Saturday, December 19, 2009

Thar she blows!

UK lending continues to fall

Who'd a thunk it that demand might fall when prices are too high? In other news, economics still baffles economists.

Posted by paul @ 11:05 AM (3872 views)
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4 thoughts on “Thar she blows!

  • Anecdotally in 2003, the good/crazy old days, I needed to open a business bank account. Very straightforward and as we shook hands on the deal the HSBC business manager mentioned the unsolicited £3,500 that would be immediately made available on overdraft.

    This week I required to do the same for a new venture, explaining that I would be drip feeding funds into the account as and when required. My suggestion of a £250 to £500 overdraft in case of misjudgements was unceremoniously rejected with the comment that it could only be considered on sight of 12 months accounts.

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  • Well yeah, but don’t forget The Golden Rule, it is borrowers who create deposits (or bank reserves) not lenders or depositors. Once everybody is mortgaged up to the max (or refuses to take part in the borrowing frenzy, or as in nomad’s case, has reached the limit of what the bank is prepared to lend) then that is the end of the line.

    The only way to increase borrowing capacity (and hence increase the opportunity for other people to ‘save’ i.e. defer consumption) is to get the economy going (by cutting taxes or regulations or freeing up planning restrictions), then things will start humming along again.

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    A good article as a reminder of how we are currently in the middle of staving off a pretty impressive collapse with unfunded government spending (gold ramping though).

    I had a thought the other day, you know that typically deflation is seen as bad because it raises the effective real interest rate, and this is often quoted as a reason why we should avoid it because devastating to debtors. But, the only way deflation occurs is because these self-same debtors are paying off their debts i.e. although their real interest rate increases they have ipso facto less debt to service.

    As in, if you look at the *total cumulative real repayments* to completely repay a debt the fact that in the process of debt reduction you cause deflation doesn’t matter. And from that deficit spending by the government is simply an appropriation of private wealth and irrelevant to the level of growth in the economy apart from introducing inefficiencies by distorting prices.

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  • This would have been obvious to anyone keeping a close eye on property prices on Rightmove over the last few months. I have seen a number of properties at the low end of the market drop their asking prices by 1000’s since October. Properties which were removed, which I thought were sold, are back on the market again. It is exactly like someone said, if the bottom rung isn’t in place there is no property ladder. I think people will be forced to accept the fact that high priced properties being sold to cash rich foreigners in London isn’t ‘THE’ property market.

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