Sunday, June 10, 2012

Incoming credit crunch for the UK

Why 2012 Is Shaping Up To Be A Particularly Ugly Year

Keen has an idea of a debt jubilee where you just give money to everybody, but if they have debt they have to pay this down. Of course this would be impossible to accomplish fairly. QE, in the sense that this funds government workers who otherwise would not be paid, seems to me the equivalent of this, just the principal beneficiaries (not unusually) being those attached to the teat of state.

Posted by stillthinking @ 03:43 AM (2355 views)
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11 thoughts on “Incoming credit crunch for the UK

  • What worries me about debt jubilee is that it allows someone who has bought a property he could not afford to keep the property.
    So, after the debt jubilee, he is much richer than someone who only ever rented.
    I would prefer a nationalization of that asset because then everyone benefits and the rich poor divide is not widened massively.

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  • put interest rates up,repossess those unable to pay..BUT..build council houses to put the displaced in

    clear out the system and provide help for the people

    The only losers would be the financiers which is why they won’t do it.

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  • charlie brooker says:

    mdmick: “What worries me about debt jubilee is that it allows someone who has bought a property he could not afford to keep the property.
    So, after the debt jubilee, he is much richer than someone who only ever rented.”

    That would be the case in the short term, something necessary to reset the system, but records of who did what would still be available post-reset, so action against those individuals could still be taken.

    Don’t think that a reset means that he miscreants get away scot-free, it doesn’t.

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  • happy mondays says:

    I like your thinking charlie brooker – My thoughts exactly ..

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  • mdmick – keeping the debts in place strangles the economy and rescues the villains – the banks (though admittedly it’s not that simple since there are some who bought the debt in good faith). Besides debtors don’t get off scot-free if I’m reading correctly the 3rd para from the end of the article.

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  • Once borrowers start eschewing rather than seeking debt, asset prices begin to fall — which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices.

    But this simply hasn’t happened in Britain, nor indeed in many parts of the world. We haven’t reached a Minsky moment, we haven’t even reached a never-catch-a-falling-knife situation. Steve Keen’s positive feedback / vicious cycle just isn’t happening here. The housing market remains as resilient as ever.

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  • happy mondays says:

    @ drewster – Death of a 1000 knives comes to mind…It’s happening, slowly but surely.. 🙂

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  • mdmick: although the home owner with the mortgage would get to keep his house, the property would de-value (assuming new rules were in place to prevent another price bubble forming). Meanwhile the renter would get a stack of cash with which they could buy a house of their own, leapfrogging the financial position of the debt laden mortgage holder.

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  • stillthinking says:

    @6 Because the UK government is still pumping from debt, and its a really massive level of annual increase in debt to achieve not very much.

    The UK government cannot spend at this level for ever, maybe they wish they could, maybe they want to give the impression they can, but they cannot, and when they stop -only- increasing, let alone paying any back, that is a 4K drop per worker ! They are praying for growth as a way out, but there is no output gap, just millions on state benefits who are useless.

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  • Adam Smith Fan says:

    Let’s be clear about what Steve Keen’s saying.

    Firstly he’s saying that when the government hands out cash it can choose to do so to the banks or to the taxpayers. Secondly he’s saying that if they were to hand it to the taxpayers, it would cost the same but be much more effective in fixing the situation than handing it to the banks. Thirdly he’s saying that if you give it to the taxpayers then you have to give the same amount to people with debt and to people without debt otherwise you favour debtors over non-debtors.

    According to the National Audit Office, as of 2009 UK HMG had chosen to give £850bn of taxpayers’ money to the banks. For that payment HMG brought a bunch of banks back from the brink. If it had given this to the taxpayers instead, it would still have gone to the banks but via the debtors who would have reduced their debt and via savers who would have built up their investments and spent into the general economy. Prof Keen’s modelling and the Australian government’s experience suggests that this gives a much bigger boost to the economy than just giving the banks the cash.

    Of course when you’re giving the citizens £850bn/60mn = about £142,000 each, you have to be careful how you do it if you want to avoid inflation. Basically you have to ensure that it is used to pay down debt or to invest. If any of it is to be used for consumption then it must on no account be used for real estate purchases otherwise it will just inflate the HP bubble. In principle only the interest generated from the £142,000 should be spent on consumption, if that.

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  • talking of useless, drove past a couple who were sitting on the gravel next to the school kids waiting for the bus, this couple were drinking cans of lager and rolling up what looked like joints, all this at 8am amazing how they can get up to do that but not get up for work

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