The Next Nail in the Coffin

cells

Generali wrote: »

Real interest rates can only be 0% if there is no 'liquidity premium', i.e. people have no preference between spending and saving.

The only way that is possible is if people are consuming at such a high level that to consume any more would cause them to be less happy than if they consumed at the current rate.

The only way for your supposition to be close to being true is if people are indifferent between saving and spending.

in my experience most people are indifferent to savings and spending its got f.all to do with the base rate and all to do with biology. some people will spend all they have in their pockets others will be MSE and save all they can. its the very minority that changes habits depending on the base rate the very very minority.

The level of consumer debt says to me that isn't the case.

Can you explain further

cells

anyway we've had this discussion before it doesn't really get anywhere.

so lets go back to nails and coffins.
My scan on rightmove in my area shows no signs of falling prices

Generali

cells wrote: »

in my experience most people are indifferent to savings and spending its got f.all to do with the base rate and all to do with biology. some people will spend all they have in their pockets others will be MSE and save all they can. its the very minority that changes habits depending on the base rate the very very minority.

If people were indifferent between spending and saving there would be no C21st economy, not even a C19th one. The entire economy is predecated on people satisfying more than their needs. It's nonsense to suggest that people are indifferent between saving and spending because people spend and as incomes rise they spend more.

cells wrote: »

Can you explain further

Sure.

People are so keen on consumption that not only will they spend their entire current income on it they will also spend future income too.

Generali

Some examples showing people are not indifferent between consumption and saving:

http://www.amazon.com/
http://www.whsmith.co.uk/
http://www.starbucks.co.uk/
https://www.jdwetherspoon.com/

None of those massive companies thrive by selling necessities, they thrive by selling stuff that is discretionary consumption.

If people are indifferent between consumption and saving, given that interest rates > 0 people would be saving every penny they could. They aren't.

Crashy_Time

Generali wrote: »

It's a classic example of groupthink.

As opposed to the same four or five people batting the same idea (HPI forever!) back and forth between themselves, endlessly, on a hidden forum that is an embarrassment to the main web site :rotfl: Classic mentalist behaviour :rotfl: In the future students are going to do PHD`s on the mental state of the posters here. Even Joe the plumber down the pub knows that the bankers rigged the property game so they could punt loans and make big profits, nothing more than that, the utility value of a house hasn`t changed since your great grand-parents days.

cells

Generali wrote: »

Some examples showing people are not indifferent between consumption and saving:

http://www.amazon.com/
http://www.whsmith.co.uk/
http://www.starbucks.co.uk/
https://www.jdwetherspoon.com/

None of those massive companies thrive by selling necessities, they thrive by selling stuff that is discretionary consumption.

If people are indifferent between consumption and saving, given that interest rates > 0 people would be saving every penny they could. They aren't.

OK I don't disagree that some people spend all they earn plus some and on the other end there are some millionaires that are cheapskates.

What I suggested was that a movement in the base rate doesn't much change the behaviour of those borrowing on credit cards or those cheapskate millionaires. They are indifferent to interest rates their spending and savings habits are down to nature not to n Canadian setting rates in a bukding in EC1

In your own finances have you saves harder while rates were higher and spent more now that rates are lower? I don't think I have.


I am to guess that you feel rates are set by 'supply and demand for credit'? But what impacts the supply and demand of credit? And why does that product need a master in a building to set its price but we don't have a man or committee set the price of other products or services?

cells

Crashy_Time wrote: »

As opposed to the same four or five people batting the same idea (HPI forever!) back and forth between themselves, endlessly, on a hidden forum that is an embarrassment to the main web site :rotfl: Classic mentalist behaviour :rotfl: In the future students are going to do PHD`s on the mental state of the posters here. Even Joe the plumber down the pub knows that the bankers rigged the property game so they could punt loans and make big profits, nothing more than that, the utility value of a house hasn`t changed since your great grand-parents days.

I was thinking today that we are all prone to group think and to confirmation bias its probably hard wired in most 'normal' people.

Then I thought if its not something that can be changed is it better to put yourself into successful well off circles and group think like them or is it better to put yourself into prepers and the worlds going to end and conspiracy theory circles and group think like them?

cells

Generali wrote: »

If people were indifferent between spending and saving there would be no C21st economy, not even a C19th one. The entire economy is predecated on people satisfying more than their needs. It's nonsense to suggest that people are indifferent between saving and spending because people spend and as incomes rise they spend more.

Sure.

People are so keen on consumption that not only will they spend their entire current income on it they will also spend future income too.

Its too long a topic to discuss once more and its 3am and my eyes are barely staying open.

The price of credit is not set by supply and demand in the traditional way because credit can grown and shrink infinitely. In a fee market the price is set by those exchanging capital for cashflow. Then there is a bit of chicken and egg. Does cashflow bid and set the price of capital or does capital bid and set the price of cashflow is there even a difference. Anyway as time goes on a given cashflow will buy more capital. This makes sense in many kevels and arguments. Cashflow can get more capital as we get better at building and making capital. Cashflow can get more capital is the economy is safer. Cashflow can get more capital if there is more capital around.

Generali

cells wrote: »

Its too long a topic to discuss once more and its 3am and my eyes are barely staying open.

The price of credit is not set by supply and demand in the traditional way because credit can grown and shrink infinitely. In a fee market the price is set by those exchanging capital for cashflow. Then there is a bit of chicken and egg. Does cashflow bid and set the price of capital or does capital bid and set the price of cashflow is there even a difference. Anyway as time goes on a given cashflow will buy more capital. This makes sense in many kevels and arguments. Cashflow can get more capital as we get better at building and making capital. Cashflow can get more capital is the economy is safer. Cashflow can get more capital if there is more capital around.

Cripes! Go to sleep.

Credit can be expanded infinitely in theory but in practice it's limited by reserve requirements at the bank so supply is constrained. If it wasn't constrained then interest rates would be zero as nothing infinite has a price.

I think the problem is that you are starting from an erroneous assumption (credit is infinite) and so drawing an erroneous conclusion (interest rates should be zero).

chucknorris

cells wrote: »

I was thinking today that we are all prone to group think and to confirmation bias its probably hard wired in most 'normal' people.

You have to constantly question your own logic, I tend to do that in most things, my first thought process tends to be, 'what can go wrong?' Rather than how much profit will I make.

Right now, I could sell up and have enough to be very comfortable, but as I am only 'cashing out' once (and in this case it is for large sum), I want to get it right. The money is not burning a hole in my pocket, I'm not desperate to get at it, I am more concerned with what gives me the best value. Crashy would never believe this, but it is true, on the subject of selling up, my first thought process is regarding the risk of the market crashing, and leaving me stuck holding the properties for 10 to 15 years longer than I want to. I'm sure he thinks that I just think that house prices always go up (even in the short term), but why on earth would I think that, I am old enough to have seen 3 large property market corrections. I know that risk exists, but all things considered, IMO it is worth staying in the market for a few more years of higher income.

Of course I could get it wrong, but IMO it is worth taking on that risk, but I am not doing so because of blind faith in house prices, I know at some point that they are going to correct again (and again).