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The economy is totally and utterly fucked


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7 minutes ago, Wight Flight said:

This is the stupidity of our system as compared to Germany's, who managed to process 130k applications in four days.

By leaving this 20% liability with the banks they have ensured the banks will want to do a full risk analysis on every loan, which has slowed the whole thing down to a crawl.

At the end of the day the borrower is liable for 100% of the loan.

If the government guaranteed 100% of the loan, but insisted on a personal guarantee, directors of solid businesses would take the risk and cash would flow.

Directors of unviable businesses would probably throw in the towel.

Makes a lot of sense.

On the flip side this is not the first time we've been told the banks have been saved so they can support business and stop ensuing problems, yet again these shylocks have taken the economy for a ride, been bailed out and still offer no proper funding mechanisms for business and real growth in the economy. They are nothing but leeches and almost entirely parasitic.

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11 minutes ago, spunko said:

But there is more to small business than rapacious Airbnb hosts, dodgy Turkish barbers and mummy dog walking tax credit services. Despite what most dosbodders think. 

I blame the government for encouraging the idea that a part time dog walker is to be held in the same light as the manufacturer on the industrial estate making medical pet supplies. 

I've only been to a dentist once since turning 18. I'm not paying twice for something... my taxes are supposed to cover it. 

 

9 minutes ago, Wight Flight said:

I am in particular referring to secondary industry. Primary will be ok, but if secondary industry takes a massive hit, tertiary businesses will be toast, as will the fourth sector.

We could end up with just farming and the state as the only viable employers.

And there we are in agreement.

The majority of whining small businesses down here are those who rent out properties and provide tiny to zero employment. Like the Wilsons and all their BTLing fellow travellers all they are doing is distorting the housing market to line their own pockets.

If they all went bust tomorrow and the homes went onto the market - hurrah.

Even in the holiday sector I exempt the big hotels which are generally decent employers providing lots of jobs. They should be supported.

Maybe a combination of payroll and prior year taxes paid should be the criteria for assistance.

Or if there was a proper value judgement of what helps the wider economy and that, whatever it's size, is targeted for assistance then great. Holiday lets - haddaway and shite - solitary shop in a village - how can we keep you in business?

Cornwall Holiday Cottages, for instance, collapsing would be a net benefit to Cornwall.

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8 hours ago, DurhamBorn said:

Industrial cycles re-tool the economy,its business to business mostly.The consumer will still be spending,but they wont drive the economy.Massive amounts to invest in.Western economies will be bring back entire supply chains.It will be world wide though.Cycle turns like this are very rare.Most people think recessions are cycle turns,but they arent,they are simply business cycles within a dis-inflation or reflation longer term cycle.The turn now is a three times a century event.

The irony is before the Great Depression we had the roaring 20s,and at some point mid cycle you will hear that term again,the roaring 20s.Thats the time to worry.

Sorry DB, can't agree with this. The only way this can happen is with trade restrictions.

In the sector I understand, a lot of the Chinese capacity is either Chinese owned or China/western JV. The western companies could invest in bringing that production back but there are a number of issues:

1. Cash - we're talking hundreds of billions of capex

2. Skills - There aren't enough people to design and build it all

3. Materials - we'd have to buy from China

4. Having done all of this all the Chinese capacity still exists and the stuff you're making is so oversupplied it's worthless

To make this work it's going to take a western trade alliance against China, co-ordination between Western governments, a mahoooosive series of re-nationalisation programs and consolidation (hello British Steel, ICI, BOC, British Leyland, The Water Board, The Electricity Board, The Gas Board etc. Etc.). We're going to have to re-vertically integrate everything that we've spent the last 40 years dismantling.

But I just can't see it happening.

 

 

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2 minutes ago, BBH said:

The QE money didn't really make its way into the hands of the plebs via wage increases or excessive demand for self employed / small businesses. It bailed out the bankers and went to the rich, who used it to buy and sell different asset classes. And spend on luxury items. There has been some trickle down, but not excessive.

The oversupply of cheap global labour has kept a lid on wage inflation. Oil prices have remained reasonably low (no supply side shock).

Meanwhile, your average Joe is constrained by high house/rent prices and debt. The middle classes have seen house price gains and their pensions go up - but most of this is just illusionary wealth. Unless you can 'realise' that gain (e.g. sell up and retire/live somewhere cheaper).

To get consumer price inflation across the board something above needs to change.

 

 

That "something" IMO is energy prices climbing.

There is a temporary oil glut because demand has collapsed but, without hoiking out the chart again, oil production looks likely to peak in 2030 with the headline news being Saudi no longer able to conceal by quite how much it has been overstating its reserves since it ceased to be open about them around 1985.

Energy rises hit food and transport as well as household utility bills. Everything gets more expensive.

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1 hour ago, spygirl said:

Production facility was exported to China and Asia.

The West printed money, which all CBs have to do to allow the economy to transact. But rather than go into productive,wealth creation use, the banks lent it all to real estate, where it sits locked up, in bricks.

CB write off printed debt/money as the loan is paid back. Economies that printed loads that went into housing are stuck - HPI prevents jobs being created/people moving. Just idiots sat around in too expensive housed wondering where the buyers are.

They now need to ensure that most money printing goes into productive capacity rather than real estate.

Surprisingly, the UK is well positioned, after Browns 'miracle', MMR/basel3 puts a hard, wage restricted limit on housing debt. This is a good thing. Theres some minor poltical fucks up round the edges - HTB and the likes of IO loans, which the BoE will get to sort out.

But, to be clear, the UK housing debt economy (1987->1990, 2000->2012ish) is dead. You only have to look (hard, as they  are not forthcomign with the data) on how few mortgages are being written to see this.

Bear in mind that 2020 will see mortgages written in 1995 finishing.

All that the mortgages banks/books will have left is the junk lending from 2000-2012ish, mainly IO and HPE,

 

 

 

Where will the money the money and inflation go next ? 

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11 hours ago, Iamcynical said:

This. 

Definitely.  A lot of the people sitting at home on 80% to do nothing are quite possibly enjoying it right now.  They won't be in three months when they've lost their job.. 

Surely then the governbankment just prints more money and gives it to them under the guise of some new coronavirus help scheme. After all its not their fault. Perhaps everyone will be employed on 80% as a new Basic Income. What could go wrong. As long as there's a printing press, we're OK. 

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43 minutes ago, Wight Flight said:

This is the stupidity of our system as compared to Germany's, who managed to process 130k applications in four days.

By leaving this 20% liability with the banks they have ensured the banks will want to do a full risk analysis on every loan, which has slowed the whole thing down to a crawl.

At the end of the day the borrower is liable for 100% of the loan.

If the government guaranteed 100% of the loan, but insisted on a personal guarantee, directors of solid businesses would take the risk and cash would flow.

Directors of unviable businesses would probably throw in the towel.

I suspect this post will be particularly prescient in a month or two. They won't change it either because then there would be shrieking from PAYEs about how the government cares about business more than them (without realising if their employer goes bust, they're fucked anyway)

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39 minutes ago, dgul said:

Are you new to this planet?

[To add, that most 'inheritance' is housing wealth, and we're in a weird position where inherited houses will sell slowly because people won't be so willing to buy, and also where inherited wealth will (still) be used to BTL (that'll take years of slow but persistent declines to get out of the system)]

No, I think most people who inherit will pay off their own mortgage, car and credit card debts first. For most people an inheritance happens once in a lifetime; it's your one chance to live the rest of your life free of debt. I think most people are more intelligent than to go off chasing BTL rainbows while they still have a big outstanding mortgage, espeially when the recession bites and employment is hard to come by - some will of course, but I think they will be the minority.

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2 minutes ago, spunko said:

I suspect this post will be particularly prescient in a month or two. They won't change it either because then there would be shrieking from PAYEs about how the government cares about business more than them (without realising if their employer goes bust, they're fucked anyway)

I am fairly sure it will change soon.

Listening to the radio, it has changed from 0% discussion of business to 20% subject matter this weekend.

People are starting to think about this stuff.

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8 minutes ago, Loki said:

@Roger_Mellie  We are also going to need the Greta/XR eco-Bolshies to wind their necks in if we are to have a hope of bringing industry back here.  They've been quiet (Or not getting their content distributed)  recently, so maybe that's an indicator?  

Maybe... this is one angle that the West could use: legislate against Chinese products on an Environmental front. But I've no idea how it would work, life cycle analysis is complicated.

6 minutes ago, spunko said:

I suspect this post will be particularly prescient in a month or two. They won't change it either because then there would be shrieking from PAYEs about how the government cares about business more than them (without realising if their employer goes bust, they're fucked anyway)

I don't want them to change it, the liability needs to be with the borrower and it all needs checking properly - otherwise you get what I said way back on this... ripe for abuse by those who abuse this kind of thing.

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1 minute ago, Roger_Mellie said:

Maybe... this is one angle that the West could use: legislate against Chinese products on an Environmental front. But I've no idea how it would work, life cycle analysis is complicated.

Well if they were serious about CO2 they could base it on the CO2 impact of shipping stuff that breaks and can't be fixed all the way from China xD  

 

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2 minutes ago, Roger_Mellie said:

Maybe... this is one angle that the West could use: legislate against Chinese products on an Environmental front. But I've no idea how it would work, life cycle analysis is complicated.

China have been full being all the climate guff, mainly because they are huge beneficiaries of it as it strung a noose round the remains of the west\s manufacturing sector. They got a free pass under the legislation. WHO / UN etc need to be destroyed first as they have been co-opted. At lot of money has been passed hands to give China a very privileged and  undeserved position in terms of world trade.

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1 minute ago, Loki said:

Well if they were serious about CO2 they could base it on the CO2 impact of shipping stuff that breaks and can't be fixed all the way from China xD  

 

It's not really discussed. The shipping is the (conveniently) hidden part of the equation, as is returning broken equipment to be "harumph" allegedly recycled.

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3 minutes ago, Roger_Mellie said:

Maybe... this is one angle that the West could use: legislate against Chinese products on an Environmental front. But I've no idea how it would work, life cycle analysis is complicated.

I don't want them to change it, the liability needs to be with the borrower and it all needs checking properly - otherwise you get what I said way back on this... ripe for abuse by those who abuse this kind of thing.

That's why I do want them to change it. The government guarantee should  only kick in if the loan fails and all assets of the business and the Directors personally have been exhausted.

The government stopping the banks demanding guarantees was totally counter productive.

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5 minutes ago, Roger_Mellie said:

Maybe... this is one angle that the West could use: legislate against Chinese products on an Environmental front. But I've no idea how it would work, life cycle analysis is complicated.

Easy, import tax based on shipping mileage, exemption for commonwealth countries.

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14 minutes ago, Fully Detached said:

No, I think most people who inherit will pay off their own mortgage, car and credit card debts first. For most people an inheritance happens once in a lifetime; it's your one chance to live the rest of your life free of debt. I think most people are more intelligent than to go off chasing BTL rainbows while they still have a big outstanding mortgage, espeially when the recession bites and employment is hard to come by - some will of course, but I think they will be the minority.

That's old school thought. Debt is the new wealth. Hell you can get a new iPhone on 0% ffs. 

And People who inherit property don't sell, they become btl landlords. 

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1 hour ago, Vendetta said:

Design and government economic policy. 

Money flows like water - it follows the path of least resistance. 

Money may eventually be pushed into other asset classes and areas such as oil, agricultural land prices and labour. Then you would get food price inflation - and as a result - wage increases - depending on the ‘right’ conditions. 
 

 

 

I'm trying to find a way to visualise how money flows in the economy. There was a diagram I saw demonstrating the working capital cycle of a business using flow of water to represent money. I try to expand that into the entire economy , there are so many complexities.

In essence consumption is the water being used and QE is water being pumped in. Its a closed cycle when working normally. The amount pumped in is equivalent to the amount evaporated in consumption so the levels stay the same. ]

QE pumped in far more than was being used so a reservoir filled up. The reservoir I conceptualise as the asset bubble. 

And that's where my model stops. I can imagine asset falling in value. Like stock market values but where has that money gone? The proportion of the business each share represents is the same, the assets still exist and they still have the same productive capacity. 

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