Friday, May 25, 2007

Debt is weighing down the consumer

The very real dangers of over-compensating

Interest rates tend to take between 18 months and two years to have their full effect on the economy. This means that we are still feeling the effects of the Bank’s controversial decision to cut rates from 4.75pc to 4.5pc in August 2005.

No one doubts that inflation remains a significant threat to the economy, but there seem to be very few voices warning that the Bank is in danger of overcompensating and lifting borrowing costs that little bit too high.

The biggest risk of all is, as ever, the housing market. One tweak too many will send many households into the red, and could topple property prices. Economists are always loth to mention it, but the threat of a housing market crash is still as real as ever

Posted by sold 2 rent 1 @ 08:39 AM (538 views)
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10 thoughts on “Debt is weighing down the consumer

  • After watching the discusssion on newsnight last evening it was totally and 100% obvious that this government places a strong emphasis on avoiding a houseprice crash. It knows how unsound the UK economy is without house price equity. Hopefully pressures beyond its’ control will do the completely necessary but the wider impact on the economy in the short term will be unpleasant and as always it will be the ordinary people that suffer the most.

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  • Yeaaah. Thanks Damien Reece at The Telegraph.

    You probably weren’t too worried about the MPC holding rates too low for so long were you? Unfortunately when the MPC takes a dump, they have to wipe up after themselves.

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  • I wonder why Damien thinks it might be so wrong for property prices to “topple” after rising in such an unsustainable manner?

    Many journalists and commentators seem to react with horror at the very idea that house price inflation could even slow, let along reverse.

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  • Perhaps we need to study history more. HPC is not a risk, it is a mathematical certainty.

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  • The media always attempt a between-the-lines message. The one in here says “Don’t worry, there will not be a crash until 2 years”. It will not work.

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  • waitingfor hpc says:

    what a load of boll**ks
    inflation circa 7% IR even at 6% would not be over compensating.

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  • sold 2 rent 1 says:

    Chill out guys.

    The HPC is pretty much guaranteed now.
    This article represents how asset bubbles play out – not how we would like asset bubbles to play out.

    Asset bubbles always go on for much longer than anyone predicts.
    This one is no different.

    We are almost at the stage where nearly everyone knows it is a bubble. Knowing it is a bubble doesn’t help us though.
    Nobody wants to pop the bubble and cause hardship for many – so the bubble goes on.

    IMHO house prices will peak at the end of the year.
    Interest rates will peak Q1/Q2 2008 (no higher than 6.5%)

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  • george monsoon says:

    Paul…

    Your question about why people are worried or concerned about prices tumbling?

    the two word answer is Vested Interest.

    There are so many people who have either greedily or by ill advice, invested in property late on in the bubble and have it all to lose

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  • I think the fact that credit creation and securitization IS our economy might be the problem.

    Since the ‘reforms’ of our economy depend on ever rising money and credit growth (ie rising house prices) they have no choice but to defend continuing overvaluation of asset prices.
    In short, we are bankrupt, but as there is no such thing as a ‘free market’ in reality, we can bullshit our way through for a bit longer yet.

    I don’t think anybody will enjoy the bursting of this bubble.

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  • sold 2 rent 1 says:

    I don’t think anybody will enjoy the bursting of this bubble.

    Even the people who get rich on short selling and gold will have to live in electrified fortresses to protect themselves from the huddling masses.

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