Debate House Prices
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'Talking us into recession'

Austin_Allegro
Posts: 1,462 Forumite

Negative predictions on the economy on here and elsewhere are often greeted by cries of 'I wish they'd stop talking us into recession!'
I think it's about time this was discussed.
I don't think it's possible to 'talk' the economy into doing anything. Yes, sentiment can change, but this is only possible after the economic fundamentals have shifted.
I think the theory arises for two reasons:
1. As a kneejerk response to discount news that people don't want to hear, and more importantly,
2. Because there is a time lag between the change in economic fundamentals and the effect of those changes in most peoples' lives, so for a few months there is a 'phoney war' when the media are reporting doom and gloom, but nothing seems to be happening in daily life, so people assume it's the media 'talking things down'. I'm pretty sure this happened in 1929 too.
Any thoughts?
I think it's about time this was discussed.
I don't think it's possible to 'talk' the economy into doing anything. Yes, sentiment can change, but this is only possible after the economic fundamentals have shifted.
I think the theory arises for two reasons:
1. As a kneejerk response to discount news that people don't want to hear, and more importantly,
2. Because there is a time lag between the change in economic fundamentals and the effect of those changes in most peoples' lives, so for a few months there is a 'phoney war' when the media are reporting doom and gloom, but nothing seems to be happening in daily life, so people assume it's the media 'talking things down'. I'm pretty sure this happened in 1929 too.
Any thoughts?
'Never keep up with Joneses. Drag them down to your level. It's cheaper.' Quentin Crisp
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Comments
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An interesting post.
I think that part of it is that:
i) there are risk averse people who like to think that being risk averse will pay off if there is a recession (e.g. they have loads of savings to buy things cheap) because they missed out on the £ when things were on an up-swing.
ii) people don't realise just how bad a recession is for pretty much everyone (even if not for yourself, for people who you hold dear). I have seen comments on here from people syaing that they would prefer to be unemployed than to see the economy keep on growing. I don't get that.18 May 2007 (start of Mortgage):
Coventry Offset Mortgage £220800
Offset Savings: £0
Mortgage Balance: £220,800
14 Jan 08
Coventry Offest Mortgage: 219002
Offset Savings: 28200
Mortage Balance: £190802
And still chucking every spare penny into it!0 -
I think it is possible to talk the economy into things.
Tulips spring to mind.0 -
Loose lips may have sunk ships
but the coming recession is 100% the result of the stupid, short-termist economic policies pursued by our governments over most of the last decade.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
there were plenty of people talking us into a bubbleIt's a health benefit ...0
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lostinrates wrote: »I think it is possible to talk the economy into things.
Tulips spring to mind.
I don't know a great deal about it, but I would have assumed tulip mania was only possible because of financial structures enabling people to profit from them?
In the same way that houses didn't cause the housing crash, it was the collapse of the CDO as a trusted financial instrument. So whilst the media may have a snowball effect, it can't start the boom/bust in the first place.
The smart money got out of housing well before the crash and while the mainstream media was still bullish, for example.'Never keep up with Joneses. Drag them down to your level. It's cheaper.' Quentin Crisp0 -
Austin_Allegro wrote: »I don't know a great deal about it, but I would have assumed tulip mania was only possible because of financial structures enabling people to profit from them?
In the same way that houses didn't cause the housing crash, it was the collapse of the CDO as a trusted financial instrument. So whilst the media may have a snowball effect, it can't start the boom/bust in the first place.
The smart money got out of housing well before the crash and while the mainstream media was still bullish, for example.
Ah, sure but the financial mechanisms were put into place inresponce to the talking up of tulips as a sound financial investment! The financial structures didn't exist for the first manias until there was a demand for them I think (but I'm no economist or historian!). I have cochin chickens which I understand were the subject of a similar bubble0 -
Interesting point.
Personally, I think things are re-adjusting to a more sensible level.
Too many people have lived beyond their means and over-stretched themselves with their credit cards and mortgages - all part of the selfish 'gotto have it now' culture which I think really got a foothold in the 1980's.
There was such an outcry when 100% mortgages disappeared a few weeks ago - but they really have not been with us all that long. I got my first mortgage 18 years ago (OMG it was really that long!?! - AAARRRGGHH!!!), and 100% deals were fairly rare beasties at the time. When my parents bought their house there was no such thing! They needed a hefty deposit and had to have been with the building society for a while and 'proved themselves'. Nowadays everyone whose in a job seems to think they have a 'right' to mortage.
We've also had relatively cheap food for quite a long while now (as compared with when my parents were my age, we spend a lot less of our budget on food than they did). Although I don't have a great deal of sympathy for the 'poor farmers' (I've never met one and I used to go to school with a lot of farmers' kids!) it is true that they have not been being paid a fair rate for lots of items as the supermarkets force the prices they pay down so they can make bigger profits and offer 'loss leaders' to tempt us in.
Maybe I am lucky in that I worked my way out of my debt situation (caused by ex-husband) and am OK at the moment. I'm not well off but I can pay my mortgage and bills and still have a bit left over for fun, but then I have worked darned hard all my life and don't expect anyone to hand it to me on plate!
IMHO - too many have had it too easy for too long - it's about time for a reckoning!!!!!!!The best advice you can give your children: "Take responsibility for your own actions...and always Read the Small Print!"
..."Mind yer a*se on the step!"
TTC with FI - RIP my 2 MC Angels - 3rd full ICSI starts May/June 2009 - BFP!!! Please let it be 'third time lucky'..... EDD 7th March 2010.0 -
Austin_Allegro wrote: »I don't know a great deal about it, but I would have assumed tulip mania was only possible because of financial structures enabling people to profit from them?
In the same way that houses didn't cause the housing crash, it was the collapse of the CDO as a trusted financial instrument. So whilst the media may have a snowball effect, it can't start the boom/bust in the first place.
The smart money got out of housing well before the crash and while the mainstream media was still bullish, for example.
In the USA though, house prices started crashing once interest rates started rising which triggered defaults. The economy was still good at that point and there was a healthy market for CDOs.
The CDO only collapsed as a result of the defaults, with those previously super-safe AAA bonds turning out to be worth a lot less than the model suggested.
In the UK, looks like the rot set in after the NR crisis. Of course, the NR problems stemmed in large part from a reliance on cheap, easy credit which had dried up as a result of the problems with CDOs originating from the US.--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.0 -
lostinrates wrote: »Ah, sure but the financial mechanisms were put into place inresponce to the talking up of tulips as a sound financial investment! The financial structures didn't exist for the first manias until there was a demand for them I think (but I'm no economist or historian!). I have cochin chickens which I understand were the subject of a similar bubble
So it's a 'cochin chicken and egg' situation then...:D'Never keep up with Joneses. Drag them down to your level. It's cheaper.' Quentin Crisp0 -
Austin_Allegro wrote: »So it's a 'cochin chicken and egg' situation then...:D0
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