a sore one and no mistake, to much debt, fantasy wages and resetting rates for it to end any other way.

Tears n' Snotters time will soon be all around us obvious to all.

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Both have their faults, but to argue against current monetary policy over the last decade you are arguing against a policy that has brought stable low interest rates, low and stable unemployment, stable inflation and steady economic growth.

What growth? The fundamental demand characteristics in this economy haven't changed one bit - and the population trends aren't plugging the gap.

I'll agree with the low interest rates. And that's the problem. The economy's gone manic borrowing to produce goods, furthermore goods for which the only demand that does exist, is demand fuelled by debt.

Unemployment? The only jobs added have been in these same sectors. And they're going to unwind more quickly than you can type "credit crunch".

The economic policies of the last decade are precisely to blame. They are to blame for the fiesta that those in the capital industries have started with their newly increased wages, they are to blame for the fiesta that those in these same producer industries have merrily amplified.

This lot wouldn't know "stable" if it was written one letter per plank on a succession of 2x4's, and beaten into their skulls by the Incredible Hulk.

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What growth? The fundamental demand characteristics in this economy haven't changed one bit - and the population trends aren't plugging the gap.

I'll agree with the low interest rates. And that's the problem. The economy's gone manic borrowing to produce goods, furthermore goods for which the only demand that does exist, is demand fuelled by debt.

Unemployment? The only jobs added have been in these same sectors. And they're going to unwind more quickly than you can type "credit crunch".

The economic policies of the last decade are precisely to blame. They are to blame for the fiesta that those in the capital industries have started with their newly increased wages, they are to blame for the fiesta that those in these same producer industries have merrily amplified.

This lot wouldn't know "stable" if it was written one letter per plank on a succession of 2x4's, and beaten into their skulls by the Incredible Hulk.

You complain that interest rates are too low yet you complain about jobs/unemployment.

Can you explain to me (without the aid of planks) how higher interest rates would have brought more (private sector manufacturing?) jobs to the UK?

Edited by Without_a_Paddle

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This lot wouldn't know "stable" if it was written one letter per plank on a succession of 2x4's, and beaten into their skulls by the Incredible Hulk.

:lol::lol::lol:

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You complain that interest rates are too low yet you complain about jobs/unemployment.

Can you explain to me (without the aid of planks) how higher interest rates would have brought more (private sector manufacturing?) jobs to the UK?

A good point, but the fact is that we have not seen large scale comercial

borrowing to increase productive capacity.

.

Most of the new debt has gone into consumer spending which due to the

strong pound and lack of UK manufacturing capability has meant imports.

Or from the govt side inflating the public sector and its pay.

.

With this in mind it would be hard to argue that low interest rates have done

anything except helpthe economy in the very short term.

.

ST

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You complain that interest rates are too low yet you complain about jobs/unemployment.

Can you explain to me (without the aid of planks) how higher interest rates would have brought more (private sector manufacturing?) jobs to the UK?

Artificially high rates would have been just as lethal (as these artificially low ones have).

The problem is tampering with (market determined) rates. When (free market, floating - not to be confused with reserve) rates are high, this reflects a bias toward future demand (producers bid high to borrow to produce anticipated need). When rates are low, this reflects a bias toward future contraction (producers are meeting present and forecast demand, and are unwilling to take increasingly high risks to chase declining yield).

The market rates were not particularly high at entry (to your ten year window). Increasing reserve rates would have represented a governmental out-bidding of the market and produced today's asset fire-sales, then. Decreasing reserve rates, 2001-2004 has not brought us stability - it has merely resulted in negative rates of capital accumulation (and we will enjoy the fruits of this later) and a massive systemic shift into the capital goods industry (the unwinding of which we have already started to enjoy).

What leaving the rates to float to their own natural level would have done, over your ten year window, would have been to bias the term "do more, better, using less" toward the latter two terms. If capital costs are market determined, then there is some intrinsic self-interest (to each participant) in deploying it productively. If capital is helicoptered in, as it has been over your time horizon, this does not happen. Instead, the resulting orgy in the capital goods industries results in higher wages there and then spills drunkenly into the producer industries - fuelling bubbles, not stoking demand (as it was intended to do).

Would this have resulted in more private sector manufacturing employment? Ultimately (extreme long horizon). "Better" tends to ultimately seek levels of higher order production, and this really does create new industry. But to get there from here, you need to seek efficiencies in production first (which triggers research and development in process, design, and manufacturing). And this triggers productivity, which is a nice way of saying "requires less capital and labour per unit produced" - ie, raises the spectre of dis-employment (where labour requirements have previously been over-estimated for some given enterprise). But it also fosters innovation, which then sets the stage for the next expansionary phase.

However. Along the way, I think we can all agree that we could have benefitted from one decade fewer's worth of (yesterday's) mushrooming realtors, mobile phone stores, government pork, and debt pimps.

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You complain that interest rates are too low yet you complain about jobs/unemployment.

Can you explain to me (without the aid of planks) how higher interest rates would have brought more (private sector manufacturing?) jobs to the UK?

err, high irs are required, when necessary to tackle inflation (we've had low ones for a while because of the low inflation imported from middle east etc)

anyway, if we had high £-inflation, then this tends to make life hard for businesses because costs tend to outstrip revenues; this instability puts off international investors. Jobs are lost. High irs are necessary to stabilise this when appropriate.

Additionally, overly low irs may lead to 'malinvestment' as described by the other poster, when things are invested in because of bubble properties, and not because of their underlying productive contribution.

Overly low irs are, in the long term (I think) as destructive as high irs. It is not about 'low irs = good' but that, for a given broad economic situation, taking into account internal and external inflation and economic variables, there is a 'best' or 'most appropriate' ir level. Exactly what that level is is, I believe, very hard to be sure about. But low irs themselves cause a lot of trouble if not appropriate.

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Guest Skint Academic
BTL is far more a symptom of this bubble than a contributor. The big rise in house prices (and almost all of the rise in my part of the country) occurred before BTL became fashionable. It's importance is grossly over-hyped on this forum.

Surely a fundamental characteristic of a bubble is that the symptoms in turn become causes. It's positive feedback.

For example, house prices rise for whatever reason, say because of low interest rates. People see house prices going up so they buy a house with the intention of getting on the property ladder while they can and making some capital gains. This pushes houses prices up further and people start extrapolating about how far they are likely to go up .

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err, high irs are required, when necessary to tackle inflation (we've had low ones for a while because of the low inflation imported from middle east etc)

anyway, if we had high £-inflation, then this tends to make life hard for businesses because costs tend to outstrip revenues; this instability puts off international investors. Jobs are lost. High irs are necessary to stabilise this when appropriate.

Additionally, overly low irs may lead to 'malinvestment' as described by the other poster, when things are invested in because of bubble properties, and not because of their underlying productive contribution.

Overly low irs are, in the long term (I think) as destructive as high irs. It is not about 'low irs = good' but that, for a given broad economic situation, taking into account internal and external inflation and economic variables, there is a 'best' or 'most appropriate' ir level. Exactly what that level is is, I believe, very hard to be sure about. But low irs themselves cause a lot of trouble if not appropriate.

But we haven't had high inflation (or instability) as you point out yourself! So your economics lesson about a fantasy scenario of stabilising high inflation is not helpful in this case.

I'm arguing that we have had pretty good price stability over recent years, low unemployment and steady economic growth. IRs have been stable.

All these factors are good for business and good for employment levels.

That's kind of why I asked the question about employment levels if rates had been forced higher in recent years by the MPC.

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I'm arguing that we have had pretty good price stability over recent years, low unemployment and steady economic growth. IRs have been stable.

We've been servicing our mortgage by pawning our inheritance - and that's run out, so we've moved on to the credit card.

Stable? What an odd thing to say. Let's see if history agrees.

Edited by ParticleMan

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We've been servicing our mortgage by pawning our inheritance - and that's run out, so we've moved on to the credit card.

Stable? What an odd thing to say. Let's see if history agrees.

I suppose it depends on how you define stable. I would argue from the business point of view that they have been stable, i.e. no sudden rate shocks as in previous decades.

This chart is a couple of years out of date but you get the picture (Inflation targetting began at the end of 1992)

graph-bankofengland.gif

We've been servicing our mortgage by pawning our inheritance - and that's run out, so we've moved on to the credit card.

That may be the case for some people, but if you look at the bigger picture it's nowhere near as bleak as that.

Edited by Without_a_Paddle

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I suppose it depends on how you define stable. I would argue from the business point of view that they have been stable, i.e. no sudden rate shocks as in previous decades.

I'll drink to that - "how you define stable" - "from business PoV, it's been stable", hell I'll supply the beer.

I think that (attempting to) hold rates constant by pumping capital into the system is a bit like trying to hold back the tide with a sponge. I further think that fluctuating rates are necessary in order to allow demand to drive supply which in turn is necessary to allow capital to be deployed where it's needed most. A constant business environment is ultimately precisely what prevents new demand emerging.

I also think inflationary targetting is about to be outed as pure hokum, that works right up to the point that a given system's capital is exhausted and then goes seriously (and, if you're still marching along to the drumbeat of the texts which push it, quite weirdly) pear-shaped. But I'm patient enough to be proven wrong.

ps: maybe it's just the light here, but that chart looks over-due for a break to the upside, and a punishingly long bull run

Edited by ParticleMan

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