Bob Diamond resigns

[mjdgreg]

BST couple of things, you say you want to see more houses built for sale to reduce house prices.  Well chances are that may, but then that would cause a knock on effect wouldn't it?  Current householders on huge mortgages (That they should never have got) can't sell, are saddled with huge mortgages and you end up with another negative equity situation.....

Also, I'm not sure there is an issue in the housing market, supply is there it's the demand that isn't, because the reduction in prices needed to help the younger end of the market would bankrupt half the country.  Surely given the size of many people's mortgages it would be crazy to implement any scheme that reduces house prices, the key is to prevent them from growing unsustainably.

Unlike silly Billy you talk a lot of sense. I agree with your first paragraph and most of your second. There is a scheme in place to reduce house prices at the moment. It's called inflation. Interest rates have been kept too low for too long meaning that house prices were allowed to get out of control and give the illusion of wealth to consumers. So they went on a spending spree which is now leading to untold damage to our economy.

Our housing bubble is taking forever to deflate because of the low interest rate policy. I reckon it is going to take at least 5 years before it finally is deflated if current policies are carried on with. During this 5 years there is no way that anyone with a big mortgage is going to spend. They're going to get as much of the mortgage paid off as possible before interest rates go up in the hope that they can avoid having their house re-possessed.

[jonnydog]

Really can't believe this thread has gone on this long now 

[mjdgreg]

I`ve got it! Who`s arrogant and has n`t got a clue? mjdgreg?

Step forward George Gideon Osbourne! 

I think you'll find it is me that is by far the most arrogant one.

[BillyStubbsTears]

Keep your opinions on what I do with my holidays, where I go and how I finance it to yourself, you stupid, arrogant prick. You haven't got the first idea.

Bit touchy aren't we! I was merely trying to offer you some excellent advice on hardening up.

Not touchy. I just despise gobshites making comments about personal situations that they know f**k all about. It shows them up for the dick heads that they are.

[BillyStubbsTears]

BST couple of things, you say you want to see more houses built for sale to reduce house prices.  Well chances are that may, but then that would cause a knock on effect wouldn't it?  Current householders on huge mortgages (That they should never have got) can't sell, are saddled with huge mortgages and you end up with another negative equity situation.....

Also, I'm not sure there is an issue in the housing market, supply is there it's the demand that isn't, because the reduction in prices needed to help the younger end of the market would bankrupt half the country.  Surely given the size of many people's mortgages it would be crazy to implement any scheme that reduces house prices, the key is to prevent them from growing unsustainably.

BFYP.
We have two major problems with the housing market.
1) Ther long term one - there is a chronic lack of supply in this country. That is why the house price bubble inflated in the first place. In the last ten years, whilst the population has gone up by 3 million, we have built fewer than 1.5 million new houses. That is barely enough to keep up with replacement of the old, dilapidated stock, never mind take in to account the increased population and the trend for smaller households, with more people living alone, hence requiring more housing. This was a major policy error by Labour, but follows a trend of house building not being prioritised by successive Govts. House building starts have rarely gone above 150-170,000 per year since the early 1980s. That is an unsustainably low figure and it is no surprise that we have had two house price bubbles in that time. And since the start of the current crisis, house building has utterly collapsed. In 2009-11 to just over half the very low figure that it already was.
In the last 100 years, the only times we have built so few houses was during the two world wars. There is a pressing need to increase the stock of housing in the medium term and it is becoming more urgent by the month. By not addressing this, we are laying the seeds for the next housing bubble once the economy finally does start to expand.

2) The short-term problem. There is currently an excess of marketed supply over demand because, to put it simply, the economy is f***ed. The way to address that is to get the economy back moving again.

A clear and obvious double solution is to encourage house building. This is a step towards addressing the long term lack of housing stock. In the meantime, it gets some of the hundreds of thousands of unemployed builders back into work. It helps kick-start the economy as a result. That will very quickly sort out the short-term problem in the housing market. And it makes a start at addressing the long term problem of over-inflation in the housing market due to long-term excess of demand over supply. I fully agree that it would be crazy to depress house prices by a large amount and very quickly. That wouldn't happen under the policy that I'm suggesting. It would instead be a long-term and fairly slow-acting corrector to house prices, by relatively slowly increasing supply. (I say relatively slowly, because even if you started building a quarter of a million houses per year now - which we won't - it would still take a decade to sort out the long term chronic under-supply problem.)

[Filo]

I`ve got it! Who`s arrogant and has n`t got a clue? mjdgreg?

Step forward George Gideon Osbourne! 

I think you'll find it is me that is by far the most arrogant one.

And both equally clueless!

[BillyStubbsTears]

Mick.

Parting shot before I go.

1) Since the start of the crash, Austrians like your hero Peter Shciff have been prophesying imminent mega-inflation and currency collapse. It hasn't happened. Their response is - ah yeah, but it will. It reminds me of the religious freaks who sit on top of a hill waiting for the second coming of Christ, and when he doesn't come, they say, "Ah yeah, but he'll come NEXT time."

2) At the start of the crisis, Keynesian economists were predicting how an immediate stimulus would halt the rise in unemployment and boost growth without generating large internally driven rises in inflation. That is EXACTLY what happened in 09-10.

3) From 2010, Austrians like Peter Schiff have been saying that what is required is massive cuts in public spending. That is the pre-requisite for renewed growth. The places that have implements massive cuts in spending are currently the basket cases, with no sign of a recovery this side of 2020 - Ireland, Portugal, Spain. All bumping along with 1930s levels of unemployment. (Greece too, but for different reasons - that is the ONE case where there WAS a ridiculously high Govt debt before the crash and they are in a special circle of hell.)

4) When Austerity became the rage, the anti-Keynesians like the IMF blithely predicted high growth in the UK as a response to Govt cut-backs. This was always utterly illogical and frankly ignorant of the basics of macro-economics. Keynesians and those who understood their economic history were saying that at the time. Guess who was right, the way that growth has collapsed over the last 2 years?

5) The Austrians have repeatedly claimed that unless Govt spending is slashed, bond rates will explode. You have repeated this fallacy times many in here. It hasn't happened. It is a belief that is deeply ignorant of the mechanisms that produce changes in bond rates. Go and look at the long-term history of our bond rate figures. They were at their highest in the 1970s and the late 1980s, when our Govt debt was at historically low levels. When our Govt debt was very high (1945-1960 and right now) bond rates were rock bottom. The whole basic premise of your argument against Govt spending (that it will increase interest rates and cause us long term harm) is fundamentally flawed and is contradicted by both the long term and the short term historical evidence. It is a belief that comes from a political viewpoint that Govt=bad and therefore Govt spending=bad. It is demonstrably incorrect.

I'm still, after all these pages of wittering from you, STILL waiting for a single example of a country that has ever got growth kick started in a debt-induced recession without significantly increasing Govt spending. Just one. Any one will do. If you can't find one, why should anyone take your approach seriously?

[mjdgreg]

1) Since the start of the crash, Keynesians like Billy have been prophesying we're all doomed unless we spend even more money that we haven't got. Inflation and a currency collapse are the least of their worries. They believe it won't happen. But it will unless governments harden up and stop excessive borrowing for consumption. It reminds me of the scientologist  freaks who sit on top of a hill waiting for the second coming of Christ, and when he doesn't come, they say, "Ah yeah, but at least we've got Billy."

[mjdgreg]

Part of the solution to the housing problem is to stop letting in so many immigrants. Since 2001 we've increased our population by 3.7m which is mainly accounted for by immigrants. These people also tend to have bigger families thus exacerbating the problem further. Well done Labour for causing more damage to our economy.

[big fat yorkshire pudding]

BST couple of things, you say you want to see more houses built for sale to reduce house prices.  Well chances are that may, but then that would cause a knock on effect wouldn't it?  Current householders on huge mortgages (That they should never have got) can't sell, are saddled with huge mortgages and you end up with another negative equity situation.....

Also, I'm not sure there is an issue in the housing market, supply is there it's the demand that isn't, because the reduction in prices needed to help the younger end of the market would bankrupt half the country.  Surely given the size of many people's mortgages it would be crazy to implement any scheme that reduces house prices, the key is to prevent them from growing unsustainably.

BFYP.
We have two major problems with the housing market.
1) Ther long term one - there is a chronic lack of supply in this country. That is why the house price bubble inflated in the first place. In the last ten years, whilst the population has gone up by 3 million, we have built fewer than 1.5 million new houses. That is barely enough to keep up with replacement of the old, dilapidated stock, never mind take in to account the increased population and the trend for smaller households, with more people living alone, hence requiring more housing. This was a major policy error by Labour, but follows a trend of house building not being prioritised by successive Govts. House building starts have rarely gone above 150-170,000 per year since the early 1980s. That is an unsustainably low figure and it is no surprise that we have had two house price bubbles in that time. And since the start of the current crisis, house building has utterly collapsed. In 2009-11 to just over half the very low figure that it already was.
In the last 100 years, the only times we have built so few houses was during the two world wars. There is a pressing need to increase the stock of housing in the medium term and it is becoming more urgent by the month. By not addressing this, we are laying the seeds for the next housing bubble once the economy finally does start to expand.

2) The short-term problem. There is currently an excess of marketed supply over demand because, to put it simply, the economy is f***ed. The way to address that is to get the economy back moving again.

A clear and obvious double solution is to encourage house building. This is a step towards addressing the long term lack of housing stock. In the meantime, it gets some of the hundreds of thousands of unemployed builders back into work. It helps kick-start the economy as a result. That will very quickly sort out the short-term problem in the housing market. And it makes a start at addressing the long term problem of over-inflation in the housing market due to long-term excess of demand over supply. I fully agree that it would be crazy to depress house prices by a large amount and very quickly. That wouldn't happen under the policy that I'm suggesting. It would instead be a long-term and fairly slow-acting corrector to house prices, by relatively slowly increasing supply. (I say relatively slowly, because even if you started building a quarter of a million houses per year now - which we won't - it would still take a decade to sort out the long term chronic under-supply problem.)

Some of that I'd agree with others I wouldn't.  There isn't a huge demand for housing and there isn't going to be for quite a while yet, the damage was done when prices were allowed to rise under the previous government (I'd need a mortgage ten times my wage to buy my Dad's house).  Now I'm not badly paid but what's the point in even thinking of a buying a house?  I'll probably carry on renting, it suits me and it's achieveable.

As for Keynesian theory, never really been against or for it.  Some of the principles make sense others don't but the big thing is that right now that's kind of irrelevant.  I'm thinking back a bit now but I always thought it was built upon spending when we're struggling and running a surplus in the good times (something Brown didn't do) - can you see the gap here?  The problem was never the bail outs, that was a necessity, no theory will ever come above the fact of circumstance.  But we never kept enough back in the good times and carried on the borrowing, that can't continue hence we have to reign it in - sadly the public sector attempts to do this in all the wrong ways every single time.

[mjdgreg]

I'm still, after all these pages of wittering from you, STILL waiting for a single example of a country that has ever got growth kick started in a debt-induced recession without significantly increasing Govt spending. Just one. Any one will do. If you can't find one, why should anyone take your approach seriously?

When Maggie came to power in 1979 we had inflation in double figures, trade unions with too much power, unemployment increasing to a post war record and high levels of government debt that required us to borrow from the IMF. We were the sick man of Europe.

Her first policies were to tackle both inflation and the budget deficit. She raised taxes and cut government spending. Interest rates were also increased to reduce inflation. The UK emerged from recession in 1981 without resorting to a Keynesian stimulus. She sowed the seeds of a 'goldilocks' economy which was handed over to Labour only for them to squander all the hard fought for gains.

Game set and match.

[mjdgreg]

Some of that I'd agree with others I wouldn't.  There isn't a huge demand for housing and there isn't going to be for quite a while yet, the damage was done when prices were allowed to rise under the previous government (I'd need a mortgage ten times my wage to buy my Dad's house).  Now I'm not badly paid but what's the point in even thinking of a buying a house?  I'll probably carry on renting, it suits me and it's achieveable.

As for Keynesian theory, never really been against or for it.  Some of the principles make sense others don't but the big thing is that right now that's kind of irrelevant.  I'm thinking back a bit now but I always thought it was built upon spending when we're struggling and running a surplus in the good times (something Brown didn't do) - can you see the gap here?  The problem was never the bail outs, that was a necessity, no theory will ever come above the fact of circumstance.  But we never kept enough back in the good times and carried on the borrowing, that can't continue hence we have to reign it in - sadly the public sector attempts to do this in all the wrong ways every single time.

I'd agree with most of that. Especially the bit about the public sector. Renting may be OK for you for now but I'd advise looking at buying instead. A typical mortgage for £50,000 would only cost about £275 per month.

[BillyStubbsTears]

BST couple of things, you say you want to see more houses built for sale to reduce house prices.  Well chances are that may, but then that would cause a knock on effect wouldn't it?  Current householders on huge mortgages (That they should never have got) can't sell, are saddled with huge mortgages and you end up with another negative equity situation.....

Also, I'm not sure there is an issue in the housing market, supply is there it's the demand that isn't, because the reduction in prices needed to help the younger end of the market would bankrupt half the country.  Surely given the size of many people's mortgages it would be crazy to implement any scheme that reduces house prices, the key is to prevent them from growing unsustainably.

BFYP.
We have two major problems with the housing market.
1) Ther long term one - there is a chronic lack of supply in this country. That is why the house price bubble inflated in the first place. In the last ten years, whilst the population has gone up by 3 million, we have built fewer than 1.5 million new houses. That is barely enough to keep up with replacement of the old, dilapidated stock, never mind take in to account the increased population and the trend for smaller households, with more people living alone, hence requiring more housing. This was a major policy error by Labour, but follows a trend of house building not being prioritised by successive Govts. House building starts have rarely gone above 150-170,000 per year since the early 1980s. That is an unsustainably low figure and it is no surprise that we have had two house price bubbles in that time. And since the start of the current crisis, house building has utterly collapsed. In 2009-11 to just over half the very low figure that it already was.
In the last 100 years, the only times we have built so few houses was during the two world wars. There is a pressing need to increase the stock of housing in the medium term and it is becoming more urgent by the month. By not addressing this, we are laying the seeds for the next housing bubble once the economy finally does start to expand.

2) The short-term problem. There is currently an excess of marketed supply over demand because, to put it simply, the economy is f***ed. The way to address that is to get the economy back moving again.

A clear and obvious double solution is to encourage house building. This is a step towards addressing the long term lack of housing stock. In the meantime, it gets some of the hundreds of thousands of unemployed builders back into work. It helps kick-start the economy as a result. That will very quickly sort out the short-term problem in the housing market. And it makes a start at addressing the long term problem of over-inflation in the housing market due to long-term excess of demand over supply. I fully agree that it would be crazy to depress house prices by a large amount and very quickly. That wouldn't happen under the policy that I'm suggesting. It would instead be a long-term and fairly slow-acting corrector to house prices, by relatively slowly increasing supply. (I say relatively slowly, because even if you started building a quarter of a million houses per year now - which we won't - it would still take a decade to sort out the long term chronic under-supply problem.)

Some of that I'd agree with others I wouldn't.  There isn't a huge demand for housing and there isn't going to be for quite a while yet, the damage was done when prices were allowed to rise under the previous government (I'd need a mortgage ten times my wage to buy my Dad's house).  Now I'm not badly paid but what's the point in even thinking of a buying a house?  I'll probably carry on renting, it suits me and it's achieveable.

As for Keynesian theory, never really been against or for it.  Some of the principles make sense others don't but the big thing is that right now that's kind of irrelevant.  I'm thinking back a bit now but I always thought it was built upon spending when we're struggling and running a surplus in the good times (something Brown didn't do) - can you see the gap here?  The problem was never the bail outs, that was a necessity, no theory will ever come above the fact of circumstance.  But we never kept enough back in the good times and carried on the borrowing, that can't continue hence we have to reign it in - sadly the public sector attempts to do this in all the wrong ways every single time.

BFYP
1) Essentially, Keynesian analysis is based on the concept of Aggregate demand. It says that the overall demand in an economy is the sum of private (individuals') expenditure, business expenditure and Government expenditure. Recessions occur when the total demand slumps, so there is not enough demand in the economy for the potential amount that the economy ought to be able to produce.  What happened in 08-09 was a classic case of private and business demand collapsing.

If Govt expenditure is then also cut back, where does the demand in the economy come from?

If there is a huge reduction in demand, there is a huge reduction in the amount of goods and services being bought.

If there is a huge reduction in the amount of goods and services being bought, companies contract, reduce hours or wages and lay people off.

If companies contract and people have less money in their pockets, there is less demand in the economy.

A classic vicious circle. That is what happened in the Great Depression and Keynes's work was a response to that, giving an intellectual framework for how to ensure that you don't make the same mistakes again. It involves Government injecting demand into the economy, either by tax cuts that specifically boost demand (rather than simply give people money to pay off their debts) or by Govt going out and spending on new houses, schools, road, railways, fibre-optic systems etc.

Anyone who doesn't agree with that needs to put forward a logically coherent argument as to how else you get out of a a demand-collapse recession. The argument of the Austrian school appears to be "cut Govt spending and the Confidence Fairy will sort us all out."

The lack of demand in the housing market that you correctly identify is just the most visible symptom of the overall lack of demand in the economy as a whole. It is that lack of demand that is throttling the UK economy. And even going on the IMF's figures from yesterday (which, on previous track record, are probably overly optimistic), there is no sign whatsoever of any increase in demand coming in the near future.

We weren't supposed to be here, according to the deficit hawks. We were supposed to get the deficit under control over the first 3 years of this Govt, and a strong economic rebound would naturally occur. Aye, right. It is economic illiteracy on a criminal and historic scale.

2) We've been through this issue a hundred times about  the Govt supposedly spending too much in the good times. It all comes down to what you consider to be "too much" Govt spending. There is now an accepted "fact" that Brown was a manic over-spender who left us peculiarly vulnerable to the downturn. It ignores the fact that in 2007, our Govt debt as a proportion of the country's income was lower than that of any other major industrialised country, and at historically very low levels for UK. Fact, as some people say at the end of their statements.

[BillyStubbsTears]

I'm still, after all these pages of wittering from you, STILL waiting for a single example of a country that has ever got growth kick started in a debt-induced recession without significantly increasing Govt spending. Just one. Any one will do. If you can't find one, why should anyone take your approach seriously?

When Maggie came to power in 1979 we had inflation in double figures, trade unions with too much power, unemployment increasing to a post war record and high levels of government debt that required us to borrow from the IMF. We were the sick man of Europe.

Her first policies were to tackle both inflation and the budget deficit. She raised taxes and cut government spending. Interest rates were also increased to reduce inflation. The UK emerged from recession in 1981 without resorting to a Keynesian stimulus. She sowed the seeds of a 'goldilocks' economy which was handed over to Labour only for them to squander all the hard fought for gains.

Game set and match.

Mick. I struggle to figure out whether you really ARE clueless, or whether you just pretend.

UK debt in the late 70s was at historically low levels. When Thatcher came to power in 79, the debt-to-GDP ratio was lower than at any time in the previous 250 years, apart from a brief spell in the run-up to WWI. You really, really don't understand the bond market issue do you? You really don't understand what causes increases in the rates demanded of Governments when they go to the markets to borrow money. You really don't understand the reason why the UK couldn't borrow at affordable rates in 1976 and had to go to the IMF. Because if you did, you wouldn't say really, really daft things like this.

The 1980-81 recession had nothing whatsoever to do with the level of the country's debt. It was nothing remotely like the current recession. Those policies, which were grim enough back then would be utter suicide today, because the threat today is not inflation. It is the polar opposite of inflation.

And to say that Thatcher's policies worked in bringing us rip-roaring out of recession is utter crap. We inflicted upon ourselves the most severe recession in the industrialised world. That might just have been acceptable if we came out of it with a transformed economy. But we didn't. Were were left with near- Depression era unemployment for a decade. Our GDP measured in dollars fell from 1980-1985 and it wasn't until a manic housing bubble was generated in the mid-late 80s that GDP finally took off, only to collapse into the most severe recession in the western world in 1990-91.

So, at the end of your heroine's manic decade-long experiment in manic cutting followed by a wild boom, we had inflation, budget deficit, unemployment and interest rates all higher than when she came to power. Some f**king model to emulate eh?

[mjdgreg]

The 1980-81 recession had nothing whatsoever to do with the level of the country's debt.

Wrong again. Here's what the opening section of the link I include states were the reasons for the recession in 1980:

 When Mrs Thatcher came to power in 1979, the economy was generally considered to be facing severe structural problems including:

* Inflation in double figures
* Powerful Trades unions causing wage inflation and time lost to strikes.
* Unemployment increasing to a post war record of 700,000
* High levels of government debt that required politically sensitive borrowing from the IMF.

http://econ.economicshelp.org/2007/03/uk-economy-under-mrs-thatcher-1979-1984.html

Maggie did sow the seeds for a much brighter future for the UK economy. When Clarke handed over to the last Labour government they did indeed inherit a 'goldilocks' economy which they then managed to totally screw up.

Game set and match.

[The L J Monk]

When Mrs Thatcher came to power in 1979, the economy was generally considered to be facing severe structural problems including:

* Inflation in double figures
* Powerful Trades unions causing wage inflation and time lost to strikes.
*Unemployment increasing to a post war record of 700,000
* High levels of government debt that required politically sensitive borrowing from the IMF.

http://econ.economicshelp.org/2007/03/uk-economy-under-mrs-thatcher-1979-1984.html

Maggie did sow the seeds for a much brighter future for the UK economy. When Clarke handed over to the last Labour government they did indeed inherit a 'goldilocks' economy which they then managed to totally screw up.

Game set and match.

She soon sorted that record out. 3.2 million unemployed inside no time at all.

[BillyStubbsTears]

Well Mick, that explains a lot. You pick up scrappy little bits of un-supported opinion from sub-GSCE websites and take them as Gospel fact.

Instead of doing that Mick, why not do some real research? Why not go and dig out the figures for yourself instead of relying on second hand opinion? Why not make your own judgement, instead of scouring round the Internet for quotes to back up your pre-formed opinion?

If you are serious, you'd dig into the ONS data for example. Or past Treasury reports. But being idle, you don't even need to do that. You can look on your very own GSCE-help website.
http://www.economicshelp.org/blog/334/uk-economy/uk-national-debt/

I'll help you even further Mick. If you scroll down the page, you'll find this graph.



So. Go on then. By what measure did we have high Govt debt in 1979? Or in 2007 come to that?

As I say, you haven't the faintest comprehension what causes Governments to have borrowing crises. You assume it is simply a function of debt. In which case, why did we have a borrowing crisis with spiralling bond rates  in 1976, but not in, say, 1960, or today?

Laughable.

[Donnywolf]

Really can't believe this thread has gone on this long now 

You and me both !

Shall we start another thread (just you and me) where you can say (for instance) "I see Mick has posted again" .... then I can say BST has replied - what a good one it is too

That will have the rest of the Forum riveted !

[mjdgreg]

Once again you base all your arguments on UK Debt as % of GDP ignoring all other factors.
The IMF only gives loans to countries that are virtually bankrupt. If that isn't an indication that you've got a debt problem then I don't know what is. Anyway here is some more evidence from another link showing we had a government debt problem in the 1970's. Hopefully the source meets with your very high standards. The link starts with the following:

JP Morgan, said that in “many” ways “the UK’s fiscal position is currently worse than observed around the IMF loan in 1976”.
The bank warns that Government debts, when compared to the total size of the economy, are higher than during the 1970s crisis.

http://www.telegraph.co.uk/finance/financialcrisis/7198359/Britains-economy-now-as-bad-as-1970s-JP-Morgan-warns.html

[BillyStubbsTears]

Mick.

You really are a card. YOU Mick/Peter, whatever your name is. YOU quoted someone as saying that GOVERNMENT debt was an issue in the 1980-81 recession. I know you have personality issues Mick/Peter but it really was one of you who said that.

I then point out that by any historical standard, our Govt debt as a percentage of GDP in 1979 was actually very low.

You then complain that I am basing all my arguments of debt to GDP. What other way of basing the argument is there Mick/Peter when we are talking about the level of Govt debt?

And then, despite my earlier attempts to nudge you in the right direction, you can't help yourself but to go scouring the Internet for a random quote to back you up. And to cap it all, the article you quote is talking about Govt debt to GDP...

How long is it going to take for the penny to drop Mick/Peter? Just finding some other internet poster who agrees with you does not make your facts or your arguments correct. That JP Morgan quote is hardly news. Of course our fiscal position is worse than in the 1970s. Far, far, far worse. It doesn't take a genius to work that out. I agree 100%. Our Govt debt to GDP is now WAY higher than it was in the mid 70s. (Hardly surprising since in the mid 70s it was at historically low levels, as we've established from the data on the web site that you so perceptively linked to.)

And our bond rates are now ~1.5% whereas in 1976, they were pushing 20%.

What conclusion to you draw from that Mick/Peter? Go on. It's really not difficult.

You still haven't twigged yet what affects bond markets have you? Happy Googling.

[mjdgreg]

And our bond rates are now ~1.5% whereas in 1976, they were pushing 20%.

What conclusion to you draw from that ? Go on. It's really not difficult.

I know what conclusion you draw. You think that just because the bond markets are 'currently' giving us bond rates of 1.5% then our huge debt isn't a cause for concern and we can keep on merrily adding to it. In silly Billy land there is no need to look further than today. Whatever our rates are today will stay the same for many years to come so we'll be able to borrow lots more money cheaply and don't need to worry about rates going up and bankrupting us in the blink of an eye.

You assume that the bond markets have got it all worked out correctly. I don't. The bond markets are currently behaving very irrationally. We're only getting those rates for now because other countries are in a bad way as well and at the moment we are seen as a better bet thanks to Plan A. George has done a marvellous job of conning them into thinking we are a good bet. We're not. Far from it, especially if you had your way.

If Plan A were abandoned as you want, sentiment would soon change and this is where your argument falls down. You deride Plan A but then think you can use the fruits of this plan to borrow against the low bond rates that Plan A has delivered. The low rates you are so fond of would be gone like a shot if we implemented your Plan B and then where would we be? Talk about wanting to have it both ways.

[mjdgreg]

Really can't believe this thread has gone on this long now

There are a lot of people out there that like to see pompous Billy given a good battering every day by someone who doesn't read newspapers and books. That's why this thread has gone on so long. Just because he's a scientologist and likes to use big words and graphs etc. doesn't mean he's right.

It makes a refreshing change for an ordinary man in the street to stand up to him and get the better of him in every debate he has with him. Sometimes common sense and the courage of your convictions are all that's needed to bring people like Billy down a peg or two. I hope one or two of you out there have been inspired by me and will now feel more confident in putting your views across. Hopefully Billy will have learnt a lesson or two in humility and will tone down his utterings.

[BillyStubbsTears]

Mick/Peter.

As I say. You haven't the faintest idea what drives the bond markets.

They are not doing what you, Mick/Peter, think they should (i.e. go up with debt). Therefore they are irrational.

Osborne claims that the bond rates are low because he has given the markets confidence that the UK is being well run. So let's follow that logic. When the economic crisis exploded, our GDP fell by 6% in one year and the deficit went up to 12%, bond rates halved. Presumably, according to Osborne, the bond markets must have been REALLY impressed with our economy back then, eh?

But you have a different argument Mick/Peter. You say that the markets are "currently" behaving irrationally. By "currently", I assume you mean "over the last 5 years", because our bond rates have been dropping like a stone for that time whilst our debt has doubled. Or perhaps you mean "over the last 12 years", because our debt has been rising for all that time and yet bond rates have consistently reduced? Or perhaps you mean "over 20 years", because Japan's bond rates have fallen by 5/6ths over that time whilst its debt has quadrupled? Or perhaps you mean "over the last 35 years", because our bond rates went sky high in 1976, even though our debt was at historically low levels.

Mick/Peter, your arguments can be boiled down to this.

1) This is what I believe
2) The facts don't actually support what I believe
3) But I will continue to believe it anyway because the facts will change.

See me? I'd look at all that information and think either.
1) The bond markets are permanently irrational, or
2) There is no, and never has been a direct causal link between high Govt debt and increased bond rates.

Either way, there is no evidence whatsoever for claiming that failing to reduce the debt will lead to Bond Market catastrophe. None at all.

In the meantime, failure to accept that argument is putting us through economic trauma.

I'd laugh about it, were in not for the fact that people with exactly the same approach are in power in the UK and across much of Europe. it is the tragedy of the era that we are condemning ourselves to years, if not decades of unnecessary economic grief through this sort of ideologically-driven ignorance.

I'll help you out here Mick/Peter, because I can see that you are having trouble Googling to find out what actually drives up bond rates.

Basically, bonds are the international money markets lending money to Governments. The rates that they charge come down to how the markets believe that they will get the value of their money back when they come to withdrawn.

There are therefore two, and really only two issues that affect this decision.

1) Whether they believe that a country will default. If there is a chance of a country going bust, the bond markets will up the required interest rate. It's a gamble. If I lend you money and its not rock solid certain that you'll be able to pay me back in future, I want a decent mark-up to make it worth taking the risk. That is what has happened in the Euro periphery.

2) Whether they believe that runaway inflation will eat away at the value of their loan. If they think that our inflation is going to be high over the period that  they have lent us money, they will require a high interest rate to compensate, so that when they get their money back at the end of the loan, it's made enough interest to cover the inflation effect. THAT is what happened to the UK in the mid 70s. Inflation was through the roof and so bond rates went sky high.

And that is about it. Look at it that way and it all makes perfect sense. Japan's bond rates have been stubbornly low despite their massive debt because Japan can always print money to pay off its debts, and inflation has been rock bottom for 20 years.

Our bond rates are very low, because the markets don't believe that there is any chance of us not being able to pay off our debt, and because they believe that there is no prospect of high inflation any time in the next decade. In other words, the markets have effectively pencilled us in as another Japan. We're in for our own Lost Decade, because we have made EXACTLY the same stupid mistakes that Japan made back in 1990-92.

[mjdgreg]

Our bond rates are very low, because the markets don't believe that there is any chance of us not being able to pay off our debt, and because they believe that there is no prospect of high inflation any time in the next decade.

Exactly. You make my point for me although inadvertently. This is exactly why I believe the bond markets are behaving irrationally. If we adopted your policy there would be no chance of us ever being able to repay our debt and the markets would soon turn against us and increase rates. They also believe there is no prospect of high inflation any time in the next decade. Another irrational view. Your policy along with Quantitative Easing (money printing) is guaranteed to cause inflation and a devaluing of Sterling.

Like I said, you believe the current circumstances will prevail for many years. Of course they won't. You would leave us holed below the water-line whereas I would have caulked the hull and fixed the rigging allowing us to weather the financial storms ahead. That's if it's not already too late. I suspect it is, but hope I am wrong.

[BillyStubbsTears]

Mick/Peter.

But the markets were right to fear inflation in the mid 70s. They were right to NOT fear inflation in Japan in the early 90s, despite Japan running huge deficits and running huge QE policies. They were right to not fear inflation in the UK or a threat to our ability to repay debts in the early 2000s when Govt borrowing increased. They were right not to fear inflation or a threat to our ability to repay debts in 2007-08 when Govt deficits exploded and we engaged in huge QE.

You, Peter, said in 2008 that the US Govt policy was going to lead to hyper inflation and a collapse of the dollar and bond rates exploding. The markets didn't say that. They were right Peter and you were wrong.

Why should they suddenly be wrong now? They've got the call right every single time before.

[mjdgreg]

Just to show why I suspect it is already too late, here is the shocking truth of our real National Debt with a link included to show the full horror story. For Billy to want to add to our debt is complete lunacy. Here is a brief extract:

The real national debt extends far beyond the Government’s formal measurements. It also includes substantial liabilities in relation to unfunded public sector pensions, unfunded state pensions, the Private Finance Initiative (PFI), Network Rail, nuclear decommissioning and a number of other items. Moreover,  since 2007 there have  been considerable additional liabilities arising from the bank bail-outs. Drawing on a wide range of official sources and independent analyses we have calculated the real national debt for every year since 2000-01:

 At the end of 2009-10, the  real national debt stood at  £7.9 trillion, over £300,000 for every single household in Britain.

http://www.taxpayersalliance.com/realdebt.pdf

I rest my case.

[mjdgreg]

Why should they suddenly be wrong now? They've got the call right every single time before.

The reason they've got it wrong is because they are underestimating our true National Debt. There is also the logic that if you've got it right every time you are due to get it wrong sometime soon. I am not naive enough to think that just because I have got everything right that I have posted on this forum that I may get something wrong in the future. Even I do occasionally make mistakes. So if I am capable of making a mistake the bond markets certainly are as well.

[Marydene Rover]

I have followed this debate with great interest and have learned a great deal from both sides of the argument. Fair play to Billy he keeps coming back for more, if it had been a boxing match the referee would have stepped in ages ago to protect him from any further punishment.
I declare the winner on points to be:

mgdgreg (congratulations)

[Filo]

Wondered when Micks mate/relation would reappear!

[BillyStubbsTears]

Ahem.
http://m.bbc.co.uk/news/business-18908882