Dearie me, Pommy...
First of all you give us the leftie view on involvement in Iraq...
Now you give us the leftie view on
house prices.
No. 1: There is NO comparison between the housing market in the USA and the housing market in the UK. In the former, the housing market is still in effect elastic. In other words supply has risen (and has now overshot) to meet demand. In the UK the level of supply is way behind demand and there is no prospect of it ever catching up given: 1. Net immigration. 2. The lack of suitable greenfield sites in our crowded island 3. Our rising divorce and unmarried mother rates. 4. Our much stricter planning laws.
No. 2: If we follow Hutton's prescription and raise interest rates all that will happen is that the economy will be undermined. Hutton is completely mistaken if he thinks that people can't afford higher house prices. He is forgetting that there is now a HUGE amount of "inheritance money" sloshing around in the economy.
If interest rates rise more of this money will be used to make up the difference. But meanwhile industry and investment will be buggered by the higher interest rates.
field
leftist view of the economy???
firstly i allude to the supply/demand imbalance in my post. and yes, it is the major difference between the US and Oz on the one hand ,and the UK on the other.
however, supply/demand imbalances only serve to move prices in the short term, not the medium term.
second, interest rates are now a necessity. the first and som wd say only job of a Central Bank is to contain inflation. The BoE is simply not doing its job. It has no choice but to put up rates. It is not the Bank's job to take into account the damage this will do to business - it is outside its remit.
Thank God you're not in charge of the Bank of England is all I can say.
If we are talking about inflation, then let's concentrate on REAL inflation. If British people, with their strange fetish for home ownership, want to sink more and more of their money into chasing a static amount of housing, that is their business. The Bank of England should be concerned with real inflation i.e whether too much money is chasing too few goods. In this context houses are not "goods", they are really just status symbols. You might as well get exercised about people paying ridiculous amounts of money for Lamborghinis. The point is that at some juncture, people will simply get tired of pumping money into housing and will decide to spend it on luxury foods, wines, holidays, white goods, TVs,etc etc of which there are plenty. They don't need the Bank of England to tell them when to stop spending their money on housing.
field
Greenspan would disagree with you. He is a recent convert to the validity of controlling asset price inflation as well as goods inflation.
My money's with the Green-man.
UK rates are way too low. Period.
Inflation is a problem and a growing one -
First, RPI was abolished because it was too high, then its replacement, CPI, was adjusted to exclude mortgages and energy and now even adj-CPI is giving false readings.
We've had this discussion before at Pub Philosopher.
Your analysis is good but I don't think tinkering with interest rates alone is sufficient, particularly in the UK market.
The global economy is far too "cash rich" so the IR required would break the wider economy and leave the market to the foreign investor.
possibly. raising reserve requirements is another option.
i dont inherently like laws that prevent banks from lending to certain customers but accept that they have to be there as the taxpayer does underwrite bank losses.
maybe there shd be a max 95% mortgage threshold.
All economies - like the whole of the banking system - are based to a certain degree on a confidence trick. That's why a strong currency is important and currency devaluation nearly always a bit of a dodgy policy (although it can be justified at certain times).
The key issue is "Does the UK produce enough goods and services that people want so as to justify our take from the global economy?" I'm not sure what the answer to that is. Sometimes I wonder how we get by. It seems to be mostly on the basis of our financial services and selling computer games! But if the answer is yes then really we haven't got an inflation problem. If the answer is no we do.
I wouldn't use house price inflation as the main indicator of our ability to pay our own way in the world particularly as (a) get it wrong and you will find that in the UK collapsing the housing market is the quickest route to collapsing the general economy (b) anyone who has ever looked at the issue understands that in the UK supply lags significantly behind supply and therefore you are getting a false reading all the time (i.e. the market cannot respond by increasing supply to bring the market into balance).
Of course I do have a vested interest in this...a crippling mortgage: so even if I thought you were right I wouldn't agree with you!
we underbuild houses by 80,000 a year and have done for ten years...therefore we are nearly a million houses short at least.
This is by far and away the main cause of house price rises. The answer to this is not interest rates.
However, real core inflation is rising and the level of unsecured debt is enormous; for this reason we do need higher interest rates.
My hunch is that hey will peak at 6% this year.
Unslicker
I think rates may go above 6%. The UK has a real inflation problem. The BoE has to start getting serious.
Is unsecured debt the problem? I would agreee that secured debt is massive but this is less of a problem.
Commenting by HaloScan
