Nu Labour Economics

[pcg79]

Lets take the housing market - prices grew when mortgage lenders inflated the multiples of an individual/couples income and/or accepted self certified proof of income.

Those multiples are gone now - consigned to history and not likely to return for a long time.

So how can the market be sustained when the prices require mortgage multiples that no longer exist? They cant - the markets completely artificial at the moment - people are staying put because many are now in negative equity.

It cant last - when interest rates inevitably rise your going to see repossesions go through the roof and a housing price crash.

Lets not even start on commercial property - there are tens of billions of what the bankers jocularly refer to as 'scooby' mortgages.
(referring to scuba - ie the propertys deep in negative equity but the divers still breathing ).

Banks are bending over backwards to keep these property investment companies afloat (edit- because if they go under the bank has to show them as bad debt) while they hope like hell for quick price growth to end this nightmare - we may well have to bail the banks out again if that lot goes south...

maybe.

i find it hard to find stats on breakdowns of uk mortgages so i dont know how many mortgages are self certified or at very high LTV, where these dodgy morgages are concentrated (by purchaser type and geographic region) or even what the recasting schedules are like for uk mortgages.

but youre right about commerical property; lots of investment deals i have heard of have broken covenants but because the bank doesnt want to crystallise the loss and accept the physical property onto its books, it's overlooking the breaches and just continuing to accept payments. but i do wonder if this can continue for long enough for companies to JUST be able to scrape through.

 

[Bugz]

To be honest Rynnor (and it's good to see an opposite viewpoint - I was a bit aggro before I apologize - just fed up of people in general not posting any reasoning or extensive info), I can't see the BoE upping the interest rate anything above 1-1.5% till we have some sure-fire 'green shoots' (such a dodgy term). That said, the UK housing has never seemed as big a threat in terms of sub-prime as compared to America (where if their bubble bursts I really do think they could take us and a few other countries with them) and I believe most of the issues we are facing in terms of repossessions stem more from a loss in GDP/income/unemployment as opposed to excessive borrowing (although i do accept there is more than there should be and IF the government does not regulate it then I'm extremely worried).

I think everyone is hoping the housing bubble irons itself out as we move into the recovery stages. House prices seem to be stabilizing now and I am somewhat confident that the government will do everything in their fiscal power to keep people afloat until we see those green shoots. Unfortunately, although we seem to have adverted from the bottom, we seem to be stuck in a cycle which won't be abated until we sort out the liquidity issues.

Maybe we should start a war? That seemed to solve the problem of the depression

 

[Furr]

Maybe we should start a war? That seemed to solve the problem of the depression

Falklands? If the exploration ship that arrived yesterday strikes the black gold, then who knows! At least the treasury might get a new revenue stream and the Navy could do with a bit of flexing and demonstrating its importance.

 

[Zenith.UK]

Falklands? If the exploration ship that arrived yesterday strikes the black gold, then who knows! At least the treasury might get a new revenue stream and the Navy could do with a bit of flexing and demonstrating its importance.

We've only got 80-odd ships in total, spread thinly all over the world.
That said, they're well armed and know how to handle themselves.

 

[rynnor]

I believe most of the issues we are facing in terms of repossessions stem more from a loss in GDP/income/unemployment as opposed to excessive borrowing (although i do accept there is more than there should be and IF the government does not regulate it then I'm extremely worried).

I think everyone is hoping the housing bubble irons itself out as we move into the recovery stages. House prices seem to be stabilizing now and I am somewhat confident that the government will do everything in their fiscal power to keep people afloat until we see those green shoots. Unfortunately, although we seem to have adverted from the bottom, we seem to be stuck in a cycle which won't be abated until we sort out the liquidity issues.

I still think we have a fundamental mis-match between house prices and mortgage availability. Everyone who possibly can is sitting tight at the moment - thus the market volumes are very low and largely composed of dead peoples property being sold off by their estates.

However if you have a market where first time buyers cannot buy then eventually the whole thing must unravel as people at the bottom cant sell to anyone without dropping their prices etc.

We still have about a million public servants who are going to be jobless in a year or two and they will also have a big impact on the housing market.

Interest rates are tough to call on - I think a possible currency crises for the pound may be the driver for raising the rates.

Another possibility is if inflation rises too high - the Bank of England has to try to maintain inflation within a range of 1-3% - we are currently at 3.5% - if it continues to rise the Bank of England would have to act by raising Interest rates.

Its a fascinating time - I dont think there has been a time with so many potential economic pitfalls since the 70s - good work Mr Brown

 

[cHodAX]

You can't spend what you haven't got.

The world economy is based on spending what you don't have, that is why we are in such a shit downturn at the moment. Boom and bust, it is all cyclic based on a debt economy.

The only way out of recession is to keep spending and encourage consumer confidence, once they start spending again the recession is over and your 10 year buildup towards boom starts again. However it all falls apart once the fossil fuel energy sources run out anyway.

 

[rynnor]

However it all falls apart once the fossil fuel energy sources run out anyway.

No - theres plenty of oil out there and the higher the price goes the more fields become viable and alternatives like tar sands come online - stuff will just get a bit more expensive to make.

 

[cHodAX]

No - theres plenty of oil out there and the higher the price goes the more fields become viable and alternatives like tar sands come online - stuff will just get a bit more expensive to make.

Your point is valid but even you can see that oil takes the planet hundreds of thousands of years to make and there is only a finite amount available and within reach. Eventually it runs out, no if's or buts on that. When that happens no one knows for sure, let us put it this way though we don't have 100's of years left given a rapidly increasing consumption being driven by a world population that will nearly double in the next 50 years. There is not enough oil in reach to sustain that demand for very long at all.

 

[Tom]

How do you know?

 

[rynnor]

Your point is valid but even you can see that oil takes the planet hundreds of thousands of years to make and there is only a finite amount available and within reach. Eventually it runs out, no if's or buts on that. When that happens no one knows for sure, let us put it this way though we don't have 100's of years left given a rapidly increasing consumption being driven by a world population that will nearly double in the next 50 years. There is not enough oil in reach to sustain that demand for very long at all.

It is a finite rescource ofc. but my point was really that we wont wake up one day to a world without oil - as it becomes more expensive to extract from previously un-attractive oil fields (like the falklands, greenland etc.) more alternatives become viable - if the base price is $75 dollars a barrel then things like tar sand extraction become viable.

Its also possible to manufacture oil from other hydrocarbons like coal and theres also technological improvements that allow more oil to be extracted from existing fields.

Natural Gas is a great example of this - a recent breakthrough in extracting naural gas from shale like rocks means that the world now has far greater than expected stocks - the wholesale price of gas tumbled .

The Capitalist system is extremely good at rationing scarce resources - we will end up using hydrogen for vehicle fuel in the end I think and Nuclear power to generate it via electrolysis.

 

[MYstIC G]

I think everyone is hoping the housing bubble irons itself out as we move into the recovery stages.

Problem is that it's called a "bubble" for a reason, bubbles burst.

 

[Bugz]

The other characteristic of a bubble - predicting accurately when it will burst is near-impossible.

Everyone (economists - politicians maybe?) knew about the financial 'bubble.' No-one knew when it'd burst.

P.S - I agree with rynnor. The world isn't stupid. It won't use oil till it's 500 dollars a barrel and then when it runs out think 'oh shit.' Substitution develops when it becomes cost-beneficial to do so. This is a given. What will be interesting is how LEDC & MEDC economies develop during this time frame. China is lucky enough to have hit the sheer scale benefits of a mass-export market before it becomes too expensive. This is seem to be one of the key ways for developing economies to have sustained growth. When the cost of transport increases a lot; those countries may find themselves staying as LEDCs/developers for a considerable period of time.