I find it so terribly appropriate that the goobers here in the UK call the housing ponzi scheme the "housing ladder". If that doesn't just shout out "PONZI SCHEME" I don't know what could be clearer.
The BOE raised rates again today, and since all the mortgages in the UK are essentially ARMs, you know what that means...
Too bad they waited too long though - the housing crash in the UK will now be even more severe, even more devastating and even more surprising (to some) than the US.
Here's a couple of reactions:
Peter Gladdy, director of Mortgages Direct, says: 'The current economic situation is not strong enough to justify a rise in rates. The housing market is stable and currently showing modest overall growth but the latest rise in interest rates could cause a substantial change in homebuyer attitudes and significantly dampen activity in the housing market.'
Henry Pryor, founder of primemove.com, says: 'The move to a 5% base rate will only upset what is already a fragile market.
November 09, 2006
Falling off the housing ladder (ponzi scheme): Bank of England raises rates again
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I think the US is due for another rate hike next FOMC meeting.
Sorry I can't tinyurl it
FT.com
Fed must 'show its resolve to tackle inflation'
Tuesday November 7, 5:05 pm ET
By Krishna Guha in Washington
The Federal Reserve has failed to communicate its determination to bring down inflation in a forceful enough fashion, raising the risk that price increases will become entrenched, according to Jeff Lacker, president of the Richmond Fed.
In an interview with the Financial Times, Mr Lacker, who broke ranks to vote for interest rate increases at each of the last three Fed policy meetings, said the central bank had been "unclear" as to how it would respond to the pass-through of energy cost increases to consumers in the shape of higher prices.
He said the reason inflation "seems to be so persistent . . . is that we have not communicated very strongly that we want inflation to be lower and would be willing to take action to bring that about".
He added the Fed sometimes talked about pass-through "as if it is a force of nature rather than a product of policy expectations".
His remarks are likely to be seen by some Fed watchers as critical of Ben Bernanke, the Fed chairman, even though Mr Lacker was careful not to mention him by name.
Mr Lacker said he had been "surprised over the last several months by the extent to which the markets seem to discount the possibility of us firming policy further to bring inflation down".
He warned: "It can be an issue if market expectations are out of line with policymakers' understanding . . . because they are going to come into alignment at some point."
The Richmond Fed chief suggested that the balance of risks had shifted in favour of putting more, not less, emphasis on the risks to inflation relative to the risks to growth since he first cast his dissenting vote in favour of a rate increase in August.
He was more confident now about the likely extent of the correction in the housing sector than he was then.
Meanwhile, "there have not been any substantial spillovers" from housing to labour markets or consumer spending. By contrast, Mr Lacker said: "On inflation, I do not see any appreciable change in the outlook."
Some Fed officials, including Mr Bernanke, have drawn attention to the decline in the three-month core inflation rate since May. However, Mr Lacker said that, while the three-month rate eased between the spring and the summer, "since then it has been bumping around between 2.25 per cent and 2.5 per cent". He added: "I do not see a downward trend."
Inflation expectations, while stable, were also "consistent with inflation running about 2.25 per cent, maybe 2.5 per cent. It is hard for me to see 2.5 per cent inflation as consistent with price stability."
Mr Lacker said it would help if the Fed adopted a numerical inflation objective and published more detailed forecasts with some discussion of the interest rate path policymakers thought would be required to bring inflation down.
But he said bringing inflation back to below 2 per cent in an acceptable time frame would involve not just "better communication" but "likely require actions as well".
An interest rate increase now would affect the public's expectations of how the Fed would respond to inflation surprises in the future.
I thought only the Americans were fat and dumb?
Have another meat pie...oops they don't serve those in school anymore.
The problem is that Lacker seems to be the only one with vision while the rest of the FOMC is wearing bifocals.
Paul,
I have seen rumbling from a couple other Feds.
Cau you say
Stagflation
Metro, you are right, some others have made some reference to raising rates, admitting the fed had left rates too low earlier thus prompting the inflation we are experiencing now. I can't tell whether they are preparing the way for an increase or whether they are just talking tough to give the fed some credibility against inflation. The others may not have any intention to raise rates. Lacker, on the other hand, would raise them today if he could. Maybe he'll talk some sense into the others and get some converts at the next meeting. Still, I think we're a couple meetings away from a rate hike, to my chagrin.
Silver just broke out of its narrowing pennant and is shooting for $13. That would confirm last week's gold move and signal party time for the PM buyers.
Yesss.
The UK is a little different, though, because there isn't as much building as the U.S., the U.K. is a small country, and it's one of the most desirable destinations in the EU, meaning tons of people are coming in there all the time.
KEITH,
QUICK, SELL YOUR GOLD! ITS ABOUT TO
CRASH! THE FED IS GOING TO RAISE.
SELL SELL!!
BWAHAHAHA
gold up 3% today... china getting out of dollars
on london, my neighborhood is full of arabs and russians, to the point it's a bit odd being a regular (not rich) American
ferraris, jags, porsches, bentley's, rolls royces and yes, really cheap looking 25 year old russian girls decked out in gucci, prada and armani
welcome to london - home of the world's petrol dollars
I hear the russians are especially interested in converting their wealth into UK assets so that when the government tries to steal the money back, it'll be overseas.
this rush of petrol dollars into property in london has created the mother of all bubbles
:the U.K. is a small country, and it's one of the most desirable destinations in the EU
The entire UK's economy is the London financial services industry.
From a fundamentals pov, England hasn't produced anything since the fall of the Empire cerca 1965-1972.
So in a way, London's like NYC but without a country like the USA adjoining it. And if American corporations don't get their acts together soon, then the US will also go the way of England but at least there's some twenty years left of productive value in the States.
So, when there are other chic/happening cities like Amsterdam, Paris, or Milan for rich, globe trotting bankers/oil men/movie stars, why would they buy up 90-100% of the UK's properties just to help out the average Briton with an ARM? I think those posh places in Chelsea are already accounted for and the country's RE has only one way to go... down.
"I hear the russians are especially interested in converting their wealth into UK assets so that when the government tries to steal the money back, it'll be overseas."
The only UK assets are RE, Pound Sterling, and Hedge fund shares/equity. So there's a limit to the diversification going on over there unless the foreigners are going to buy all of the UK.
china getting out of dollars.
--------
This is why the Domestic Fed Bank will raise interest.
And I learned it here four months ago.
I have a hard time imagining the Fed will have the cahones to raise rates to where they need to be to keep the currency stable. The RE crater is big enough as it is. Damned if they do, damned if they don't.
This is like the Louis XV scenario. When the shit hits the fan, the prez will nail some guy's ass to the wall. This scapegoat will wear the coming financial crash. That way the politicians can do nothing and play ignorant.
You think the Fed bank has a care about the US housing market versus the international monetary market.
It is called deductive reasoning.
duh.
UK up
Aussies up
US is next, imo.
russians and saudis are buying UK PROPERTY - houses.
don't forget that asset class
"Russians and saudis are buying UK PROPERTY - houses. don't forget that asset class"
Well, condos in NYC are also a million dollars per unit so it's one of those chic cities where rich people buy places, however, unlike NY, London is the only economy for the whole of the UK. If anything, RE in England is the South Sea bubble all over again except that this time, there's no USA to emigrate to for the average Briton like three centuries ago, whereas the US, still has a military-industrial research complex, raw materials (esp coal), biopharma, foodstuffs, etc so the collapse of America's service sector wouldn't destroy the country, it'll spawn a painful one or two decade bear market (ala depression) whereas England's toast if their hedge funds go belly up or the rich ex-Soviets start to look at Amsterdam or Copenhagen for places to buy. And to be frank with you, if I were rich, I'd much rather hang out in those places over England.
The Fed should just forget about the housing fiasco and get on with it.
Can they really be so stupid as to believe the NAR garbage about housing tanking on higher rates? or that the market will "soft land" if rates stay stable or recede?
News Flash: the housing market is going to start it's long slow decline now and nothing can stop it.
So please: on to what's really important: fighting inflation and breathing some life into the dollar.
Is that too much to ask from these turkeys?
Again, fiat money means nothing. If you have millions of pieces of paper and trade them for a nice flat in London so what? The fact that London is drawing so much money from Russia and Arab states tells you something. People who "have" are afraid of those radical states where they can loose everything at the whim of a dictator and loose their freedom, their lives, so they hedge by buying property in safe havens (sort of like some put their paper in gold).
Wars have always been fought over territory and resources. Global prosperity has brought global competition and increased global tensions. It may not be today, or tomorrow, but most likely within 10 years there will be another World War.
When the global economy melts down or world war breaks out, the question is where will you want to be? In London or Jerusalem? In Seattle or Damascus?
As they say, "Follow the money."
::In London or Jerusalem? In Seattle or Damascus?
When did banana republics vs real nations become the highlight of the issue?
If anything, Ottawa Canada is the safest place in the world and its real estate is the most affordable for a modern, developed, beautiful city by a river. The difference between Ottawa and London is that London serves a dual nature of being a hedge fund center (a.k.a. UK's NYC) and in a developed first world nation away from places like Russia or Syria.
So when a place is oversold, real estate in New York City, Vancouver, or London, it becomes another phenomena of overvalued parcels of land and units where the expectation is that the rich are going to soak up everything, keeping the average middle class person asset wealthy via the creation of a localized wealth effect. That's a bubble zone. A rich oil man can buy one or two units in London to meet with his broker, a mansion (or two) in Ottawa a/o Oslo for his multi-acre landed estate, and a basket of currencies including the pound, loonie, usd, euro, corona, and a pile of gold/silver all over the US, Canada, Australia, Germany, and England and the chances are that he'll retain his wealth even if there's an overthrow of his govt in Bahrain. Simultaneously, he's hedged his bet because not all major cities are going to implode 1990s Tokyo-style so his private RE holdings are nicely diversified to hold up during market downturns. I mean a lot of multi-millionaires got roasted because they'd bought hotels in Toyko in the 1980s thinking that they'd retain their RE equity, not to find themselves in an illiquid position costing them ten years later.
Very true annoymous. Secret is paying cash then you don't have to worry if the value drops. Also class A building, either residential or commercial.
And I agree, Ottawa is a very reasonably priced big city in Canada. My wife being Canadian we've considered moving back there (I did have a green card so can get it again since here family are all Canadians and she is a citizen). I'd live in Ottawa or Quebec City if I spoke french. Also liked Fredericksburg NB and of course Victoria (Oak bay is lovely) and Vancouver (where my wife is from but bubble prices in my opinion) and her family lives in Edmonton (now a bubble) and too cold for my tastes.
And my point about Damascus or Seattle was that there is a lot of money in second and third world countries that seeks refuge in safer first world nations due the to volatility in those regions so in a war where would you want your assets hedged? Do you think all those Venezuelans want to keep all their assets in Caracass when Chavez is taking private property away? He even confiscated the country club to give to the poor, not to mention the nation's oil wealth to Cuba, Bolivia, Argentina, just to mention a few rather than improve the infrastructure of his own country.
A lot of Iranian money is in Dubai because of the fear of war and the radicals in Iran.
We common folk can hardly comprehend what real money is and how it works and flows out there in London, NY, Paris, Moscow, Dubai etc. They say the wealth of the top .01% has increased 600% in 20 years. Has your paycheck? At that increase I guess 20% appreciation a year say in London sounds like a bargain buy.
::They say the wealth of the top .01% has increased 600% in 20 years. Has your paycheck? At that increase I guess 20% appreciation a year say in London sounds like a bargain buy.
Yes, I agree with the localization of the wealth effect and for that exact reason, Manhattan apartments average 1 million dollars per unit. But now think about this... the rich can only make money if they have an asset class that's of value to a certain number of people. So, when people find that living in NYC is too expensive for the *average* blue chip professional, earning $400K/yr, then that crowd, the upwardly mobile but not too rich gang loses interest in a region and moves into cheaper locales in New Jersey, Putnam, Rockland, and Nassau counties in NY state and then even offices, which handle the transactions for the wealthier clients, move there as well, once the body count reaches critical mass. And this is pretty much what happened to Tokyo, during the 80s, as all kinds of rich people started buying downtown properties at prices equivalent to owning entire city centers in places like Boston, Houston, and Philly. Well, at that point in time, the well off manager salarymen (~$400K/yr) at Japan Inc moved 2 hrs away and the entire city of Tokyo became one speculative region for land/units via rich RE players (including organized crime bosses). The rest is history. And the problem is that that's the issue, there are only so many Malibus, Hamptons, etc out there for the top 0.001%. The other top 0.5% also need places to live in and it's this crowd which keeps RE alive in happening regions.
"And the problem is that that's the issue, there are only so many Malibus, Hamptons, etc out there for the top 0.001%. The other top 0.5% also need places to live in and it's this crowd which keeps RE alive in happening regions."
Yep, high end enclaves are pretty much scoped out in much of the world. There are practically no "perfect" private beach castles in Tahiti, available for the average Japanese, European, or North American nowadays. Those places have already been bought out by millionaires or resort conglomerates which is why French Polynesia is one of the most expensive Pacific Island regions in the world.
In order for real estate to maintain an upward holding pattern in London, Sydney, NYC, or Los Angeles, the upwardly mobile professionals need to feel like they can afford to be a part of the action to generate the volume needed to create a real estate market or otherwise, we get a Tahiti situation where there are billionaire recluses and tourists hotels but no professional class buying places to live in.
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