Likelihood of UK double-dip downturn dwindles

lemonjelly

chucky wrote: »

the reason i mentioned commercial property was because if it does have an impact it will be at institutional level just like the sub-prime issues hit the banks.

the personal debt levels will probably only impact people personally as you say through bankruptcy or repos etc. this won't have the same mammoth impacts that hit us during 2008 and early 2009 with banks having to be rescued and propped up. personal and public debt will hurt the UK but not in the way that the credit crunch has hit us.

to put it really simply many banks basically lent too much and those that didn't lend too much lent it to over extended people or people with low credit rating.

taking this further using Northern Rock as an extreme example they lent approx 7 times what they had on deposit from customers. they made the rest of it up by borrowing it on the money markets (where mr monkfish gets his Libor rates from). the main problem was the securitisation done mainly by the US banks which was a liability for a bank but was not shown on the balance sheet. when it came to the crunch they could fulfil these liabilities and all hell broke loose.

it's all done at a very high level and there is much more detail to this so bear with my explanation.

Agree with the 2 bits in bold. I do have a fear though that the personal debt losses could be a bit bigger than some of us are expecting. Not to the point of banks needing propping up, but to the extent where a small black hole could appear. I'm hoping that the crunch will have made some a lot more alert, therefore, it could be addressed a lot earlier.

Thrugelmir

chucky wrote: »

taking this further using Northern Rock as an extreme example they lent approx 7 times what they had on deposit from customers. they made the rest of it up by borrowing it on the money markets (where mr monkfish gets his Libor rates from). the main problem was the securitisation done mainly by the US banks which was a liability for a bank but was not shown on the balance sheet. when it came to the crunch they could fulfil these liabilities and all hell broke loose.

NR securitised their debt using an offshore offbalance SPV called Granite. Mortgages were bundled up and sold (with Lehmans) help to investors throughout the world. In the Treasury report published on NR they securitised around 1.1 million mortgages with a total value of £129 billion between 1999 and 2007.

NR's business model failed when the wholesale funding markets dried up in August 2007. As they couldn't sell the mortgage bonds. The market had become saturated with paper. Only now is the indegestion arrearing to be subsiding in RMBS market.

NR's model was the same as used by Lehmans two UK residential lending offshoots.

mr_fishbulb

Joeskeppi wrote: »

I think you misunderstood my post, the 2nd analogy referring to "back where we started" was referring to going back to pre-QE, not pre-recession.

Ah I see

Thrugelmir

StevieJ wrote: »

Part of the stimulus is low interest rates and this will be staying until it is no longer needed and growth returns, then a gradual return to normal rates (5%) will be required. In addition the BOE have stated if more QE beyond the £175b is required, it will be provided and the QE will certainly not be withdrawn early.

These aren't normal times. Base rates will stay low for a while longer. As its going to take the banks another 2/3 years to restructure their balance sheets. Commercial and consumer lending rates may well rise higher before then. As the cost of raising funds to lend rises for the banks.

When tighter capital requirements are imposed on the banks. Lending rates will rise higher still. Margin above base to compensate for the higher liquidity ( lower profit margin) that the banks will required to maintain.

Further pressure will mount when the Government competes with the banks to borrow money. At the moment the Government is merely buying in its own issued debt. So the impact is not being felt yet. There is a shortage of wholesale funds internationally.

Best advice is to pay down and clear debt. As they will never be a window of opportunity like this for a long long time again.

StevieJ

Joeskeppi wrote: »

I always imagined the "stimulus" was filling a hole, now that it's filled it can be turned off and we just carry on.

The counter argument seems to be that the stimulus is filling a hole which has a leak, so when it ends we'll be back where we started eventually.

The stimulus is more like an artificial bone graft i.e. it provides a structure/scaffold to enable the bone to grow back and heal, it doesn't actually replace the bone.

Thrugelmir

StevieJ wrote: »

The stimulus is more like an artificial bone graft i.e. it provides a structure/scaffold to enable the bone to grow back and heal, it doesn't actually replace the bone.

QE is like blood. The body can't function without it circulating. At the moment there's not enough in the system to reach the toes and fingers.....

StevieJ

Thrugelmir wrote: »

QE is like blood. The body can't function without it circulating. At the moment there's not enough in the system to reach the toes and fingers.....

You mean QE is like a transfusion, with life (economy) saving attributes

Really2

And Merv King is like a surgeon, scalpel poised...........

Lets leave it there:)

mewbie_2

Thrugelmir wrote: »

At the moment the Government is merely buying in its own issued debt.

You see. That's where it doesn't feel quite right to me. Buying it's own debt. But with our money. Except not yet.

Another 1/2% on N.I. I guess if we are really lucky.

Really2

mewbie wrote: »

Another 1/2% on N.I. I guess if we are really lucky.

I think it will be income tax related increases. NI is going to kick the low earners harder.