Tuesday, Nov 10, 2009

Money Illusion

MarketWatch: Ratings remarks pressure British pound, gilts

The house price bulls will get what they are asking for. And what they are asking for is a complete collapse in the purchasing power of sterling in a bid to maintain nominal house prices. They will only realise this of course ex-post when the carnage begins to consume both the feckless and the prudent (they are way too selfish to care that the prudent saver is already burning). It is their only hope that the prudent can take enough pain, and have enough savings and earnings capacity to keep their debt-driven phoney wealth levels in tact. My only consolation now, is that when the fires of inflation start consume all in the UK, the house price bulls will finally be consumed along with everyone else.

Posted by jackas @ 12:14 PM (1601 views)
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1. bellwether said...

Jackas your first sentence is a very good summary of where we are.

This is not just about the reckless and the prudent, it is very specifically about not allowing the prudent to take advantage of the reckless, in some sort of darwinian rebalancing that needs to happen for an economy to reprice and remain healthy.

You are right tho long term we can only keep nominal house prices high if we trash the currency in which the prices are denominated.

Tuesday, November 10, 2009 12:41PM Report Comment

2. cat and canary said...

> rating agency warnings
> rising unemployment
> poor GDP data
> IMF debt warnings

dark coulds are gathering above our tyrannical government

Tuesday, November 10, 2009 01:00PM Report Comment

3. hpwatcher said...

> rating agency warnings
> rising unemployment
> poor GDP data
> IMF debt warnings

dark coulds are gathering above our tyrannical government

The only thing I see at the moment is economic collapse.

Sorry, I can't be more positive.

Tuesday, November 10, 2009 01:26PM Report Comment

4. jackas said...

In 1976 Britain had to go to the IMF for a loan of £2.3bn. That was a lot of money in those days.

The BoE has created twice that amount of money out of thin air every week this year. Billion, trillion, quadrillion, schmillion.

Can you believe Simon caused Lucie to be voted off above those evil twins John and Edward? I'm outraged.

Tuesday, November 10, 2009 01:40PM Report Comment

5. mken said...

time for the prudent saver to move out of sterling to ...

Tuesday, November 10, 2009 01:44PM Report Comment

6. general congreve said...

@5 Indeed, but into what? Hmmmm....

Tuesday, November 10, 2009 01:59PM Report Comment

7. cat and canary said...


yeah jackass, that simon cowell well is a coward! Even gordon brown said the twins couldn't sing, and he's really smart cos he's our prime minister innit. D'know, I tried gettin a mortgage the other day, innit, but the bank wouldnt gimme a loan cos they said i didnt have a good job. They're well gonna get beatin's. I told them "don't go givin me evils" Anyway, im off to selfridges to nick some clinique cos my face is well gettin dry.

Tuesday, November 10, 2009 01:59PM Report Comment

8. hpwatcher said...

Billion, trillion, quadrillion, schmillion

zillion, chillion, killion, drillion........

Tuesday, November 10, 2009 02:00PM Report Comment

9. jackas said...

Marillion, Bob Dillion, Brazillion, Godzillion

Tuesday, November 10, 2009 02:12PM Report Comment

10. a saver said...

mken @5 said "time for the prudent saver to move out of sterling.."
Is that a bit risky now, given how much sterling has crashed already? Techieman, others, what do you think?
If the UK is forced to raise IRs because of inflation, might the pound recover somewhat versus the Aussie, swissie, $NZ?
PS Japanese uncle, where are you these days? I miss your comments!

Tuesday, November 10, 2009 02:53PM Report Comment

11. hpwatcher said...

Is that a bit risky now, given how much sterling has crashed already? Techieman, others, what do you think?
If the UK is forced to raise IRs because of inflation, might the pound recover somewhat versus the Aussie, swissie, $NZ?
PS Japanese uncle, where are you these days? I miss your comments!

This is the big question. Asking for higher interest rates is no small thing.......it's a bloody massive thing. There are those, whose whole careers now rest on low interest rates.....lol.

I really wish they were forced to raise interest rates........it's absolutely absurd, mis-treating those who have been responsible - at the benefit of those who have behaved wrecklessly......only in a nanny state.

Tuesday, November 10, 2009 03:14PM Report Comment

12. a saver said...

hpwatcher said "I really wish they were forced to raise interest rates...."

If only! The one-year bonds I took out just before IRs hit the floor have all matured in the last couple of months. The one in my SIPP is now earning an utterly criminal 0.25% until I think of some rescue strategy! Some of the IRs on long term bonds aren't too shabby but there's not much choice within a SIPP if you don't want exposure to the stockmarket. Watching HPI under this scenario is plain depressing.
I'm starting to think that the only thing I have done right in the last few years was to keep my foreign earnings in foreign currencies.
But it's nerve-racking trying to decide when to take profits. I may have missed the boat with the swiss francs, they hit 66p during the flight-to-safety phase and are now down at 59p (and earning virtually no interest).

Tuesday, November 10, 2009 04:05PM Report Comment

13. mrmickey said...

The only thing holding interest rates down is the housing market once that implodes theres no reason to keep interest rates low they can then raise interest rates till the cows come home.

Tuesday, November 10, 2009 04:50PM Report Comment

14. stillthinking said...

There must be a lot of people waiting to get out of sterling. For instance, I don't think many people who intend to retire in Europe will feel like buying a British annuity.
I feel at the moment that sterling is -just- painfully enough below fair value to stop one sided trading. If you wanted out you missed your chance. I don't understand how an open economy dependant on imports can devalue by 20% without seeing price inflation at 25%.
Laptops have gone up a surprising amount. Mine was 380 nearly exactly a year ago and is now 503 for an identical model.

Tuesday, November 10, 2009 04:55PM Report Comment

15. tom101 said...

In same boat, not sure what to do with savings. Just watching it slowly disappear. Moving abroad eventually but currency is down about 20% where i want to move to! Do I take a hit now and move cash, or do i wait longer......

I also have a feeling we're going to go through a s*** pants phase where cash is going to be circulating around the World as banks go bust, kind of like a really depressing game of musical chairs where the winner is just the last person to lose. There is only so long they can keep this QE up!!

Tuesday, November 10, 2009 06:40PM Report Comment

16. dohousescrashinthewoods said...


"Britain's budget position has deteriorated sharply amid a deep and long-lasting recession." QED.

Tuesday, November 10, 2009 07:06PM Report Comment

17. Yoss said...

Base rates at a 500 year low, personal insolvencies at an all time high.... Go figure.

The spread on base rates and loan rates is now massive, if/when base rates go Icelandic. It doesn't take a genius to work out how that will nail any recovery.

Taxes could rise....But that doesn't make a country more productive, the opposite in fact, it will hasten the off shoring process as private employers and those people with enough skills or good ideas move to anywhere that offers more returns for their labour.

Tuesday, November 10, 2009 07:13PM Report Comment

18. 51ck-6-51x said...

multiplying by 100 each time:
and so on

whatever :)

Tuesday, November 10, 2009 08:21PM Report Comment

19. clockslinger said...

I don't hold myself out as knowing anything "city" but I love this fiscal credibility euphamism. What will it all mean? Public spending cuts like you have never seen. So what? So the economy tanks a lot further given the percentage of people employed by that sector. Those who bash that sector so much won't escape if they are ordinary employees as their jobs will be the next to go. Still, i agree, it is that or Weimar inflation to keep property from tanking to its proper level (which it probably has already if you got out in early '07 and spent the proceeds on buying yen)

Tuesday, November 10, 2009 09:43PM Report Comment

20. Thedudeabides said...

"The Goddam plane has crashed into the mountain" And over there, and over there as well. Looks like sterling's being kept of the floor by bumping into the other currencies bouncing off the ropes. If we stop buying then someone's stopped selling, not good for jobs anywhere.

If you're cash rich, and can pick up bargains via cheap sterling then why not. Non-UK based investors can buy up land/property/assets at both reduced sterling prices as well as on the FX gain. So there are some Good times.

House prices will stay high not 'nominally' but precisely because sterling is low. Like the laptop, everything will go upwards, except wages and interest on savings..

Should that lead to a crash as more can't afford the higher prices. Possibly, measured by what's happened in the past maybe. But this time I feel it's going to be take the pain and take it some more. I doubt there'll be a house price crash to bring prices back down to 'affordability' ratios. It'll be downsizing and house sharing if you can't afford the higher prices - and that's going to be a hell of a lot of us.

Tuesday, November 10, 2009 11:56PM Report Comment

21. 51ck-6-51x said...

100? * cough * 1000 even!

Wednesday, November 11, 2009 08:50AM Report Comment

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