Jump to content
DOSBODS
  • Welcome to DOSBODS

     

    DOSBODS is free of any advertising.

    Ads are annoying, and - increasingly - advertising companies limit free speech online. DOSBODS Forums are completely free to use. Please create a free account to be able to access all the features of the DOSBODS community. It only takes 20 seconds!

     

IGNORED

Credit deflation and the reflation cycle to come (part 2)


spunko

Recommended Posts

38 minutes ago, AWW said:

The lenders won't do anything that would cause the value of the assets on their books to fall. They'd rather have borrowers on payment holidays than see forced selling cause values to fall.

Exactly. That would force them to allocate more capital to the underlying mortgage. 

This then creates a deflationary loop, where they’d limit lending to all but the most credit worthy which means that so few people can get a mortgage prices fall. The more prices fall, the more capital they have to allocate and thus the less they’ll lend, until they invariably need a government bail out.

Link to comment
Share on other sites

  • Replies 35.1k
  • Created
  • Last Reply
sleepwello'nights
55 minutes ago, Nomad said:

I have been waiting to move up the housing ladder for the last 10 years, never have as I always thought they are overpriced. I cant see anything changing. Imo it's the lenders, if lending was restricted prices would come down. No idea how people could repay mortgages if interest rates when up to 7 or 8%. Perhaps they never will?

I've always wanted to build my own house since the mid 80's. Whenever a plot of land became available within 20 miles of where I lived and worked I did a quick back of the fag packet calculation, 1/3 land, 1/3 build cost, 1/3 to get current market valuation. Even dropping it to 1/2 land, 1/2 build cost, = market value. The numbers never stacked up. 

How silly I was.

Link to comment
Share on other sites

Transistor Man
15 minutes ago, sleepwello'nights said:

I've always wanted to build my own house since the mid 80's. Whenever a plot of land became available within 20 miles of where I lived and worked I did a quick back of the fag packet calculation, 1/3 land, 1/3 build cost, 1/3 to get current market valuation. Even dropping it to 1/2 land, 1/2 build cost, = market value. The numbers never stacked up. 

How silly I was.

My family self-built two houses when I was a teenager. We bought an old small holding. Knocked it down.  Built our house. Then later got planning permission for a second. Best thing my parents ever did. 

Link to comment
Share on other sites

14 minutes ago, sleepwello'nights said:

I've always wanted to build my own house since the mid 80's. Whenever a plot of land became available within 20 miles of where I lived and worked I did a quick back of the fag packet calculation, 1/3 land, 1/3 build cost, 1/3 to get current market valuation. Even dropping it to 1/2 land, 1/2 build cost, = market value. The numbers never stacked up. 

How silly I was.

Make sure you're registered with your local council as a self builder waiting for a plot.

Self-build and custom housebuilding registers

Who does the requirement to keep a self-build and custom housebuilding register and the duty to have regard to the register fall to?

Responsibility for keeping a self-build and custom housebuilding register falls to “relevant authorities” as set out in section 1 of the Self-build and Custom Housebuilding Act 2015 (as amended by the Housing and Planning Act 2016), and includes:

  • district councils;
  • county councils in England so far as they are councils for an area for which there are no district councils;
  • London borough councils;
  • the Common Council of the City of London;
  • the Council of the Isles of Scilly;
  • the Broads Authority and National Park authorities in England are the relevant authority for the whole of their respective areas, to the exclusion of any authority mentioned above.
Link to comment
Share on other sites

1 hour ago, sleepwello'nights said:

What did the great Gordon Brown do in the GFC. He came up with a number of schemes to allow mortgage borrowers to defer payments, he introduced benefit schemes that topped up the borrowers income to pay their mortgage, he put pressure on the lenders to assist borrowers in difficulty.

I'm sure the present government would do the same if they had to.

But they had the tools of slashing rates and QE which saved the GFC from becoming a lot worse. That in turn supported any negative equity in property to be turned around through the inflation of assets and mortgages became a lot cheaper to service.

They only have QE now. House prices were also nearly in line with x4 salaries so there was room to grow with the aid of cheap money. The average is about x8 now and it’s above x14 in some areas of London and wages going forward will in no way rise in the same ratio (income tax threshold freeze, increased living costs, higher taxes etc)

Nope property is as good as done and the banks won’t be forced into dodgey sub-prime mortgages like before. Government funny money backing the whole thing is the only option.

Edit: Just to add also that Gordon Brown (and to quote Spy) was also a complete ‘see you next Tuesday’.

Link to comment
Share on other sites

1 hour ago, TMM said:

Make sure you're registered with your local council as a self builder waiting for a plot.

Self-build and custom housebuilding registers

Who does the requirement to keep a self-build and custom housebuilding register and the duty to have regard to the register fall to?

Responsibility for keeping a self-build and custom housebuilding register falls to “relevant authorities” as set out in section 1 of the Self-build and Custom Housebuilding Act 2015 (as amended by the Housing and Planning Act 2016), and includes:

  • district councils;
  • county councils in England so far as they are councils for an area for which there are no district councils;
  • London borough councils;
  • the Common Council of the City of London;
  • the Council of the Isles of Scilly;
  • the Broads Authority and National Park authorities in England are the relevant authority for the whole of their respective areas, to the exclusion of any authority mentioned above.

What a fucken waste of time that pointless scheme is.

Link to comment
Share on other sites

1 hour ago, Transistor Man said:

My family self-built two houses when I was a teenager. We bought an old small holding. Knocked it down.  Built our house. Then later got planning permission for a second. Best thing my parents ever did. 

Youre more likely to find rocking horse shite than a 0.07 acre plot for say £125k in any OK area in the south.

Link to comment
Share on other sites

sleepwello'nights
1 hour ago, TMM said:

Make sure you're registered with your local council as a self builder waiting for a plot.

Self-build and custom housebuilding registers

Who does the requirement to keep a self-build and custom housebuilding register and the duty to have regard to the register fall to?

Responsibility for keeping a self-build and custom housebuilding register falls to “relevant authorities” as set out in section 1 of the Self-build and Custom Housebuilding Act 2015 (as amended by the Housing and Planning Act 2016), and includes:

I did, when the scheme came into being. Never heard a dickie bird since.

Link to comment
Share on other sites

2 minutes ago, sleepwello'nights said:

I did, when the scheme came into being. Never heard a dickie bird since.

Ive registered with dozens of councils, only thing i hear is they now want to charge 50-200 pound a year to stay on the register. Thus the scheme is as good as dead.

To expect councils to do something proactive is delusional, or for the Tories to step on the toes of their big builder sponsors by allowing self build on a mass scale.

The scheme near Bicester where its starting for £150k for a 0.5 acre plot, and you've got to use their builder is a pile of shite, as it'd be cheaper to buy an already built house nearby.

Apart from getting memory wank material from seeing the pretty Asian girls shopping for big logos at Bicester Village there is no fun to be had round there.

Link to comment
Share on other sites

3 minutes ago, Hancock said:

Apart from getting memory wank material from seeing the pretty Asian girls shopping for big logos at Bicester Village there is no fun to be had round there.

I think the official term is ‘wank bank’.

Link to comment
Share on other sites

24 minutes ago, Hancock said:

Ive registered with dozens of councils, only thing i hear is they now want to charge 50-200 pound a year to stay on the register. Thus the scheme is as good as dead.

To expect councils to do something proactive is delusional, or for the Tories to step on the toes of their big builder sponsors by allowing self build on a mass scale.

 

A great example of how bureaucracies grow unless checked actively.  If they wanted to actually keep the register clean, they would charge a nominal sum such as a pound a year.  Instead they need funds for pensions, golf days, gender change clinics, so make the whole scheme unworkable.  cunts.

Link to comment
Share on other sites

18 minutes ago, wherebee said:

A great example of how bureaucracies grow unless checked actively.  If they wanted to actually keep the register clean, they would charge a nominal sum such as a pound a year.  Instead they need funds for pensions, golf days, gender change clinics, so make the whole scheme unworkable.  cunts.

If there are 100 people on the register in theory they've got to find 100 plots, within 3 years of people being on the register.

But stick a charge on and none of them 100 people will pay so no need to find any plots.

The register is a fucken excel spreadsheet, where name, email address and telephone are stored. Costs nothing to maintain it which is what the charge is meant to be for.

Link to comment
Share on other sites

3 minutes ago, Hancock said:

If there are 100 people on the register in theory they've got to find 100 plots, within 3 years of people being on the register.

But stick a charge on and none of them 100 people will pay so no need to find any plots.

The register is a fucken excel spreadsheet, where name, email address and telephone are stored. Costs nothing to maintain it which is what the charge is meant to be for.

No, if it is free to register and they have to send materials out to each person, there is a small cost generated by any process and without culling the list eventually you'd end up with each council having 10,000s on their list.

A fair charge would be, as I say, a pound a year.  No pay = removed after 12 months.  Self cleaning.

The charges they are suggesting are, as you point out, just gouging.

Link to comment
Share on other sites

1 minute ago, wherebee said:

No, if it is free to register and they have to send materials out to each person, there is a small cost generated by any process and without culling the list eventually you'd end up with each council having 10,000s on their list.

A fair charge would be, as I say, a pound a year.  No pay = removed after 12 months.  Self cleaning.

The charges they are suggesting are, as you point out, just gouging.

Trust me they can charge for people to go on the register. It is up to the council.

image.png.a03bb05f4c7300c8ac5588c1a342f576.png

Link to comment
Share on other sites

21 hours ago, Cattle Prod said:

China has sown up Iranian exports a few months ago. Sanctions ending'll affect price short term, but in reality their off market spare capacity is less than 2% of world production and Chinese consumption growth will swallow it in 18 months.

The interesting bit is the currency they transact in. Like a house on your street, price is set at the margin. Iran is currently taking toilet paper yuan for their oil, that is what to watch.

I love that phrase.So true.ALl part of China's attempt to colonsie the world.

12 hours ago, AWW said:

This is one of the things I love about this thread. I don't know anyone in real life who I could have a similar exchange with. I've been out of work for six months now, hobby businesses aside. Had we bought a house just before Covid hit, I don't think I'd sleep at night. As things are, I don't actually need to get a job for another ten years. And they say property ownership is security... I do resent being stuck in London during such a long period of time off though. In normal times, when work dries up, we bung our stuff in storage and take a very, very long holiday. Some might call it a gap yah. That option is obviously unavailable right now, and likely to remain so for a few months yet.

Weird isn't it? I know there are posters on here at different stages of their savings career,but the key thing is that we all appreciate the risks that are out there.I've grown tired of listening to the lectures on property ownership from people who either bought at 2 times salary or bought at ten times.Equally clueless but for different reasons.

If hosues were cheaper like up where DB lives,I'd get one with a  nice 15 year fix,but they're not.

The thing that really worries me is the genuine lack of scepticism amongst the general population re debt(govt/private),IR risk,solvency risk,job risk,inflation measurement etc etc......

Explains why I come on here msot nights I guess.Nice to feel you're not alone.

9 hours ago, Lightscribe said:

But the main issue I grapple with is what happens to the rest of the country? My friends have openly said to me when I’ve told them of potentially what awaits that they wouldn’t be able to afford their mortgage if interest rates even move slightly. I think this goes for most the country and would wipe out the younger generation in one swoop into negative equity and unaffordable payments. What would the government do in this scenario as they certainly couldn’t provide social housing.

I've partly given up on the country and accept that we're heading into some tough times.I used to be politcally active but you jsut came to the realisation that our descent into chaos is a fait accompli.

The only thing I can slightly alter is my family's financial postion as we head in to the big wave that HUnter talks about in 10-20 years.This isn't going to end well when creditor countires realise they're going to get paid in devlaued specie(possibly making Gromen's solution even more of an option).

There's going to be some minor waves ahead and after the BK that I'm expecting sometime this year but the really big stuff is going to be like the historical equivalent of the fall of the Roman Empire.

Link to comment
Share on other sites

8 hours ago, MrXxxx said:

Just to confirm my understanding of this is correct, before banks could only lend what they had now then can lend what they don't [leverage on what they actually have]..correct?

With cash reserve lending you're limited by the amount of cash/cash equivalents you hold as assets.

SO if Bank A has assets of £10,it can lend out £90 if the cash reserve ratio is 10%.If the reserve ratio gets moved to 5% it can lend out £180 etc.If a customer comes in and takes out £5 cash then at a reserve rate of 10% the bank needs to withdraw £45 of laons etc etc

Then came Basel and Banks could set assets (eg loans) against liabilites(eg current accoutns).There's risk weighting of assets (hence the reference previously to the standardized/IRB approach-some of the accoutnants on here may be able to explain it better) but the key thign to take away is that the repalcement for cash was the loan as it sits on the balance sheet.That's asset on which the whole inverted banking pyramid is based.

Link to comment
Share on other sites

16 minutes ago, sancho panza said:

The only thing I can slightly alter is my family's financial postion as we head in to the big wave that HUnter talks about in 10-20 years.This isn't going to end well when creditor countires realise they're going to get paid in devlaued specie(possibly making Gromen's solution even more of an option).

There's going to be some minor waves ahead and after the BK that I'm expecting sometime this year but the really big stuff is going to be like the historical equivalent of the fall of the Roman Empire.

I think this is what this thread is all about.

I would say that if you can sort security of tenure (long term rent or owning without borrowing riskily), and have investments outside of a pension (many of which I am pretty sure will be one of the major casualties of the BK), and have some hard assets which will hold value through turmoil (so not a garage full of old cars, but things like gold), you'll be doing better than 95% of the UK.

Link to comment
Share on other sites

25 minutes ago, sancho panza said:

With cash reserve lending you're limited by the amount of cash/cash equivalents you hold as assets.

SO if Bank A has assets of £10,it can lend out £90 if the cash reserve ratio is 10%.If the reserve ratio gets moved to 5% it can lend out £180 etc.If a customer comes in and takes out £5 cash then at a reserve rate of 10% the bank needs to withdraw £45 of laons etc etc

Then came Basel and Banks could set assets (eg loans) against liabilites(eg current accoutns).There's risk weighting of assets (hence the reference previously to the standardized/IRB approach-some of the accoutnants on here may be able to explain it better) but the key thign to take away is that the repalcement for cash was the loan as it sits on the balance sheet.That's asset on which the whole inverted banking pyramid is based.

From wiki, but isnt it a case with QE that private bank creates shite bond (financial asset) central bank buys it, then private bank can leverage against this to lend more.-

A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. In contrast to conventional open-market operations, quantitative easing involves the purchase of more risky assets (than short-term government bonds) and at a large scale, over a pre-committed period of time.

Link to comment
Share on other sites

 

4 hours ago, sleepwello'nights said:

What did the great Gordon Brown do in the GFC. He came up with a number of schemes to allow mortgage borrowers to defer payments, he introduced benefit schemes that topped up the borrowers income to pay their mortgage, he put pressure on the lenders to assist borrowers in difficulty.

I'm sure the present government would do the same if they had to.

I think we're moving towards the end of the road of extend and pretend.At some point,Sterling will get whacked and all thsoe games will come back to haunt us.Same with the dollar.

And that's where ,on reflection,I've grown as an investor over the last twnety years.I've beugn to accept that bad decisions and bad leadership are an  inevitable part of life.In the past,I used to think that at some point someone in govt would realsie that we're on an unsustainable path and eventually change our direction of travel.

I've had to try and train myself to accept that polticians are jsut as prone to fall victims to their ego's as the rest of us.Covid is jsut another stop on the trainline to bankruptcy.

 

 

3 hours ago, Castlevania said:

Exactly. That would force them to allocate more capital to the underlying mortgage. 

This then creates a deflationary loop, where they’d limit lending to all but the most credit worthy which means that so few people can get a mortgage prices fall. The more prices fall, the more capital they have to allocate and thus the less they’ll lend, until they invariably need a government bail out.

This is where it gets interesting.Fisher(I know I'm banging on again) wrote extensively about that deflationary feedback loop and how the falls in capital values encouraged more people to pay down loans which caused the broader economy to deflate,thereby making further debt reductions impossible.

Galbraith in his analysis of the 1929 crash,put forward the thesis,that one day,something happened and people jsut didn't want to party any more.ANd that's where the extend and pretend falls down if people no longer wish to borrow for whatever reason.

I couldn't agree more that msot Western banks are uninvestable at the moment.

3 hours ago, sleepwello'nights said:

I've always wanted to build my own house since the mid 80's. Whenever a plot of land became available within 20 miles of where I lived and worked I did a quick back of the fag packet calculation, 1/3 land, 1/3 build cost, 1/3 to get current market valuation. Even dropping it to 1/2 land, 1/2 build cost, = market value. The numbers never stacked up. 

How silly I was.

I read somewhere once that buidling land moved at three times the rate of change of hosue prices,I'd love to know if that's accurate.

Link to comment
Share on other sites

9 minutes ago, Hancock said:

From wiki, but isnt it a case with QE that private bank creates shite bond (financial asset) central bank buys it, then private bank can leverage against this to lend more.-

A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. In contrast to conventional open-market operations, quantitative easing involves the purchase of more risky assets (than short-term government bonds) and at a large scale, over a pre-committed period of time.

CB's won't jsut buy anything.They'll mainly buy Govt bonds and some MBS but all as part of a broader strategy to relfate credit demand.

With QE it does mean more liquidity but it does nothing to really deal with the issue of bank solvency.That pertians more to the qualitiy of the loans that sit as assets and the ability of borrowers to pay it back.

The key thing imho that drives credit availailability is the prospect of govt bailouts.If you lend recklessly but know that HMG will step in with capital for an equity stake,then the bonus driven salesmen are hardly going to hold back.

I saw WIlliam WHite get referenced a few pages back,he once said roughly'the best way to regulate banks is to let one go bust once in a while.'.......................................bang on.

 

WOlf St is worth a read for understanding what the Fed will buy and otehr aspects of moentary polciy.First one talks about MBS but Fed isn't buying everythign.

https://wolfstreet.com/2021/02/02/the-feds-monetary-punchbowl-is-fueling-rampant-home-price-appreciation-aei/

 

super piece on Fed balance sheet here.

https://wolfstreet.com/2020/12/11/update-on-the-feds-qe/

US-Fed-Balance-sheet-2020-12-11-mbs-2020

US-Fed-Balance-sheet-2020-12-11-Treasuri

 

Link to comment
Share on other sites

On 12/02/2021 at 12:53, dnb24 said:

reduction in the birth rate in the East of London.

It does seem to fly in the face of the huge amount of building from Finsbury Park down to Canning Town- with huge tower blocks of flats being put up.

record high non EU immigration last year..

Which is funny considering i would imagine most Tory voters are anti immigration but it goes up every year.. more slaves to drive down wages and raise asset prices?

Link to comment
Share on other sites

14 minutes ago, macca said:

record high non EU immigration last year..

Which is funny considering i would imagine most Tory voters are anti immigration but it goes up every year.. more slaves to drive down wages and raise asset prices?

source?

I don't disbelieve you, but it's a great data point to put in front of the pandemic sheep who say that there is a need for lockdowns.  really.... then why did X00,000 get to immigrate, largest number in history.... etc etc

Link to comment
Share on other sites

8 hours ago, sancho panza said:

With cash reserve lending you're limited by the amount of cash/cash equivalents you hold as assets.

SO if Bank A has assets of £10,it can lend out £90 if the cash reserve ratio is 10%.If the reserve ratio gets moved to 5% it can lend out £180 etc.If a customer comes in and takes out £5 cash then at a reserve rate of 10% the bank needs to withdraw £45 of laons etc etc

Then came Basel and Banks could set assets (eg loans) against liabilites(eg current accoutns).There's risk weighting of assets (hence the reference previously to the standardized/IRB approach-some of the accoutnants on here may be able to explain it better) but the key thign to take away is that the repalcement for cash was the loan as it sits on the balance sheet.That's asset on which the whole inverted banking pyramid is based.

Thanks SP, so if the assets (say houses) are revalued higher they can lloan more, and if we have a HPC they are in the equivalent of negative equity.

Link to comment
Share on other sites

9 minutes ago, MrXxxx said:

Thanks SP, so if the assets (say houses) are revalued higher they can lloan more, and if we have a HPC they are in the equivalent of negative equity.

It's worse than that.  Because each bank treats a deposit as 'clean', irrespective of whether it was, in fact, borrowed from a bank in the first place, the leverage balloons.

 

Imagine a Bank that has a gvt imposed capital ratio of 10%.  for each 100 pounds lent out, they have to hold 10 pounds of 'deposits'.  That 100 pounds goes up and down after Basle so that 200 pounds of 'safe' residential mortgage lending might only count for 100 pounds of lending in the capital requirements.  50 pounds of risky lending (say to one eyed pilots for a plane) might count as 100 pounds of lending, but the banks don't want that business anyway.

So I deposit 10 pounds into NEWBANK.  NEWBANK can then lend out 100 pounds.  Say 180 pounds of mortgages (90 after Basle) and 10 pounds in personal loans, which looks on the books as 100 pounds of lending.

My wife borrows the 10 pounds of lending, and goes to BANKNEW down the street and deposits that 10 pounds in her account.  BANKNEW then lends 180 pounds of mortgages and 10 pounds of personal loans.

So already from only 10 pounds of 'real' money, we have 360 pounds of lending on houses, and 20 pounds of personal loans.

That happens ten times, and we get to 3600 pounds of lending on houses and 200 pounds of personal loans.  All off one 'real' deposit.  On the bank books, all we see is a 10% capital requirement being met.  Looks safe as houses.

Now, the economy stalls and 5% of the house loans go under.  That's 180 pounds of loans gone bad across ten banks.  Hang on - suddenly each bank has lost 18 pounds!  but their capital ratios only covered 10 pounds of losses! Help!  The Banks are wiped out unless they can sell the underlying assets quick enough and high enough.

 

In short, once banks were allowed to leverage up on lending to houses, it was always going to end in tears.  The old building society approach of real money backing each loan (up until the 80's) was the only way to allow lending on houses if you didn't want to fuck the country.  But... that would mean less money for the landowners and politicans...

Cunts.

 

 

 

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Recently Browsing   0 members

    • No registered users viewing this page.

×
×
  • Create New...