Van

ABCT Short Version: ABCT Long Version:

Sure. It essentially comes from the notion that not all growth is good growth - there are malinvestments that are created because of government interventions in the free market, in particular interest rates and money supply. In a free market economy the collective choices of the people are reflected in market interest rates, which are reflective of individuals' time preference, reflecting their choice between consumption and saving (ie deferred consumption). As the BoE has not allowed the free market to operate, the economy has become structured in such a way that it now needs ZIRP and QE to sustain it. Without government policies in artificially supressing rates and printing money, we would see many firms racking up huge losses and going bust. These firms are malinvestments that have been allowed to build up in the last few business cycles. What do these malinvestment mean? They mean that the market is not aligned with the natural wants of the people. If the people had massive demand for financial services, then the sector should be able to support itself without the government policy help. But in keeping these firms going, all the current policy does is deprive other sectors of the economy of resources that the would otherwise have available. The output from the factors of production as they are now will be loss-making in a truely free market - this tell us that these companies are actually value destroying - the resources could be used profitably elsewhere. Profitable companies in a free market are a sign that those companies are actually productive and are serving the wants of the people. In effect, government policy is forcing us to take actions that we would not normally want to take - that are not aligned with our natural wants - therefore the companies and sectors that service this artificial demand do not build wealth. They merely exist as a part of the system that is required to destroy value by bring forward consumption in order to maintain macro GDP numbers. But in an increasingly state-intervened market, GDP itself is increasingly a flawed measure of economic growth. All GDP measures is the number of transactions in an economy, yet if those transactions are artificially stimulated then they do not represent the voluntary exchange of private goods. I would strongly advocate researching the Austrian theory of the business cycle for a fuller explaination, and I promise that it will all make perfect sense - why we are where we are now and why we cannot have growth without restructuring and allowing the market to operate freely.

You're still utterly failing to grasp the concept. The increase in debt sustains the growth, not the other way around. If my growth is 1% but I'm I have to borrow 8-10% each year to fund that, is it sustainable? The growth is illusionary. People are not getting richer, they are getting poorer by any normal measure. Why? Because the economy is now aligned in a way that is value destroying.

I know that: - Interest rates cannot go any lower - At market prices, this country will quickly become insolvent - As long as the BoE interfere in the market then the factors that led us into this position will remain in place - Any growth is illusionary if it is being driven by debt If interest rates are zero then you can increase debt infinitely without your payments going up, but this makes it impossible for you to then deal with higher rates in the future - The BoE will keep printing money and maintain ZIRP which will make us all poorer through inflation - Anyone who lends this country money will be making a negative real return on their money None of these points are subject to any reasonable doubt. Yup. As incomes won't be increasing, they're gonna need to.

Gold stocks are cheapest they have been in 3 years. http://postimage.org/image/z62xbxveb/

You wrongly believe that all that is needed is a few more years for the economy to strengthen enough for the BoE to being to orderly raise interest rates without crashing the economy. This is a complete fallacy. The economy is now structured in a way that it is dependent on ZIRP to feed the debt bubble. Deficits will continue to be run, the debt will continue to grow which all the time makes it impossible to for rates to go voluntarily higher. Any rise in rates will collapse this house of cards, which no government will allow. Government isn't the solution. Government is the problem. Therefore, it will be forced upon us by the markets at some point. Doesn't matter if the debt is long term. When our creditors decide that they don't want to lend to us any more then up go the rates and down goes the country.

Halifax house prices adjusted for inflation are now down 31.35% from August -2007 peak. http://postimage.org/image/xwmxlep9h/

With the recent selloff, the Dow:Gold RSI is spiking again. From my blog: With today's selloff, this reading should be well in to the +60s.

Halifax remains weak: -0.5% (sa) for Feb. NSA: Nov 2011 520.4 -1.5 160,801 Dec 2011 510.7 -2.3 157,803 Jan 2012 514.2 -1.6 158,879 Feb 2012 514.3 -1.7 158,897 SA: Nov 2011 522.9 -1.0 161,556 Dec 2011 517.5 -1.0 159,888 Jan 2012 520.8 0.6 160,925 Feb 2012 518.2 -0.5 160,118

It's one or the other; In a commodity-backed system, the paper money simply becomes a receipt for the commodity and is redeemable against it. That is not the case in the fiat system presently. The issue of fractional reserve banking and fiduciary media is a different issue. You can have fractional reserve activity within a commodity backed system, but the commercial banks would have to be more cautious with their reserves as there is no lender of last resort. It would be very difficult to uninvent the fractional reserve system. I would personally be in favour of a commodity-backed system but to allow normal fractional reserve activity within this. If no fractional reserve system is in place then the banks would charge you to store your deposit.

True, but this is what happens inside the warmth of an financial asset bubble. It should not come as a surprise to anyone who has followed the dotcom or housing bubble or any other historical bubble. People inside the bubble come to regard it as the new norm and do not consider that it is unsustainable or what the fallout will be when the bubble bursts. The current bubble bond bubble distorts our perception of reality, but it is no more sustainable than any other bubble. It's there, it's real, and one day it will burst.

Agreed. I want the market to come up with its own solution, and I'm sure that if you eliminated central banks then we would go back very quickly to commodity-backed money, very probably almost exclusively gold/silver (at least initially) but the important thing would be that it was set by the market and not dictated by TPTB.

In 2006-2007 all it took was a move from 4.25% to 5.75% base rates - a rise of 35% - to precipitate the fastest and largest period of falling house prices on record. The market becomes geared to what present rates are and then suffers when they from this base. And this was during a period of increasing real income and rising employment. The factors that are causing RBS and Halifax to raise their rates will put pressure on other lenders to do the same, and one by one they will follow. Rates will definitely not be going down for a while. They can't really go any lower. Sonner or later the markets will look at UK growth figures and work out that the coalition deficit elimination plans are not credible, and at that point they will stop lending and rates will rise. It will not be the BoE that precipitates this; they will have it forced upon them. And if the BoE buys their own bonds, they will print money to do so and create inflation that will further reduce household income.

> It will only affect a relatively small number right on the margins. Yes, but it is at these margins that the market is set. Only about 10% of the housing stock is up for sale at any time. If a rise in rates causes 5% of all homeowners to sell, that is a 50% increase in the supply of houses for sale.

Halifax confirmation: http://www.halifax.c...variable-rates/ Following a review of our variable mortgage interest rates, also known as lender variable rates, we are increasing the Halifax Standard Variable Rate from 3.50% to 3.99% from 1st May 2012. ... In addition to Halifax Standard Variable Rate we are also increasing Halifax Variable Rate 2 (currently 3.40%) and Halifax Flexible Variable Mortgage Rate (currently 3.40%) to 3.89% from 1st May 2012. 3.5% to 3.99% is a jump of 14% in additional interest payments. But this is not a "proper" rise is it, JD?

My own view on this is there is a "flight to safety" in London; people are of the opinion that London will be more resiliant because of population density, so therefore they are less fearful of prices falling in the capital, and it becomes a self-fulfilling prophecy. Exactly what we are seeing in the bond market between different countries. People will lend to the US & UK at negative real rates, but demand 6% or 7% to the PIIGS, when all these countries are technically as insolvent as one another.

High? HIGH? ROFL!

Mind you, rents are still rising. http://citywire.co.uk/money/rents-resume-upward-march/a567414 Rents must fall or interest rates must rise for UK house prices to fall significantly. At the moment neither is happening.

Stamp duty holiday deadline + Olympic year = Sellers' delusion. Happens every new year; don't know why anyone is surprised by it.

To be honest, I find peak theory less and less convincing. Commodity prices have risen because of money printing moreso than exhausting supply. Western middle classes are getting poorer because of their governments' profligacy, over-extended trend towards social democracy, and the slow death of real capitalism.

I don't believe that. Who's to say that the planet cannot support 7bn, or 10bn, or 20bn, or more? Better energy efficiency can sustain higher populations without consuming more resources. As for issues of land, Milton Friedman pointed out that given the trend of population migration rural to urban, most land outside of our cities now has a lower human density than it did 100 years ago, despite higher overall population. We are concerned about the environment because we have reached a level of development where we can afford to be concerned. I like Friedman in general; he has great wisdom and grativas when speaking about free market economics (even if he supports fiat money). See my thread on global warming for human perceptions on problem that may not even exist in reality: http://www.greenener...showtopic=15931

That's a very elegant way of putting it. Of course, there is also an opportunity cost to buying that when tie your deposit money up in the house, but I daresay that for many people this is actually a good thing.

LOL, first Merryn, now Frizzers. Of course, Dom isn't stupid. I'm sure he's done his sums and worked out that it is cheaper to buy a house now than to rent, and by how much. He knows the risks ahead for the housing market as much as anyone, but at the end of the day he needs a place to live. I would not criticize any buyer today if they consider: - How they will repay the loan ("the price will triple in 25 years" is not a valid argument) - How they would cope with interest rates rising back to stressful levels at some point in the future, and sooner than official ZIRP is forecast to continue (2014?) Now is not the time to be overstretching yourself to get onto the housing ladder/snake, but if you are in the fortunate position that you can afford to buy a nice place to live and not over-extend yourself then it is certainly a good time to be choosing this option and then to be making overpayments on your loan to insulate yourself somewhat from a shock event that force borrowing rates higher, and ultimately cut many years off your mortgage.

All indices basically confirm very slow nominal deflation since mid-2011, no point in denying otherwise whether you are bull or bear. Question now is will we see traditional strength in first half of this year? I would bet that the next few months will show more strength than the last 6 months.

It's indefinite.. or for as long as the Bond bubble lasts. The Fed will not raise rates voluntarily because they will never accept that the US has to take its short-term medicine, so we will stagger on with ZIRP and an increasingly unbalanced economy for many many years. Japan+.