Telegraph: Bank of England's dilemma: A house price crash or soaring inflation

BiggaThanBen

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/24/ccmpc124.xml

Which would you rather face: a recession and house price crash or years of soaring seventies-style inflation?
Two options; one nasty dilemma for the Bank of England. In particularly stark and simple terms, this is the question tearing a major split through the Monetary Policy Committee, which decides interest rates.
This is the debate which will determine how painful the coming months are for families throughout the country, and could set the UK on the road to either another boom in house prices or, at the other extreme, a dismal Japan-style depression.

What is your forecast ?

WTF?_2

BiggaThanBen wrote: »

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/04/24/ccmpc124.xml

What is your forecast ?

There won't be 'seventies-style' inflation because it won't be possible this time around for employers to substantially raise wages.

Of course there will still be inflation - just without rising wages to offset it for those lucky enough to have a job.

BiggaThanBen

!!!!!!? wrote: »

Of course there will still be inflation - just without rising wages to offset it for those lucky enough to have a job.

So there could be a situation where houses prices stay where they are, wages are the same, but everything else becomes more expensive ? Can't see how it will improve affordability ..

m00m00

A house price crash will affect some people

soaring inflation will affect everyone

luvpump

Its the Muppets at the BOE & FSA who played there part in creating this problem, Interest rates too low for too long & the BOE in effect saying "Nothing to do with us Guv" until it was too late..... Up to 7 x income mortgages, no deposit, self certs..etc etc , ... Whatever happens there is no easy sollution, the party is over ...period.. property must deflate to a more sustainable level... and everyone knows it ...tho many are still in denial !! ... that can either be achieved over a short painful period... or with the BOE's intervention a longer timescale, either way the end result will be the same, this is in the LONG TERM interests of the u.k Economy, not just so Gay Gordon & his Miracle Economy can have a Slim chance of being re-elected ...

kristianwilliams

As i said before, any economist worth his salt would've pointed out to the government years ago that:

People with larger disposable income = GOOD for economy
People with larger debt = BAD for economy

Mortgages = Debt.
Loans = Debt
CC = Debt

There are good debt and bad debt, but the one thing in common is the word "debt"

Allowing increasing mortgages = larger amount of debt. The fact that this debt was being spent as if disposable income, does not change the base factors.

House prices cant stay the same if there is any slowdown/halt of spending (which there is) or lack of credit (which there is).

You think im going to get a mortgage if i cant afford to enjoy life? I'd rather rent and be able to enjoy myself alittle, then own a home and be afraid of every letter through the door.

Less people coming in, less upward movement of houses. What you get then is people on the housing market swapping houses. You can only move up, if someone moves down.

No longer are you able to move up because of people coming in at the bottom, but only if people at the top leave/fall.

ianmr65

Typical torygraph rubbish.

1) The HPC cannot be prevented by the MPC or the BOE. In fact they priced it into the banks rescue package - 22%

2) BoE intrest rates are pretty meaningless, at the moment as the only people lending, or linking to those rates are the BoE. Everyone else is going off the soon to be defunct libor.

3) If intrest rates are being ignored, then nothing will stop monetary inflation but a reduction in the money supply. This however has doubled.

4) The pound is in freefall against the euro, anyway so will boost exports but push prices for imports up, again adding to inflation.

5) The Footsie is in freefall.

5) The best mortage holders can hope for is some form of repo safty net that will prevent homelessness.

6) Recession, inflation, are inevitable in the medium term. Stagflation likely. Alll they can do is slash BoE and pray it doens't become a slump.

WTF?_2

BiggaThanBen wrote: »

So there could be a situation where houses prices stay where they are, wages are the same, but everything else becomes more expensive ? Can't see how it will improve affordability ..

No, I'm saying that it's not "Either rising inflation and steady house prices" or "low inflation but falling house prices". We'll get both and salaries won't be going up to compensate us for all the inflation either, unlike the 70s.

There has been massive monetary inflation over the past few years. It's the foundation of all the 'prosperity' that our 'booming economies' have been enjoying. The housing bubble was a symptom of this monetary inflation.

As with all bubbles, it is now deflating and economics shows us that bubbles don't reinflate once they are pricked so the surplus money is now flooding into other growing asset bubbles - food and oil.

More expensive food and oil equals 'inflation' in most people's books.

Unfortunately, whilst the value of people's houses (which the debt is secured against) will be falling and the cost of the essentials looks set to rise even more, the actual debt is not eroding in the absence of 70's style big pay rises. All that inflation means today is that the debt becomes harder to service.

BiggaThanBen

!!!!!!? wrote: »

As with all bubbles, it is now deflating and economics shows us that bubbles don't reinflate once they are pricked so the surplus money is now flooding into other growing asset bubbles - food and oil.

Interesting .. what is the easiest way to invest into "food and oil" ) ?

ianmr65

From easiest to hardest

Buy stocks in petro companies, or agri businesses.
Buy into funds that invest in these as stocks, or as commodities. Or both.
Start trading the commodities yourself.

If you want to find out more post something to this effect in the savings and investments threads, and one of the IFA's will give you a much better steer.

WTF?_2

BiggaThanBen wrote: »

Interesting .. what is the easiest way to invest into "food and oil" ) ?

I guess commodities or energy funds would be a start. I'm sure that investment banks and brokerages will have no problems funnelling large amounts of clients money into these areas too.