<p style="text-align: center;">I realise there is an argument that a country’s finances can be run differently to those of a household, but the constant issuance of more and more debt hasn’t done us much good over the years in my opinion. We’ve just had a bigger credit card, which at some point will need to be paid off. The fiat money system has been a complete disaster.<span style="text-align: center;">That's because the governments don't spend the deficit on the things we need as a society.</span></p>
It never needs to be paid off and the government can always meet its obligations.
Remember when Osborne tried to pay off the debt. It's called austerity. And they made hash of it.
I am one of the fortunate to be mortgage free. But do have a buy to let. Its fixed for another year at 1.5. I have 6 x cover at the moment, so using tje surplus to pay down the capital.
There's still 60k outstanding but that will reduce with a lump sum in January ad ypu can drop 10% off per annum.
Then will look at the cost of paying it off entirely, there is a fee. V remortgage on a 5 yr fix, with a lump sum thrown in to reduce the interest to approx 1/4 of the rental. Giving a sensible cover.
Tennant pays about £150 pcm below market rate as hes longterm, on a low, but agreed, annual increase of 4%
Where did you get the money to pay your taxes?
The money itself is just the medium of exchange, it could be a magic bean rather than a £5 note. My employer gave me a handful of magic beans in return for my labour, which helped them create something of value which they sold to someone for two handfuls of magic beans.
I then give the government some of my beans so that they can fix the roads or give some to somebody else, who could then exchange their magic beans for bread and milk.
Problem here is that there are people in the middle of those transactions who spend my beans badly, or simply steal some. Magic beans can’t be grown, that’s what makes them magic.
What’s important is the labour that the bean represents, not the bean itself. Now start creating magic beans out of thin air, and your beans start to represent future labour, not past.
It never needs to be paid off and the government can always meet its obligations
If the government can always meet it’s obligations why do they keep asking me for more of my salary, and why are public services in such a dire state? Is the answer to borrow more money?
Is the answer to borrow more money?
I said yesterday I'm not an economist so don't understand really, but my understanding is yes as long as there is stuff to spend it on and people to do it. So building roads, or hospitals, or whatever..... not to just boost richness of what's already happening.
Is that right?
We have stuff to spend it on - problem is we don't have the people to do it?
Is that right?
Depends on your point of view! I don’t think it’s right, but that’s just my opinion. I do agree that the entire national debt never has to be paid back, but I think there needs to be a ceiling on what we borrow.
Saturday calls, have a good weekend all.
when I say is that right - I mean is my understanding / very distilled version of MMT right. Not whether MMT is actually correct.
The fiat money system has been a complete disaster.
Short memories. The gold standard plunged the world into depression and blocked economic development outside core western countries. There are obviously some negatives associated with fiat money in that during the era of fiat money wealth inequality has exploded, but that's mostly down to policy rather than the money system itself. The fiat money system can be managed differently to how it is now, and that's what all the debate around MMT is about. Reverting back to an antiquated system which isn't fit for purpose in the modern globalised world would be a catastrophe. We'd be back to beggar-thy-neighbour trade wars, deflation, and ultimately war.
My understanding is that MMT is Keynes on steroids - the main difference being how much you can spend without increasing inflation and about repayment of government debt
In our case right now inflation is not being driven by wages hence MMT adherents think unlimited money can be spent by governments without either causing inflation or devaluation of the currency while Keynesians would be a lot more cautions but still spend to stimulate the economy
But my understanding of economics is very superfical so this may be wrong and "ask 3 economists the same question get 3 different answers"
I'm sure rone will be along to give a lecture on this 🙂 There is some stuff on Wiki
TJ is pretty close. Not paying back the national debt, or rather, not needing to, is not the same as MMT, which really argues that there could be more money pushed into the system to stimulate growth.
While you don't need to pay back the national debt, you can just push old debt down the road and use inflation to make it negligible. But you can't put too much in else you risk devaluing existing money too much, and you get inflation. Looking back, after a decade of low interest rates, low inflation and low growth austerity and the political mission to pay back debt looks not too clever, and one reason for the UK's stagflation. However I guess that's the downside of owning your own currency and having to bail out all the banks that your economy uses as a source of wealth.
If you thing fiat money has been a disaster, you should bear in mind if you'd stuck with the gold standard, noone on this thread, or at least a lot less , would be here as almost noone would be rich enough own a computer. If you need gold backed money (or whatever) you are totally limiting the max wealth in an economy, limiting how it can grow, and money will very much tend to gravitate to the rich, making everyone else poorer.
That’s quite a naive outlook. It’s fairly common knowledge how historically low interest rates have been since 2008.
People making money arranging mortgages are not going to try and talk you out of it.I bought in 2007ish at 4.99%. That’s not ancient history.
Hmmmm. For many people badly affected by this rate increase, 2007 is ancient history.
I bought my first house in 2014, in 2007 I was too busy riding bikes and going to the union to care about interest rates.
Yes, when buying we were all told to expect interest rate rises - and I didn't particularly stretch myself so I'm ok for now. For many people my age though, all we have ever known is low interest rates - so this is a much bigger shock than it will be for the, err, more advanced of age among us.
So - genuine question.
Yes, when buying we were all told to expect interest rate rises – and I didn’t particularly stretch myself so I’m ok for now.
What did you do with the money that you weren't stretched with? Have you overpaid so you are reducing the impact of the rate rises with a lower capital element, or do you have a pot that you can use to buffer, say 3-6mo of salary as ML would suggest? Or did it all get spent?
Because what I object to a little bit is people that weren't careful, didn't heed advice, spent it all on fancy stuff and lease cars and expensive holidays.... and now it has happened, as we were told it would, are expecting to be bailed out. I didn't - my wife wanted us to extend and have a bling open plan kitchen like you see on the property TV programs but if we had, I'd be ****ed now. I don't object to help for those in need, and I know there are millions of renters on poor wages - this complaint isn't aimed at them - but people have to help themselves as well.
(and I know that as you say without having seen it first hand warnings don't have quite the same impact)
I don't think thats what has happened for most folk in the difficult situation of struggling to pay their mortgage
Its more they have taken on huge mortgages that they can only just afford at low interest rates - so no surplus. Interest rate rises take them into difficulties
house prices are so high and the pressure to buy so great that for many the only way to buy was to mortgage to the hilt. 15 years of low interest rates led to complacency
Yes, when buying we were all told to expect interest rate rises – and I didn’t particularly stretch myself so I’m ok for now. For many people my age though, all we have ever known is low interest rates – so this is a much bigger shock than it will be for the, err, more advanced of age among us
We are the same age. +/- I have always been acutely aware that rates have to rise. And although I wasn't directly affected by 2007 the 1980s and black Wednesday in 1992 I'm aware of them and the devastating effects they had on peoples lives.
While. I know it's not your style - chosing to not educate and bury your head in the sand on what is likely to be your biggest financial decision of your life is unwise and for those people who have ignored the signs and mortgaged to the moon I have minimal sympathy.
There are several reasons why they could end up in this situation even when educated on the situation through bad timing and family needs I appreciate and for those people I have sympathy for and think the governemnt should help since they have been instrumental in getting us here.
I don’t think thats what has happened for most folk in the difficult situation of struggling to pay their mortgage
You say most, I'd say many or even some, and yes i have sympathy for them where the multiple of salary is higher now than it was.
But there are many (or some, but probably not most 😉 ) that aren't in that situationand yet still now find themselves over-committed because they didn't listen or take the warnings seriously.
chosing to not educate and bury your head in the sand on what is likely to be your biggest financial decision of your life is unwise and for those people who have ignored the signs and mortgaged to the moon I have minimal sympathy.
They wanted to buy a house and with house prices so stupidly high it is the only option. Yes it was a risk to get a big mortgage assuming interest rates would never rise but in the long run they will be better off than if their money went to a landlord every month.
Yes it was a risk to get a big mortgage assuming interest rates would never rise but in the long run they will be better off than if their money went to a landlord every month.
That is only so because our rental market is also fubar. for many of these folk renting would have been the sensible option if we had secure tenancies of decent standard housing at sensible rents - like in much of europe
They wanted to buy a house and with house prices so stupidly high it is the only option. Yes it was a risk to get a big mortgage assuming interest rates would never rise but in the long run they will be better off than if their money went to a landlord every month.
Indeed and for everyone of those who have just recently joined the market (see also my post where I said bad timing and family needs) there will be multiples of people with equity who have been climbing the ladder and getting the house of their dreams so their children can live their best life that face being left swimming with no pants on when the tides gone out.
I know I've spoken to a number of people in my industry who are genuinely shitting them selves as they didn't see this happening this quickly and are sitting with a 2 year fix coming to an end and facing 4 figure per month mortgage increases.
What did you do with the money that you weren’t stretched with? Have you overpaid so you are reducing the impact of the rate rises with a lower capital element, or do you have a pot that you can use to buffer, say 3-6mo of salary as ML would suggest? Or did it all get spent?
I wasn't really posting about my specific circumstances, I was just trying to give an alternate viewpoint to the 'it should have been really obvious this would happen' side. Personally, I saved a chunk rather than paying off extra on the mortgage. I work in a relatively volatile industry and I sleep better knowing I can live off my savings for a while.
For many people my age, the market in our (financial) lifetime has taught us that rates only ever go down. As an example, when I bought my first house I was very aware that interest rates might rise, so I fixed at 5 years at something like 4% (at the time a good deal). I got burned, because all the rates did was fall for that 5 year period! Since then I have only fixed for 2 years at a time and, until now, rates have only ever gone down. I've just remortgaged (again 2 year fixed) at 4.39%, so my payments have gone up to £933/month from £750/month. I can cope with that, but I can completely sympathise with those who can't. Having only ever seen rates fall, I can't blame them for thinking things would stay that way.
TJ - you keep going on about rental prices in Europe, but it’s clear that you actually don’t have a clue. Yes, average rental prices are lower, but that’s because rates for people already renting don’t rise. But for anyone starting out or for those needing to move, private rental rates are defined by the housing price. Rental rates in Paris, Munich, Toulouse, Hamburg, Berlin are all similar or higher than London, Bristol, etc.
Almost everyone that’s just started out on a mortgage finds in harder in the first few years. Even if the mortgage rate is cheaper, there are things you have to cover which you don’t when renting. Maintenance, etc.
The situation today isn’t the same as 20-30 years ago. Even forgetting house prices for a moment. Public transport is more expensive, food, insurance, etc are more expensive, there are more necessities, internet, phones, etc. childcare is much more expensive and for many people who’ve moved to work, not available through family. Council tax has dramatically outstripped wages over than last 20y.
Each of these may only represent small percentage differences, but somethinged, their effects are substantial.
And before anyone chimes in about latest phones, subscription services, flash cars, etc. I remember my parents and most of our circle renting TVs from Radio Rentals, buying things from Catalogues such as Freemans and Kay’s and still going on holiday quite frequently.
As for cars, I wonder how many people lease simply BECUASE they can’t afford the outright payment. I’m sure there are many who rent nicer than they should, but truthfully, most of what I see are bottom of the range BMWs, Audis, but that’s probably because that’s what I notice.
But trying to get this back on topic. Average house price in the UK is £285k. Average wage is £33k. Assuming a 5% deposit, that’s £271k. That’s 4.1x JOINT income. In old money that would be over 7.5x the primary earner. This isn’t aspirational purchasing, it’s average.
Now assuming those people are approaching the end of their first term, their first rate would’ve been around 4%, so a payment of £1471 over 25y. Let’s assume also that they extended the term to match previous rental rates so a 30y term is £1200/m. Let’s assume a single child with childcare at a (very reasonable) £600 a month done through salary sacrifice and a pension contribution of 8% also through salary sacrifice. Joint take home is £3400 a month. Mortgage is £1200, council tax £300, utilities £250-£300, food £600 (family of 3 with you child) insurance and digital, £80. Car fuel, tax insurance, £100.
That’s £2600/m in just bills. This assumes no other debts, no cars, no student loans. Anyone with their first child AND first house knows this is rubbish, but hey ho.
Now, let’s assume your house is worth exactly what you paid 2 years ago (first up and now down) so at best you can secure the same 95% LTV mortgage. The new 2y fixed rate is 6.35%. That’s £1734 an increase of £534. That family now has less than £300 a month as a buffer assuming very generous circumstances.
My experience is that wages don’t always track well with house prices per region. House prices are often driven by small import or small wealthy group factors, which means that to stay in a particular region, that initial borrowing/income has to be stretched. Bristol for example. The average house price is £395k, but the average wage is only £35k, so the ratio is now 5.7, the repayment is now £1550 at 4%, at £2300 at 6.35%
the Bristol family are now in the RED by £235.
TJ – you keep going on about rental prices in Europe, but it’s clear that you actually don’t have a clue.
apart from its not just prices its security and actually I have family members renting at controlled prices in Amsterdam ( who took on the tenancy only a couple of years ago) and also family members who are landlords in Amsterdam one of the most expensive cities in the world.
Not all rents are controlled in Amsterdam - there are two / three classes of rental once again its not just prices - its security and quality of accommodation
On prices you are conflating 2 things. Non controlled rental prices cannot be put up much during the course of the tenancy and controlled rentals that have a fixed ceiling - even for a new tenancy
If you rent in the Netherlands - controlled tenancy or not you know two things - no no fault evictions and no severe price rises. If you live in a rent controlled tenancy it will also be cheap. if its a non controlled one it will not be - but you know that you cannot be hit with huge rises and also that you cannot be evicted unless you are at fault
Edit - my family members whoa re landlords have just had to reduce their rent on their non controlled flat because a tightening of regulations mean they cannot let it to so many tenants.
But we’re not in the Netherlands and this is as helpful to the thread as fairy wings on a cement truck. I specifically tried to put the thread back on track with my last post and you have unhelpfully detailed it with posts that’re less than helpful.
You seem to have spare time, please go start a thread on rent control, add real facts (not anecdotes) and let’s have a discussion on it and how we can perhaps take action on it, other wise it’s just a huge waste of time.
Back on topic and related to my previous post, times are different and the assumption that all/most young people are being financially reckless by choice is as myopic as assuming that everyone that voted for Brexit is a gammon, moron or racist.
Remember when Osborne tried to pay off the debt. It’s called austerity. And they made hash of it.
Only one chancellor in recent times has paid off debt and not made a complete pigs ear of it. Gordon Brown made the last of the lend-lease payments to USA and freed us of our obligations to them.
The current mob are trying to get us indebted to the monster again. For the avoidance of doubt there is no "Special Relationship" it's more a financial abuse thing as seen in some marriages/relationships.
No - but if we had rent controls it would help the situation in the UK - its an example of how there are other ways to do things. You also said I didn't have a clue in a very derogatory manner so I am supposed to not explain where my knowledge comes from?
The very weak laws on rentals in the UK have a strong bearing on the housing market
1) buy to let can be very profitable so pushing up house prices
2) Insecure tenancies pushes people into buying so leads to over extended mortgage holders and guess what - contributes to house price rises
If we want to understand how we got to where we are and how to solve the issues rental market is a huge part of that
No need to be so offensive dude 🙂
If you rent in the Netherlands – controlled tenancy or not you know two things – no no fault evictions and no severe price rises. If you live in a rent controlled tenancy it will also be cheap. if its a non controlled one it will not be – but you know that you cannot be hit with huge rises and also that you cannot be evicted unless you are at fault
And yet many dutch colleagues when I worked there were very vocal about how shit being trapped renting was due to high property prices.
Seems the ideals are different dependant on which side of the spoon you live.
Yes - my family are on both sides of this. My nephew earning good money can not afford to buy. Fortunately he has the option of secure rental at a reasonable prtce instead - an option not available here
interest rate rises are making money for the wealthy. so, in order to push down inflation those with means and no mortgages will actually have MORE money to spend.
re all the over extending bollocks. of course there are some. but they are in the minority and to just focus on them 'because you chose to not get a nice kitchen' is completely missing the bigger picture.
when I took our mortgage I budgeted at 7%. it wouldn't be comfy but doable. I did not factor it would go up so fast. that bills would double/ triple. that inflation would be 10% and my salary only go up 3.5%. all inside 12months. this is what is screwing families. not because they leased a new audi. such a narrow envious viewpoint.
would I have made some different decisions had I had a crystal ball? probably. can I go back, no. just glad I didn't upgrade the 14 plate kia or press go on the garden project this year as planned. some people will have really been caught with thier pants down due to the speed and timing of it all. they've been given no time to address the situation and the factors are mostly outside of their control
re all the over extending bollocks. of course there are some. but they are in the minority and to just focus on them ‘because you chose to not get a nice kitchen’ is completely missing the bigger picture.
I'm not 'focussing' on them, I already said I have sympathy and support for those that have been caught out for reasons beyond. Just also reflecting I don't have the same sympathy for those that walked in to it by wilful ignorance or blind stupidity. It is possible to do both
BTW I don't think 'help' for mortgage owners is what is needed either (then again I was also against paying people's salaries during lockdowns...)
what I think needs to be addressed os that the whacking up of interest rates so fast will do little to curb inflation because of the nature of it and will cause a lot of unnecessary pain to mortgage holders and renters
I don't know on that, depends if you think interest rates will curb spending or not - and frankly I'm not sure as so much for many/most is spending on bills and groceries.
But play 'lets pretend' for now and assume it does....this creeping rate rises is like boiling a frog, each month we can shave a few quid and not really change behaviour. Maybe a bigger hike a year ago might have shocked behaviour change, as indeed ending of fixed rate deals will
BTW I don’t think ‘help’ for mortgage owners is what is needed either
Goverment help, I agree, but bank helps should be enshrined. Banks are arguably the ones that have created this from 2000-now using debt as new money, the reap the profits of boom and bust with equal measure and the wealthy get wealthier and the poor get poorer.
Banks perhaps should be made to account for some of the debt on their books by swallowing some of the interest rate rises (for a time) to prevent rapid rises and an unfair split between lending and borrowing rates existing.
when I took our mortgage I budgeted at 7%. it wouldn’t be comfy but doable. I did not factor it would go up so fast. that bills would double/ triple. that inflation would be 10% and my salary only go up 3.5%. all inside 12months. this is what is screwing families. not because they leased a new audi. such a narrow envious viewpoint.
I think this shows just how shit it can be. DT78 seems to have made sensible decisions and been cautious and its still hurting. Those that didn't make good decisions will be really screwed
I think we need to be really careful tho about looking at this from a point of view of those deserving of help ( because they were cautious and still in a bit of trouble) and those undeserving because they made poor decisions ( from our point of view)
One thing that strikes me is that this pain is shared very unequally what is it? - only 30% have mortgages and only 20% of them will be facing unaffordable rises ( so I have read) so its some hundreds of thousands of folk being badly affected ( plus those who will be facing huge rent rises or eviction) and for some of them that financial pressure is going to be crippling
The penny is dropping. Expect a u-turn on no help for mortgage holders very soon. Probably after the July by-elections when they get eviscerated in safe seats.
One Tory MP called on the government to look at “politically unpalatable” options to help spread the pain of tackling inflation away from mortgage holders, such as slashing state-backed support for the wealthy.
The rate rises will curb spending, but what it will first do is increase debt as people struggle to adapt/cope. Then, when people are utterly trapped by repayments of every kind and their only hope is pay rises to service debt or restructuring (mortgage add on, debt management, etc). They’re perpetually trapped never managing to rise out of it until their circumstances change (children in school, job move with substantial pay rise, inheritance). And then there’s this assumption that people are recklessly spending.
*Cynic hat on*
the mortgage price rises are affecting tory voters disproportionately and making it harder to hold onto the seats in the byelections
some discussion here that might be interesting
*Cynic hat on*
No cynicism required, it’s just cold hard reality. Tory MPs are finally figuring out that the people they’re throwing to the wolves are their own voters.
Agreed it's a Tory voter targeted impact at present.
The issue is that the tax hikes many are also suggesting are as unpalatable and our politicians have shown time and time again they don't have the vision or integrity to do what's in the best interests of a nation.
<p style="text-align: center;">Jesus.
Labour have the same answers. Nothing.</p>
https://twitter.com/SaulStaniforth/status/1672878214790742017?t=I06y7HqIPkVUDgbJ6c5T6Q&s=19
The swell of 'left-wing' British savers must be euphoric.
thats also nonsense is it not? Savers rates have gone up.
<p style="text-align: left;">Only one chancellor in recent times has paid off debt and not made a complete pigs ear of it.</p>
I'm talking sovereign 'debt' specifically.
You think yet again this might be natural territory for the Labour party.
But no, nothing. Crumbs, tinkering etc.
No one is looking out for you these days are they?
Wholesale collapse coming soon.
Starmer was busy at a Murdoch dinner party though.
Also, interesting contradictions on wage information on the BoE inflation report.
"The pick-up in annual pay growth since the time of the May Report had been concentrated in higher-paying sectors such as financial and business services. Pay growth in lower-paid sectors... had been broadly flat."
https://twitter.com/meadwaj/status/1671896730428928000?t=mIqH23w4Dkj4_964uHognQ&s=19
Yep, even my current account has been going up every month.
You think yet again this might be natural territory for the Labour party.
But no, nothing
Indeed. We need a proper opposition in Westminster - who can quickly articulate the issues at hand.
As someone on twitter observed, the opposition now consists of Carol Vorderman, Gary Lineker, Dom Joly, etc
