The mysterious case of the vanishing money

myhouse_2

Money goes around the system wherever it's spent. The problems appear when a disproportionate amount is spent on a particular area. People have been spending a disproportionate amount on keeping a roof over their head - that removes money from other parts of the economy. Not always immediately, but certainly when the distortions return to long term norms.

shortchanged_2

myhouse wrote: »

Money goes around the system wherever it's spent. The problems appear when a disproportionate amount is spent on a particular area. People have been spending a disproportionate amount on keeping a roof over their head - that removes money from other parts of the economy. Not always immediately, but certainly when the distortions return to long term norms.

I think this is exactly the point. A healthy economy needs to be reasonably balanced throughout. If there is too much expense/overpricing in one or two certain sectors of the economy, e.g housing, oil prices etc then other parts of the economy start to fail e.g retail.

A balanced economy is the key to a healthy economy.

chucky

shortchanged wrote: »

I think this is exactly the point. A healthy economy needs to be reasonably balanced throughout. If there is too much expense/overpricing in one or two certain sectors of the economy, e.g housing, oil prices etc then other parts of the economy start to fail e.g retail.

A balanced economy is the key to a healthy economy.

and which country has a healthy economy that is balanced?
there isn't one.

you got to give it to the armchair economists. at least they try hard.

HAMISH_MCTAVISH

myhouse wrote: »

People have been spending a disproportionate amount on keeping a roof over their head - that removes money from other parts of the economy..

False.

Money doesn't disappear when it's spent on housing. Nor is there a significant displacement effect in spending amongst different segments of the economy. There is perhaps more of a case to be made that some redistribution occurs, but that's not the case you're making.

Besides, people have not been spending "a disproportionate amount" on housing.

The percentage of household income spent on housing is lower now than it was two decades ago. It was lower in 2007 than it was in 1990 as well by the way.

HAMISH_MCTAVISH

chucky wrote: »

at least they try .

Well they're certainly very trying.;)

myhouse_2

HAMISH_MCTAVISH wrote: »

False.

Money doesn't disappear when it's spent on housing. Nor is there a significant displacement effect in spending amongst different segments of the economy. There is perhaps more of a case to be made that some redistribution occurs, but that's not the case you're making.

Besides, people have not been spending "a disproportionate amount" on housing.

The percentage of household income spent on housing is lower now than it was two decades ago. It was lower in 2007 than it was in 1990 as well by the way.

Well of course household spending on housing is low now - we have historically low interest rates. And not only did I not suggest that money magically "disappears", redistribution is EXACTLY the point I was making.

During the boom people spent far more on housing - buying/DIY and everything else that goes with it. When that falls apart, all the related industries struggle too.
It's not just long term norms either - short term fluctuations have a big impact too. People in 2007 were getting in enourmous debt to buy over-priced houses thinking the good times would continue. Within 1-3 years, many of those people are struggling to pay the mortgage, struggling to get a new mortgage or just struggling to sell. These people are spending their money on housing rather than other aspects of the economy (restaurants etc etc).

Loughton_Monkey

myhouse wrote: »

During the boom people spent far more on housing - buying/DIY and everything else that goes with it. When that falls apart, all the related industries struggle too.
It's not just long term norms either - short term fluctuations have a big impact too. People in 2007 were getting in enourmous debt to buy over-priced houses thinking the good times would continue. Within 1-3 years, many of those people are struggling to pay the mortgage, struggling to get a new mortgage or just struggling to sell. These people are spending their money on housing rather than other aspects of the economy (restaurants etc etc).

This sounds rather judgemental about where people 'spend' money.

Remember that [generally speaking] money is not destroyed. It simply circulates. To me, the only way to be correctly judgmental is to distinguish between money that goes abroad as opposed to staying in this country.

All you have to do is 'mentally' put a specific purple dye on your cash and track where it goes. Buy a new house and it has gone all over the place. The bricklayers and navvies. The brick makers. The plastic pipe makers. Building Company Directors' wages..... even the taxman has been known to get a penny or two from these people. But it has to be said it goes mainly to British companies and stays within UK.

Now interest rates go up. So your mortgage cost goes up. So you spend more on interest to a British bank [unless you are daft enough to deal with the Spanish one]. It keeps British people in a job....

Spending money on 'housing' is, I feel, relatively 'UK-Friendly'. Why is a restaurant any better? French Cheese. Spanish lobster. NZ Lamb. Chilean wine. French bottled water. Italian waiter sending money to 'Mama' back home.....

Over the years, UK spending has been dribbling, then pouring, and ultimately cascading down the drain that is 'imports'. That is bad spending (for the UK economy - not for the individual who gets a better quality product at a lower price).

Spending is simply circulation of money. The more money circulates, the more it gets distributed. But the more it gets distributed, the more goes on foreign goods. This takes money out of the [British] economy.

My understanding would be that 'housing' expenditure remains very largely in UK. It is massive expenditure. It is good spending. Let's put mortgage rates up and make it even better!!

shortchanged_2

chucky wrote: »

and which country has a healthy economy that is balanced?
there isn't one.

you got to give it to the armchair economists. at least they try hard.

How about reeling off all your economic credentials then Mr Yeah but, no but?

Loughton_Monkey

chucky wrote: »

and which country has a healthy economy that is balanced?
there isn't one.

you got to give it to the armchair economists. at least they try hard.

Don't know about balanced economies.

But there are a lot of 'balanced' posters around here. Which means they dribble out of both sides of their mouth at once.

Pobby

Well I would hope that the cost of a house mortgage is cheaper than 2 decades ago. BOE about 10%? Deary me it is one 20th of that now. If we went back to those days imagine the state we would be in.

Which ever way you go, the chite might well hit the fan. Why do think there are bail outs. Because the banks over lent. Hence we had massive rises in house price properties.

Hamish, because he is ever so clever, will most likely deny.

I know BTL merchants, hanging on by their finger nails.Just breaking even if the place is fully let and no damage.