Monday 27 August 2007

Poll Results: bank Holiday Depression

My poll of last week was an attempt to find out what was the consensus on the fall out from the Credit crunch that has occurred over the Summer months. I set the poll up with only negative results to see just how pessimistic we could all be. I was not surprised to see that over 50% thought that a serious global recession is likely, with a quarter even voting for a depression.

Overall nice thoughts for what is a public holiday here in the UK (and a rare sunny day to boot!)

I voted for a recession only in the US, which is I think what will happen for now, with a slowdown in Europe, but not a recession (well not in the UK at any rate, maybe Italy and the Southern European economies are more at risk).

Will the credit crunch spark a Worldwide Recession?

Only in the US
2 (16%)
Only in the West
2 (16%)
5 (41%)
Depression is more like it.....
3 (25%)


Old BE said...

Apparently it's not a bank holiday in Scotland - there is come justice in the world!

[I say that because I am bitter about 2nd January not being a bank holiday in England]

Sackerson said...

There are many good American blogs and sites about their economic problems and the failure of their politicians to take action. Where are the analysts for the UK? Can you help us find blogs and newsgroups that would put us in the picture about Britain's true financial state?

Mark Wadsworth said...

Likely depression in US will be caused by correction in house prices and end to exuberant lending (cause and effect?).

We have exactly the same situation in UK, Ireland, Spain, Australia and I believe NZ or even Red China, which is big enough to trigger global recession.

Old BE said...

Do you think it will be the sub-prime crash that does us in or will the loose money being pumped in to try and correct it that starts inflating the bubble again only to cause a bigger eventual burst?

The banks have been pumping the cash in since the asian crisis of 97/98, surely it can't go on forever!

Anonymous said...

I think governments in general have always had a big problem matching money supply to growth in production to avoid either inflation or deflation and over the last few years we have had their latest experiment in the shape of careful interest rate control to keep inflation within certain bands. Generally this has worked quite well, but obviously it is something of a blunt instrument. It has caused asset bubbles to form, one of which was in housing, because the extra liquidity has ended up in one place where risk is considered low. Housing will always tend to absorb all the money that an individual has, as long as demand exceeds supply. It becomes a question of "what can you afford to pay?" rather than "what is is worth?". Unfortunately, in recent years individuals have become used to mortgage equity withdrawal. They have turned something that is actually pretty illiquid into a very liquid form on the basis that other individuals have established a notional value for their asset by trading their homes. When you think about it, it is like raising a huge loan on the basis of an increase in value of shares that you do not actually own. It is this tendency to get into enormous amounts of debt that has fuelled both the UK and US economies. Clearly this expansion in consumer debt could not continue forever, and a massive correction would take place. As we have seen, not everyone exposes themselves to massive debt- it tends to be those at the bottom of the pile that carry the bulk of the burden.

Of course, no one in the UK has been saving these past few years. Even the prudent can't get excited by a 3% return on a building society bond. Better to spend today. So all the extra cash to fund this debt has been coming from overseas. In the UK simply enormous amounts of debt to foreign banks has been accrued. Commercial property, domestic property, consumer spending, government spending, PFI has all been financed by foreign banks on the understanding that we will pay it all back with interest. We owe approximately 5 trillion pounds in total. Total UK housing is worth 4 trillion at todays prices but will probably be worth less than 1 trillion in a recession. We are teetering close to bankruptcy.

But can we pay the debt back? We have seen that the trade deficit has ballooned over the last few years. The reason is clear. Why would a UK company go chasing business in difficult but growing markets like China when it can simply chase UK government business where they have a less competition? In any case, we have som many people working in the public sector, and so many labelled "disabled" how can we get people back into wealth creation without causing massive unemployment as an interim step?

We are back in the same situation as we were during the years of the Wilson/Callaghan government. It is almost a perfect repeat of the pattern. We can assume it will take us 17 years of struggle to dig ourselves out of it. Let us hope that this time we learn a lesson, and never allow Labour to have their hands on the economy again.

James Higham said...

Then why the F did you run it, CUS, if you knew the result? Then again, why run an EU referendum if we already know the result? Then again, why do anything? I need a drink.

CityUnslicker said...

Ed -That is good news!!

Sackerson - there are very few in the UK, one of the reasons I chose this niche to blog in. Apart from yourselves, Wortsall and Burning Our Money there is not much else.

Two Wolves is one to look at and Hatfield Girl makes some good points. It does seem a rather unnhabited area here though.

Still, on the upside, less competition and more traffic for me!

CityUnslicker said...

Mark - Well it could be a depression, but the house prices there are already well into the correction mode that we may well see here.

All the extra money being pumped in may well save them from a full on depression.

Time will tell, you may be right.

CityUnslicker said...

Ed - see Anon below - what an excellent piece.

Anon - thanks for this, an excellent commentary. I dispute that house prices would fall 75%, but 33% is easily likley leaving a lot of losses to find homes.
As for PFI - I await more metronet type scenario's where the investors find it is nothe triple a investment they thought it was. Remember, railtrack had shareholders once.

As for the long-term, we are in a fine mess with the state of the labour market and international competition being so aggressive. i too think it will be a long time until we get back to the 1990's level of economic progress. And yes it will definitley need a change of government.

CityUnslicker said...

Mr. Robinson - yikes, what is troubling you?

These are only the random musings of a blogger...

Sackerson said...

Anonymous 3:41 - many thanks and can you help us out by giving the addresses of useful sources?

CU: thanks for the tips, will follow up named sites.

Anonymous said...

"Anon - thanks for this, an excellent commentary. I dispute that house prices would fall 75%, but 33% is easily likley leaving a lot of losses to find homes."

Fair comment CU, but during the 80s housing bust it was surprising just how far property prices fell. It was ludicrous really.

Take an example. At the peak a one bed flat in Southend near the railway station cost £63,000. At the bottom (about 1995) they hit £16,000. Today it would cost you £95,000.

Strangely, at the bottom of the market renting a one bed flat would cost £400 per month - considerably more than the mortgage on the same property. A 100% mortgage would have cost you <£300 a month. So the fact that renting had become more expensive than buying did not set a floor in the market, which surprised me.

When I saw this I was wondering if the market would reach a floor, or if it would get to the point where you couldn't give property away. There was a long period of stagflation after the bust. Eventually property speculators started buying up the properties once they realised the market had bottomed and they couldn't lose money on the capital and would gain from the rent.

The housing market bust of the late 80s and early 90s is an excellent example of the dangers of deflation, with confidence evaporating totally in the value of the assets in question and prices continuing to slide really until they are worthless and are being given away for free. Hence your 30% price reduction, which seems logical, does not take into account the impact of downward price spirals. Why buy today when what you want will be cheaper tomorrow, and even cheaper the day after?

Anonymous said...

The symptoms of depressions vary from person to person. Some may get rid of it easily while some are not able to get over it for a long time. The first symptom is change in behavior. When somebody behaves in a strange way than normally he does. He is supposed to be under depression.

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