Wednesday, May 17, 2006

"An economy held aloft by credit will surely come crashing back to earth"

Guardian: Comment is Free Blog: Caveat debtor

On the eighth anniversary of the 70,000 strong human chain in Birmingham, Anne Pettifor of Jubillee 2000 draws a parallel between today's consumers in the UK and US and the heavily indebted developing countries in the 1990s. She blames financial deregulation and liberalisation and predicts it will all end in a mess. Also features some interesting comments from readers.

Posted by Gravity's Rainbow @ 12:22 PM (706 views)
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5 Comments

1. uncle tom said...

The debt bubble will burst at some point - as time goes on it gets more and more shock sensitive. If an economic shock doesn't burst it, rising personal bankruptcies will.

And when it does burst, a lot of other things will follow, with soaring unemployment to the fore.

Interest rates are likely to rise sharply, causing house prices to be left completely high and dry.

There is no quick fix to these consequences, and a very good chance that governments will be forced to abandon the policy of inflation targeting. Allowing inflation to soar for a few years might well prove the best way out of the mess.

Wednesday, May 17, 2006 02:59PM Report Comment
 

2. Rimmer said...

Uncle Tom

I have followed this site and done my own homework, sadly you are very right and i am honestly concerned a depression may occur, we should think it lucky if its just a recession but if you follow the obvious it looks very painful

Wednesday, May 17, 2006 04:23PM Report Comment
 

3. talking rot said...

uncle tom and rimmer share the sentiment that economic disaster awaits. Such a sentiment has been apparent on this Blog for a long while yet the economy remains in good shape. Inflation and interest Rates are historically low, unemployment remains very low but is rising (but so is the level of employment); there is no sign of economic catastrophy today and one isn't going to happen tomorrow. While no one will dispute there are risks to the economy, risks may or may not happen.

People tend to lie about the amount of debt they are carrying and debt statistics are rarely followed by the statistical variance. A number of highly indebted people could be skewing the figures for the "average". More then likely, such people will suffer as money supply is tightened, as will FTBs who bought at the top of the market. Those individuals who are carrying a 'reasonable' debt for their income will not. I have yet to see evidence of major debt problems effecting people - economic conditions within the UK remain benign.

When the facts change, I'll change my mind but at the moment there is no economic meltdown.

Wednesday, May 17, 2006 05:38PM Report Comment
 

4. sirgoogle said...

Sadly TR is probably correct. there needs to be real pain eg mass unemployment.

There needs to be a "perfect storm" of many factors comming together to trigger the HPC. And these need to affect more than just a minority. see: http://www.housepricecrash.co.uk/wiki/Possible_triggers_for_a_house_price_crash.

Wednesday, May 17, 2006 07:48PM Report Comment
 

5. Rimmer said...

TR

I always respect the views like your own and honestly hope you are correct, however maybe what is now happening is not a financial problem as such rather a correction, the fact that Debt has to be repaid is common sense not fiscal policy!

Tony Blair tells us we have cheap mortgages under new labour, well that's if you had one when they came to power, as House prices have more than matched the fall in interest rates what has happened in reality is the mortgage you now need as a first time buyer or to move is the same ( more actually ) than it ever was in real pound terms - best drop that one Tony!

Regarding Debt I believe it is out of hand largely through un-avoidable reasons ( Houses ) and despite what you read houses should be homes not assets, the big concern is the percentage changes on mortgages.

When I took out my 60K mortgage for my 2 bed house it was at 9%, there was a big lump in my throat when that changed to 10.5% longterm which in reality was just over a 10% change.The young of today where I am are borrowing 200K for the same 2 bed houses and they do so at 5% mortgage rates, with global economies making corrections 6 to 7% longterm may be a feasible situation, that is towards a 50% increase on a very large loan.

I hope you see the point, also I personally have 3 friends that have borrowed on their mortgages to buy cars, holidays, kitchens etc, 25 years is a long time to repay a car or holiday!

Thursday, May 18, 2006 12:53AM Report Comment
 

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