Wednesday, January 2, 2008

Gordon’s mirage economy crumbling

Worst outlook since dotcom bust

Nearly two-thirds of the economists thought house prices would fall this year [2008], although there was wide disagreement over the effect of a housing downturn on the economy. Nearly nine in 10 think public finances are not in good order so there is no leeway for discretionary tax cuts or increases in public expenditure, and the third most-mentioned risk to the economy is inflation, limiting the ability of the Bank of England to cut interest rates.

Posted by dohousescrashinthewoods @ 06:15 PM (1180 views)
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9 thoughts on “Gordon’s mirage economy crumbling

  • japanese uncle says:

    Incidentally GBP is now nosediving, you all know by now.

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  • According to this article over a third of ‘top’ economists think UK house prices will not fall in 2008. Academic economists are among the most deluded. The ones I talk to seem to think that it’s just another downturn – seen it before, central banks and governments will muddle through again etc. They don’t take on board the unprecedented amounts of debt and leverage and how this works when it goes into reverse. If you use the “r” word you’re being dramatic and if you use the “d” word you’re raving. We’ll see.

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  • “Nearly two-thirds of the economists thought house prices would fall this year [2008], although there was wide disagreement over the effect of a housing downturn on the economy”

    When will economists finally admit that there IS a wealth effect between the value of one’s house and the real economy, just like there was a wealth effect at play during the dot com boom in the late 1990’s? By wealth effect I mean:

    – Feeling richer on paper may convince some house owners with cash savings to spend more of these on consumption because the change in their home value will make up for the decrease in savings
    – Feeling richer on paper may convince some house owners to borrow money against the value of their home (MEW) and to splash it out on consumption. It’s ‘money’ they couldn’t access before the increase in their home value so they’re going for it.
    – Feeling richer on paper may convince those house owners with no savings to nevertheless take on extra credit in order to consume more,let’s face

    Result: Positive contribution to GDP (Consumption makes up 70% of U.K. GDP)

    Now let’s consider the inverse scenario:

    – Feeling poorer on paper may convince some house owners with cash savings to spend less on consumption because the change in their home value will not make up for the decrease in savings.
    – Feeling poorer on paper may convince some house owners to borrow less/no money against the value of their home (MEW) and to not splash it out on consumption
    – Feeling poorer on paper may convince those house owners with no savings to refrain from taking on extra credit in order to consume more

    Result: Adverse impact on GDP

    Not sure why this is allegedly more complex than this?

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  • The pound seems to be hitting fresh lows against the Euro on almost a daily basis. Err …. how long is this going to continue for? Weimar Republics are not stable places.

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  • Why is this situation not a politically debated issue?

    How come Darling can stand there stony faced and say very little? Is it (as I suspect) he hasn’t a clue?

    Shares of A&L soared today as the possibility of a take-over caught the imagination of the Stock Exchange. Can’t Darling see the relief in investor’s faces for what it is – a sign of a crumbling economy!

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  • So the miracle economy is hitting the buffers. No real suprise its been predicted on this board for about a year.

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  • Join the Euro now before its too late …

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  • <>

    I think that the market is so volatile that they don’t have a clue (like many others) and don’t want to say “it’s bad, but we don’t know how bad”.

    With all the signs of real trouble ahead and an MPC meeting not to long away, I think the view is “see if the doom goes away” so that any action can be blamed on MPC.

    UK PLC needs direction, not Gordon Brown talkign about alchohol abuse and binge drinking. There will be a lot more binge drinking going on when values go down the pan.

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  • The BBC is stony silent on this story today, as is the self-appointed government.

    Oh I forgot. Thought they were independent of each other for a minute.

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