Tuesday, October 13, 2009

El Gordo deleveraging

Gordon Brown's £16 billion 'fire sale' sparks fury

I realise this has been posted but there is a bit that was missed out on previous articles (or maybe I didn't notice)."The PM insisted the rest of the £16billion had to come from Local Government. He said council estates could be among those assets sold to and managed by the private sector." Council estates run by the private sector sound a lot like buy-to-let plugged directly into housing benefit. Sell 10,000 at 100K each to raise 1 billion.

Posted by stillthinking @ 10:56 AM (2224 views)
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22 thoughts on “El Gordo deleveraging

  • Here we go. I was dreading this move long ago. It has started. Meet your new bankster landlord. If this really rolls out we are doomed

    Mr Mainwaring.

    It’s not even interest only.

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  • Are you starting to wonder why the government has not cared about FTBer’s.

    Your independents is slowly being erroded away. Welcome to the New Global Order, you aint seen nothing yet!

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  • And where is the private sector going to get the money for these buy-outs of public assets? They’re going to raise the money from the banks? And the banks get their money from the Government? Strange.

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  • stillthinking says:

    Well, the amounts are too small against the debt, but the amounts are not in themselves small. Plus sounds like panic. On the stephanomics blog there was a comment, selling assets to pay down debt doesn’t change the asset/debt ratio.

    I think that the government are facing up to the fact there isn’t enough juice in the stimulus battery to turn the starter motor. I think this analogy is fairly apt because either the stimulus restarts growth or it doesn’t. The failure has been to use our one shot stimulus -too too soon-, while the economy was on such a downward trend it just got soaked up pointlessly.* I feel that the only way a stimulus can work is to avoid the very worst of the bottom * i.e. the stimulus -must- be able to overcome the remainder of the contraction and restore growth. If the stimulus doesn’t restore growth then it is wasted. If you like, when the enemy attacks you don’t fire off all your guns immediately, you wait until they are nearly on top of you.

    What the UK faces now is the end of stimulus and growth has not been restored, which means that we face the unmitigated force of the contraction next year, as the public sector cuts take place in a shrinking economy with higher taxation. The “hard landing” scenario.

    Although I didn’t agree with the stimulus so much because there was no attempt to address the root cause, it is becoming clearer and clearer (to me anyway) that the best option for the UK to muddle through without pain would have been;
    1) in 2007 convert savings over 50K to bank equity
    2) in 2007 to the maximum extent cut the public sector and lower income/consumption taxes before economic activity has slowed

    These might happen anyway, 2) for certain. The culpability of New Labour’s response to the crisis is that they have willingly sacrificed the interests of the UK for their election chances. I think the UK is going to crash hard next year, in my world view unemployment will tick up over Christmas. Unemployment won’t just remain elevated, it will accelerate and become chronic in 2010.

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  • Yes the economy is heading for a real vortex of pain, with cuts in public spending leading to more unemployment a further crushing of the consumer economy and more loan defaults as the general public run out of money increasing the pressure on the zombie banks making it even less likely they will lend and on and on.

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  • Creating monopolies under the auspices of fighting the depression. Can Gordo reveal himself to be any more of a failure?

    I can almost see the argument for letting private finance develop something new. That process takes advantage of PF efficiency. But here we have assets that are already in place. The only thing left to do is make a profit on them. And here, Gordo is trying to get rid of them.

    How can this not be bad for the UK? None of the private sector advantages and all of the disadvantages.

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  • Most companies have spent the last 12 months cutting down and trying to keep their heads above water waiting in vain for the jobless recovery. But what happens when the banks cut their overdrafts further and credit gets squeezed tighter (see HSBC) and overall investment in the economy drops? There is nothing left to cut and the result will be a masive downturn – the Government shot its load of QE too early and all this artificial propping up has done is see fit to delay the inevitable – everything is still overpriced, we now have an even bigger debt problems and no way out …… but then there is always the IMF … why spoil tradition hey labour ??

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  • the number cruncher says:

    The government are desperately trying to prevent private debt deflation while they are starting to do it themselves.

    its all getting very desperate.

    I can only think that no one will buy our government debt as our currency falls though the floor and the Government needs the liquidity to scrape through to the general election.

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  • It is amazing just how many people who are supposedly ‘intelligent’ are telling me that the recession is nearly over. Is any one else having this experience? Or is it just the part of Surrey I live in?

    How can we expect to have a decent governement when a broad swathe of the electorate are thick, short termist and have very flakey memories and can’t join any economic dots together.

    I think I’ll go and buy a copy of Aldous Huxleys, ‘Brave New World.’ to reasure myself.

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  • The Biggest Saving Gordon Brown could make for us all would be to sell the Houses of Paliment. He is a very desperate man who has now become downright dangerous and should for the sake of the UK, be sectioned. A car-boot salesman of the 23rd Chapter.

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  • mark wadsworth says:

    “selling assets to pay down debt doesn’t change the asset/debt ratio.”

    Well it does change the ratio, actually, but it doesn’t change the net asset/liability position. And knowing this government, they’ll sell stuff at undervalue.

    Flogging off all four million council homes would be a fine Thatcherite stunt though, call it £50,000 each (the value of which is supported by vastly increased future Housing Benefit payments courtesy of Timmy Taxpayer) = £200 billion, that would cover more than one year’s budget deficit and makes things even worse for all of us for the rest of eternity.

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  • Perhaps if you hear the recession is over often enough it becomes true. Having watched the stock market (and to a lesser extent hosuing) march up relentlessly (on the margin with or without the invisible hand) owners of stocks/houses feel better off, and companies/families with greater equity have better debt ratios and are better able to raise finance. If the underlying stock/house prices are not well founded on income it is an illusion but it works for a while, and maybe reality will catch up.

    Then I start thinking iincome and what I observe on a day to day basis that makes this differnt from 2006/2007 which is where we are trying to get back to:-

    (1) The income of pretty much everyone I know ( a pretty diverse range) has been compromised to a greater or lesser extent and in most cases there is no obvious route back to where they were. People are less secure about income.

    (2) Confidence in asset values has been knocked, people can see how quickly and visciously things can turn down, and myths like property only goes up have been seriously questioned. People are less secure about assest values.

    (3) As a result of (1) and (2) there is a relunctance to take on debt and an inclination to pay down.

    (4) Credit is far tighther than before.

    (5) Outright unemployment is rising and that is before public sector cuts. Income tax revenues must continue to contract.

    (6) The top line of growth is hugely predicated on consumer discretionary spend but reduced incomes, asset values, belief in myths, availabilty of credit and inclination to lend would seem likely to reduce discretionary spend.

    (7) House prices remain to high, even at record low interest rates they soak up far too much income.

    (8) Taxes are too high.

    (9) Pension are and feel vulnerable.

    So I’m left wondering where does growth come from.

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  • Selling assets for cash doesn’t alter the asset/debt ratio, but it does keep the debt-collector at bay for a while. The US state of Arizona is trying to sell-and-rent-back its main assembly building (capitol). It was featured on the comedy programme The Daily Show, where the wise interviewer asked how the state intended to pay the rent if it was so broke. The answer was a shrug of the shoulders and: “We’ll worry about that when the time comes”.

    Gordon knows his time won’t come – he’ll be out of office by the time the impact of these policies is felt. I wonder if he’s deliberately leaving scorched earth for the next government, or if he genuinely believes it might work.

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  • I think what I’m saying is that if you were bearish in 2006/2007 you turned out to be right, but then things look far worse now than they did then but we are expected to believe we are begining of new age of prosperity and renwed growth.

    But excepting getting worse what has changed since 06/07 ?

    I struggle to think. Maybe that’s just pessimism.

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  • cat and canary says:

    tick tick… so its begun, the last desperate months of a politcal madman!

    meanwhile, the mouthpieces of blanchflower and the like are starting to peddle more QE to the masses,

    Employment statistics are out tomorrow, including all those 600,000 new graduates.. Another dose of uncomfortable medicine from the *real* economy

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  • the number cruncher says:

    down wave said

    You are probably right but don’t single out Gordon Brown for this – its the political system and those in power whatever their political hue. Do you really think any of the major parties would have done differently?

    Of course if this brings on a new era of Hitlerite populist quick fix politicians it will descend into violence and world conflict.

    I see only bad things for the future. God help the poor bast**ds we decide to ‘bring democracy’ to(attack) next and help ‘develop’ (steal) their natural resources. War will be the short term solution for politicians and also help quash internal dissent. We are already being set up for a long war and occupation of Iran. The signs will be a false flag operation like the Gulf of Tonkin incident where America or Israel mounts a heinous act of terrorism that they can blame on Iran and use to precipitate the start of a war. It will be beautifully staged managed and the populace will be whipped into a salivating rage to forget this economic madness…

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  • I feel a zietgiest moment coming on.

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  • stillthinking says:

    I don’t even think it is a failure of consumer demand on its own anymore, prices need to come down and haven’t. So the real cost of goods/services/consumption is artificially higher than it should be, and that must be a part of fallen consumption.

    This is just my not robust thinking on it, but if the government goes into debt in an attempt to reflate prices, then essentially the funds of this additional government debt must be ultimately embedded within prices, but they were not before, so prices are basically higher than they should be for the real state of the economy, and if prices are higher then less consumption follows i.e. central government reflation attempts are inherently consumption killers in the short term.

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  • Why is Brown doing QE and selling real assets?

    What a retard!

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  • 16. the number cruncher said…down wave said

    You are probably right but don’t single out Gordon Brown for this – its the political system and those in power whatever their political hue. Do you really think any of the major parties would have done differently?

    No I do not. But Gordon Brown and his goulags are in power and between them they have made life unbearable for everyone except themselves. It is Gordon Brown (& Tony Blair) and his underlings that have wrecked our country over the last decade or so; And it is Gordon Brown that has turned truth into rank perversion while his grovelling underlings have cheered him on. They did it, No one else.

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  • And yet when normal people try to tighten their belts, borrow and less money to spend in the shops, the media decries this as the worst possible thing that could possibly happen. Almost like people are being disloyal for putting up with a small TV.

    There is such a thing as selling the family silver but Gordon Brown seems intent on stripping out the family’s copper pipes and tearing the family lead from the roof.

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  • Enough Already says:

    @ 19. down wave said…

    “..it is Gordon Brown that has turned truth into rank perversion while his grovelling underling have cheered him on. They did it, No one else.”

    Abso-bloody-lutely mate. Gordon is a traitor.

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