QE and asset price bubbles

Sir_Humphrey

http://news.bbc.co.uk/1/hi/business/8519674.stm

This caught my eye:

The decision brought to an end, for now at least, the Bank's £200bn quantitative easing (QE) programme designed to stimulate the economy.

MPC members felt that further cash injections could lead to asset bubbles.

This shows why rising house prices are a bad thing for everyone, as they could end up making it impossible to undertake policies that will help the wider economy.

It is no good being a home owner if you are made unemployed.

chucky

Sir_Humphrey wrote: »

It is no good being a home owner if you are made unemployed.

it's even worse being unemployed and having nothing to fall back on and not be able to pay the rent :think:

was their any point in that last bit of your post???

just in case you didn't know there are more types of asset bubbles than house prices

Generali

Sir_Humphrey wrote: »

http://news.bbc.co.uk/1/hi/business/8519674.stm

This caught my eye:



This shows why rising house prices are a bad thing for everyone, as they could end up making it impossible to undertake policies that will help the wider economy.

It is no good being a home owner if you are make unemployed.

The biggest problem for me with price bubbles is that it leads to a misallocation of investment. For example, lots of cash has been spent on buying 2 bed flats to rent out in horrible towns. The investment was made in many cases on the back of house prices rising at 20%+ pa.

If that money had been invested in businesses making other things or supplying needed services (for example there is a lack of accountants across the world) then a better economic outcome could have been available.

How you get to para 2 rather than para 1 I have no idea. Government diktat has been shown to fail rather dramatically. I'd love to see an alternative.

StevieJ

chucky wrote: »

it's even worse being unemployed and having nothing to fall back on and not be able to pay the rent :think:

was their any point in that last bit of your post???

just in case you didn't know there are more types of asset bubbles than house prices

Especially when the benefit slashers have there wicked way:eek:

StevieJ

Generali wrote: »

If that money had been invested in businesses making other things or supplying needed services (for example there is a lack of accountants across the world) then a better economic outcome could have been available.
.

You will never make a politician

Sir_Humphrey

chucky wrote: »

it's even worse being unemployed and having nothing to fall back on and not be able to pay the rent :think:

was their any point in that last bit of your post???

just in case you didn't know there are more types of asset bubbles than house prices

The point I am making is there is no point in having satisfaction in owing a house rising in price, if that price rise leads to a tightening in policy that leads to you being made unemployed. You then cannot service the mortgage. Rising house prices make it more likely that people will end up being made unemployed. Of course an individual could dodge that bullet, or maybe they would not.

If you cannot pay your rent, then you claim HB.

And yes, there are other asset bubbles such as gold. However, I doubt the BoE would be too concerned about that, as bursting that bubble would mainly affect wealthy goldbugs rather than the general population.

Reading between the lines, it seems that the BoE are worried about rising house prices which rather undermines the conspiracy theory that all policy is aimed at propping up house prices. So bulls should not count on Uncle Merv to help them out.

Generali

StevieJ wrote: »

You will never make a politician

I know that much already!

Who the hell is going to vote for a pragmatic libertarian? I'd come in behind the Manx National Party (an extremist offshoot of the BNP). At least Fascism has some sort of (in)credible history of Government in recent times.

chucky

Sir_Humphrey wrote: »

The point I am making is there is no point in having satisfaction in owing a house rising in price, if that price rises leads to a tightening in policy that leads to you being made unemployed.

i agree with the article and concept of asset bubbles in the relationship with fiscal policy - i don't see how you linked house owners to exclusively being made unemployed.

will all house owners be made unemployed?
will all house owners not receive redundancy payments?
will all house owners not have savings?
will all house owner not be able to afford their mortgage on one income?
will all house owners have to even service a mortgage?

you've made a lot of assumptions in your generalisation about home owners being made unemployed...

Wookster

I met a recruiter who deals with a great many SMEs last night and he was saying that they are generally still struggling for finance with something like 60% of financing applications turned down.

This seems to fly in the face of recent media reports of mortgage rates "hitting new lows" and it also has the effect of slowly bleeding dry the country's economy.

Sir_Humphrey

chucky wrote: »

i agree with the article and concept of asset bubbles in the relationship with fiscal policy - i don't see how you linked house owners to exclusively being made unemployed.

will all house owners be made unemployed?
will all house owners not receive redundancy payments?
will all house owners not have savings?
will all house owner not be able to afford their mortgage on one income?
will all house owners have to even service a mortgage?

you've made a lot of assumptions in your generalisation about home owners being made unemployed...

You're missing my point, as usual. All I am saying is that rising house prices may not be in the best interests of home owners, as well as renters.

chucky

Sir_Humphrey wrote: »

You're missing my point, as usual. All I am saying is that rising house prices may not be in the best interests of home owners, as well as renters.

lol yeah right - obviously it was me missing the point when you posted this in your OP...
i must have missed the point or my pc doesn't display the word 'renter' when you've tried to squirm out of something you've said.

Sir_Humphrey wrote: »

It is no good being a home owner if you are made unemployed.

lol yes my mistake

and btw i agree with the asset bubbles and fiscal policy point