Friday, December 7, 2007

When it comes to the crunch

When it comes to the crunch

Another interesting article by Larry Elliot. I like his comment "The speculative buying has dried up, activity has fallen sharply and the cost of homes has started to fall. Only in the Alice in Wonderland world that is modern Britain could this be deemed a bad thing." And he hits the nail on the head with the next bit... "The problem, though, is without oodles of speculation, be it in the Square Mile or in the massively overblown housing market, there is not an awful lot left of Britain's so-called miracle economy. "

Posted by becky @ 12:53 PM (617 views)
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3 thoughts on “When it comes to the crunch

  • I agree with the article, all we’re left with in this country is Government spending (inefficient and falling), Financial Services (clearly under pressure) and Retail (dependent on borrowing). So, clearly the banks, of which HBOS must be the worst example, talk boldly of a systemic shift and a number of consecutive ‘shocks’ to the economy before we are pushed into trouble. The problem with this analysis is that all three ‘pillars’ are so closely interlinked that there isn’t three at all. That’s why I am so concerned about the economy.

    But Larry, I feel, misses the point. Cutting interest rates will make not one jot of difference to the UK economy and cannot make us borrow even more, because like a shop that has run out of bread, cutting the price of bread won’t make it run off the shelves any more quickly. This is the essence of the credit crunch. The BoE (and Fed) are so clearly preoccupied with the demand (borrower) side of the equation, of which the housing market is but one facet, that they completely forgot about where the ‘bread’ is actually coming from. Will cutting interest rates make us more attractive to international movements of currency? Will it encourage saving? No, of course it won’t. But will it make inflation more likely? Perhaps, but the OECD thinks that our slowing economy will not be so prone to higher inflation.

    I’m not so sure, but I think that one thing is certain, there will be a massive, real correction in all assets, not just houses.

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  • David Smith's Sub Prime. . . says:

    Well now.

    And I thought I was te only one who could write news articles. Well I was going to sat economics articles but…..

    Love David Smith aged 13 and a quarter…

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  • Thecrashiscomingbaby says:

    In three years time, people will realise the wisdom of the Germans, the Swiss and the Japanese. Losing your manufacturing base for quick bucks from cheap money is not worth it.

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