Son of bubble

macaque_2

Gordon Brown's policies always focus on short term political gain (tax raid on pensions, tolerance of city sleaze, PFI, stealth tax, housing bubble, public debt, etc). Right now he is pursuing his most desctructive act of short termism ever. He is creating 'son of bubble' to keep his job for a few more months.

Lenders know houses are not a good risk at current prices (hence the mortgage famine). Gordon however is flying in the face of common sense and using his influence (over interest rates and banks) to force up lending. Rather than looking for a sustainable solution, the next batch of toxic mortgages are in the process of being created. A million people will lose their jobs over the next year. Millions more will see pay cuts and short time working. Yet more will be financially crushed when base rates return to long term trends. Millions of people will be living with debt they cannot service.

The hammer blow will come when the markets judge UK PLC to be a poor risk at current interest rates. When it happens, interest rates will rocket whether the MPC likes it or not. Gordon will know this is coming but presumably hopes that he will be on the lecture tour before the bomb drops.

neil324

Maybe very soon...

http://financialadvice.co.uk/news/12/ukeconomy/10904/UK-and-Austria-in-line-for-possible-credit-rating-downgrades.html

ad9898_3

I think you're pretty much spot on.

mewbie_2

Now I realise what the W in W-shaped recession stands for.

kennyboy66_2

macaque wrote: »

Gordon Brown's policies always focus on short term political gain (tax raid on pensions, tolerance of city sleaze, PFI, stealth tax, housing bubble, public debt, etc). Right now he is pursuing his most desctructive act of short termism ever. He is creating 'son of bubble' to keep his job for a few more months.

Lenders know houses are not a good risk at current prices (hence the mortgage famine). Gordon however is flying in the face of common sense and using his influence (over interest rates and banks) to force up lending. Rather than looking for a sustainable solution, the next batch of toxic mortgages are in the process of being created. A million people will lose their jobs over the next year. Millions more will see pay cuts and short time working. Yet more will be financially crushed when base rates return to long term trends. Millions of people will be living with debt they cannot service.

The hammer blow will come when the markets judge UK PLC to be a poor risk at current interest rates. When it happens, interest rates will rocket whether the MPC likes it or not. Gordon will know this is coming but presumably hopes that he will be on the lecture tour before the bomb drops.

What level of interest rates are appropriate for an economy that is shrinking & unemployment is rising by 100k a month ?

macaque_2

kennyboy66 wrote: »

What level of interest rates are appropriate for an economy that is shrinking & unemployment is rising by 100k a month ?

It doesn't work like that Kenny. When the markets get the jitters about a currency, interest rates get driven up. Unemployment and a shrinking economy make no difference. Take Iceland for example. Their economy is a basket case but the interest rates are at 12%. They were at 18% a few months ago.

nearlynew

Whichever way they cut it or try to spin things out, the facts remain:

the underlying problems that caused the bubble have still not been resolved...................

beware the bull trap

kennyboy66_2

macaque wrote: »

It doesn't work like that Kenny. When the markets get the jitters about a currency, interest rates get driven up. Unemployment and a shrinking economy make no difference. Take Iceland for example. Their economy is a basket case but the interest rates are at 12%. They were at 18% a few months ago.

Check out what Iceland base rates were 3 years ago.

The IMF insisted that they put them up to 18% as a condition of their bail out.

If unemployment & a shrinking economy make no difference, then why has Iceland reduced rates by 6% this year.

I'm afraid Macaque, thats exactly how it does work for most large economies.