The Bank of England seems to be giving the clearest possible sign that it thinks the UK housing bubble will burst, and it thinks that a 'soft landing' for those affected by the fall out is unlikely. That, after all, is the invariable historical precedent of such crashes. Negative equity and excessive credit burdens always follow and take years to clear from the system.
And why is this happening? All because George Osborne deliberately and wholly inappropriately blew the bubble up.
That will be what he is remembered for. We once had a Lawson boom and crash. Amazingly Osborne will have a recession and crash.
The worst Chancelllor beyond living memory, anyone?
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Gordon Brown was the worst chancellor by a long mile.
We are still feeling the effects of the Gold being sold cheap and allowing people to borrow to a significant extreme to bankrupt the country.
It appears people have very short memories.
I have to say the gold issue shows an obsession with irrelevance that makes all else you say utterly irrelevant
Alan Beattie at the FT is extremely good on why the Gordon Brown sell-off was the right thing to do (see http://www.ft.com/cms/s/0/5788dbac-7680-11e0-b05b-00144feabdc0.html#axzz30ZLSYxLp – paywalled but a good piece.)
Sorry – I just realised Carol posted the exact same piece as me just below! I really should read the whole thread before replying…
If it’s worth saying it’s worth saying twice
That old song keeps repeating and I keep having to post this from FT:
May 4, 2011 11:16 pm
Britain was right to sell off its pile of gold
By Alan Beattie
The continued run of the gold price is a global investment sensation. Recently it broke the $1,500 an ounce barrier for the first time, 30 per cent higher than a year ago. Surely this lays bare the extraordinary foolishness of Gordon Brown’s announcement, 12 years ago this week, that the UK Treasury would sell off some of Britain’s gold holdings?
Actually, no. On this one occasion, Mr Brown’s decision was the right one. Let speculators go gambling on a shiny metal, if they want to. For most governments in rich countries, holding gold remains a largely pointless activity.
With hindsight, of course, Mr Brown could have gained a better price by waiting. At current rates, the $3.5bn the UK received selling bullion between 1999 and 2002 would have been closer to $19bn. The difference at current exchange rates, by the way, would be enough to cover a little over three weeks of the UK’s expected public deficit for the fiscal year 2010-2011 — not negligible, but hardly pivotal.
Mr Brown, his critics say, must be kicking himself. Similarly, the French no doubt still suffer sleepless nights for prematurely taking profit on their Louisiana claim by offloading it to Thomas Jefferson in 1803. And had I put my life savings on Ballabriggs at 20-1 before last month’s Grand National, I’d be writing this on a solid platinum laptop while being sprayed with pink champagne in my new beachfront villa in Barbados.
That is the way of things with speculative assets. The truth is that no one has a good explanation why the gold price is currently where it is. The familiar story — a hedge against inflation or government insolvency — is flatly contradicted by the low yields and inflation expectations in US Treasury bonds. The volatility of gold (and other precious metals — witness the huge drop in silver prices this week) merely underlines the risk of holding it. The $1,500 landmark is a nominal price: had governments listened to the bullion fanatics and loaded up on gold in the last big bull market in the early 1980s, they would still be waiting to earn their money back in real terms.
More substantively, criticism of Mr Brown’s sale also betrays a misunderstanding of why a country such as the UK has gold at all.
In common with most rich nations, the function of British foreign exchange reserves is not for the government to manage wealth on behalf of the country. British citizens do that themselves. The UK does not have a sovereign wealth fund that aims to maximise returns, and nor should it. It is not a big net oil and gas exporter such as Norway — UK net foreign exchange reserves are about $40bn, equivalent to 2 per cent of nominal gross domestic product, while Norway’s sovereign fund has $525bn, equivalent to almost 140 per cent of its GDP.
Nor does the UK pile up foreign assets by persistently selling its own currency to manipulate the exchange rate, as does China. It is notable that the much-vaunted official purchases of gold over the past year are mainly by countries such as China and Russia — and, to a lesser extent, Mexico — with big excess reserves.
UK reserves are there mainly for precautionary reasons — to intervene in currency markets to stop a run on sterling or to pursue monetary policy objectives. Yet gold is badly suited for this task because, despite recent interest from private investors, a large proportion of global above-ground stocks — 18 per cent in 2010 — is still held by governments.
Any attempt to sell off large amounts quickly risks driving down the world price, which is what happened after Mr Brown’s announcement in 1999, leading to an international agreement between central banks to restrict further sales.
A precautionary reserve asset held for intervention purposes whose price is likely to fall the instant it is used to intervene is singularly pointless. Of course, central banks selling into a rising market like today’s may not have the same impact as in 1999, but who knows what demand for gold will be like if and when the intervention is needed?
There remains only one other main reason for governments to hold gold — to set monetary policy by linking the national currency to the gold price. This remains as bad an idea as ever. It would have meant sharply tightening monetary policy since the fall of 2008. This would have been madness.
Private investors, and sovereign wealth funds out to make returns, can punt their money on what they like. If they choose to plonk it down on the blackjack table of the commodity markets, that is their decision. But there is no good reason that governments that hold reserves for purely precautionary purposes should feel the need to follow them.
Thanks!
We as a country were no where near bankruptcy, the money printing game and bank bailout were a fault of our out if control deregulated banking system. Brown had to prop up this mess but it never once meant the country was bankrupt.
“The worst Chancelllor beyond living memory, anyone?”
Err…Gordon Brown and his massive boom and bust?
I have strongly criticised Brown
And I suspect I always will
But I also think history will be much kinder to him than Osborne, and with very good reason
I think you are once again mistaken.
Osborne has done so much for the UK. GB had so much opportunity and he threw it away destroying the UK.
Only someone sadly deluded could think that of Osborne, in my opinion
Kevin -food bank use has tripled in the space of ONE year, the banking system remains unreformed, public assets have been sold of at a cheap rate and YET ANOTHER Housing bubble which rips the heart out of economies and wrecks lives not to mention unaffordable energy bills. Could you please tell me the location of your planet-I’d like to visit it!
Gordon started well, IMO, & his decision to do away with ACT was a master-stroke. (Even if the Daily Mail etc continue to whine about tax on pensions etc).
He really lost the plot in 2003 when his response to Bliar’s illegal war was “I’ll give you all the money you need”
He also spent more & more on health & education to try to buy off all the Labour MPs who might, otherwise, make the rather obvious connection that starting a war against a foreign country is a ‘war crime’.
The boom was Gordons ¨fault¨, the bust was not. And when you get into the details, you note that those with loads did quite well out of the bust. Unlike Joe Public.
Borrowing to excess to fund the repairs to infrastructure caused by the previous conservative administration?
Maybe.
But then, even the Great and Good failed to forecast the global crash (some did, but were ignored)….but then, since the Great and Good did quite well out of the crash, and continue to do quite well…..I have to wonder about whether it was unforeseen, or planned?
Anyway, on another theme; where the US leads the UK follows:
http://www.zerohedge.com/news/2014-05-01/1-3-homes-unaffordable-freddie-mac-prepares-enter-trailer-home-loan-market
For those who have not followed the rise in mobile home prices, and rents of lots for same…..
Agreed Richard -the new housing bubble displays economic illiteracy of staggering proportions. High housing costs destroy small businesses but are good for the collateralised debt obligations market (bank securitization) which was part of the debt daisy chain that cause the collapse in the first place.
What are the options they can use???
Who are the ‘they’ you are referring to?
A well connected Conservative friend told me yesterday that Osborne is looking for a new position within government – apparently he fancies having a go at foreign affairs.
The words, ‘rats’ and ‘ship’ come to mind for some reason.
That was in the Telegraph newspaper…
Does anyone still think the inevitable ‘bust’ is indicative of ‘failure’… I rather hope not.
It will be a failure of course for our economy and the millions of people who will be adversely affected by it. But in terms of Osborne and the Global Nation of Wealth he really represents, it is all part of the plan.
‘Boom’ is the period when Government assets are transferred to Private equity, ‘Bust’ is when the public themselves are asset stripped (usually through repossession, as in the 80’s and 90’s), and ‘Recovery’ is when Government debt is transferred to the finances of the private individual.
How many times does a Neo-Liberal Government have to repeat this cycle before the Country finally realises that there is nothing accidental in any of this?
I, like many commentators on this page, typify Osbornomics as morally bereft, intellectually bankrupt and economically illiterate but that is only true if you start from the perspective that this Government wants Britain to thrive. This Government doesn’t give a damn about Britain or its people.
Every boom-bust-recovery cycle brings the Neo-lib dream of Neo-feudalism a step closer. And that’s the real agenda.
Agreed
It should be remembered that blowing up this bubble is actually government policy. The government has deliberately allocated taxpayers money in order to provide the financial sector with a debt bonanza.
And no prizes which mugs who are going to have to pick up the pieces…..yet again!
The housing bubble has been caused by a concerted effort by this (and the previous) government to drive up London (and select parts of the South East) property prices to raise up-front transactional tax and what better way than SDLT. I recall attending a Stamp Taxes Practitioners Group Conference where this was confirmed by an HMRC Policy Member! The problem with this strategy is well-seen with London property prices in particular being out of control with no particular benefit to the rest of the country.
However, as immediate tax is being generated this government will not take any action against this. The ATED regime is a policy winner (tax companies that own properties) but in reality people will pay a small fee (comparative to property price) to retain confidentiality.
This government has decided to prioritize the up-front SDLT payable rather than the long term damage a housing bubble can cause.
To be honest I find that hard to believe: SDLT does not raise that much
Sorry Richard, are you that naïve? During the recession, the government saw the sheer amount of money coming from China, Russia and the Middle East into London property. They then raised the SDLT levels and closed down avoidance schemes as they saw the significant revenues being generated.
This was certainly part of their thought process. Look at the last few budgets, long terms tax issues (such as IHT) have been put on the back-burner whilst instantaneous tax, such as SDLT, has come to the fore.
This is common sense as backed by the facts of what has actually happened.
I don’t dispute money is raised by SDLT
But I think it naive to say that the housing market was stoked for that reason
It may have been in Ireland but here, I think the impact on the rest of the economy was the reason for indifference to housing and I do not think it in the slightest naive to say so. Tax is not the answer to everything
If this or any government was serious about sorting out the housing crisis and at the same time raising some serious revenue (c £200bn pa) they would be introducing a land value tax and abolishing all other property taxes, including SDLT which further hobbles our dysfunctional land market. The value of London property consists mainly of land value, created by us all.
Piketty should have taken LVT more seriously
Perhaps we have approached this from a different focus. I wholly concentrated on tax rather than wider economic matters. What I was trying to say was that there has to be an answer as to why the government, despite their promises, have not really targeted foreign buyers of prime London property. The answer was because their tax take increased exponentially from SDLT receipts and they were/are onto a good thing!
It was not SDLT per se
They thought luring in tax free moeny worked
Utterly bizarre
Totally wrong
Massive inequality resulted, at least in part
Agree with Richard. If you read a lot of the moronic, but highly sought after commentators, they will tell you that billionaires fleeing to London will improve the economy. If you ask “how?” they have no answer, but it does, of course, help bankers, lawyers & estate agents. What more should you want ?
The Coalition, like Gordon Brown before them, have a very big problem: the UK became a net oil importer more or less the month Blair resigned, in 2007:
http://mazamascience.com/OilExport/output_en/Exports_BP_2013_oil_bbl_GB_MZM_NONE_auto_M.png
Without oil exports helping massively both tax takes and keeping the pound sterling strong, “boom” is a difficult task, and this government knows it very well. Just like Blair explained in 1987:
http://www.lrb.co.uk/v09/n19/tony-blair/diary
Therefore they have tried to do two main things:
* Engineer a relatively fast drop in the living standards of median UK residents of around 10-15% (mostly through high price inflation accompanied by wage deflation) under cover of “austerity”, but the drop is meant to be permanent (as it ought to be).
* Try to export house deeds, by creating another pump-and-dump bubble for foreign (and some UK) house speculators; this both earns foreign exchange and taxes.
The second policy is temporary, and by stoking speculation and also UK debt (as part of the pump-and-dump scheme) it probably will cause later a crash; but the Coalition are nearly sure that the next government will be Labour, and I suspect that Osborne wants to boost the chances of something really bad happening after the next election; he is young, and if Labour have to deal with a huge crash after the next election, in 6-7 years time odds are that the Conservatives will be re-elected, and Osborne will be in a good position.
Blissex
Thanks for your comments.
I have, like yiou, been convinced that the only possible explanation for the “right to buy” fiasco is that Gideon expects to lose the next election & is leaving his successor a dead rat in the in-tray. This particular rodent smells to high heaven & may well be carrying plague.
Gordon brown in 1997:
“I will not allow house prices to get out of control and put at risk the sustainability of the recovery.”
http://www.constructionenquirer.com/2014/05/02/flood-of-public-land-to-ease-housing-crisis/