Just taking stock

mitchaa

Graham_Devon wrote: »

Unemployment has been held back due to the fiscal stimulus mentioned on page 1. It's the same with house prices. They have been held up with extreme low interest rates, meaning people can afford their mortgages (at least 40-60% more can anyway).

We've bailed out the banks. We have used QE. We have bailed out the car industry, or at least, nodded towards doing so. We've also got the lowest interest rates on record. We are offering incentives to companies to emply people.

In other words, the fiscal stimulus has manufactured the current employment.

But, what happens when the plug is pulled? What happens when the bailouts stop? Are these companies going to just carry on, business as usual? What happens when the incentives to emply people stop?

What happens when the NI bill goes up and companies have to pay larger sums of NI, on the back of higher interest rates?

Yes, I agree, right now, things are ok. But, right now, we are all bandaged up so that we can function, but what happens when the bandages are taken off?

One of two things will happen. The bandages will have worked, and the economy will be able to continue on it's own steam, or, due to the increase in costs for business's, not only loosing out on the fiscal stimuli, but increased tax and increased loan costs, and increase NI costs, business simply starts to decline again.

I don't know what will happen personally, hence this thread.

Take a family who need to pay their tax, but have no money. Getting a loan will enable them to pay the tax and carry on. But they cannot keep taking loans to survive, at some point, they are going to fall. We are in, what I would class as the "giving the loans to help them survive" stage at the moment. That WILL stop. The question is, and no one can answer....at what point, cus it's a big fall if you get it wrong.

I think we can over complicate things.

Cast your mind back to November/December 2008 at that time when Woolies/Zavvi etc were going bust, houses were falling at an alarming rate and unemployment was increasing rapidly, what was the general opinion for 2009 at that point? If i cast my mind back we were getting people like yourself, Dopester, Mewbie, Generali etc predicting the world would end by the year out. Okay, obviously an exaggeration but im pretty sure the majority of MSE bears were predicting 2009 to be a lot worse than 2008 in respects to in particular the housing market falls. 20-25% seemed to be the general consensus at that time. (Im sure i can pull up an old thread just to prove)

Look how things have changed, there are no further headlines of Markies going bust, Tescos closing their doors and Microsoft going into liquidation, there is not anarchy on our streets because people are starving and cant afford to put their heating on. There are no mass unions going on strike. Instead of 7% falls in the 4 months so far (Taking the general bears 20% down prediction in 2009), we are 10x better than that with only 0.7% falls (On Nationwide index anyway)

So obviously with a little hindsight, it is safe to say so far the majority of bearish predictions at the latter end of last year from posters on this sight so far have led to nothing. The same points were raised that mirror yours and Generalis views but so far 5-6months later i feel we are going along rather smoothly. Im very surprised in other words as even as a bull i thought it would have been a little bit worse than this;)

Will we see reposessions increase and more people going BR when interest rates rise? Who knows, some people are more resilient than you think. If there are mortgages who have been cut from £1000pm to £300pm recently, it should not be assumed that there will be masses who cannot afford them going back to £1000. The majorities are not losing their jobs, so i can only assume that the majorities will be able to go back to their normal £1000 and more when IR's rise again with little or no problems.

Basically, i think too many are over analysing and making too many assumptions based on factors that may or may not make a difference. I.e is government debt really indicative if i keep my house or not?

Graham_Devon

mitchaa wrote: »

I think we can over complicate things.

Cast your mind back to November/December 2008 at that time when Woolies/Zavvi etc were going bust, houses were falling at an alarming rate and unemployment was increasing rapidly, what was the general opinion for 2009 at that point? If i cast my mind back we were getting people like yourself, Dopester, Mewbie, Generali etc predicting the world would end by the year out. Okay, obviously an exaggeration but im pretty sure the majority of MSE bears were predicting 2009 to be a lot worse than 2008 in respects to in particular the housing market falls. 20-25% seemed to be the general consensus at that time. (Im sure i can pull up an old thread just to prove)

Look how things have changed, there are no further headlines of Markies going bust, Tescos closing their doors and Microsoft going into liquidation, there is not anarchy on our streets because people are starving and cant afford to put their heating on. There are no mass unions going on strike. Instead of 7% falls in the 4 months so far (Taking the 20% in 2009), we are 10x better than that with only 0.7% falls (On Nationwide index anyway)

So obviously with a little hindsight, it is safe to say so far the majority of bearish predictions at the latter end of last year from posters on this sight so far have led to nothing. The same points were raised that mirror yours and Generalis views but so far 5-6months later i feel we are going along rather smoothly. Im very surprised in other words as even as a bull i thought it would have been a little bit worse than this;)

Will we see reposessions increase and more people going BR when interest rates rise? Who knows, some people are more resilient than you think. If there are mortgage who have been cut from £1000 to £300 recently, it should not be assumed that there will be masses who cannot afford them going back to £1000. The majorities are not losing their jobs, so i can only assume that the majorities will be able to go back to their normal £1000 and more when IR's rise again with little or no problems.

Basically, i think too many are over analysing and making too many assumptions based on factors that may or may not make a difference.

Thats what this whole thread is about. I talked about how I was wrong about 2009 in my very first post. But I also stated why I was wrong.

If you cast your mind back to when you are talking about, we had only had one bank bailout. We didnt know we would have further bailouts, we didnt know we would have QE. We didnt know we would have car inentives. We didnt know we would have employment incentives.

The whole thread is about what you are stating is over complicating things. I was trying to look at the reasons why things have got better. Not just look at "they have got better if you disregard what has been done to make them better".

Personally, I wouldnt say looking ahead at the inevitable is over complicating things. I would suggest looking only at the good parts and not looking at the stimulus thats happened and whats going to happen is burying heads in the sand. This isn't a pop at you

StevieJ

Graham_Devon wrote: »

Simply because the average person cannot afford the average house. It's not sustainable.

This disregards the actual credit problem. Even if there was easy credit, an average buyer would not be able to afford an average house without the lender lending too much.

Too much is defined by what caused the boom in the first place, too much credit.

Why do we have reduced liquidity? Because people couldnt afford houses.

.

No because the banks made some duff calls on the US housing market through CDO's.

Graham_Devon

StevieJ wrote: »

No because the banks made some duff calls on the US housing market through CDO's.

Yes, that is included.

But it's not fair to suggest that that is the only reason and the UK housing market was fine and had nothing to do with it and ignore all the other factors.

Generali

StevieJ wrote: »

Not quite with you there, are you saying that MCP includes all overheads but priced with no profit as opposed to Variable Costs only i.e. the cost of one extra unit of production which is my understanding? Is that an economic definition as opposed to accounting Or it is still variable cost but the fixed costs are financed by the public through subsidy? Why would you need to do that if you had a monopoly?

I'm starting to wish I hadn't brought it up as I hated studying this.

MCP is a political/economic pricing model that was forced on nationalised industries. The idea is that you set your price at the marginal cost of production (being as you say the cost of producing one more unit of production) regardless of whether or not that will actually make you a profit.

You don't need to do that if you have a monopoly. In fact if you owned a monopoly and followed that pricing model you'd be an idiot. However, the Labour Party model of Socialism in the post-war period held that this was the correct way for Nationalised Industries to set their prices.

Seriously old chap. This really is what was done. The losses to the British taxpayer were immense and completely senseless. It was illegal to set up a private company in competition with a Nationalised Industry in most cases so there was absolutely nothing you could do about it except pay more-and-more tax as Labour nationalised more-and-more industries at the behest of the unions and ideologues.

StevieJ

Generali wrote: »

I'm starting to wish I hadn't brought it up as I hated studying this.

MCP is a political/economic pricing model that was forced on nationalised industries. The idea is that you set your price at the marginal cost of production (being as you say the cost of producing one more unit of production) regardless of whether or not that will actually make you a profit.

You don't need to do that if you have a monopoly. In fact if you owned a monopoly and followed that pricing model you'd be an idiot. However, the Labour Party model of Socialism in the post-war period held that this was the correct way for Nationalised Industries to set their prices.

Seriously old chap. This really is what was done. The losses to the British taxpayer were immense and completely senseless. It was illegal to set up a private company in competition with a Nationalised Industry in most cases so there was absolutely nothing you could do about it except pay more-and-more tax as Labour nationalised more-and-more industries at the behest of the unions and ideologues.

I can understand it with the likes of the car industry (non monopoly) where the govt is propping up 'lame ducks'. Can't understand it with electricity,water etc where you may as well just charge the full cost to the consumer (or profit hidden taxation) , ah well we will draw a line under this one

Generali

StevieJ wrote: »

I can understand it with the likes of the car industry (non monopoly) where the govt is propping up 'lame ducks'. Can't understand it with electricity,water etc where you may as well just charge the full cost to the consumer (or profit hidden taxation) , ah well we will draw a line under this one

If you're interested, it was a staple of 1970s and 1980s micro economics. I seriously recommend you let that sleeping dog lie though.

StevieJ

Generali wrote: »

If you're interested, it was a staple of 1970s and 1980s micro economics. I seriously recommend you let that sleeping dog lie though.

I suppose it is a measure of how far we as a nation have come, the fact that I can't understand why they would have done that One final point, prior to privatisation presumably this would have been the model for Red and Blue parties

lostinrates

Generali wrote: »

I seriously recommend you let that sleeping dog lie though.

Just makes me want to know more Generali:o

Generali

StevieJ - It was the economic orthodoxy of the time that this pricing model should bec used for nationalised industries. Tories didn't believe in Nationalised industries particularly so it's kinda true to say Tories would have believed in this but at the same time not the whole picture.

lostinrates wrote: »

Just makes me want to know more Generali:o

It's a bit hard because I can't post graphs here and to explain this properly takes about 5 chapters of a micro economics textbook but I'll try.

The basic idea stems from a set of economic assumptions that create a model for a type of market for products known as 'perfect competition'. One of the ideas about perfect competition is that firms will increase production until the cost of producing one more item will equal the sale price of the final item sold (marginal cost = marginal revenue). It is believed (according to the massively over-simplified model) that perfect competition is a very efficient way to set prices.

Now with Nationalised Industries, as the name suggests, Labour Governments after WWII in the UK Nationalised not just companies but entire industries and made it illegal for anyone to set up companies in competition with the nationalised industries. At that point pricing clearly isn't a product of market forces; the Government just charges whatever it wants. That's particularly the case of nationalised industries like steel where many customers (car manufacturers for example) were nationalised too.

So the Labour Party decided that the best pricing model for Nationalised Industries was to use a marginal cost pricing model, like the very efficient perfect competition model. The trouble was, the Nationalised Industries weren't lean, competitive firms that were forced to be hyper-efficient by the near-Darwinian forces of the market. They were politicised, over-unionised monoliths that were producing poor quality products (for the most part) at great cost. As a result virtually every nationalised industry had to receive a massive subsidy from the taxpayer, in large part to allow the majority of workers to beggar off down the pub while they should have been working.

I really struggle to understand why people vote Labour given the recent (60 years) history of the UK. Oh well, not my problem any more I guess.