Van

ABCT Short Version:

ABCT Long Version:

Could you expand on this Van?

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.

 

-Growth reduces deficits (so long as spending is reduced as is at present). Lower deficits = lower debt growth = more that are willing to lend.

 

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.

Yeah, end of the world, different this time etc etc. Been hearing it for the last 50 years or more.

 

You do not know what will happen any more than I do.

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.

Anyone with a half decent deposit can fix at lifetime low rates for 10 years now.

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/

See previous posts.

 

Probably more to do with ISA season being able to offer a few more 1/10ths of a percent, and a bit of catching up with other lenders (most near to 4% svr).

 

One day, the real rate rises will come. One day, but not today.

 

Best guess, two or 3 years.

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:

Gold's recent correction may be setting us up for another great entry point based on the Dow:Gold ratio's RSI reading:

 

Back in December gold was a screaming "BUY" based on this indicator.

 

I am back on the "Long Gold/Short Stocks trade", and will be increasing my gold holdings the more extreme this indicator becomes.

 

As you can see, the indicator has provided excellent entry points over the last 3 years.

 

 

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

I would like Gold/Silver and paper money to work side by side. It would be good if people we able to save in Gold and Silver and then buy a big ticket item with there Gold/silver. I.E. Someone saveing and then buying a house with there Gold/Silver.

 

A Gold coin or some Gold backed paper would not be a lot of use in the local paper shop for your morning paper. so in that case you would use paper money. But it would work well if you wonted to buy some land.

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.

It still amazes me that so few understand how fragile, artificial and temporary the current rate environment is.

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.

In fact, I am against it too, because it will just mean more manipulation of gold by central banksters.

 

What I want is (tax-) free competition of currencies, including gold and silver. Then we'll soon see how the paper turds are doing.

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.

It has always been so, about the 10% mark, boom or bust.

 

Those few with the big mortgages, that they can't afford already (and therefore cannot remortgage), might think about selling, yet they might just get into more debt (as already happens with some, credit cards or whatever), or even rent out (as many also do).

 

Just the same with unemployment. An extra 1 million now are unemployed, yet, there aren't an extra 500,000 houses for sale (assuming 2 workers per house). Indeed, the number for sale is lower now than before (albeit with less buyers too).

 

Besides, many sitting on a 3.5% SVR have been doing so because they couldn't be bothered spending about two hours (and paying a fee of about £1000) to get a new deal that would only be saving them a little bit anyway (I know one or two). For example, my fix rate is 3%. The difference sitting on a 3.5% SVR is not that great. At 4%, it makes people think again and makes it worthwhile to go for a new deal.

 

 

When we get proper rate rises, things will be different. When that finally comes, is another question.

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?

I'd say he has been consistently wrong on house prices since 2002/3 when hpc started up. Interesting to think a web site called housepriceCRASH must be about to celebrate its 10th anniversary.

 

In much of the country - London, South East, Norfolk, Suffolk, Cambridge, the West Country, nice parts of the Midlands and nice parts anywhere - house prices have held up from the days in 2003 when the founders of HPC first started predicting a crash.

 

Saying dogmatically that house prices will crash 50% imminently - and getting a house price correction of 50%, courtesy of general inflation, over 20 years - makes him wrong. Glad he's not my financial advisor.

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.

The Consumer Credit Counselling Service said: ‘Households are being hit by a double whammy.

 

‘High interest rates and the squeeze on household budgets across the board are combining to make it even harder for people to repay their debts, and many are at risk of falling even further behind.’

 

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.

Are you not familiar with the Peak Oil argument?

 

There's also: Peak Copper, Peak Food, Peak Resources, Peak Everything

 

I think the best evidence in favor of Peak Oil, is the progressive impoverishment of the USA, with its suburban living arrangement, and resultant expensive addiction to imported oil

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.

Yeah,

But population growth (along with debt growth and economic growth) may be just another Ponzi scheme that is headed to a crack-up.

 

Why do I say that?

Because the world is running out of resources.

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

Yes, it's a calculation of how much you want to lose in renting over how much you want to lose in property price.

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 is beginning to look like a never ending quest for interest rate rises, we seem to be permanently between 18 months and three years away from that mythical 0.5 percent on the dollar.

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+.