Credit deflation and the reflation cycle to come (part 6)

[Loki]

17 minutes ago, Sugarlips said:

we are supposed to live in a society not an economy.

Poignant 

[baffledbyzirp]

6 minutes ago, crashmonitor said:

Karen Morgan was on R4 this morning, saying we absolutely need 0.5%, the inflation is now almost all domestically generated ( services up 10%. If they don't do it then international Markets will sell...they are not to be taken for fools. Morgan and Mann my pin ups just now, well maybe not Mann.

 

The discussion in the MSM concentrates on the inconvenience of higher interest rates to borrowers and the impact of inflation on the cost of living generally. That is how the model works. To reduce inflation per the Taylor rule, base rates must exceed inflation by 1-2% causing real hardship, forcing change in spending patterns which in turn subdues inflation. They are effectively opposing forces, albeit with a delay for increased base rates to impact lower inflation, assuming a closed economy.

The last 30 years has been a one way bet for residential property excluding 2008-11. Recklessness has been handsomely rewarded for both borrowers and lenders. Indeed the government has encouraged and profited from the bubble also. Meanwhile savers wealth has been cynically eroded by the attrition of negative real rates. Things are inevitably going to get harder because we binged on credit without considering the long-term consequences.

If you are forced to sell a house because you can't afford to repay the de facto owner i.e. mortgagee, there is no point blaming the government or the banks. It isn't nor ever was your house. Criticism should rightly be directed at the borrower who took out loans they could not repay in order to live in property they could not afford, to impress people they did not know, without any realistic contingency in the event of changed circumstances.

This is a rerun of the Wonga debate. The government is not responsible for protecting people from their own stupidity and greed. Where does personal responsibility finish and the social contract begin? I look forward to smaller government and greater individual accountability. If you can't feed the kids you produce stop having them. 

 

[DurhamBorn]

21 minutes ago, Sugarlips said:

I wasn’t around for the IMF intervention in the ‘70’s, not many alt options to the above?

This clusterfuck reminds me of the ERM debacle in the ‘90’s.

As you say the collapse is speeding up, are you seeing it as this year now?

I do have a small amount of sympathy for those left holding the bag in terms of we are supposed to live in a society not an economy.

Its very hard to define what the end result collapse is.I think from what im seeing we are already in the collapse,the question is do we turn back before total collapse or not,and then what is the total collapse.As its running now we are in the stage where the government takes all saved labour to give to those on the state.So the question is,how much do they take before it collapses,and is there a way to protect capital as much as you can.?

The sort of questions i have right now are like these.Is BT better because it can leverage UK inflation,or is Verizon better because it can leverage UK collapse .

Roadmaps are for direction,and at some point they turn,and macro work is to be way ahead of the turn.The problem here in the UK nothing that is flashing collapse is seeing any sort of reform.

This is much much worse than the ERM event,the economy was sound underneath then.This is the worst set up iv ever seen.

 

Edited June 21, 2023 by DurhamBorn

[Democorruptcy]

17 minutes ago, montecristo said:

Not to date.  Savings rate will be 6% + after tomorrow.  They are over 5.5% now.

The big banks aren't paying savers a fair rate and it's subsidising mortgage rates at lower than they should be at.

[Sugarlips]

4 minutes ago, DurhamBorn said:

Its very hard to define what the end result collapse is.I think from what im seeing we are already in the collapse,the question is do we turn back before total collapse or not,and then what is the total collapse.As its running now we are in the stage where the government takes all saved labour to give to those on the state.So the question is,how much do they take before it collapses,and is there a way to protect capital as much as you can.?

The sort of questions i have right now are like these.Is BT better because it can leverage UK inflation,or is Verizon better because it can leverage UK collapse .

Roadmaps are for direction,and at some point they turn,and macro work is to be way ahead of the turn.The problem here in the UK nothing that is flashing collapse is seeing any sort of reform.

This is much much worse than the ERM event,the economy was sound underneath then.This is the worst set up iv ever seen.

 

I know you are chasing divi’s and that you considered going in big on the metals some months back (wise not to at the time in hindsight) but what needs to change for you to make the switch to real money?

[Yadda yadda yadda]

20 minutes ago, baffledbyzirp said:

The discussion in the MSM concentrates on the inconvenience of higher interest rates to borrowers and the impact of inflation on the cost of living generally. That is how the model works. To reduce inflation per the Taylor rule, base rates must exceed inflation by 1-2% causing real hardship, forcing change in spending patterns which in turn subdues inflation. They are effectively opposing forces, albeit with a delay for increased base rates to impact lower inflation, assuming a closed economy.

The last 30 years has been a one way bet for residential property excluding 2008-11. Recklessness has been handsomely rewarded for both borrowers and lenders. Indeed the government has encouraged and profited from the bubble also. Meanwhile savers wealth has been cynically eroded by the attrition of negative real rates. Things are inevitably going to get harder because we binged on credit without considering the long-term consequences.

If you are forced to sell a house because you can't afford to repay the de facto owner i.e. mortgagee, there is no point blaming the government or the banks. It isn't nor ever was your house. Criticism should rightly be directed at the borrower who took out loans they could not repay in order to live in property they could not afford, to impress people they did not know, without any realistic contingency in the event of changed circumstances.

This is a rerun of the Wonga debate. The government is not responsible for protecting people from their own stupidity and greed. Where does personal responsibility finish and the social contract begin? I look forward to smaller government and greater individual accountability. If you can't feed the kids you produce stop having them. 

 

Of course there is a point in blaming the Government, they set the rules of the game. They, if you include the BoE as Government, which it is just unelected, set the low interest rates and caused the high house prices. They chose measures of inflation that excluded house prices but measures of GDP that included them though imputed rents. People should always take responsibility for their own actions. However, they have every right to push a large chunk of blame at the Government. It was Government policy to push debt on the public, it was Government policy to pursue inflationary spending, it was Government policy to increase the size of the population with immigration and it was Government policy to restrict housing supply. It was also Government policy to make the rental market shit, short term and insecure. There are plenty of lampposts in Westminster and the City of London. Someone of them have fancy designs. All are capable of carrying a dead weight.

The theory on interest rates controlling inflation breaks when the inflation is largely caused by Government spending. The way to control inflation now is a combination of rate rises and spending cuts.

[MrXxxx]

Just listening to Klaus Bader Chief economist for Societe Generale who stated that UK was not in stagflation because only two of the three signals were there i.e. Low growth, high inflation, but employment opportunities were high.

Now if  you artificially 'massage' unemployment rates by claiming that half of the real figure are not unemployed but sick, and you incentivize the other half not to work as benefits [with rate of inflation increases] are too generous, and so create a surplus of jobs, is this not going to account for the third factor being distorted/useless as an indicator?.....so in essence we could be in stagflation....or am I missing something?

[Yadda yadda yadda]

28 minutes ago, DurhamBorn said:

Its very hard to define what the end result collapse is.I think from what im seeing we are already in the collapse,the question is do we turn back before total collapse or not,and then what is the total collapse.As its running now we are in the stage where the government takes all saved labour to give to those on the state.So the question is,how much do they take before it collapses,and is there a way to protect capital as much as you can.?

The sort of questions i have right now are like these.Is BT better because it can leverage UK inflation,or is Verizon better because it can leverage UK collapse .

Roadmaps are for direction,and at some point they turn,and macro work is to be way ahead of the turn.The problem here in the UK nothing that is flashing collapse is seeing any sort of reform.

This is much much worse than the ERM event,the economy was sound underneath then.This is the worst set up iv ever seen.

 

Total collapse is Argentina with less land.

[Yadda yadda yadda]

27 minutes ago, Democorruptcy said:

The big banks aren't paying savers a fair rate and it's subsidising mortgage rates at lower than they should be at.

Who is supplying the banks with money? They're the one distorting savings rates. Banks haven't completed for savings for a long time as they can get cheap money elsewhere.

[stoobs]

50 minutes ago, DurhamBorn said:

https://www.telegraph.co.uk/business/2023/06/21/britain-debt-100-pc-gdp-borrowing/

Comments section is interesting and reflective of many feelings expressed here.

[leonardratso]

must be on, ford money just put the flexible account interest up again;

We have some good news for you. In line with Our Best Rate Guarantee we’re increasing the interest rate on our Flexible Saver effective 21st June 2023 as follows:

Current rate New higher rate 3.69% Gross 3.84% Gross

[JMD]

1 hour ago, Loki said:

Is that where you end up just renting from the bank on a perpetual self-repair self-insure lease?

Can't go wrong with bricks and mortar 

Yes that scenario was predicted by some on this thread, along with offering fancy new mortgage products. Of course it wil be sold as a 'temporary' solution but we know it'll be anything but temporary.

A question for the knowledgeable (banking experts?) on here...   Would the banks need to change their capitol funding (bond/market risk; btw just throwing terms around as I clearly don't really know this stuff!!) model to do this? Or would taking control of housing assets actually strengthen their balance sheets and be a win for them, at least in the short term?

Edited June 21, 2023 by JMD

[JMD]

1 hour ago, jamtomorrow said:

The scapegoating of central bankers has been discussed a few times on here, so not all surprising to see it materialize. Interesting question is, will it turn into scapegoating of central *banking*?

Must be a few populist pols looking at this and seeing the obvious opportunity.

 

Yes. I think that 'Crazy Kwasi's' (well that was the MSMs judgement of him) publicly announced weekly meetings with BOE governor were intended as a starting point for the reigning-in of the CBs... however he and Truss were ejected from office. Strange that?! 

[Stuey]

3 hours ago, Pip321 said:

It’s Brexit, it’s always Brexit….just ask the BBC.

Wonder when they will ask us to rejoin the money pit again.

As the song say “Things, can only get shitter.” 

That all suggests general inflation is based on energy inflation. And explains the refusal to ban new coal exploration....

[MrXxxx]

2 hours ago, Option5 said:

The banks will make up some of the losses by paying lower rates on savings and deposits.

...and the government will stand by and do FA...yet move away from savings and into the 'oilies' to get better returns and they are 'on the case' straight away...governments do not 'serve the people', they 'farm' them!

[JMD]

17 hours ago, DurhamBorn said:

Buy a house in Durham.

Are you alluding to that coal seam at the bottom of your garden?

Unfortunately home owners in this country don't own the mineral rights below their own land. Although I note that in the US they do and some residents there have made a pretty packet. 

[MrXxxx]

1 hour ago, Yadda yadda yadda said:

Who is supplying the banks with money? They're the one distorting savings rates. Banks haven't completed for savings for a long time as they can were gifted get cheap money elsewhere.

FTFY.

[Pip321]

3 hours ago, RWJ said:

I should get a confirmation email from Marcus later on today so I'll let you know.

As you predicted the Marcus email has just arrived. 😆😆
Looks like they are thinking 0.25% 😉

email
We wanted to let you know we’ve increased the underlying interest rates on our Online Savings Account, Cash ISA and Maturity Saver from 3.14% AER* to 3.39% AER*. 

If you hold an Online Savings Account or Cash ISA and you have already added the 0.34% gross/tax-free* bonus, your total rate will be 3.75% AER / 3.68% gross†.

Edited June 21, 2023 by Pip321

[DurhamBorn]

27 minutes ago, JMD said:

Are you alluding to that coal seam at the bottom of your garden?

Unfortunately home owners in this country don't own the mineral rights below their own land. Although I note that in the US they do and some residents there have made a pretty packet. 

The area,we would boom again if we were allowed to use our own resources.I say im Northumbrian not English and mean it,its since we were taken over by Southern Kings that we got poor.The government might as well be in Winchester for the north,nothings changed.

[Lightly Toasted]

2 hours ago, baffledbyzirp said:

The government is not responsible for protecting people from their own stupidity and greed. Where does personal responsibility finish and the social contract begin? I look forward to smaller government and greater individual accountability. If you can't feed the kids you produce stop having them. 

 

No, but it is responsible for monetary and fiscal policy, which inevitably drive behaviour at population level.

Incentivise stupidity and greed (and laziness and entitlement) = get more of it, until at some point the whole economy is swamped. 

[Lightly Toasted]

1 hour ago, JMD said:

Yes that scenario was predicted by some on this thread, along with offering fancy new mortgage products. Of course it wil be sold as a 'temporary' solution but we know it'll be anything but temporary.

A question for the knowledgeable (banking experts?) on here...   Would the banks need to change their capitol funding (bond/market risk; btw just throwing terms around as I clearly don't really know this stuff!!) model to do this? Or would taking control of housing assets actually strengthen their balance sheets and be a win for them, at least in the short term?

Not an expert but I presume there are (relatively short-term) lenders/bondholders in the background, to whom a stream of payments flows. The need to adjust the borrower's mortgage rate will be driven by the need to re-finance the underlying bond as they expire. All IMO.

[Yadda yadda yadda]

1 hour ago, JMD said:

Yes that scenario was predicted by some on this thread, along with offering fancy new mortgage products. Of course it wil be sold as a 'temporary' solution but we know it'll be anything but temporary.

A question for the knowledgeable (banking experts?) on here...   Would the banks need to change their capitol funding (bond/market risk; btw just throwing terms around as I clearly don't really know this stuff!!) model to do this? Or would taking control of housing assets actually strengthen their balance sheets and be a win for them, at least in the short term?

I'm not a banking expert. My guess would be that a vehicle would be formed to take over the running of the properties and pay the loan back to the bank.

Eg Nat West takes over a property. They transfer it to a wholly owned subsidiary named NatWest Vulture Properties Ltd. NWVP takes rental payments and pays loan interest to NatWest PLC. I'm unclear who would be responsible for property maintenance. NWVP would presumably want control of that and would therefore need to charge a rent appropriate to pay the loan and maintenance.

[Sugarlips]

I’m getting the impression that the banks are going to be clobbered by the government for taking excess profits just as they did for Shell/Bp.

Which dovetails nicely into hey, banks are bad so let’s get rid of them and have these nice CBDC’s instead...

[wherebee]

2 hours ago, DurhamBorn said:

Its very hard to define what the end result collapse is.I think from what im seeing we are already in the collapse,the question is do we turn back before total collapse or not,and then what is the total collapse.As its running now we are in the stage where the government takes all saved labour to give to those on the state.So the question is,how much do they take before it collapses,and is there a way to protect capital as much as you can.?

Have you mapped the impact of foreign retail money flowing in as the pound collapses, to buy UK assets?  Trust me, from my time in HK and elsewhere in Asia, 90% of asian retail investors still see the UK as the land of paddington bear, bowler hats, honesty, and james bond.  I've posted on here before that almost every professional I knew in Hk and Singapore had property in either UK, Australia, or Canada, and the vast majority in the UK.

I could see a position where Uk housing looks very very cheap to singaporeans, chinese, indians, and they just pile in and grab any old shit they can in London and elsewhere that they know from TV (like Oxford).  They will NEVER recognise a collapse, even the riots in London a while back were discussed in circles I knew in HK as 'immigrant riots' and seen as a small problem.

In their desperation to keep the plates spinning, I could see a UK gvt supporting this inwards flow of money.  Ten houses in London could be ten million quid in GBP...

[Starsend]

2 hours ago, Yadda yadda yadda said:

Of course there is a point in blaming the Government, they set the rules of the game. They, if you include the BoE as Government, which it is just unelected, set the low interest rates and caused the high house prices. They chose measures of inflation that excluded house prices but measures of GDP that included them though imputed rents. People should always take responsibility for their own actions. However, they have every right to push a large chunk of blame at the Government. It was Government policy to push debt on the public, it was Government policy to pursue inflationary spending, it was Government policy to increase the size of the population with immigration and it was Government policy to restrict housing supply. It was also Government policy to make the rental market shit, short term and insecure. There are plenty of lampposts in Westminster and the City of London. Someone of them have fancy designs. All are capable of carrying a dead weight.

The theory on interest rates controlling inflation breaks when the inflation is largely caused by Government spending. The way to control inflation now is a combination of rate rises and spending cuts.

Spot on. I believe in personal responsibility and the social contract but it has been smashed to fuckery by the parasitic criminals running the country. When they push the cost of a basic house into the stratosphere what the fuck is some couple with kids to look after supposed to do? They're forced to borrow irresponsibly or go sleep in a ditch with their kids. I put 100% of the blame on the Government, they're supposed to be the intelligent ones steering the ship. I would happily hang them all myself.