the model of capitalism is working

It is…people's welfare sadly is not one of the parameters in the model.

(although some people do need to redress what they view as 'necessities', but hey their high expectations are due to/a requirement of Capitalism in the first place! :))

A crash would see too many people bankrupt and the lenders with properties worth less than they lent to the buyers.

Property prices are set by the market, it's one of the few areas where that's the case. people are taking cuts in income and losing their jobs, whilst banks are tightening up on lending.
Fewer people buying with less money to spend doesn't fuel a property boom does it?
Also, if there are (and no-one's going to argue that there aren't) going to be massive public sector cuts, do you think that might affect the property market? The NHS alone is the fourth largest employer in the world, the cuts to it alone will have a serious and sustained effect on the housing market, at the very least to the extent that NHS employees wil be less keen to risk taking on a mortgage that they'll be unable to pay if they lose their jobs then their homes. Multiply that over the whole public sector and the picture looks less rosy than you seem to think. then factor in the private sector job losses and you think the econly can really sustain boom house prices do you?
then let's add to that little mix the people who are not spending money now because the see the need to be saving, just in case. Those savings are money not circulating round the economy creating jobs as it goes. reduced economic activity = high house prices?

Maybe we need to cull a few old people logan's run style.

Not only would it reduce the 'pensions burden' but people would inherit their assets so encouraging spending and the government gets more tax from it too, reducing the public borrowing?

Win/win…no? 🙁

On a serious note are there any stats for increasing death rates during economic down turns?

The goverment printing money it doesn't have

It prints it, so it does have it. That's why it's called printing and not borrowing 🙂 Oh and it's the Bank of England anyway not the Govt.

backhander – Member

Yeah a property crash and the associated interest rise is just what the country needs
Do you want people to lose their homes?
If you can't afford a house, look for a smaller place or get a better paying job.

or how about you shouldnt have borrowed at such a ridculously large factor of your income,ie a house you couldnt really afford, in the 1st place

But a price crash hurts current owners, which isn't nice.

Only if you sell & then most would be buying again at a deflated price anyway

I guess I'm lucky in that I've paid my mortgage off & house prices are really irrelevant.

or how about you shouldnt have borrowed at such a ridculously large factor of your income,ie a house you couldnt really afford, in the 1st place

What if you didn't, and your income then falls? Not everyone who gets repoed is an idiot with a massive mortgage.

Depends on how you define "money" Pretty little bits of paper with numbers on them or the wealth to actually back them up. the bits of paper are IOUs ("The bank of England promises to pay the bearer on demand.." The governament/BofE is printing IOUs it doesbn't have the wealth to support.
And the Bank of England are effectively the fiscal arm of the government. The Bank couldn't have printed the extra notes without being told to do so.

Yeah a property crash and the associated interest rise

I'm not an economist, so humour me. Why would falling house prices inevitably result in an interest rate rise (given recent falls have resulted in decreases in interest rates!)?

As uplink says, if you think that falling house prices are a problem for all property owners then you've been taken in by the hype which was one of the factors for the whole mess we're in.

I love a good cheery thread 🙄

Thanks, i was feeling quite positive till i read this one 😉

aracer – when houses are reposessed the banks lose money. And if prices are crashing, the bank can only sell at a pretty small fraction of what they lent out. The BoE base rate might not rise but the banks' real rates will, since they need to recoup money.

Property prices are set by the market

Some might say set by greedy estate agents.
I've seen property taken off the market before Christmas only to come back on after Christmas upto 20% higher. And if you do some research on historical house prices on that particular road with comparable houses – it just isn't warranted.

Now somebody stupid and desperate enough may buy it – but that still doesn't justify the price. I'd like to think the market has learned from past mistakes but excessive borrowing for unrealistically priced property is all a recipe for disaster.

And with Greece, Spain, Portugal, Italy and Ireland all being in a deep economic mess who knows what is around the next corner?

BBSB – the little bits of paper are irrelevant, since no-one's literally printing them anyway.

Quantitative easing

Quantitative easing is sometimes described as 'printing money', although the central bank actually creates it electronically 'out of nothing' by increasing the credit in its own bank account

and what if it isn't. we live in a benign environment with little risk from earthquake, fire, flood, famine.

as long as i'm healthy then its not really to much bother if I cant buy a few trinkets to make life a little more fun.

We could be in Haiti with a limb roughly hacked off and all our close friends and family dead.

This is going to sound mad, but to some degree their position is enviable. Once you're at the bottom (an unpleasant and sad ride) you can only go up, everyone else there is at the same level and everyone helps each other out to make the place habitable. It's a fairly positive place to be if you can see past the initial suffering. Sort of the opposite here.

Yeah a property crash and the associated interest rise

A property crash would actually put pressure on keeping interest rates low.

An interest rate rise happened when the inter-bank's cost of lending / borrowing goes up (LIBOR?). And as you know this happened with all the toxic debt floating about. And if countries in the Euro zone start going pear-shaped (as per Greece) – it's going cost more money to borrow.

If Osbourne gets his hands on the economy we will deffo have a further recession. Cutting expenditure as we are trying to get back to some level of growth would be a total disaster.

Some might say set by greedy estate agents.

It's not the estate agents buying houses – if they set the price too high they won't do any trade (as has been happening recently).

The BoE base rate might not rise but the banks' real rates will, since they need to recoup money.

Well yes, but even the banks' rates with risk factored in are at historically low levels – there's quite a lot of room for them to add in extra risk margin without the rates becoming such that anybody with any sense should have a problem (ie still lower than the rates people were paying last century).

Cutting expenditure as we are trying to get back to some level of growth would be a total disaster.

Says one lot of economists, whilst another lot says something totally different.

The trouble is, we're really deep in it this time, and if something isn't doen to start balancing the books, external factors rather than internal ones could start causing us problems due to decreasing confidence in us as a country.

We could be in Haiti with a limb roughly hacked off and all our close friends and family dead.

This is going to sound mad, but to some degree their position is enviable. Once you're at the bottom (an unpleasant and sad ride) you can only go up, everyone else there is at the same level and everyone helps each other out to make the place habitable. It's a fairly positive place to be if you can see past the initial suffering. Sort of the opposite here.

Bloody hell, I hope nobody from Haiti reads that, they would feel seriously patronised

The first one aint over yet, there is a solution, keep printing money (quantitive easing) until everyone has enough and the national debt is paid off.

Cutting expenditure as we are trying to get back to some level of growth would be a total disaster.

Well the alternative is to either keep borrow more and more – or raise taxes both of which have their own problems. If I was in opposition I'd be hoping my party didn't win this time around…same as back in '92; whoever gets in next time is gonna be hated.

Some would say we need high inflation to inflate the debt down to a manageable level – that'll lead to nice high interest rates so you might want to fix now….

as long as i'm healthy then its not really to much bother if I cant buy a few trinkets to make life a little more fun.

There's trinkets, and there's paying your rent/mortgage and bills.

Some would say we need high inflation to inflate the debt down to a manageable level –

A lot of the debt has been generated by bailing out the banks, buying shares etc. As the economy improves, this debt will dissipate and the sale of shares might even make a profit. Osbourne on the otherhand seems to want to stifle recovery, and flog off the shares at a discount, we lose two ways there.

The level of UK debt is not actually that high anyway when compared to other countries.

Kimbers, my remaining mortgage is ~1.5X our combined salaries, so we most certainly have not borrowed irresponsibly.
Maybe if you had made some better decisions, tried a bit harder and weren't so difficult to get on with you'd be able to afford a studio flat in Peckham.

Quantitative easing is sometimes described as 'printing money', although the central bank actually creates it electronically 'out of nothing' by increasing the credit in its own bank account

Yes, inventing money with nothing to back it up.
Whether that's printing money or just saying it's there is the irrelevant part, the fact is that there is a claim to wealth that does not exist. And that's what got us into this hole in the first place.

Jeez, you really do need things explained, don't you?

Yes, inventing money with nothing to back it up.

But money never has anything to back it up… does it? It's just numbers on a computer!

Good old financial innovation

Maybe if you had made some better decisions, tried a bit harder and weren't so difficult to get on with you'd be able to afford a studio flat in Peckham.

I do enjoy the level of condescension on STW some days. Other days it drives me mad

ever heard of gold reserves?

The ones that labour sold for pittance?

According to that wikipedia page, we only have £10bn of gold. There must be a lot more sterling in the world than that.

So a lot of money out there has no gold to back it up, doesn't it? Is that wrong?

the model of capitalism is working

Unfortunately our brand of capitalism relies on infinite economic growth. Banks lend money then demand payment with interest. Interest payments can only come out of growth.

See the problem?

Our economic system relies on infinite growth. But we live on a planet with finite resources.

Which is a problem as we are currently running out of oil, fish, hard woods and fresh water, to name just a few things.

This guy has my favourite take on our current situation:

Richard Heinberg

But in terms of explaining why "modern life is rubbish", this guy is a more entertaining read:

James Howard Kunstler

Kimbers, my remaining mortgage is ~1.5X our combined salaries, so we most certainly have not borrowed irresponsibly.
Maybe if you had made some better decisions, tried a bit harder and weren't so difficult to get on with you'd be able to afford a studio flat in Peckham.

im perfectly likable

if your salary is only 1.5x your remaining mortgage then you will be fine, whats the problem?

and fyi! my missus and i now have a very hefty deposit am well in a position to buy a studio flat in peckham ,we just didnt see that buying when prices were silly expensive was the right decision …….looks like we were right

as for the gold reserves labour sold off 400tonnes- we have 300 left-at a loss (compared to todays prices) of 2bn

it wasnt a smart thing to do but against a national debt of 850bn its the least of the governments failings

The level of UK debt is not actually that high anyway when compared to other countries.

"PIIGS" Debt as % of GDP (2010 forecast)
Portugal – 84.6%
Italy – 116.9%
Ireland – 82.9%
Greece – 125%
Spain – 66.3%

Compared to UK?
UK – 80.3% of GDP

The difference? Lower unemployment and not being in the Euro perhaps?
And Alistair Darling has announced a massive amount of spending, erm, I wonder where all this money is going to come from…..

http404 i thought we were at 60% of GDP

USA is at 71% japan at 200%!!

http://www.economicshelp.org/blog/uk-economy/uk-national-debt/

edit oh i see thats the forecast for 2010

kimbers – those are forecast for 2010.

http://news.bbc.co.uk/1/hi/business/8510603.stm

So if we all work really, really hard for 10 months of the year, don't pay ourselves or each other but just our overseas creditors, we'll be sorted by xmas!

Come on, who's up for it? I will if errr….you will…honest

its all just a load of meaningless numbers