Friday, January 11, 2008

Telegraph Says the Party is Over

Cheaper money is bad for Britain

Consumer confidence is cooling, but that's good. Too many people have been spending like drunken sailors, inebriated on a cocktail of unsustainable house-price growth and an explosion of readily available, cheap loans.

Posted by quiet guy @ 02:50 AM (689 views)
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9 thoughts on “Telegraph Says the Party is Over

  • But isn’t cheap money what’s keeping the economy going??
    If this stops so does the economy and with it thousands if not hundreds of thousands of jobs and a recession most of us haven’t seen before. We will be left with a broken country… so I say keep the cheap money flowing……
    I think this last 6 months has scared even the most spend thrift and you see a tighten of belt enough to stabilise the economy and housing market without allowing it to cause some serious pain for everyone!!

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  • Oh dear Axxo, if only it was that simple.

    This is a bit like saying to an alcoholic at a late night party in a brewery “Listen don’t you think you’ve drunk enough already? Think about the hangover tomorrow! Tell you what, we’ll drip feed you neat Famous Grouse for the next 20 hours and lets see if you can pull out of it, be right as rain and ready to get back to work. Okay?”

    The scale and duration of this credit binge has been unprecedented I’m afraid Axxo. There is no way we can hope for the mythical “soft landing”. At last some of the broadsheets are waking up to the fact that cheap money is a sure way to kill the economy. I just wish a few more central bankers would understand that too.

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  • Paul:- so what’s the alternative let the housing market collapse the economy go into meltdown, losses beyond anybody expectations and me and you skint… I say drip feed the alcoholic enough to keep him happy but not enough to cause problems while we find a solution to his problem….

    The boom this time is far higher than anybody expected, so the bust will be more than anybody can imagine, as a country we can’t possibly let this happen!!

    It will take a whole generation to fix….

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  • it_is_going_with_a_bang says:

    Lets be honest and say alot of people have been spending between 25% and 50% more than they could ever afford.
    That obviously has to stop at some stage. When it does then spending will drop.
    It cannot be avoided. Property inflation has been used as a tool by so many people to run / afford their lifestyles.
    Even without that same rampant inflation, stagnation would still kill off this spending, the service sector led economy that has been built up will be very badly affected.
    It is just a natural cycle of over spending – human nature in a free market.
    It has happened many time before – this time it may well be worse because the ‘lending’ was very silly to say the least.

    I personally don’t want a bad recession but I can’t really see how it can be avoided.

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  • One of the bloggers on the Telegraph article:

    “…Few consider those of us who have done the sums and deliberately refrained from borrowing more than we can pay back in times of high interest rates.

    Many of us have savings, and we don’t see why their value should suddenly plummet because some muppet wants to buy yet another ‘I’m worth it’ buy-to-let they can’t really afford.

    Apart from anything else, it’s the BTL factor in the cities that is really distorting house prices….”

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  • “I say drip feed the alcoholic enough to keep him happy but not enough to cause problems while we find a solution to his problem….”

    Axxo, sometimes people forget that failure is a part of capitalism. You have to let people fail so that they learn what works and what does not. I see three objections to your suggestion that we try to engineer a soft landing:
    1) It has an obvious moral hazard of rewarding gamblers and punishing savers and young adults.
    2) It won’t work. The more money we waste propping up bad capital investments, the worse the end result will be.
    3) We *must* learn lessons about debt and personal responsibility if we are to avoid the mistake of another housing bubble like the current one. Bailing out reckless borrowers will just encourage future speculaton.

    I suspect that the government will try to limit the damage by inflating away some of the debt – but at a price to our future prosperity.

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  • @ Quiet guy…

    In reply to you points…
    1) Gamblers should be rewarded for gambling… savers will always save… young adults will always buy ipods and not save!! on credit cards as they don’t earn enough!!
    2) The only propping up is NR, which had to happen….
    3) People WILL learn lessons when they are ready, most peopel who owe the £1.4 Trillion in personal debt will build it back up if it’s written off, if we keep down the route we are going no-one will be able to afford an ipod! not alone a loaf a bread!

    It has taken me 15 years of hard work to get on the ladder, many nights in, saving every penny i can and keeping credit cards to a min.. why should i lose all that equity i have built up so we can teach a few bankers lessons and help the young and savers who could have doen what i have doen but choose not to and go down the pub!!

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  • Axxo,

    Nothing personal but I disagree.

    “Gamblers should be rewarded for gambling… ”
    “why should I lose all that equity I have built up …”

    You can’t have it both ways. If you want to keep your equity, then sell and get back in the game after we have steamed all the toxic loans out of the banking system and house prices have had a chance to recover to plausible levels (income multipliers). Otherwise you should be willing to accpet the possibility that asset values can fall as well as rise.

    “The only propping up is NR”

    I wasn’t referring to NR. I was referring to central banks pumping money into the financial system which devalues our currency.

    “It has taken me 15 years of hard work to get on the ladder …”

    I hate to say this but if you bought recently, then you have probably bought near the top of the economic cycle; that might hurt a bit later.

    “People WILL learn lessons when they are ready”

    I say people are about to learn the lessons whether they are ready or not.

    P.S. I do agree about you comments regarding young people and their gadgets. I have tried suggesting to some of our new employees at work that owning the latest laptop, or whatever, isn’t the best use of their cash but to no avail.

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  • @ quiet guy

    I agree we can’t have it both ways, it’s not possible to sell because everyone needs some where to live, to rent what we have is more than the repayment mortgage we have currently. Your 100% right over the income multipliers, but reducing the housing prices to plausible levels where first time buyers cna afford to enter the market again, i have no doubt that BTL will again enter the market to compete. Rental yeilds will increase making BTL a good investment again and the same problems we have seen over the last 8-10 years will happen all over again.

    I understand the wasted money being pumped into the banking system, but this could be seen as the only way of stabilising the markets.

    We haven’t brought first time recently but we upgraded in March 20067, i agree the worst time possible judging but todays climate but i thought if shit hits the fan it’s best to be in a house we cna stay in for 10 years…

    Glad you agree with the young and gadgets, it seems xbox come before isa… they have the biggest shock coming to them…….

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