The end of Whingonomics?

[AJS-]

DonkeyApple said:

It's not all Labour's fault. A lot is down to people over borrowing. So we can share the blame between Labour who promoted the concept of borrowing more than you can safely handle and the punters who did that and thought it was the end of boom and bust.

Any blame on the lenders who actually lent to them? For every reckless borrower there is a reckless lender.


As I've said elsewhere though, consumer debt isn't really the problem. It's diffuse and there are mechanisms for dealing with default that won't sink the economy as a whole, even if they were to happen on a fairly large scale.

Sovereign debt is another matter entirely, the fallout from our eventual default will be catastrophic, and any subsequent recovery will be slow and faltering for years to come.

[DonkeyApple]

AJS- said:

Any blame on the lenders who actually lent to them? For every reckless borrower there is a reckless lender.


As I've said elsewhere though, consumer debt isn't really the problem. It's diffuse and there are mechanisms for dealing with default that won't sink the economy as a whole, even if they were to happen on a fairly large scale.

Sovereign debt is another matter entirely, the fallout from our eventual default will be catastrophic, and any subsequent recovery will be slow and faltering for years to come.

They would fall into the second catagory.

Re consumer v govt debt, I feel it is the other way around. A Govt can avoid default by devaluing which a consumer cannot.

Personal debt is a very deep problem fundamentally on a social scale more than anything. The pouring of vast amounts of borrowed money by the govt into our economy has generated a wealth gap the likes of which we probably haven't seen for a hundred years (the gap not the poverty) and personal debt is quite polarised and it will create a rather unpleasant two tier society as people struggle to pay off their debt and try and have savings for their old age etc.

Also, the real danger of high consumer debt levels is that it always leads to massive asset inflation. The whole reason why lenders were regulated and restricted in the consumer debt market is that since the dawn of time we've known that loose credit means massive asset inflation.

The deregulation of the debt markets was to deliberately deliver asset inflation and the subsequent increases in spending.

This is where we differ from the US and from Germany. In the US they have had a proper asset correction and millions defaulting and rebasing. In Germany, the people didn't over spend so never inflated asset values so are in a good way.

In the UK we not only had reckless govt spending but the same kind of reckless personal spending as the US but our govt has piled pressure onto the lenders and the lenders were too weak as well to foreclose on people.

We are in a kind of limbo that could well be slow to crawl out of.

[DJRC]

Not really DA as all that really reflects upon IS the housing market. Nothing else. To follow your line of thought...it has kept the housing market more valuable than not. This benefits home owners as opposed to the future. Well here comes your rebasing, your firewall so to speak, for the housing market. By putting this half-a-generation into rental/living with parents limbo, we remove the housing market from the last 25 yrs of breakneck speed and "everyone owns a house by 25" mentality. The logical outcome in fact is that the situation becomes much closer to how it was say back in the 50s.

This isnt a bad thing in my humble as it is something I started to ponder about in the mid 00s. I started to have regular conversations with my tennants, who would all be in their early/mid 20s, renting with me for a yr or so before they got established in their own gaffs. The race was always on to buy their own and the whole focus was on purely the mortgage cost and never the consideration on the rest of the cost of buying and maintaining a house. People were going into the housing market with semi blinkers on thinking the only cost was the 200k or so up front and then the £600/month mortgage. Leccy bills, gas bills, water (to and from) bills, CT and general household maintenence were not entering the equation. Let alone stamp and fees. Once I started thinking and looking at it suddenly the costs of renting made a hell of a lot more sense for someone in their early to mid 20s.

It is therefore, no bad for younger adults NOT to be obsessed with getting on the property market, right now it is a hell of a lot more affordable for them to rent than buy.

As for the folks already on the housing ladder, well this is respite and welcome respite at that. Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack. Right now this is what is happening. We, the earning/asset owning generation, are being cut some slack. How folks choose to deal with that is upto them...personal choice, etc...but the majority of folks I know are paying down their debt and consolidating. That is no bad thing to me and I think will leave the UK in a relatively "better" place to come out of this thing than many of our European cousins...provided we dont all lose our heads, run around like chickens and start killing off our finance industry.

[AJS-]

Devaluation is chaotic and damaging though. From your various posts I figure you work in some sort of financial/foreign exchange business, so I'm sure I don't need to tell you it doesn't just mean expensive holidays.

It means inflation of commodity and input prices, which is arguably more damaging than asset inflation, and in a country so dependent on imports for food, manufactured goods and a host of other things it means a real rise in the cost of living. The regular movements of a free floating currency have their place, but the sort of "correction" needed to put a serious dent in our government debt would make "Black Wednesday" look pretty tame.

[speedy_thrills]

DJRC said:

Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack.

But will the Bank of England be as kind offering respite to responsible people with savings, pensions etc, in the future? Probably not of course.

In the position the UK is in it’s worth noting that there are consequences of long term low interest rates beyond inflation and propping up asset bubbles.

[oyster]

DonkeyApple said:

I think this is an absolutely crucial element. The US boom like all the others was fuelled by relaxed lending which led to over zealous borrowing and an enormous spike in property values.

They have redressed this by their property market collapsing and rebasing. Their next generation can start life without having to pay for the hideous primary asset inflation created by the boomers.

Here we are still living in a property bubble. Our leaders far too weak to allow the right thing to happen.

If we had let the bubble burst in 08 then the future would be very bright for our children but we chose to underwrite the market and keep it propped up as part of the bank bailout.

Personally, I think that will transpire to be the greatest error of the last government.

You talk as if house prices rose in 2008? They sunk, dramatically. And across 99% of the country are still falling 3 years later.
Real house prices are already down around 30%/40% from peak - if that isn't a burst bubble I don't know what is.

And if that isn't enough for you, I'm not quite sure what the economic benefit would have been to have had even more wiped off. Yes there'd be a few more of the iPad kids buying houses, whilst those in their parents generation (who invariably worked harder) lost their futures.

[BMWBen]

oyster said:

DonkeyApple said:

I think this is an absolutely crucial element. The US boom like all the others was fuelled by relaxed lending which led to over zealous borrowing and an enormous spike in property values.

They have redressed this by their property market collapsing and rebasing. Their next generation can start life without having to pay for the hideous primary asset inflation created by the boomers.

Here we are still living in a property bubble. Our leaders far too weak to allow the right thing to happen.

If we had let the bubble burst in 08 then the future would be very bright for our children but we chose to underwrite the market and keep it propped up as part of the bank bailout.

Personally, I think that will transpire to be the greatest error of the last government.

You talk as if house prices rose in 2008? They sunk, dramatically. And across 99% of the country are still falling 3 years later.
Real house prices are already down around 30%/40% from peak - if that isn't a burst bubble I don't know what is.

And if that isn't enough for you, I'm not quite sure what the economic benefit would have been to have had even more wiped off. Yes there'd be a few more of the iPad kids buying houses, whilst those in their parents generation (who invariably worked harder) lost their futures.

The problem is just that it hasn't happened in London and the south east, where prices are still being supported by buyers from overseas, bankers etc, so for a lot of us nothing has really happened.

What might start having an affect is the large number of job losses in banking that have/are happening. The shrinking of the demand in the 500-1m should push prices down in all the brackets below, and it should filter out to the commuter belt.

Of course, on the flip side, massively rising train fares and a number of other factors could keep those prices high.

[crankedup]

We still have a buoyant housing market here in East Anglia. Seems to be held up by those in London seeking second homes still or semi retiring perhaps. Large properties with a couple of acres of ground in the sub one million mark do not stay on the market for sale for months on end. The amount of property for what seems to be a very small amount of money (compared to London) is very enticing it seems. Cambridge is still a property hotspot and that still ripples out. I'm not suggesting house prices are still rising here generally but they are not falling either. Its the popular part of the market that is sticky, the 250k area which get stuck in chains because first timers cannot get onto the market.
Just to have a whinge, as no PH post is complete without one, East Anglia is in desperate need of improved road / rail links. When this eventually gets sorted watch house and commercial property fly off the shelves.

[DJRC]

speedy_thrills said:

DJRC said:

Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack.

But will the Bank of England be as kind offering respite to responsible people with savings, pensions etc, in the future? Probably not of course.

In the position the UK is in it’s worth noting that there are consequences of long term low interest rates beyond inflation and propping up asset bubbles.

Oh please, can we knock this bloody stupid line on its head? The consequence to savers of low interest rates are a few hundred quid at the end of each year. 90% of us in the earning generation have saving schemes and pensions, so we are all in that position. The consequence to mortgage holders though is often £50 - £100 *each* month with a .25 or .50 rate move. Right now that short term respite is far more needed for far more people than vice versa.

Whatsmore I have absolutely no sympathy for those in the position to say "But what about my several grand in the bank, put away for a rainy day? Thats not earning the money I wanted anymore!" Well hey, guess what? Its the rainy fking day old boy. Your safety net is there and doing its job, i.e. providing you with a safety net if your job goes tits up. Earning you dosh is its secondary job, but a lot of people seem to have forgotten that. There isnt an automatic right to make money on your savings. You add to them in times of plenty, you conserve them when you dont need to use them, you use them when you need to.

[BMWBen]

DJRC said:

speedy_thrills said:

DJRC said:

Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack.

But will the Bank of England be as kind offering respite to responsible people with savings, pensions etc, in the future? Probably not of course.

In the position the UK is in it’s worth noting that there are consequences of long term low interest rates beyond inflation and propping up asset bubbles.

Oh please, can we knock this bloody stupid line on its head? The consequence to savers of low interest rates are a few hundred quid at the end of each year. 90% of us in the earning generation have saving schemes and pensions, so we are all in that position. The consequence to mortgage holders though is often £50 - £100 *each* month with a .25 or .50 rate move. Right now that short term respite is far more needed for far more people than vice versa.

Whatsmore I have absolutely no sympathy for those in the position to say "But what about my several grand in the bank, put away for a rainy day? Thats not earning the money I wanted anymore!" Well hey, guess what? Its the rainy fking day old boy. Your safety net is there and doing its job, i.e. providing you with a safety net if your job goes tits up. Earning you dosh is its secondary job, but a lot of people seem to have forgotten that. There isnt an automatic right to make money on your savings. You add to them in times of plenty, you conserve them when you dont need to use them, you use them when you need to.

Big assumption right there. Some people have a lot of cash, and the current situation makes the difference between being able to retire and not.

[oyster]

BMWBen said:

DJRC said:

speedy_thrills said:

DJRC said:

Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack.

But will the Bank of England be as kind offering respite to responsible people with savings, pensions etc, in the future? Probably not of course.

In the position the UK is in it’s worth noting that there are consequences of long term low interest rates beyond inflation and propping up asset bubbles.

Oh please, can we knock this bloody stupid line on its head? The consequence to savers of low interest rates are a few hundred quid at the end of each year. 90% of us in the earning generation have saving schemes and pensions, so we are all in that position. The consequence to mortgage holders though is often £50 - £100 *each* month with a .25 or .50 rate move. Right now that short term respite is far more needed for far more people than vice versa.

Whatsmore I have absolutely no sympathy for those in the position to say "But what about my several grand in the bank, put away for a rainy day? Thats not earning the money I wanted anymore!" Well hey, guess what? Its the rainy fking day old boy. Your safety net is there and doing its job, i.e. providing you with a safety net if your job goes tits up. Earning you dosh is its secondary job, but a lot of people seem to have forgotten that. There isnt an automatic right to make money on your savings. You add to them in times of plenty, you conserve them when you dont need to use them, you use them when you need to.

Big assumption right there. Some people have a lot of cash, and the current situation makes the difference between being able to retire and not.

But whether someone can afford to retire or not versus being able to keep a roof above their head is not really comparable is it?

[Jimbeaux]

12gauge said:

Dont the US have the 99'ers...they arent counted as unemployed once their benefits have run out after 99 weeks.

Plus these things are always revised next month or quarter...negatively.

US unemployment isnt falling other than in the Department of Statistics or Department of Labor or whatever its called press releases. Its just pre-election BS to retain Obama as chief teleprompter reader.

True. Those who give up looking for work are not counted in the unemployment figures (it has always been that way). Figures are counted monthly and quarterly by various checkers.

[DJRC]

oyster said:

BMWBen said:

DJRC said:

speedy_thrills said:

DJRC said:

Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack.

But will the Bank of England be as kind offering respite to responsible people with savings, pensions etc, in the future? Probably not of course.

In the position the UK is in it’s worth noting that there are consequences of long term low interest rates beyond inflation and propping up asset bubbles.

Oh please, can we knock this bloody stupid line on its head? The consequence to savers of low interest rates are a few hundred quid at the end of each year. 90% of us in the earning generation have saving schemes and pensions, so we are all in that position. The consequence to mortgage holders though is often £50 - £100 *each* month with a .25 or .50 rate move. Right now that short term respite is far more needed for far more people than vice versa.

Whatsmore I have absolutely no sympathy for those in the position to say "But what about my several grand in the bank, put away for a rainy day? Thats not earning the money I wanted anymore!" Well hey, guess what? Its the rainy fking day old boy. Your safety net is there and doing its job, i.e. providing you with a safety net if your job goes tits up. Earning you dosh is its secondary job, but a lot of people seem to have forgotten that. There isnt an automatic right to make money on your savings. You add to them in times of plenty, you conserve them when you dont need to use them, you use them when you need to.

Big assumption right there. Some people have a lot of cash, and the current situation makes the difference between being able to retire and not.

But whether someone can afford to retire or not versus being able to keep a roof above their head is not really comparable is it?

Indeed. I thought the scope of the issue rather trumps that of the princple.

[BMWBen]

oyster said:

BMWBen said:

DJRC said:

speedy_thrills said:

DJRC said:

Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack.

But will the Bank of England be as kind offering respite to responsible people with savings, pensions etc, in the future? Probably not of course.

In the position the UK is in it’s worth noting that there are consequences of long term low interest rates beyond inflation and propping up asset bubbles.

Oh please, can we knock this bloody stupid line on its head? The consequence to savers of low interest rates are a few hundred quid at the end of each year. 90% of us in the earning generation have saving schemes and pensions, so we are all in that position. The consequence to mortgage holders though is often £50 - £100 *each* month with a .25 or .50 rate move. Right now that short term respite is far more needed for far more people than vice versa.

Whatsmore I have absolutely no sympathy for those in the position to say "But what about my several grand in the bank, put away for a rainy day? Thats not earning the money I wanted anymore!" Well hey, guess what? Its the rainy fking day old boy. Your safety net is there and doing its job, i.e. providing you with a safety net if your job goes tits up. Earning you dosh is its secondary job, but a lot of people seem to have forgotten that. There isnt an automatic right to make money on your savings. You add to them in times of plenty, you conserve them when you dont need to use them, you use them when you need to.

Big assumption right there. Some people have a lot of cash, and the current situation makes the difference between being able to retire and not.

But whether someone can afford to retire or not versus being able to keep a roof above their head is not really comparable is it?

Disagree - usually the issue is not being able to keep the same roof to which they have become accustomed. So definitely comparable imo.

[speedy_thrills]

DJRC said:

speedy_thrills said:

DJRC said:

Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack.

But will the Bank of England be as kind offering respite to responsible people with savings, pensions etc, in the future? Probably not of course.

In the position the UK is in it’s worth noting that there are consequences of long term low interest rates beyond inflation and propping up asset bubbles.

Oh please, can we knock this bloody stupid line on its head? The consequence to savers of low interest rates are a few hundred quid at the end of each year. 90% of us in the earning generation have saving schemes and pensions, so we are all in that position. The consequence to mortgage holders though is often £50 - £100 *each* month with a .25 or .50 rate move. Right now that short term respite is far more needed for far more people than vice versa.

Whatsmore I have absolutely no sympathy for those in the position to say "But what about my several grand in the bank, put away for a rainy day? Thats not earning the money I wanted anymore!" Well hey, guess what? Its the rainy fking day old boy. Your safety net is there and doing its job, i.e. providing you with a safety net if your job goes tits up. Earning you dosh is its secondary job, but a lot of people seem to have forgotten that. There isnt an automatic right to make money on your savings. You add to them in times of plenty, you conserve them when you dont need to use them, you use them when you need to.

The consequences of savers being punished is that many of them will look for better interest rates in other investments or just not bother at all (Savings in the UK where reduced by 11% in 2011 so this is already happening). This exacerbates trade imbalances with the developing world, Chinese households save about 47% of their discretionary income and the UK around 7%.

This is a competition of ideas in many western countries about if we keep going down the road of cheap debt via low interest rates or reward diversified saving/investment. Both options have merit and no one can blame people for buying houses for well beyond the price-to-income ratio that would be affordable because they were incentivized to do so at the time. Just we now have the opportunity, with the benefit of hindsight, to learn from our mistakes.

[DonkeyApple]

AJS- said:

Devaluation is chaotic and damaging though. From your various posts I figure you work in some sort of financial/foreign exchange business, so I'm sure I don't need to tell you it doesn't just mean expensive holidays.

It means inflation of commodity and input prices, which is arguably more damaging than asset inflation, and in a country so dependent on imports for food, manufactured goods and a host of other things it means a real rise in the cost of living. The regular movements of a free floating currency have their place, but the sort of "correction" needed to put a serious dent in our government debt would make "Black Wednesday" look pretty tame.

Such a correction would be for domestic debt. Govt debt is controlled by the printing presses and interest rates.

For the average person the cost of housing will dwarf utilities in general, so bring down the cost of housing and you put much more money in the pockets of new owners, primarilly the next generation.

Personally, I would restrict leverage by regulation on secured debt and also have finite unsecured debt levels defined by income. For those with no income you have a set ceiling of £xK. More income, more debt allowance.

I would then tax multiple properties at a set annual rate.

I would also apply an annual tax the equivalent of stamp duty for that band (with a minimum %) on all overseas owned property.

Next, you would look to divert employment from property hotspots to low spots as a long term regulator of disparities.

As property is the most valuable and biggest asset that the average person ever exposes themselves to then a system which does not throttle but does aim to halt excessive bubbles would be extremely prudent to the long term economic stability of the UK.

In 15/20 years time the headlines are going to full of the horrors of people getting to the end of their mortgages and the end of their income generating lives and not being able to pay off their debt. The ramifications of the last decade will be felt for a very long time.

[jdw1234]

DJRC said:

speedy_thrills said:

DJRC said:

Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack.

But will the Bank of England be as kind offering respite to responsible people with savings, pensions etc, in the future? Probably not of course.

In the position the UK is in it’s worth noting that there are consequences of long term low interest rates beyond inflation and propping up asset bubbles.

Oh please, can we knock this bloody stupid line on its head? The consequence to savers of low interest rates are a few hundred quid at the end of each year. 90% of us in the earning generation have saving schemes and pensions, so we are all in that position. The consequence to mortgage holders though is often £50 - £100 *each* month with a .25 or .50 rate move. Right now that short term respite is far more needed for far more people than vice versa.

Whatsmore I have absolutely no sympathy for those in the position to say "But what about my several grand in the bank, put away for a rainy day? Thats not earning the money I wanted anymore!" Well hey, guess what? Its the rainy fking day old boy. Your safety net is there and doing its job, i.e. providing you with a safety net if your job goes tits up. Earning you dosh is its secondary job, but a lot of people seem to have forgotten that. There isnt an automatic right to make money on your savings. You add to them in times of plenty, you conserve them when you dont need to use them, you use them when you need to.

Likewise, there isn't an automatic right to earn a retirement through securitising the future earnings of the younger generation via infated asset prices.

P.S. What is the earning generation?

[DonkeyApple]

DJRC said:

Not really DA as all that really reflects upon IS the housing market. Nothing else. To follow your line of thought...it has kept the housing market more valuable than not. This benefits home owners as opposed to the future. Well here comes your rebasing, your firewall so to speak, for the housing market. By putting this half-a-generation into rental/living with parents limbo, we remove the housing market from the last 25 yrs of breakneck speed and "everyone owns a house by 25" mentality. The logical outcome in fact is that the situation becomes much closer to how it was say back in the 50s.

This isnt a bad thing in my humble as it is something I started to ponder about in the mid 00s. I started to have regular conversations with my tennants, who would all be in their early/mid 20s, renting with me for a yr or so before they got established in their own gaffs. The race was always on to buy their own and the whole focus was on purely the mortgage cost and never the consideration on the rest of the cost of buying and maintaining a house. People were going into the housing market with semi blinkers on thinking the only cost was the 200k or so up front and then the £600/month mortgage. Leccy bills, gas bills, water (to and from) bills, CT and general household maintenence were not entering the equation. Let alone stamp and fees. Once I started thinking and looking at it suddenly the costs of renting made a hell of a lot more sense for someone in their early to mid 20s.

It is therefore, no bad for younger adults NOT to be obsessed with getting on the property market, right now it is a hell of a lot more affordable for them to rent than buy.

As for the folks already on the housing ladder, well this is respite and welcome respite at that. Sometimes a govt has to protect its folk, not do much but just cut them a bit of slack. Right now this is what is happening. We, the earning/asset owning generation, are being cut some slack. How folks choose to deal with that is upto them...personal choice, etc...but the majority of folks I know are paying down their debt and consolidating. That is no bad thing to me and I think will leave the UK in a relatively "better" place to come out of this thing than many of our European cousins...provided we dont all lose our heads, run around like chickens and start killing off our finance industry.

I agree with the principle but if rents are too high then you still have the same overall negative impact just as if they owned the asset.

I also agree that many are consolidating.

But, there are those who are just simply under water and will never recover. A kind of zombie class of home owner. Consumers never know when to cut their losses on any form of asset and when left to their own devices will hold, hold, hold when this is never the right course of action for a leveraged position. It is the responsibility of the lender to actually draw the line in the sand and call in the debt and if done professionally will leave that person in a much better place.

Those who defaulted in 08 are in a much better place than those who should have been repossessed but have continued paying more and more into the hole.

While, reduced funding is helping the majority, a lack of foreclosing is doing more long term damage.

[DonkeyApple]

BMWBen said:

The problem is just that it hasn't happened in London and the south east, where prices are still being supported by buyers from overseas, bankers etc, so for a lot of us nothing has really happened.

What might start having an affect is the large number of job losses in banking that have/are happening. The shrinking of the demand in the 500-1m should push prices down in all the brackets below, and it should filter out to the commuter belt.

Of course, on the flip side, massively rising train fares and a number of other factors could keep those prices high.

It's EU instability that is the real driver in London.

Wealthy EU residents fear holding not just cash but cash in their domestic banks so since 08 have been converting this cash in London residential property as a safe haven to avoid the risk of bank default and currency default.

The domestic financial sector isn't really adding much, they are busy trying to cope with their mortgages that they took out to compete with the Russians and Arabs and set against their bonus income.

A recovery in the EU may well see these people sell up in London and repatriate to take advantage of rapidly rising domestic property values.