Friday, April 11, 2008

Talk of a House Price Crash gathers momentum in main stream press

Why Gordon Brown is to blame for the housing crash

A tea-spluttering moment this morning when I read Anatole Kaletsky in The Times. Until recently the paper’s economics guru was a bull on the UK economy/housing market (accurately as it turned out). Today, perhaps inspired by the latest IMF report, he was talking about price falls of up to 30 per cent.

Posted by jack c @ 06:00 PM (1125 views)
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11 thoughts on “Talk of a House Price Crash gathers momentum in main stream press

  • “Here are three reasons [why the house price boom and bust are GB’s fault] which come to mind:

    1] Changing the Bank of England’s inflation target from RPI to CPI (which does not include house price inflation). This enabled the monetary policy committee to cut interest rates much further in recent years. This allowed people to borrow more. Boom.”

    Absolutely correct. I’m really glad someone has pointed that out, and hope the mainstream media pick up on this.

    However I would go further – Mervyn King also had it in his power to influence the MPC to rein in their temptation to cut rates below a sustainable level, but he didn’t.

    I’d say the Bank of England and the government are therefore equally responsible.

    Anyone else have an opinion on this?

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  • You are forgetting one thing, the British general public, without their willing participation none of this would have been possible, much of continental Europe is still of the mindset that you save and then buy, sadly, thats not the case here anymore.

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  • Let’s not leave Blair out this.He played a major part in these policies and just happened to get out at a convenient time.
    I am not economically technical enough to give a fiscal autopsy or remedy. What I do realise however,is that expanding a market by means of manipulating huge values in the homes of ordinary people and allowing them to borrow similar amounts against these values so they could freely spend their newly aquired wealth, has no true meaning in economics.
    Nothing was manufactured,nothing was created, except imaginary,immortal wealth of seemingly astronomical figures in the hands of people who can just about handle simple figures in everyday life.
    This is both morally and economically wrong. This is greed on an unprecedented scale used by Leaders and Banks knowing fully that everybody has to live somewhere. We all know this, so if ever anything was evil,this certainly is. It is beyond stupid and beyond error because it was done with intention.
    The price of everything is governed by a civilised socety,so the responsiblity of the Leaders is enormous. If this is not handled properly and ethically that society will break down. Isn’t this exactly what we are seeing ? They are all equally guilty without doubt.

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  • scandinavian pessimist says:

    paul,

    I agree, both the government and BoE have c*cked it up big times and they will no doubt both get a lot of stick for this in the next couple of years. However, I think the government has far more to answer for than BoE because house prices are not (or at least SHOULD not be) a macro-economic issue and therefore not really a question for the MPC – they should only worry about the economy as a whole. As we all know, however, house prices have become such a huge part of this country’s economy that they cannot be ignored by the MPC but, again, this is because of bad political decisions taken by the government. The fundamental problems, I believe, are:

    1. Bad city planning: expensive houses that take up a lot of space in the centre of cities and cheap flats at the outskirts – it should be the other way around! Look at any European city and you will find a far more efficient use of the available space.

    2. Bad building standards have resulted in low-quality flats that no one wants to live in. Flats elsewhere (e.g. where I come from) are of really good quality with loads of space and storage, sound proof and still much more affordable than here.

    3. An obsession about preserving green lands and ridiculous planning permission rules which have prevented the industry from increasing the supply in line with an increased demand.

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  • scandinavian pessimist says:

    paul,

    I should also add to the list above:

    4. Peoples belief that the problem is in fact none of 1 – 3, but instead a combination of too many Polish immigrants, that UK is an overpopulated island and a that renting is a waste of money. It is debatable, however, how much of this can be blamed on the goverment…

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  • This is a good post. I have at times doubted that Tony & Gordo would ever be held to account for their atrocious management of the UK economy, like the replacement of RPI with CPI, the clueless Financial Services Authority, wrecking pensions and on and on.

    The comments were good, it shows there are others who think the chickens are coming home to roost. Lets hope the UK can learn from its mistakes…

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  • Cheekie Charlie says:

    Paul Before “BOE independance” the BOE governer had a 50% say on interest rate decisions with the chancellor. He now has just 1 vote among the Brown appointed MPC ! I remember a few years ago Merv warning about loose credit and “the economic cycle hasn’t gone away” statement but nobody in government wanted to listen so since he seems to have towed the line!

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  • The comments are much in keeping with the majority of regular postings on this site (so much so plagiarism springs to mind)

    IMO Blair knew what was coming economically and from his point of view timed his exit perfectly – he was keen to leave a legacy which would (again IMO) have been tarnished even further if he was still at No 10

    With regard to Mr King at the BOE and his role within MPC I’d be interested to see how many times in say the last 2 years he has voted for a rate cut – anyone know where I can readily find the stats as going through each and every briefing on the BOE site seems a bit long winded ?

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  • Jack C, the MPC votes are a matter of public record and should be on the BoE website. All the minutes from the meetings are there in the archives going back to 1998. You might be able to get ask them for the voting record of each member going back that far. I think King has been fairly cautious in his voting, but I could be wrong

    I thought this article was good, especially since it spoke of a crash as if it were are forgone conclusion. Unfortunately, as the article was in the FT, very few in the public will have read it. It is only whenever this sort of thing makes it into the Sun and the Daily Express that we know the worm has truely turned. But all in good time I suppose.

    I’m not convinced that the whole mess can be laid at the feet of Brown and Blair though. I reckon, (and it is just my humble opinion) that booms and busts follow a cycle that is largley independent of who is in power. I think the goverment of the day does have a little influence in the timing of a bust but less than we imagine. Also, I dont think we would be in much of a different situation if the Tories were in power. Perhaps Tories might have inflated the bubble more and forced its bursting sooner.

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  • I agree with all of the above.
    One person is responsible for this big mess. Gordon Brown.

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  • jack c, I’m not sure what you’re getting at regarding plagiarism … ?

    I think The Telegraph had an article on the voting records of the MPC members – but it shouldn’t matter too much because those with consistent voting records tend to be labeled as such – Andrew Sentance is a called a hawk, David Blanchflower is a dove etc.

    Mervyn is cautious when he votes when I think about it. The question is, is he to blame, or the government – the government has politicized the MPC’s decision making process, but has the MPC been complicit?

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