Total economic meltdown

[Danbert]

This announcement convinces me that we're really about to enter complete economic meltdown. They are printing money nakedly and without any subterfuge in a desperate attempt to re-capitalise banks, maintain house prices and stave of inflation.

 

Bye-bye pound it was nice knowing you. The next time we meet I'll be using a fiver to wipe my bum.

[Seaford Saint]

I agree that we are in for a bumpy ride....we are downsizing and complete on our property at the end of next week. The motivation for us doing this was to avoid the scenario you outline.

[pap]

I read about this last night before zooming off to bed.

 

Osborne went over-budget last year and ended up borrowing a similar amount to cover the shortfall. The general plan - to get banks to lend more to small businesses and prospective home buyers - has been tried before. That's pretty much been the plan all along. Hasn't been realised at all yet.

 

The big difference here is that, as you say, they are now being very vocal about what they are doing. Very good of Meryvn King to point out that it's the worst crisis since the Second World War. Obviously not a fan of history. Personally, I think I might have ranked the Cuban missile crisis a bit higher

 

I don't even agree with some of their rationale. Maintaining house prices? Last thing we should be doing. The news has been reporting this week that the under 30s are going to be a rental generation, largely because they can't afford homes. Even some with homes will have issues meeting their mortgages, thus limiting the amount of disposable income they have and/or trapping them in that one house.

 

There are other factors, but house prices largely went mental recently because of the sheer amount of credit handed out to those looking to buy, rising in line with what banks were prepared to lend. We now know that the banks were lending too much money. Why is the government borrowing money to prop up unrealistic house prices?

 

Total economic meltdown has been coming for years. Completely avoidable, but no government wants to grasp the nettle and really deal with the banks. Now that we own part of most of them, it really shouldn't be too difficult getting them to lend.

[Danbert]

The general plan - to get banks to lend more to small businesses and prospective home buyers - has been tried before.

 

The plan is to stop the banks going bust - that's all that matters. I think the rest is just smoke and mirrors.

 

Very good of Meryvn King to point out that it's the worst crisis since the Second World War.

 

The Second World War brought an end to the depression of the thirties. He's not expressing himself particularly clearly but what he means is this will be the worst economic crisis since the thirties. I think that may turn out to be an understatement...

 

Maintaining house prices? Last thing we should be doing.

 

If we don't maintain nominal house prices we'll end up with banks in the same state as Ireland's and Spain's. The plan is to gently inflate away the debt. We should never have let house prices reach such unsustainable levels but they're too high now for the bubble to be allowed to burst abruptly.

 

There are other factors, but house prices largely went mental recently because of the sheer amount of credit handed out to those looking to buy.

 

Exactly, liar loans and interest only mortgages. House prices have little or nothing to do with the supply of actual houses and everything to do with the supply of credit.

[Danbert]

I agree that we are in for a bumpy ride....we are downsizing and complete on our property at the end of next week. The motivation for us doing this was to avoid the scenario you outline.

 

Hope it has a nice big garden with a vegetable patch... I'm really starting to get the willies.

[scotty]

The problem with the point about house prices is that in most cases, that is the only thing of any real value people own. Pensions are worth nothing unless you work in the public sector, I fully expect to have to sell my place to be able to even contemplate retiring. Also, if you think back, the worst economic problem we have had in recent times was when house prices were allowed to fall, creating negative equity, a stagnant property market, and economic collapse. I'm not saying housing isn't overpriced, just that I cant see an alternative which wouldn't make things even worse.

[Special K]

 

 

If we don't maintain nominal house prices we'll end up with banks in the same state as Ireland's and Spain's. The plan is to gently inflate away the debt. We should never have let house prices reach such unsustainable levels but they're too high now for the bubble to be allowed to burst abruptly.

 

 

 

House prices are not at unsustainable levels. Most borrowers have managed to keep up with their mortgages. The amount of repo's is nowhere near what it was in the late 80's and early 90's. If you are talking about first time buyers, then there are not the numbers of FTB's that there were, but they are still around, if they are a deemed a good risk by the lenders.

[saintfully]

House prices are not at unsustainable levels. Most borrowers have managed to keep up with their mortgages. The amount of repo's is nowhere near what it was in the late 80's and early 90's. If you are talking about first time buyers, then there are not the numbers of FTB's that there were, but they are still around, if they are a deemed a good risk by the lenders.

 

It is certainly true that most people have been able to pay their mortgage - but arguably that is only because of the incredibly low interest rates banks are being allowed to borrow at. Clearly mortgage payers are subsidising banks to a degree.

 

I'm afraid I don't buy the idea (Pap?) that we need to have a collapse in house prices either - the whole 'creative destruction' process loved by the neoliberals should be applied to business, not homeowners.

 

My belief is that the only way the current model can be sustained/rebooted is via the inflation approach the govt is taking. My disagreement is how it is being implemented. I would prefer printed money to be going into state infrastructure spending rather than failing businesses via failed banks. Specifically I would like to see small scale but widepsread social-housing projects. The govt have taken a useful step in relaxing planning laws - this seems an opportunity to take advantage of this.

 

BTW, to be clear, having said all that I don't think the current system should be sustained for the long term - but changing to a more socialised system now would be a disaster - watch greece in the next two years.

[Frank's cousin]

I read about this last night before zooming off to bed.

 

Osborne went over-budget last year and ended up borrowing a similar amount to cover the shortfall. The general plan - to get banks to lend more to small businesses and prospective home buyers - has been tried before. That's pretty much been the plan all along. Hasn't been realised at all yet.

 

The big difference here is that, as you say, they are now being very vocal about what they are doing. Very good of Meryvn King to point out that it's the worst crisis since the Second World War. Obviously not a fan of history. Personally, I think I might have ranked the Cuban missile crisis a bit higher

 

I don't even agree with some of their rationale. Maintaining house prices? Last thing we should be doing. The news has been reporting this week that the under 30s are going to be a rental generation, largely because they can't afford homes. Even some with homes will have issues meeting their mortgages, thus limiting the amount of disposable income they have and/or trapping them in that one house.

 

There are other factors, but house prices largely went mental recently because of the sheer amount of credit handed out to those looking to buy, rising in line with what banks were prepared to lend. We now know that the banks were lending too much money. Why is the government borrowing money to prop up unrealistic house prices?

 

Total economic meltdown has been coming for years. Completely avoidable, but no government wants to grasp the nettle and really deal with the banks. Now that we own part of most of them, it really shouldn't be too difficult getting them to lend.

 

Sorry Pap, its not anything to do with maintaining house prices or letting them fall, but its vital that they remain at a level above the value of the loans against them. If suddenly millions are in negative equity, this causes the panic in teh lenders and in the owners that could easiliy mirror the problem that started the mess in the US.

 

House prices will stablise based on affordabilty - they always do. The 18%+ growth for 2 years is/has being corrected...as it always does... the problem was at the time it was fuelled by banks lending 6x salary and more at rates that were unsustainable...

 

what I never understood is why banks panic, when the property they lend on is in negative equity - if you take a longer term view, 30-40 years, property prices rise on average about 5-6% per year, which is a good return... why did they not just ride it out? Maybe simplistic, but surely thats the point, keep it simple, understand investment is long term and kep calm.... sadly the finances of nations is goiverned by the stupid feckers in the city, especially thsoe that hedge, sell short, and bet on future down turns.... teh money always goes somewhere, and when the rest of us are struggling, someone is smiling.

[Special K]

 

what I never understood is why banks panic, when the property they lend on is in negative equity - if you take a longer term view, 30-40 years, property prices rise on average about 5-6% per year, which is a good return... why did they not just ride it out? Maybe simplistic, but surely thats the point, keep it simple, understand investment is long term and kep calm.... sadly the finances of nations is goiverned by the stupid feckers in the city, especially thsoe that hedge, sell short, and bet on future down turns.... teh money always goes somewhere, and when the rest of us are struggling, someone is smiling.

 

It's not the property they lend on though. Over the last 15 or so years, the lending of mortgages to individuals is generally well within the valuation of the house, because the buyer has been able to use any equity to reduce borrowings further up the line. Obviously this doesn't apply to FTB's. The Banks main problem was not on lending for purchasing existing stock, but for new developments. Developers had land prices and project GDV's devalued in the face of a falling market. But i agree they were far too quick to pull the plug. However, if you were a bank and you had the option of a) supporting a huge slice of your commitments through the bad times with little or no return or b) pouring all your **** (and some good stuff) into the well of toxic debt knowing that the taxpayer will bail you out, what would you do?

[buctootim]

Theres sometying I dont understand about QE and which the news never covers. The BoE have bought £350bn of bonds from the banks and other investors with newly manufactured money. The banks get liquidity and the BofE gets bonds - which have a value. So far QE hastnt created overmuch inflation and the pounds value hasnt crashed because other currencies are in worse shape than ours . Surely this is a great way to pay off a huge chunk of the the UK national debt? Print money and the BofE buys assets which it can later sell when the crisis has passed.

[pap]

Some interesting points, and a couple of people have pulled me up specifically on my comments about house prices.

 

I can appreciate that there are homeowners out there that would not do well from a price crash, particularly if they happened to buy near to the top of the market. I can also understand that there are people who bought their homes years ago who have seen their investment grow. I can get why both wouldn't want to see prices fall.

 

That said, on a number of levels, they're just not real. We've talked about the effect the supply of credit has. Another huge factor in house pricing is the supply of land. People would have you believe that there isn't any left - yet 2/3rds of this country is owned by less people than live in Southampton. The supply of land is limited by concepts of inheritance and prior ownership, and the supply of credit went up massively during the boom years. Dangerous combination brought about by greed and irresponsible lending. Should we really be throwing money away to prop up a lie?

 

High house prices are bad for everyone. The youth feel like they can't get a stake in society. Anyone paying an artificially high mortgage to a bank is spending money that could be creating demand in the economy elsewhere. Any potential employer looking to set up here knows that they'll be covering people's rent or mortgages, reflected in people's salaries and making us comparatively uncompetitive in a global economy.

 

It's a fix to fix a fix to fix a fix. The Emperor is not just in the nip - he's dangling his tackle and mandating that we all have a nibble.

[Frank's cousin]

Some interesting points, and a couple of people have pulled me up specifically on my comments about house prices.

 

I can appreciate that there are homeowners out there that would not do well from a price crash, particularly if they happened to buy near to the top of the market. I can also understand that there are people who bought their homes years ago who have seen their investment grow. I can get why both wouldn't want to see prices fall.

 

That said, on a number of levels, they're just not real. We've talked about the effect the supply of credit has. Another huge factor in house pricing is the supply of land. People would have you believe that there isn't any left - yet 2/3rds of this country is owned by less people than live in Southampton. The supply of land is limited by concepts of inheritance and prior ownership, and the supply of credit went up massively during the boom years. Dangerous combination brought about by greed and irresponsible lending. Should we really be throwing money away to prop up a lie?

 

High house prices are bad for everyone. The youth feel like they can't get a stake in society. Anyone paying an artificially high mortgage to a bank is spending money that could be creating demand in the economy elsewhere. Any potential employer looking to set up here knows that they'll be covering people's rent or mortgages, reflected in people's salaries and making us comparatively uncompetitive in a global economy.

 

It's a fix to fix a fix to fix a fix. The Emperor is not just in the nip - he's dangling his tackle and mandating that we all have a nibble.

 

Fair points - would like to see banks introduce Swedish style 75 year mortgages that are 'passed on' with inheritance - would take the stress out of it for FTBs and the banks...

[buctootim]

Fair points - would like to see banks introduce Swedish style 75 year mortgages that are 'passed on' with inheritance - would take the stress out of it for FTBs and the banks...

 

That is singulalrly the worst Idea I have EVER heard about reforming the property market. House prices are mainly determined by how much people can afford to pay each month. Lower the monthly payments by extending the period of the loan and you will simply drive up prices to even more ridiculous levels whilst removing the chance for one generation to pay off the loan before retirement. The answer is really simple - build more homes to higher standards and the price will fall.

Edited 15 June, 2012 by buctootim

[Frank's cousin]

That is singulalrly the worst Idea I have EVER heard about reforming the property market.

 

er why?

[dune]

It will all boil down to survival of the fittest in the end. In the old days that usually resulted in a war. Nationalism will rise up the way things are going. Thanks to the Euro I can see a millitary fascist dictatorship coming to power in western europe once again and i'd put money on Spain being favourites to start the ball rolling. And if Britain suffers a depression and we start to see working class people forced towards the breadline then you can start thinking back to Enoch's wise words.

Edited 15 June, 2012 by dune

[buctootim]

I can see a millitary fascist dictatorship coming to power in western europe once again and i'd put money on Spain being favourites to start the ball rolling.

 

Cant see it in Spain. Greece by contrast...

[dune]

Cant see it in Spain. Greece by contrast...

 

1981 wasn't so long ago. The way things are going there will come a time when such a coup will suceed.

 

http://news.bbc.co.uk/onthisday/hi/dates/stories/february/23/newsid_2518000/2518825.stm

[Special K]

Some interesting points, and a couple of people have pulled me up specifically on my comments about house prices.

 

I can appreciate that there are homeowners out there that would not do well from a price crash, particularly if they happened to buy near to the top of the market. I can also understand that there are people who bought their homes years ago who have seen their investment grow. I can get why both wouldn't want to see prices fall.

 

That said, on a number of levels, they're just not real. We've talked about the effect the supply of credit has. Another huge factor in house pricing is the supply of land. People would have you believe that there isn't any left - yet 2/3rds of this country is owned by less people than live in Southampton. The supply of land is limited by concepts of inheritance and prior ownership, and the supply of credit went up massively during the boom years. Dangerous combination brought about by greed and irresponsible lending. Should we really be throwing money away to prop up a lie?

 

High house prices are bad for everyone. The youth feel like they can't get a stake in society. Anyone paying an artificially high mortgage to a bank is spending money that could be creating demand in the economy elsewhere. Any potential employer looking to set up here knows that they'll be covering people's rent or mortgages, reflected in people's salaries and making us comparatively uncompetitive in a global economy.

 

It's a fix to fix a fix to fix a fix. The Emperor is not just in the nip - he's dangling his tackle and mandating that we all have a nibble.

 

Why aren't house prices "real"? How would you value the price of a house? I am interested.

 

And restrictions on land is not so much about who owns it, more like who decides what is gets used for (i.e. LA's, Planning Departments, Central Government).

[aintforever]

We are heading for a massive crash of some sort, the current situation is simply unsustainable. When the first crash happened I jokingly said that we should just print sh!t loads of money - that's exactly what we are doing.

 

The whole situation is f*cked. We are laying off our armed forces and poilce yet the bankers who caused it all are still creaming off millions. The problem is obvious there is only so much money around.

[dune]

We are heading for a massive crash of some sort, the current situation is simply unsustainable. When the first crash happened I jokingly said that we should just print sh!t loads of money - that's exactly what we are doing.

 

The whole situation is f*cked. We are laying off our armed forces and poilce yet the bankers who caused it all are still creaming off millions. The problem is obvious there is only so much money around.

 

There is money, but it's not being spent and a huge chunk has flown out od the west and into China. We are reaping what we have sown from allowing china and other nations to rise up.

[buctootim]

1981 wasn't so long ago. The way things are going there will come a time when such a coup will suceed.

 

http://news.bbc.co.uk/onthisday/hi/dates/stories/february/23/newsid_2518000/2518825.stm

 

Spains main problem is unemployment - people are leaving the country in droves to get work and I doubt many see a muilitary government as a solution to unemployment. Greeks by contrast are angry - they are getting huge budget cuts and blame somebody or somthing. They are more likely to do something stupid imo.

[dune]

Spains main problem is unemployment - people are leaving the country in droves to get work and I doubt many see a muilitary government as a solution to unemployment. Greeks by contrast are angry - they are getting huge budget cuts and blame somebody or somthing. They are more likely to do something stupid imo.

 

If they do it doesn't matter, Greece are an irrelevence of the periphery. Spain is the issue, as i've been saying long before it became topical.

[Upwind]

Although I do own my house, is there really any problem with just renting?

 

Having lived in Germany, the Netherlands and Denmark previously I know that 'long term' renting (especially in Denmark) is widespread. We seem to have a society that is set on owning the bricks and mortar and this infatuation seems to burden people and tie people down - could/should we change to a society of renters?

[Seaford Saint]

It will all boil down to survival of the fittest in the end. In the old days that usually resulted in a war. Nationalism will rise up the way things are going. Thanks to the Euro I can see a millitary fascist dictatorship coming to power in western europe once again and i'd put money on Spain being favourites to start the ball rolling. And if Britain suffers a depression and we start to see working class people forced towards the breadline then you can start thinking back to Enoch's wise words.

 

So the foreigners will rise up but the white English working class who will also be starving will not.

 

Do you have a job? Do you have any qualifications?

[dune]

So the foreigners will rise up but the white English working class who will also be starving will not.

 

Do you have a job? Do you have any qualifications?

 

Where did you extrapolate this suggestion from what I said?

 

Are you a bit thick?

[pap]

Why aren't house prices "real"? How would you value the price of a house? I am interested.

 

At least part of the reason that house prices rose so high is because of an unreal amount of credit being handed out to people. Prices rise to what the market will bear, particularly when the commodity is highly sought after. Thanks to the huge amount of credit being chucked about, the market was able to bear quite a lot - a lot more than was sustainable as it turns out.

 

Your second question is an interesting one. How should house prices be assessed? I can't say that I honestly know. They're a complete oddity. Almost everything that we make depreciates in value - they say you take a couple of grand off a car just by driving off the forecourt. Houses just get more expensive.

 

I do a lot of work in manufacturing. Business model there is pretty simple. Bill of materials + labour + profit margin = cost to customer. That wouldn't be a bad start for new builds.

 

Historical stock is the real conundrum. Take the example of a bloke who paid £25K for a house in the 70s. It'd be great if all that house cost now was £25K plus all the years of cumulative inflation, especially if salaries have risen in step. We're in a dip now, but house prices have been rocketed ahead of inflation for years. The bloke wouldn't be able to sell that place at an inflation-adjusted figure even if he wanted to.

 

And restrictions on land is not so much about who owns it, more like who decides what is gets used for (i.e. LA's, Planning Departments, Central Government).

 

I accept that those are constraints, but if 2/3rds of the landmass is in the hands of a select few people, that is going to affect the cost of land. Supply and demand. Again.

 

The whole thing is a clusterf*ck, Special K. You mentioned earlier that the housing market was stable. Try raising interest rates to anything sensible, then tell me how "stable" we are.

[pap]

Spains main problem is unemployment - people are leaving the country in droves to get work and I doubt many see a muilitary government as a solution to unemployment. Greeks by contrast are angry - they are getting huge budget cuts and blame somebody or somthing. They are more likely to do something stupid imo.

 

I think both are going to present massive problems, but one thing I would say in defence of dune's argument is that Spain have been there before, and recently too. I've seen this manifest itself in a few weird ways. Some older Spaniards you speak to will swear blind that the Spanish invented everything. Perhaps that's what they were told during the Franco years.

 

I do agree with you about Greece, though. Those that are still financially able are getting the feck out of Dodge, parties on the extremes of the political system are gaining sway. Will be very interesting to see what happens after Sunday's election.

[Thedelldays]

comrade Pat wants everyone to live in council houses

[Frank's cousin]

It will all boil down to survival of the fittest in the end. In the old days that usually resulted in a war. Nationalism will rise up the way things are going. Thanks to the Euro I can see a millitary fascist dictatorship coming to power in western europe once again and i'd put money on Spain being favourites to start the ball rolling. And if Britain suffers a depression and we start to see working class people forced towards the breadline then you can start thinking back to Enoch's wise words.

 

Can see you being the first to strut around in a brown shirt and jack boots.... come on, cards on the table, age, job, education? because you constantly come across as an ignorant troll of the highest order, an extreme tory boy fantasist funnier than Enfield's.

 

Reread your biggoted comment regarding us 'letting China and others 'rise up'' if you need an example of your arrogant idiocy.

[pap]

comrade Pat wants everyone to live in council houses

 

You do make me laugh, TDD.

 

For clarity though, I'd just like it if house prices were stable and not being artificially inflated to the point where our kids can't buy homes.

 

Our ancestors would laugh their teats off at what we've become.

 

"Not got a house? Why don't you just build one?"

 

Progress, eh?

[buctootim]

I think both are going to present massive problems, but one thing I would say in defence of dune's argument is that Spain have been there before, and recently too. I've seen this manifest itself in a few weird ways. Some older Spaniards you speak to will swear blind that the Spanish invented everything. Perhaps that's what they were told during the Franco years.

 

I do agree with you about Greece, though. Those that are still financially able are getting the feck out of Dodge, parties on the extremes of the political system are gaining sway. Will be very interesting to see what happens after Sunday's election.

 

Im basing my opinion on some Spanish people I know (we have an office in Madrid) - not exactly statistically significant but Ive no reason to think they feel differently to the rest of the population. Spain seems more resigned and pragmatic - leave the country and get a job. Greeks are much angrier (based on tv coverage of riots and strikes).

[dune]

I think both are going to present massive problems, but one thing I would say in defence of dune's argument is that Spain have been there before, and recently too. I've seen this manifest itself in a few weird ways. Some older Spaniards you speak to will swear blind that the Spanish invented everything. Perhaps that's what they were told during the Franco years.

 

I do agree with you about Greece, though. Those that are still financially able are getting the feck out of Dodge, parties on the extremes of the political system are gaining sway. Will be very interesting to see what happens after Sunday's election.

 

And Greece are no different to Spain, or Italy or myriad others - only they are at a more advanced stage in the process.

[Lord Duckhunter]

Although I do own my house, is there really any problem with just renting?

 

Having lived in Germany, the Netherlands and Denmark previously I know that 'long term' renting (especially in Denmark) is widespread. We seem to have a society that is set on owning the bricks and mortar and this infatuation seems to burden people and tie people down - could/should we change to a society of renters?

 

There is nothing wrong with owning your own house, but houses need to be owned to live in, not used as an investment oppurtunity. The only "savings" a lot of people have, myself included, is the equity in the house.

 

I've always found it strange that we tax people on their hardwork and hammer them when they become more sucsessful, yet people can make vast profits, by just selling their house and the tax is pretty low.

 

When we sell our house, we would have made a huge profit. What have we really done for that profit? It took no skill, no judgement, just being able to afford a mortgage at the time, paying the mortgage ontime, and we'll come out with a load of cash. We didn't buy our house to make money, but even after this downturn, we'll make a few bob.There are millions like us and then add to that the people who do buy to make money and you can see the issue.

 

Unfortunately if you want more people to rent, unless you build loads of council houses, you are going to end up with even more people buying the houses to rent to those people, and making even more money that way.The market will still be inflated

Edited 15 June, 2012 by Lord Duckhunter

[Seaford Saint]

Read this.....

 

Spanish banks have borrowed more money from the ECB than any other country – €227.6 billion. Between them, Spain’s three biggest banks Banco Santander, BBVA, and La Caixa, “have combined assets of about $2.7 trillion. Spain’s three biggest banks are nearly twice as big as the entire Spanish economy. Now it looks like the third of those is in dire straits.

By assets as declared, La Caixabank is the biggest of Spain’s recently downgraded banks: whereas Bankia weighs in at €318bn, Caixa is worth some €355bn. But under pressure from the Rajoy Government, for much of this year the bank has been taking over many local and national concerns large and small. And according to insiders there, the due diligence has not been all it might have been.

 

“We are buying some very bad books,” says one source, “purely to make things look better for market analysts and stress tests. But a lot of the time, we are buying danger. And every time the danger is covered up, it becomes more dangerous still.”

 

A new study from brokers Tullett Prebon called ‘Project Armageddon’ has established the true scale of borrowing in Britain which amounts to a truly staggering £5 trillion or $8.3 trillion.

 

You would hardly think that reading the Sunday papers today that are monumentally self-complacent and seemingly reckon the UK light years away from Europe in terms of financial problems. Yes, they are in a far worse position.

 

Once pension fund liabilities and PFI contracts are included the total public debt is £2.46 trillion or 167 per cent of GDP. To that you have to add the £1.34 trillion in financial sector bailouts. The total public debt is therefore £3.6 trillion or 244 per cent of GDP or £135,000 per UK household.

 

Add mortgage debt

 

Then there is £1.2 trillion in outstanding mortgage debt and £210 billion in unsecured mortgage credit. Together public and private sector debt amounts to £5 trillion, or 340 per cent of GDP.

 

Not sure I understand or could validate/verify the UK figures.......but if this analysis is true we are also in the mire.

[dune]

Can see you being the first to strut around in a brown shirt and jack boots.... come on, cards on the table, age, job, education? because you constantly come across as an ignorant troll of the highest order, an extreme tory boy fantasist funnier than Enfield's.

 

Reread your biggoted comment regarding us 'letting China and others 'rise up'' if you need an example of your arrogant idiocy.

 

Less waffle but just as boring. Must try harder.

[aintforever]

Read this.....

 

Spanish banks have borrowed more money from the ECB than any other country – €227.6 billion. Between them, Spain’s three biggest banks Banco Santander, BBVA, and La Caixa, “have combined assets of about $2.7 trillion. Spain’s three biggest banks are nearly twice as big as the entire Spanish economy. Now it looks like the third of those is in dire straits.

By assets as declared, La Caixabank is the biggest of Spain’s recently downgraded banks: whereas Bankia weighs in at €318bn, Caixa is worth some €355bn. But under pressure from the Rajoy Government, for much of this year the bank has been taking over many local and national concerns large and small. And according to insiders there, the due diligence has not been all it might have been.

 

“We are buying some very bad books,” says one source, “purely to make things look better for market analysts and stress tests. But a lot of the time, we are buying danger. And every time the danger is covered up, it becomes more dangerous still.”

 

A new study from brokers Tullett Prebon called ‘Project Armageddon’ has established the true scale of borrowing in Britain which amounts to a truly staggering £5 trillion or $8.3 trillion.

 

You would hardly think that reading the Sunday papers today that are monumentally self-complacent and seemingly reckon the UK light years away from Europe in terms of financial problems. Yes, they are in a far worse position.

 

Once pension fund liabilities and PFI contracts are included the total public debt is £2.46 trillion or 167 per cent of GDP. To that you have to add the £1.34 trillion in financial sector bailouts. The total public debt is therefore £3.6 trillion or 244 per cent of GDP or £135,000 per UK household.

 

Add mortgage debt

 

Then there is £1.2 trillion in outstanding mortgage debt and £210 billion in unsecured mortgage credit. Together public and private sector debt amounts to £5 trillion, or 340 per cent of GDP.

 

Not sure I understand or could validate/verify the UK figures.......but if this analysis is true we are also in the mire.

 

It's all just meaningless figures though, the whole World is in debt, the US figures are just as staggering.

 

There will reach a point when all the World's governments will just decide to write it all off. It will be zero overnight at some point.

[Verbal]

It's all just meaningless figures though, the whole World is in debt, the US figures are just as staggering.

 

There will reach a point when all the World's governments will just decide to write it all off. It will be zero overnight at some point.

 

The entire world economy has always been, is and always will be in debt. It doesn't work like a family household, and it would be disastrous if it did. If all personal, corporate and sovereign debt were to be cancelled overnight it really would be the end.

[saintfully]

Just to get this off my chest re. 'council houses'...

 

...how is it better that we are currently propping up bankrupt banks by ensuring that Buy-to-let entrepreneurs don't go bust - which means that our taxes go on paying an over-inflated housing benefit bill?

 

Personally I would prefer social housing that we own, so the money we pay in taxes for housing benefit improves the value of our assets. Instead, we pay loads for cr.appy housing, have no rights to it, and our taxes get spent on the next sh.itty BMW, exported by our German cousins and so loved by fu.ckwit landlords.

[pap]

Just to get this off my chest re. 'council houses'...

 

...how is it better that we are currently propping up bankrupt banks by ensuring that Buy-to-let entrepreneurs don't go bust - which means that our taxes go on paying an over-inflated housing benefit bill?

 

Personally I would prefer social housing that we own, so the money we pay in taxes for housing benefit improves the value of our assets. Instead, we pay loads for cr.appy housing, have no rights to it, and our taxes get spent on the next sh.itty BMW, exported by our German cousins and so loved by fu.ckwit landlords.

 

saintfully - I wrote about the long term effects of "right-to-buy" on my blog a little while ago after visiting the homestead (Flower Estates). Covers a lot of similar ground.

 

Linked for your consideration:

 

http://frigsociety.com/2012/05/24/the-long-term-effects-of-right-to-buy/

Edited 15 June, 2012 by pap

[Seaford Saint]

Where did you extrapolate this suggestion from what I said?

 

Are you a bit thick?

 

I assumed you were referring to the rivers of blood speech......what else did Enoch say on working class people?

 

Am I thick? Tough one.

[pap]

The entire world economy has always been, is and always will be in debt. It doesn't work like a family household, and it would be disastrous if it did. If all personal, corporate and sovereign debt were to be cancelled overnight it really would be the end.

 

You're quite right on the debt part.

 

Take the concept of interest as an example. Let's say I borrow £1000 at an interest rate of 10%. The total repayable amount of the loan is £1100. If one takes the view that there is a finite amount of money in the world, that extra £100 doesn't actually exist. It's just been created out of nothing from an agreement between a bank and a private individual.

 

In order to fulfil my agreement with the bank, I theoretically need to find £100 from elsewhere in the economy. Continuing with this childish assumption that there is only a finite amount of money in the economy, I'd be depriving someone else of the cash. Most of my work is for big corporate, many of which have very decent credit facilities. Much of the time, they're borrowing money to fund projects which ultimately pay me, so they need to find money that doesn't exist. The chain of credit is bewildering as it is incomprehensible.

 

There are two eventual outcomes:-

 

1) Someone, somewhere will default (hey, that money didn't exist after all)

2) We create more money

 

Interest. The staple of the financial system yet fundamentally broken.

[dvaughanwilliams]

You're quite right on the debt part.

 

Take the concept of interest as an example. Let's say I borrow £1000 at an interest rate of 10%. The total repayable amount of the loan is £1100. If one takes the view that there is a finite amount of money in the world, that extra £100 doesn't actually exist. It's just been created out of nothing from an agreement between a bank and a private individual.

 

In order to fulfil my agreement with the bank, I theoretically need to find £100 from elsewhere in the economy. Continuing with this childish assumption that there is only a finite amount of money in the economy, I'd be depriving someone else of the cash. Most of my work is for big corporate, many of which have very decent credit facilities. Much of the time, they're borrowing money to fund projects which ultimately pay me, so they need to find money that doesn't exist. The chain of credit is bewildering as it is incomprehensible.

 

There are two eventual outcomes:-

 

1) Someone, somewhere will default (hey, that money didn't exist after all)

2) We create more money

 

Interest. The staple of the financial system yet fundamentally broken.

 

Why does option 2 lead to a conclusion of money being broken?

 

Debt isn't a problem for nations whose debt is issued in a currency over which they have sovereignty. In fact none of this is a problem if you look at things slightly differently.

 

If you view the total amount of spending power in the economy as the total of money and credit (a view from 'Austrian' economics commentator Mike 'Mish' Shedlock http://www.globaleconomicanalysis.blogspot.com ) then this is actually falling.

 

The amount of credit in the global economy is reducing through defaults, write offs and through governments, companies and individuals paying down debt. The total amount of credit in the economy dwarfs the money supply massively. The amount of new money being printed is vastly lower than the amount of credit being destroyed. This leads to the very real danger of deflation.

 

Japan has been stuck in this situation of a collapse in the total amount of money and credit, despite massive government printing and deficit spending. They have hardly had any positive inflation numbers (as measured by prices) for 15-20 years. All this alarmist talk about the dangers of inflation that you read in the economically illiterate press or alarmist websites like http://www.zerohedge.com or http://www.market-ticker.org from money printing is looking at the wrong problem.

 

My prediction: ZIRP (zero interest rate policy) for an extended period and inflation (as measured by the RPI or CPI) at very low or negative levels for the foreseeable future.

 

The Eurozone is in a lot of trouble. There are possible solutions, but none that all the parties can agree on.

 

[Caution: do not go anywhere near the comments sections of the websites I have mentioned. They are full of Goldbug, Right-Wing, Redneck gun nuts.]

Edited 15 June, 2012 by dvaughanwilliams

[aintforever]

The entire world economy has always been, is and always will be in debt. It doesn't work like a family household, and it would be disastrous if it did. If all personal, corporate and sovereign debt were to be cancelled overnight it really would be the end.

 

The thing with debt is it has to be paid back, do you really think these trillions can be paid back?

 

To pay back what we all supposedly owe would mean austerity like we've never known. The public just wouldn't and wont allow it.

[dvaughanwilliams]

The thing with debt is it has to be paid back, do you really think these trillions can be paid back?

 

To pay back what we all supposedly owe would mean austerity like we've never known. The public just wouldn't and wont allow it.

 

For countries that have their own currency, this doesn't apply, they can merely increase the money supply to pay down the debt. In the Eurozone, or for countries that issue debt in other currencies, then what you say is true.

 

The difference between a currency user and a currency issuer is all important. Look up Modern Monetary Theory or Cullen Roche's similar idea Monetary Realism.

[Verbal]

The thing with debt is it has to be paid back, do you really think these trillions can be paid back?

 

To pay back what we all supposedly owe would mean austerity like we've never known. The public just wouldn't and wont allow it.

 

Historically, an awful lot of debt simply isn't paid back. It is just the way the world works. For example, the Canadian railway system was built on unpaid debt. More recently, the fibre-optic networks in the US were financed by the dotcom bubble, and loans turned bad. And I repeat: you can't think of national debt like family debt. Governments can print money. You can't (or can you?).

[hamster]

Well, we're doing very nicely thank you from the rental market atm. Our penny dropped last year.

[pap]

Why does option 2 lead to a conclusion of money being broken?

 

Debt isn't a problem for nations whose debt is issued in a currency over which they have sovereignty. In fact none of this is a problem if you look at things slightly differently.

 

If you view the total amount of spending power in the economy as the total of money and credit (a view from 'Austrian' economics commentator Mike 'Mish' Shedlock www.globaleconomicanalysis.blogspot.com ) then this is actually falling.

 

The amount of credit in the global economy is reducing through defaults, write offs and through governments, companies and individuals paying down debt. The total amount of credit in the economy dwarfs the money supply massively. The amount of new money being printed is vastly lower than the amount of credit being destroyed. This leads to the very real danger of deflation.

 

Japan has been stuck in this situation of a collapse in the total amount of money and credit, despite massive government printing and deficit spending. They have hardly had any positive inflation numbers (as measured by prices) for 15-20 years. All this alarmist talk about the dangers of inflation that you read in the economically illiterate press or alarmist websites like www.zerohedge.com or www.market-ticker.org from money printing is looking at the wrong problem.

 

My prediction: ZIRP (zero interest rate policy) for an extended period and inflation (as measured by the RPI or CPI) at very low or negative levels for the foreseeable future.

 

The Eurozone is in a lot of trouble. There are possible solutions, but none that all the parties can agree on.

 

[Caution: do not go anywhere near the comments sections of the websites I have mentioned. They are full of Goldbug, Right-Wing, Redneck gun nuts.]

 

The problem with money creation is that it isn't free. The US Federal Reserve is a great example. It has sole authority to print money. Every dollar it prints is loaned to the government at a rate of interest, which they can never pay back. Every new dollar that they'd create to pay back the interest would also attract a rate of interest. That's a system that is fundamentally broken, especially since the Federal Reserve isn't part of the US Government.

 

"We have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. Some people think the Federal Reserve Banks are U.S. government institutions. They are not government institutions. They are private credit monopolies; domestic swindlers, rich and predatory money lenders which prey upon the people of the united States for the benefit of themselves and their foreign customers. The Federal Reserve Banks are the agents of the foreign central banks. The truth is the Federal Reserve Board has usurped the Government of the United States by the arrogant credit monopoly which operates the Federal Reserve Board." [Congressman Louis T. McFadden, Chairman of the House Banking & Currency Committee, speech on the floor of the House of Representatives, June 10, 1932]

 

The Federal Reserve Act, which brought the Federal Reserve into being, slipped into law faster than a greased weasel. It essentially placed the supply of US money into the hands of private bankers, putting the US into perpetual never never. I'm not as clued up on the Bank of England, but if the world's largest market's economy is broken, that has serious implications.

 

Even if we work on the premise that money can be freely printed, what does it say about the value of money when we've just created it out of thin air? It isn't earned. Doesn't reflect any skill. It exists because we say it exists, and it has the value we say it has.

 

I can appreciate that you have some affinity with the current financial system, but I'm not really sure that's relevant to my position. I'm calling the entire financial system into question. I'm saying that I don't understand why a country like Greece is going through so much crap because of arbitrary numbers created from nothing, nor do I get why people are losing their collective sh*t over this financial crisis.

 

Hypothetical scenario. Man gets dropped in the wilderness with no way of contacting anyone. Is he worried about money at this point? Nope. He's worried about survival, and is probably contriving ways of using the physical environment to achieve that objective. If the EU goes bust, so what? It still has a physical environment that can support its citizens. Are we going to starve over these "phantom" numbers? Go to war for it?

 

I thought part of our remit of being the dominant species on the planet was getting to make the rules. This system will crash at some point. It already is in some places. Are we to repeat the mistakes of the past, or do we have the wit to be the ones to say "nah, it's all boll*cks - let's try something else"?

[dune]

The west was doomed the moment we started adopting socialist/liberal policies in international affairs. In the old days we were an exclusive club that exploited the rest of the planet and this enabled us to achieve a high standard of living, and the wealth accrued simply sloshed about to and fro between us. Once that changed and the finite resources started being distributed more evenly our weakness was always going to replaced by a stronger power - namely China, and thanks to the Socialists they have been allowed to stealthily build an empire and usurp us. And make no mistake they are building an empire, and they are doing so in the same manner that we did. We had the east india company, and the BASCo - they have state sponsored mining companies exploiting in the same regions. So all the Socialist/Liberal do gooders have achieved is to relegate us, and promote them and nothing has changed aside from us ceasing to be the beneficiary.

 

Expect China and Argentina to ally in public in the future (millitarily to conquer the Falklands - with China arming the Argies). They are obviously allied behind the scenes already. Just like the communists were behind arming and agitating the nationalist terrorists in Africa against us.

 

It doesn't take a genius to work out that the Repsol nationalisation has China written all over it now does it...

 

http://www.forbes.com/sites/greatspeculations/2012/05/18/argentina-seizes-repsols-assets-in-worrying-signal-to-exploration-firms/

 

We in the west are now on a knife edge, and i'm afraid we do not have the political leadership to succeed. We could strike back, it's not impossible, but we won't because we have weak leaders and weak ideologies. The West is on it's knees and it will fall like so many great civilisations fell once they stopped doing the things that made them great in the first place.

Edited 16 June, 2012 by dune

[saintfully]

saintfully - I wrote about the long term effects of "right-to-buy" on my blog a little while ago after visiting the homestead (Flower Estates). Covers a lot of similar ground.

 

Linked for your consideration:

 

http://frigsociety.com/2012/05/24/the-long-term-effects-of-right-to-buy/

 

Appreciated.