Economist: Britain's fallen start

the_ash_and_the_oak

nomoneytoday wrote: »

On the other hand, with interest rates at only 1%, rather than saving some people will start to buy cars and house again. If you earn £1000 on £100,000 it doesn't leave much incentive to save.

Also as more money hits the economy inflation will go up, aided by GBP fx rates being hit, so any debts are eroded quicker in real terms too...

It will be interesting - balancing the needs of the country to save in the long term and spend right now.

I sort of disagree that high interest rates are an incentive to save per se. I would be completely happy saving with low rates if my outgoings and costs were reducing. Perhaps we will see a period where cars and rent and houses take up a smaller proportion of wages while food and taxes takes up a larger proportion.

I think if you are able to save large chunks of your salary, I have found that to be a large incentive to save regardless of interest on it. I agree that the interest is of large concern if you are a pensioner living off it (but on other hand this also means you have a large sum of money in the bank and perhaps it wouldn't hurt too much to dip into it for 2009 and 2010)

mbga9pgf

Rochdale_Pioneers wrote: »

Some interesting facts presented in that article that fly in the face of the spin being put about by our resident doom-mongers:

"Some fret that things could get even worse. They portray Britain as Iceland writ large, horribly exposed because of its big banking sector and intimate involvement in the sort of global finance that has gone so spectacularly wrong.

This is overwrought stuff. Little Iceland had banking liabilities worth close to ten times its GDP, all piled up by its own banks and mostly in foreign currency. Britain’s banking liabilities are equal to some 4.5 times GDP. Over half of these are attributable to foreign-owned banks that have clustered in the City; they hold two-thirds of the British-based banking system’s liabilities and assets in foreign currencies. As a result, Britain is much less exposed to a run on its own banks by depositors holding foreign currencies than Iceland was.

And although Britain has exceptionally high external liabilities, thanks to the City’s status as the world’s biggest international financial centre, it also has very large foreign assets. The gap between the two peaked at the end of 2006, when Britain owed £370 billion—28% of GDP—more than it owned. Since then it has narrowed, helped by sterling’s fall (almost all of Britain’s external assets are in foreign currency but only around 60% of its liabilities). The gap is now some £150 billion, or 10.5% of GDP—hardly cause for alarm. The current-account deficit has fallen from an average 2.2% of GDP in the ten years to 2007 to 1.6% in the first nine months of 2008."

"If Britain’s bill turns out to be more like Japan’s than Sweden’s, the Treasury would gulp but could swallow it, for Britain’s official debt has been relatively smaller than that of other G7 countries. In 2007 Britain’s gross government debt was 47% of GDP; in France, for example, it was 70%."

Problem is, most of those foreign 'assets' are now worthless; you just have to look at HBOS's losses to realise how deep we are in. You can talk about the banks holding assets all day ling; if AAA rated assets are now worth £0 you are b*ggered either way!

slipthru

chucky wrote: »

why will you be buying your family home for 2/3/4 years?

most people who have bought or will buy family homes will go through a couple of recessions during the time their family owns it. why wouldn't you get what you invested in it in this time?

one of the articles was about young professional property developers still being able to buy flats at auction, do them up and sell them for decent profits

In this context it should come with a warning.

chucky

mbga9pgf wrote: »

Problem is, most of those foreign 'assets' are now worthless; you just have to look at HBOS's losses to realise how deep we are in. You can talk about the banks holding assets all day ling; if AAA rated assets are now worth £0 you are b*ggered either way!

kind of disagree the loans and assets are worth something but not the way that they are currently being valued due to how their mark to market valuation is calculated - now and how they were valued when a bank was less risk averse.

have a look here
http://rogueeconomistrants.blogspot....rket-rule.html

even here from a mainstream source
http://www.ft.com/cms/s/0/d03c782a-b...0779fd18c.html

this is an ongoing discussion that will take it's time for accountants and regulators to resolve. but yes these losses are big losses - for now...

ps. posted these links before btw

chucky

slipthru wrote: »

In this context it should come with a warning.

yes - agree on investments and even short/medium term buys.
my response was to post that referred to family homes and their value.

michaels

a) Fallen star not start

b) Article is actually quite sanguine about UK's prospects and compared to 'thrifty' Germany our Q4 was not actually that bad

nomoneytoday

lostinrates wrote: »

Regardless of low interest rates ATM by not spending while prices are dropping there is still a theoretical increase in spending power of my savings though and it is this that provides some incentive to save.

zcacmxi wrote: »

Besides, when it's raining and you've been laid off work and can't afford the petrol for the 4x4, you can always sit at home and watch the Plasma screen that you bought when you were working!

I am not advocating that you spend all of your savings on a plasma telly, but that spending power is being eroded. The absurd situation is that with interest rates at 1% and inflation at 3% you are losing money by saving it. There are few risk free saving plans out there paying in excess of 3% for those who haven't fixed already.

Wookster

michaels wrote: »

b) Article is actually quite sanguine about UK's prospects and compared to 'thrifty' Germany our Q4 was not actually that bad

I noticed that too - it was quite surprising to note the optimistic tone in the article despite all the warning signs it noted (housing bubble, record budget deficits, record personal & corporate debt etc.)

I just don't know how one can be so positive when viewing these warning signs together.

nomoneytoday

Wookster wrote: »

I noticed that too - it was quite surprising to note the optimistic tone in the article despite all the warning signs it noted (housing bubble, record budget deficits, record personal & corporate debt etc.)

I just don't know how one can be so positive when viewing these warning signs together.

Because at some stage all the negativity is out there, it hits rock bottom and the only way is back up.

harryhound

Rochdale_Pioneers wrote: »

"If Britain’s bill turns out to be more like Japan’s than Sweden’s, the Treasury would gulp but could swallow it, for Britain’s official debt has been relatively smaller than that of other G7 countries. In 2007 Britain’s gross government debt was 47% of GDP; in France, for example, it was 70%."

There has been extensive discussion in this forum pointing out that the government debt has been extensively fiddled by "off balance sheet" dodges such as the PFI.

It does not really matter if the debt is government, corporate or personal, it encourages the government to devalue and it exacerbates the collapse in confidence and the cuts in GDP.