tag:blogger.com,1999:blog-2546602206734889307.post3564618731760136233..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: The personal debt time bombMainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-2546602206734889307.post-31647421561091786152015-12-30T00:28:17.697+00:002015-12-30T00:28:17.697+00:00Why can't we regulate house prices? One option...Why can't we regulate house prices? One option is to set a cap on how fast house prices can rise, linking to general inflation or some other formula. Bigger houses would still cost more than smaller ones. And prices could fall if an area became less desirable.<br /><br />Yes, I know there'd be pockets of rationing and other ill effects, but I think them the lesser evil. Recent decades with frequent periods of near-double digit house price inflation is out of whack with wages. Surging house prices have contributed to significant social problems (e.g. people being forced out of areas they grew up in) and a ballooning welfare bill. <br /><br />A cap would help channel people's savings towards productive activities, instead of fuelling a drawn out housing bubble.<br /><br />SAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-72673920569021644002015-12-27T18:02:19.607+00:002015-12-27T18:02:19.607+00:00"ensure that wage inflation and thus interest..."ensure that wage inflation and thus interest rates remain low."<br />Not really. Interest rates can be whatever the government wants them to be.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-66192918883643755862015-12-27T14:46:00.736+00:002015-12-27T14:46:00.736+00:00SWL wrote: "The first, and perhaps most basic...SWL wrote: "The first, and perhaps most basic, misapprehension is that the financial crisis was the result of UK defaults. It was not."<br /><br />That is to a certain extend a strawman. The "professional" critique was quite nuanced and different. In reports published by the German Bundesbank and Austrian National Bank one does NOT find the notion that private debt caused the crisis. <br /><br />However, boths banks point out that in UK much more people have debts that they can not afford when the economic situation gets worse in comparison to German or Austrian peers. <br /><br />"For example the UK’s high personal debt levels are in large part because of very high house prices, and high house prices are a real problem for many reasons."<br /><br />That is the issue. In an economic crisis the value of houses shrink and many mortgages will be under water. The question is wheter this may be the start of a chain reaction or not.<br /><br />UlenspiegelAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-65792223158889401652015-12-26T20:45:18.638+00:002015-12-26T20:45:18.638+00:00Land value tax
http://markwadsworth.blogspot.co.uk...Land value tax<br />http://markwadsworth.blogspot.co.uk/2015/12/we-dont-have-housing-crisis.html?m=1Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-15291992031443407582015-12-26T20:43:54.376+00:002015-12-26T20:43:54.376+00:00So then the "debt to GDP ratio is too high&qu...So then the "debt to GDP ratio is too high" (too much safe assets/savings people will spend and it will be inflationary!) is not a problem then.Randomhttps://www.blogger.com/profile/04445772572707818311noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-54734110753492818862015-12-26T18:44:31.391+00:002015-12-26T18:44:31.391+00:00I look at the debt problem somewhat differently. ...I look at the debt problem somewhat differently. I am concerned with the possibility that the distribution of income has become so concentrated that the ability to sell potential output depends on the expansion of total debt relative to income. It seems to me that is what has happened in the US: http://www.rweconomics.com/LTLGAD.htm Anonymoushttps://www.blogger.com/profile/16011736382575746163noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-35262528343553428852015-12-26T16:56:21.886+00:002015-12-26T16:56:21.886+00:00BTW on the concept of "privatised keynesianis...BTW on the concept of "privatised keynesianism" I like this summary and insights:<br /><br />http://crookedtimber.org/2011/09/26/colin-crouch-the-strange-non-death-of-neo-liberalism/<br /><br />for example the witty and insightful:<br /><br />«More succinctly financial “irresponsibility became a collective good,” albeit a perverse one – no-one wanted the party to stop or the bezzle to be revealed.»<br /><br />that I translate in part as: "ever higher leverage became a public good", at least for conservative parties (New Labour, Tories, Democrats, Republicans, ...).<br />Blissexnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-34614783431850641382015-12-26T13:48:45.375+00:002015-12-26T13:48:45.375+00:00«Osborne's cunning plan to swap government sec...«Osborne's cunning plan to swap government sector budget deficit for non-government sector dis-saving and borrowing.»<br /><br />As to the figures, here is one of my favourite quotes with some amazing figures:<br /><br />www.opendemocracy.net/ourkingdom/oliver-huitson/thatcher-black-gold-or-red-bricks<br />«Another of Thatcher’s magic potions was 'home equity withdrawal' or remortgaging - drawing down the equity in the borrowers home for (mainly) consumption purposes – new cars, holidays, and so forth. Under the two Prime Ministers that preceded her, James Callaghan and Ted Heath, home equity withdrawal as a percentage of GDP growth was around 36% for both. Under Thatcher, this exploded to over £250bn across her premiership – a staggering 104% of GDP growth. ... Under Major, such withdrawals amounted to only 8% of GDP growth, perhaps reflecting the wider economic climate. But Blair did his homework and let loose – as did Thatcher – a wave of cheap credit, financial deregulation, house price inflation and an equity withdrawal-led consumption boom. Withdrawals under Blair’s leadership totalled around £365bn, that’s a full 103% of GDP growth over the same period,»<br /><br />That's one of my favourite quotes, because it explains most of the politics and economics of the past 35 years.<br /><br />And what has been going on is the debt-collateral spiral and conservative parties becoming the parties of the interests that make profits from ever greater leverage.<br />Blissexnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-81441941881568425332015-12-26T13:31:30.396+00:002015-12-26T13:31:30.396+00:00«Osborne's cunning plan to swap government sec...«Osborne's cunning plan to swap government sector budget deficit for non-government sector dis-saving and borrowing.x<br /><br />This has been going on since M Thatcher's time, with a brief interruption thanks to J Major, and it has inspired most governments in anglo-american countries and Colin Crouch has called it "privatised keynesianism".<br /><br />www.theguardian.com/commentisfree/2013/mar/25/george-osborne-britons-economic-cannon-fodder<br />onlinelibrary.wiley.com/doi/10.1111/j.1467-856X.2009.00377.x/abstract<br /><br />«I am not sure if the household sector will want to replay its 2010/11 debt levels.x<br /><br />Over 50% of the household sector lives for the day and only care about monthly repayments, not the absolute size of the debt. They are short-term arbitrageurs with a phenomenally high discount rate (which is partially justified in a low-trust society).<br /><br />«So future R2B proceeds will be transferred to government income...»<br /><br />Same as for the privatisations of the 1980s. Asset stripping is the strategy that clever insiders prefer.<br />Blissexnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-2224000442075255532015-12-25T14:19:06.931+00:002015-12-25T14:19:06.931+00:00«focus relentlessly on housing, and how a whole ge...«focus relentlessly on housing, and how a whole generation are being denied the possibility of home ownership»<br /><br />This seems to me based on the common illusion that the great british voting public cares about home ownership in general.<br /><br />I think they don't: they used to be very happy to pay low rent for life with council houses, even middle class ones.<br /><br />What the great british voting public care about is not at all house ownership itself, which is expensive and a hassle, but about making massive tax-free effort-free capital gains by government-guaranteed leveraged speculation on property, getting profits of 150% *per year* on invested capital. <br /><br />House ownership, and only in the South, is simply the excuse that gives them the ability to obtain what they really want, massive tax-free effort-free capital gains, year after year.<br /><br />This is understood very well by G Osborne and accomplices: they have been working hard to build higher house prices rather than houses, because bigger house prices, rather than more houses, is what is wanted by the voters who can return a parliamentary majority.<br /><br />As to the general level of debt, it is monstrous, with a high percentage of impaired or non performing loans, even if the averages are less bad than they look. Because debt is not uniformly distributed, and a large number, even if probably barely a majority, of households have significant to large amounts of debt they can barely afford to roll-over.<br /><br />Which means that as G Osborne and D Cameron have very explicitly said, everything depends on pushing up imports from countries with cheaper labour and pushing down UK wages and benefits to ensure that wage inflation and thus interest rates remain low.<br />Blissexnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30282772713996545812015-12-25T10:16:24.423+00:002015-12-25T10:16:24.423+00:00Page 226 and on, in the above document, is very in...Page 226 and on, in the above document, is very interesting.<br />So future R2B proceeds will be transferred to government income...Johnmhttps://www.blogger.com/profile/14763363660123520529noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-18082404691769227262015-12-25T06:25:39.955+00:002015-12-25T06:25:39.955+00:00.
What is the solution to excessive house price....<br /> What is the solution to excessive house prices?<br /><br /> Is inadequate supply the entire problem?<br /><br /> Is policy promoting excessive demand for houses?<br /><br /> Are improvements in form and function feasible?<br />.Anonymoushttps://www.blogger.com/profile/01098498673510354088noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30259319777457523342015-12-25T00:23:09.216+00:002015-12-25T00:23:09.216+00:00The relative absence of defaults in the UK is simp...The relative absence of defaults in the UK is simply a sign that you're still in the Ponzi phase of the Minsky trilogy. Buy-to-let , funding-for-lending , help-to-sell , NINJA loans and other variants of "Extend and Pretend" can delay , but not prevent , the necessary rebalancing.<br /><br />It might not be so bad , however. Japan crashed and burned ~1990 and survived to tell the tale , with a little help (i.e. , extending and pretending ) :<br /><br />http://www.economist.com/blogs/dailychart/2011/11/global-house-prices<br /><br /><br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-75862055135453647402015-12-24T14:11:51.854+00:002015-12-24T14:11:51.854+00:00"UK banks got into difficulties because o/f/ ..."UK banks got into difficulties because o/f/ t/h/e/I/r/ l/e/n/d/i/n/g/ o/v/e/r/s/e/a/s/ they stopped performing as banks and played global roulette instead."<br /><br />FTFY.<br /><br />Ken Houghtonhttps://www.blogger.com/profile/01440837287933536370noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-63912537994759706252015-12-24T12:08:33.520+00:002015-12-24T12:08:33.520+00:00There is another way to look at this. The increase...There is another way to look at this. The increase in personal debt is an element in a continuing fall in the household savings ratio, which at 4.6% for the first 3 quarters of 2015 is now well below the years before the financial crash and down from 11.6% in 2010.<br /><br />The fall in the savings ratio from 5.4% in 2014 has contributed around £9 billion (0.5% GDP) to increased demand over the past year and compared to 2010 it is worth around £80 billion (4.5% GDP). This has helped to offset the effects of fiscal austerity and is an important factor in the recovery.<br /><br />As the savings ratio is now at a historically very low level, it is doubtful if it can continue to fall for much longer. As it stabilises this will remove the stimulus to demand and any increase would become a break on growth. Hence, although the debt figures should not lead us to expect a sudden crash, they add to the picture of a recovery that starting to falter.Anonymoushttps://www.blogger.com/profile/10623963884259918737noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-81196337831287718102015-12-24T09:24:28.295+00:002015-12-24T09:24:28.295+00:00The OBR http://budgetresponsibility.org.uk/pubs/EF...The OBR http://budgetresponsibility.org.uk/pubs/EFO_November__2015.pdf Economic and Fiscal outlook, makes some comment on the "Sectoral Balance" at para: 3.104. The Chart 3.38: Sectoral net lending shows Osborne's cunning plan to swap government sector budget deficit for non-government sector dis-saving and borrowing.<br /><br />The net imports (green line)shows considerable decline. Perhaps BMW dealers in the UK, will be amassing less Pounds Sterling that will need to find UK assets to buy (or sell the Pounds for Euro and take it home).<br /><br />By 2021, the Corporate sector will be paying for Osborne's surplus and the Household sector will be dis-saving and borrowing to pay for the imports. I am not sure if the household sector will want to replay its 2010/11 debt levels.<br /><br />It is the large fiscal deficits of the last seven years that are encouraging the UK recovery. Future Osborne fiscal deficits will be dependant, as they are now, on how much Households want to spend and/or save. If Osborne tries to beat this factual, Household confidence and the economy will shrink.acornhttps://www.blogger.com/profile/16096980683528426092noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-79928544469063605372015-12-23T16:31:30.219+00:002015-12-23T16:31:30.219+00:00Instead of saying "timebomb", how about ...Instead of saying "timebomb", how about saying, because of sectoral reasons, if growth from austerity is strong it comes about by not reducing the debt of the whole system, but rather swapping growth due to public debt with growth due to private debt, and it therefore individualises debt? And then go on to say that this is unjust because it burdens those with fewer assets/lower income, whereas with public debt risk can be socialised and the burden can be dealth with through porgressive taxation if need be?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-48552016986342150512015-12-23T13:55:00.856+00:002015-12-23T13:55:00.856+00:00Great post. I would also add that, to the extent t...Great post. I would also add that, to the extent to which we are worried about debt (presumably due to the spectre of debt crises), we should be worried about debt servicing costs. With interest rates historically low, these costs are a lot lower than looking at the simple quantities alone would imply. <br />blenheimhttps://www.blogger.com/profile/09958041567058351874noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-59451955455056147522015-12-23T11:27:41.631+00:002015-12-23T11:27:41.631+00:00Looking at debt, seems to me, somewhat like lookin...Looking at debt, seems to me, somewhat like looking at a censored variable, since it possibly disregards many without debt. Can you provide information regarding savings or total assets? These may show interesting trends too.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-71316154402369270232015-12-23T10:12:12.313+00:002015-12-23T10:12:12.313+00:00I agree with SW-L: private debt is not a huge prob...I agree with SW-L: private debt is not a huge problem. A Bank of England study (link below) says mortgagors are less concerned about mortgage repayments than in the early 1990s. So unless there's a very sudden and steep rise in interest rates, there isn't much of a problem.<br /><br />https://twitter.com/bankofengland/status/677201580324597760Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.com