Wednesday, September 29, 2010

Seconds out, round eighty three: Techie versus HPW

Consumers repaying unsecured debt

"UK consumers repaid more unsecured debt than they took out in new loans in August, the Bank of England said. Net consumer credit - which includes credit card borrowing, overdrafts and personal loans - fell by £120m, the biggest drop since November 2009. The figures come shortly after the Bank's deputy governor, Charlie Bean, suggested savers go out and spend some of their savings to boost the economy. The number of mortgages approved for house purchases also dipped slightly. There were 47,372 home loans approved in August, some 974 fewer than the previous months, the Bank's figures show. This was the fourth monthly drop in a row."

Posted by mark wadsworth @ 10:30 AM (1941 views)
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31 thoughts on “Seconds out, round eighty three: Techie versus HPW

  • I’m going to spend, spend, spend.

    I don’t care, I’ll fill my house with loads of [email protected] from abroad – bought on credit – so that the banks and credit card companys can make loads of money off my stupidity.

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  • If net debt is falling, that would be deflationary. However this headline only covers unsecured (i.e. non-mortgage) debt; further down in the article we learn that net mortgage debt is relatively steady. Government debt is still rising at a fair clip, and we simply don’t know what corporate/business debt is doing. Assuming net zero movement in corporate debt, the continued rise in government debt easily offsets the small repayments in consumer credit. Therefore despite the BoE’s pleading, we’re still in inflationary territory.

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  • mark @ 2,
    We have to acknowledge that the situation in the US is very different to here. They’ve been in debt-deflation for the last 2-3 years and they’ve seen a serious HPC. Britain hasn’t. I used to think that what happens there will always happen here 12-18 months later (when America sneezes, the rest of the world catches a cold); but that’s clearly no longer the case (America caught man-flu; we’ve barely had a sniffle). Lessons from America aren’t instructive any more.

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  • “”Until there is a substantial recovery in credit extended, the outlook for the housing market is rather gloomy.”

    Seems like house prices are affected by supply and demand too – in relation to credit, not just buyers & sellers.

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  • oooookkkkkkkk. Well the point about this is that in the BBC headline – i.e. the stimulus either isnt working or has stopped working. This is no real surprise to those of us who believed that deleveraging would win in the end.

    We discussed the pushing on the string point in the last few days. I think its again instructive to hear what Charlie said in the August inflation press conference when asked about household saving – putting aside the emotions generated by the recent quotes:

    “Dan Atkinson, Mail on Sunday: Governor, Section 5 you mention that in order to counterbalance the fiscal consolidation, private sector savings will have to fall, particularly including household savings. You also raise the possibility that households may be so spooked by, inter alia, the fiscal consolidation, that they will save more. What do you think are the chances that people will – that fiscal consolidation will make people behave in such a way as to worsen the effects of the fiscal consolidation? And, if so, what will be the fallout from that?

    Mervyn King: Well let me ask Charlie to take that one.

    Charlie Bean: I mean, clearly for some households they’re going to be directly affected by the fiscal consolidation. If you’re somebody who is employed in the public sector and face the prospect of perhaps losing your job, the chances are that you may well increase your saving now in anticipation of that. So certainly for some households there may well be a direct effect. It would also be true that for some businesses, particularly supplying the public sector, they may anticipate lower sales, and as a result, economise on the labour they have, and so forth. So you can obviously see the channels that way.

    On the other hand to the extent that before the recent Budget announcements some households might have been expecting the bulk of the fiscal consolidation, which would have to come at some time, even if it didn’t come over the next few years; at some stage the government would have to consolidate the public finances. If households thought that was going to come in higher taxes, then they would have been increasing their saving.

    They now find less of the burden is going to be on taxes, more on spending, so they may well increase their spending rather than
    reducing it. And the resolution of uncertainty about how the fiscal consolidation would take place in itself may tend to boost spending overall.

    So it’s quite difficult to form a judgement of the balance of these things. Obviously the key thing at the end of the day is how confident households and businesses are about the prospects for demand incomes and so forth further down the road, which will in turn determine their consumer spending and for businesses their investment decisions.”
    —————————————————————–

    So when he says:

    “They now find less of the burden is going to be on taxes, more on spending, so they may well increase their spending rather than
    reducing it. And the resolution of uncertainty about how the fiscal consolidation would take place in itself may tend to boost spending overall. ”

    is he being a “right” charlie or a “right charlie”. I think the latter, he is basically outlining his view and then getting a bit frustrated when things dont seem to be panning out the way he thought. Still he isnt alone with that trait is he!

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  • Hi drewster – i think you should look at Keen’s excellent work on this private / versus public debt. The point of the recent use of public debt is that its only meant to be a kick starter for the private sector. i dont want to expand that further since i will be accused of a marathon rant and i have no inclination to get “into one” today. :).

    Keen references the OECD so he includes reference to the UK.

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  • Thanks Techie – I’ll refrain from commenting until I’ve read more. Let’s try to keep the signal-to-noise ratio in these comments suitably high! Keen was famously wrong about the Australian housing market though…

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  • Does anyone know of any trouble at cambridge building society?

    It appears they are selling off some freeholds and signing a new lease to stay in building.. is this a cash raising exercise

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  • general congreve says:

    From Credit Action Website – Total consumer credit lending to individuals at the end of July 2010 was £217bn.

    Repayment at £120m a month equals £1.44bn a year.

    Yippee, provided we can keep interest rates this low permanently and maintain this ‘rapid’ rate of repayment we will clear the private debt overhang completely in a 150 years!!!

    Getting an idea of the hole we are in?

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  • Techie, you’ve highlighted some excellent string pushing. The ‘stimulus’ never was working, in any case.

    The Home-Owner-Ists are getting more and more desperate – they hate it when people have been prudent and have ‘savings’ because that way they can’t be held to ransom, what the HOists want is everybody to be as indebted as possible, preferably with mortgage debt on preferably the highest house prices possible.

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  • drewster – yes you are right he was famously wrong, but only sort of . he did an interview with Max K where he discussed this, and i posted it and explained the background to his 225k walk.

    here it is : http://www.housepricecrash.co.uk/newsblog/2010/09/blog-as-we-know-debt-is-a-four-letter-word-here-is-the-proof-30399.php

    and here is what i said as background:

    “Keen gained some notoriety in Australia, as being one of the few (he claims there was about a dozen out of 30,000 plus) economists worldwide to predict the slump in 2008.

    He then completely lost credibility when he took part in a bet about house prices falling 40%. He said they would, but he was challenged in Parliament. He then said that he gave a timeframe of this as quite long term – following the Japanese experience. As the debate went on with a guy called Rory Robertson, there was a bet that if house prices were to have fallen in a years time then Robertson would do a 225km trek but if they had risen by then Keen would need to do it. Whichever would do it would need to wear a t-shirt that said:

    ”I was hopelessly wrong on house prices – ask me how”.

    In fact Aussie house prices continued higher [http://www.globalpropertyguide.com/real-estate-house-prices/A] – why? – well Keen takes up the story with max at about 12:15 in on the video below:”

    [the video below is on that original post].

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  • general congreve says:

    @11 – That’s just unsecured lending by the way, include mortgages and we owe nearly 1.5 trillion. That mortgage debt reportedly holds up two thirds of this countries net worth (property). That’s why we need QE to keep asset prices inflated, they can’t let the property prices fall too far, the country and the banks would be broken.

    Got gold?

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  • @11 – That’s just unsecured lending by the way, include mortgages and we owe nearly 1.5 trillion. That mortgage debt reportedly holds up two thirds of this countries net worth (property). That’s why we need QE to keep asset prices inflated, they can’t let the property prices fall too far, the country and the banks would be broken.

    Got gold?

    For many days we travelled from a distant place and time,
    To reach a place they call the planet Earth,
    There was to be a celebration,
    On the mission of the sacred heart.
    The planet Earth from way up there is beautiful and blue
    And floating softly through a rainbow,
    But when you touch down things look different here,
    At the mission of the sacred heart.

    Watching all the days roll by
    Who are you and who am I?
    On a dirty worn-out sidewalk, sits a mother with a baby,
    In her vale of tears she sees no rainbow
    And someone’s singing from a window
    In the mission of the sacred heart.

    There’s a building on a corner, in a city, in a land,
    On a place they call the planet Earth,
    My orders are to sit here and watch the world go by,
    From the mission of the sacred heart.

    Watching all the days roll by
    Who are you and who am I?
    On a dirty worn-out sidewalk, sits a mother with a baby,
    In her vale of tears she sees no rainbow
    And someone’s singing from a window
    In the mission of the sacred heart.

    Reply
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  • @ Drewster
    Completely unrelated to this topic. Apologies but I was unable to find a function to private message.

    Just to let you know that my Real Estate taxes on my FL place started at around $1500 per annum in 2004 and ended at just over $3000 per annum in 2007. Obviously, the taxes rise as the assessed value of the property rises.

    Hope that helps.

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  • general congreve says:

    Not sure of your point HPW? Please enlighten.

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  • 15 vindicated

    have you had a recent valuation?

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  • yes vindicated, i looked into this private message lark and it seems you have to be a “member” on the forum to send one. And even though i have posted (some would say ad nauseam) on this part of the board you would think we would have that facility.

    i think i will report this comment and see what the webmasters have to say.

    Still i only wanted it to be able to send hpw a birthday card!

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  • I’m afraid the HPC forum is run and moderated independently of the blog so anyone who wants to be able to post on the forum or send a private message to another member needs to register there separately. Please note that new forum members don’t have automatic access to the PM system and this is enabled only after a sufficient number of posts are made.

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  • Thanks webmaster. Can you say how many is a “sufficient number”?

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  • 17 Mark

    We sold the place in the summer of 2007 but judging by recent sales of places on our community, I’d say the value has dropped by another $40/$50k.

    18 techieman, seems we now have an answer to the question. Best you start posting ad nauseam on the forum!

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  • vindicated what a “sickening” answer from the webmaster !

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  • Quality!

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  • @10 General Congreve said – Yippee, provided we can keep interest rates this low permanently and maintain this ‘rapid’ rate of repayment we will clear the private debt overhang completely in a 150 years!!!

    – Yes, I’m also amazed that people are repaying debt at such low levels. I suppose households are feeling flush with low mortgage payments, so it won’t start hitting home until interest rates rise.

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  • Techie,
    Thanks for posting the Steve Keen stuff. Shame we had to sit through that infuriating Kaiser buffoon to get to it…
    Nick

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  • nick np – i actually think max is quite entertaining generally. it started at 12:15 per the post above so i think you could’ve jumped to that.

    If you are interested he has done a talk in the last couple of days (i dont think its online yet) with the powerpoint available, see : http://www.debtdeflation.com/blogs/2010/09/27/conference-of-economists-presentation/

    i have taken a look at the presentation and i must admit in some places it goes (way) outside my knowledge, but the general gist is fathomable.

    Once he has posted a video his talk i will post it.

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  • Techieman, new members are upgraded after 100 posts. You can also apply for an early upgrade on the “Upgrade requests” forum. The decision is left entirely to the discretion of the moderators but 50 posts might be enough.

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  • vindicated,

    Thanks for the info. In general if you want to get my attention, post a comment on an article with few or no comments. Once the thread goes beyond about 20 messages, the signal-to-noise ratio drops and I don’t continue checking.

    techie,

    Thanks for the info re Keen. I’ll watch the video when I’m out of the office.

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  • Not sure of your point HPW? Please enlighten.

    I was just making a point about the state of well being that gold can give….and the state of what I see around me.

    Does anyone remember the poster on here who was fixated with the song ”The Green Manalishi (With the Two-Prong Crown”?

    I never did get to the bottom of that…

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  • general congreve says:

    @29 – Yep, they made the mess with their fiat system. Of course gold owners will be vilified by the political class when the time is deemed appropriate, but it’ll be up to us guys who’ve maintained (and multiplied) our wealth to spend and help drive growth once more when the dust has settled. You see, gold ownership is humanitarian thing (almost in the spirit on Davis Cameron’s Big Society if you like), as well as a quick route to untold riches 😉

    Green Manalishi, truly fantastic piece of music.

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  • Adam Smith Fan says:

    Steve Keen has come up with some great stuff. In particular the connection that he has demonstrated between employment and change in change in debt levels (that is not a typo) looks solid. The fact that the HMAG intervened to delay the Aussie HPC is not a good reason to ignore what he has to say.

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