I am intrigued by an Observer subheading this morning that says:
Everything seems set fair [for the Tories]. But Europe and a leadership contest could make next week look like halcyon days in years to come
The political content of the column does not worry me: any party that wins a geenral election has a triumphanmt conference afterwards. What concerns me is that the Observer has not noticed there is the possibility of an economnic downturn.
China is in trouble.
The emerging markets are facing the most enormous debt bubble.
Questions are being raised about the viability of the world's largest commodities trader.
A massive EU company (VW) faces extinction in the face of fraud, and may not be alone.
The Bank of England is suggesting buy-to-let is destabilising UK banks, and our economy in yet another credit bubble.
Around the world there is little investment and a massive savings glut whilst inequality is growing, rapidly.
And the Observer don't think any of that might derail the UK economy.
That's what's really staggering.
And the indifference to this threat is the biggest risk to the UK that there is.
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Since reading this, I’ve vowed never to buy such a dishonest rag again.
http://www.jonathan-cook.net/blog/2015-09-20/guardians-terrible-dilemma-over-corbyn
The fact that the Observer KNEW there were no WMD’s in Iraq and spiked the story means that not only do they have blood on their hands, but also that they failed the first test of journalism, which is to follow the facts wherever they leaf.
The indifference to which you refer in your Blog – post above is another symptom of the same inner decay – an inability to speak truth to power.
Quite. The more things change the more they stay the same.
A hundred years ago we were in the early part of a world war in which decision makers applied approaches based on out of date assumptions which did not recognise or even accept real life changes, preferring instead to focus on what used to be rather than what is. Mis – identifying everything about the nature and scale of what was happening and stubbornly repeating the same irrelevant analysis in the vainglorious hope of achieving different results.
We are still lions led by donkeys ( and their approved scribes).
There must be an antidote to all this doom being described. How about the recently established rail freight services from Kunming to Rotterdam or from Yiwu to Madrid which save around ten days off the sea-freight journey time and quite a lot of energy consumption to boot. Yes, I’m name-dropping but for cities rather than celebrities ( I’ve punted around the block a bit ), but surely this is a piece of green good news, as well as being good for free trade and international cooperation.
A good list for starters and there are a few other predator sharks out there looking for a bite. What is the worry besides the ignorance and indifference is that the UK government, whoever is in power, has little or no control or often influence on events or reactions.
The buy-to-let bubble, which started to rip in earnest around 2002 should have been sat sat on by the Labour Party THEN-but such was the belief in Efficient markets that they did diddly squat-what did this lead to:
1) Unaffordable housing
2) Wealth transfers that have created appalling generational inequity.
3) The death of social mobility
4) A Tory narrative that blames people for being on housing benefit
5) Further hikes in private debt (set to rise to an average[ without mortgages] of £10000)
6) 40% as average amount of disposable income to be spent on rent/mortgage
7) A false narrative the immigration is part of the housing problem
8) The ghastly injustice of the bedroom tax
It opened a Pandoras Box all of its own -and the political world has nothing to say about it-I doubt Corbyn really appreciates the magnitude of this problem.
Yep, I think you’re right. For a few years prior to 2008 I just felt, even though I hadn’t started to look into the economics of the problem, that things weren’t right and that we were heading for a crash. But, the ‘experts’ were saying very similar things, at the time, to what we are reading in articles like the one you’ve highlighted.
So we could be in for GFC part2 which may not be quite as dramatic but will lead to years of recession and increasing levels of unemployment.
Is it caused by indifference or ignorance of how our economies actually work? It’s not that hard to see how easy private credit generation leads initially to a economic boom but then that later leads to a slump as the levels of debt build up in the economy. But the neoliberal experts (not!) don’t learn from their mistakes. That’s the real problem in my opinion. It’s excusable to make a mistake once but not to keep on repeating it.
But a repetition of the same mistakes is exactly what we’ve seen in the eurozone.
What is it about economists, not all of them:-) , which renders them incapable of changing their ideas even in the face of overwhelming practical evidence?
Even the most intelligent and well educated may not be schooled in critical thinking. Nor can they manage the discomfort of cognitive dissonance. It takes maturity and self knowledge to admit you were wrong. Some of us can do that, but far too many cannot.
None so blind as those that dont want to see!
“The Bank of England is suggesting buy-to-let is destabilising UK banks, and our economy in yet another credit bubble.”
One wonders what exactly they are doing about seeing as they are responsible for financial stability.
If this bubble does burst, the consequences I would imagine could be significant and now that Carney has highlghted his awareness I would expect him to be doing something about it (apart from raising the base rate)
Buy-to-let illustrates the weakness of the position taken by some commentators (not here) that monetary and fiscal policy should be kept separate. The expansion of buy to let has been encouraged by favourable tax treatment, which is outside the BoE’s remit.
The Bank of England is being asked to do the impossible. It cannot be given the responsibility of ensuring “financial stability” when it only has monetary tools at its disposal.
It is asked to hit an inflation rate target by varying interest rates. To do that now would require them to be negative as Andy Haldane has recently pointed out. Maybe somewhat obliquely! The lead up to the 2008 crash was caused, in large part, by interest rates being kept too low, leading to a credit bubble developing in the economy. The government was happy to take credit for the boom part of the cycle but not the later inevitable bust.
Interest rates should have been kept higher and subject to tighter regulation. To keep growth on track fiscal policy should have been looser to compensate.
The whole idea of an independent central bank fine tuning the economy in this way, while governments then get on with balancing their budgets is, not to put too fine a point on it, a load of bollocks!
Should be “loans subject to lighter regulation”.
should be “loans subject to tighter regulation!”
I think I should go to bed! Sorry about that!
Basel III regulations will be coming in over the next few years which will change the risk weighting for buy-to-let mortgages. The knock-on effect will be to literally double (possibly more) the interest rates charged.
There is diddly squat that the gov and the BoE can do to stop them coming into force even if they were of such a mind, and the basel III weightings are a global phenomenon, so are not amenable to having exceptions being made for local UK banks. The CML are lobbying heavily anyway but are pretty much doomed to fail.
Moreover these standards will raise mortgage costs for all borrowers (but buy to let the most). So even if our bubble doesn’t pop from some other factor Basel III will do it.
We can expect Basel III to come into force by 2019 at the latest. Either way our economy is toast.
IFRS 9 arrives in 2018
That will also massively squeeze lending
All crises involving the banks lead to three things:
1: Increasing the concentration of wealth;
2: A taxpayer-funded bailout;
3: Suppression of both production and consumption.
Do any of these thing sound like failure to George Osborne?
Hi Richard,
just a thought for you to maybe comment on.
Four stages to every credit cycle:
(1) 20/30% rate rise in new lone growth
(2) asset price bubbles,(real estate, commodity, art etc)
(3) banking system, corruption, state intervention(QE)
(4) currency collapse