The real problem

Ireland with 20-20 hindsight

Its worth reading this summary of govt spending plans in Ireland from 2007 in the context of the current Euro crisis.

Its easy to spot what's wrong, now. What troubling is all the politician language that goes around state spending and its vague justifications.

Frankly the same happened here, and we don't yet know the consequences.

H/T Finfacts.

April 2008: Its really a debt crisis

I've been firing a few comments over at Conservative home about the new Bank of England regulations about lending for mortgages and been doing some thinking about debt.

Can you remember just two years back when Labour/BBC would have you believe this was "the credit crunch" ?

Here is my post from that time over two years ago reproduced below.

We need to do something about debt and its use in our country:

Monday, April 28, 2008

It's really a debt crisis !

We are all now aware of the credit-crunch. The official explanation, as far as I can gather, is that of blaming the Americans for their sub-prime mortgages. If you don't buy that then some complexity is added about slicing and dicing these mortgages up into a financial product that allows the debt to be sold (or bought perhaps ?) but with no one knowing who owes or owns what.

Still not convinced ? The you should blame all those evil young men with their testosterone in banks and perhaps city bonuses and the asymmetric nature of risk and reward in the city. ( I could almost buy into this idea ).

But what about our attitude to debt ?

After all we are calling the current problem a credit crisis. The problem being that there is suddenly no-one willing to lend money without a clear idea of what backs that request for cash (except central banks willing to either turn trees into bank notes or get the tax payer to cough up). But the underlying problem is we, as a society, have long term debts fuelled by short term credit, and we can't pay back the debts without some tricks like inflation or defaulting.

In addition we seem to, as a society, load up with all the debt 'we can afford'. In the economic competition for assets like houses - he who takes on the most debt wins the house.

It appears that the old building society model - savings and mortgages in balance - has been replaced with vast piles of foreign cash. Which foreigners have all the cash ? It'll be the gulf Arabs and China. They have been smart - getting out without having to cover the underlying problem of the debt - we're now doing that as tax payers.

They have learnt their lessons, it wasn't always like that - the last major debt crisis was in South America, and was funded by oil money badly lent out.

There are those worried about the large debts being taken on, by individuals and governments. The Archbishop of Canterbury has sensed something is wrong - but reaches for the usual woolly Marxism as his answer.

But debt is itself a problem, as the Arch Druid should understand! You are under obligation when you are in debt. In old testament times debts were not allowed to go on beyond a certain time period 7 years and money lenders weren't exactly popular in Jesus time. Islam outlaws it - but there are people willing to get round that. Perhaps Williams should focus on this aspect.

But we live in a world where being in debt in now normal. I can remember how keen the blue chip company I used to work for was to encourage its graduates to buy houses - get a mortgage and you won't leave (didn't work in my case). I almost wonder if it isn't seen as a wider stabilising factor by government.

Yet we see it as normal that everyone has a mortgage. If you don't you're missing out on the rising property market, and worse it will be impossible to climb aboard latter on.

But what if credit wasn't so freely available ? The answer appears to be the value of some things (assets where their is competition due to scarcity) will drop. Houses, for example, might cost less - as long as immigration (demand) is managed. Surely this would rebalance our society for the better ? People could buy their first house without signing away their future life's earnings for the loan which in effect comes from a foreign country.

So would tighter credit controls mean we would have cheaper houses ? (Sounds good). So who benefits if credit for house buying is allowed to be supplied in industrial quantities ?

1. The banks - who charge for all this.
2. The government - who taxes in proportion to property value (stamp duty, council tax, and being English old and ill NHS tax ).
3. The lenders who get interest.
4. Asset holders who buy cheap and can sell in a rising market.
   

I suspect we justify the damage this debt does by item 4. We all hope to enjoy large unearned benefits from holding property (greed - another point for you to note Dr Williams). So we are all in debt. Apparently many people with mortgages own less than 20% of their homes.

So here's the political (and moral Dr Williams) question - should the state allow credit to be housed around like this, especially considering who is ultimately supplying it ?

Eventually the left is going to come up with their answer, when they get round the problem of New Labours very close relationship with the 'Financial Industry'. ( By the way - Labour is almost insolvent and owes millions of pounds to a few key individuals. They are hardly in a place to lecture just yet - but soon they will dump Gordon Brown and New Labour and blame the whole episode on everyone else. Then Socialism will return to its vindictive roots.)

At that time the right of centre will need a better answer than just let the markets decide ( which clearly no government of whatever political make up is willing to do when push comes to shove and high street banks look like going bust ).

We need some thinking on debt, and the lack of savings. I can't help thinking Mrs Thatcher would have explained all this is straightforward terms that would have been denounced by every academic economist, and any hairy bishops, in the land and then proven to work - much to their annoyance.

Debt is the elephant in the room right now ... how odd that we are drowning in it and yet talk of credit.

Note: Sorry this is a little rambling - but I'm trying to get my head round what's going on at the moment - feel free to add links in comments to any good commentaries you've seen.

PS I know someone at a local Citizen's Advice and apparently the enquires on debt problems are rocketing right now ...

The debt is a demand against our future

Confessions of a shopaholic

Every so often Man in a Shed gets outnumbered by the females in his life, and is unable to watch science fiction movies under the excuse that they actually are just Pride and Prejudice, set in space.

Christmas has been one of those occasions.

So I was completed to watch "Confessions of a shopaholic". But to my great surprise its a highly moral movie. The urge to spend to make yourself happy is explored along with the lies and hurt that those who are captured by any form of compulsion hand out to their nearest and dearest.

The analogy I was think about was the great British electorate - that keeps authorising Labour to run up the nations debts ( though the most recent and far reaching transactions have never been presented to a vote ). People get the short term high of more "public spending" on "vital services".

But the public hasn't admitted to its addiction on something for free. That's why the bash a banker scheme by Labour impressed the voters so much in the PBR - everyone thinks someone else should pay and the hits of more spending should come for free. Until that adiction and self deception is named and admitted to no progress can be made.

But just like the film ( plot spoiler alert ) the debt collector is closing in. This debt collector is not just going to ruin the party but humiliate the nation and destroy its future. All because voters have insisted we spend over our means, and the evil credit card companies/Labour have enticed them on.

Let no one fool you - the return to financial honesty and integrity is going to hurt and destroy reputations.

But in the end TINA's back (There is no alternative - for those under 35 ), and how strict she is going to be will depend on how long the denial and credit card debt keeps rolling.

David Cameron and George Osborne need to get the public to accept its part in the current crisis. The public has been a spendingfornothingholic and needs to own up to itself, the denial has to stop. Gordon Brown may be the evil supplier of credit and factilitator of debt, but we won't make progress until the public addiction to something for nothing is named and renounced.

PS Read this to sober up for the new year. Also the Heff on the lies that saw in a decade of debt.

PPS I really am going to try to take things easy over the next few days.

Update:

See also

And Insane spendaholics are mortgaging our future by Camilla Cavendish in the Times in March 2009. I think spendaholics has it about right.

Getting us spending again is dishonest and won't work anyway

Yesterday I was looking over statistics from the Council of Mortgage lenders quoted in an article for the Telegraph..

I was a little suspicious of some of the recent headlines about mortgage lending being up 16% this month and other "good news - so go out and start spending again" stories.

What makes my antenna twitch is the comparisons being used. Instead of comparing April 2009 with April 2008 the compare April with March. They also use a narrow definition of just first time buyers.

I've cut and pasted their figures to the end of this post you'll see that for all mortgage lending the country is down by (26008-10400)*100/26008 % = a reduction of 60.1% on last year.

And yet the figures quoted are for a rise in demand between months that probably has more to do with pent up demand for people who have to find somewhere to live and those disposing of estates for people no longer with us.

What are they trying to do to us ?

The answer is to get us spending again. But we are so overburdened with debt, and our country is drowning in it and getting worse with every day the general election is delayed.

The Brown boom years weren't a natural boom. Its the public sector that boomed, and debt recycled through the housing asset price bubble that fuelled it - which is why government debt is now needed to keep things roughly level.

But neither form of economic activity - the asset fuelled spending - or the government debt fuelled spending is sustainable. And the longer things are put of the worse it will be when the economy finally has to go cold turkey.

Saying this was the "Credit Crunch" is like saying a drug addict has a supply problem when they can't get their next fix, rather than a drug problem.

Its a Debt crisis ( not even the recession or the banking crisis are the key underlying points ).

And who is the UK's prime Debt pusher ? Gordon Brown.

PS See this headline - its one you have to read very carefully to avoid a false impression. They are trying to talk up the market, without addressing the debt crisis - that is little short of a crime in my view.

Mortgage lending increases as 70 per cent of borrowers opt for a fixed rate deal...from today's Telegraph. If you look at the article you'll spot some caveats about three para down, but it reads like the marketing stuff that's getting pushed through my letter box by Estate agents these days. [ If your like me then the first time you scanned that title you might have read "Mortgage lending increases at 70 per cent .....", and easy mistake to make. I have no way of knowing if thats intentional or not - but as I said at the start of this post my antennae are twitching ]

Who is going to save our country from this short termism when the ultimate threat of lifelong debts (personal and national) threatens to enslave us all ?

---

. Table 1: Gross mortgage lending . . All loans . Total . £m . Year . 2000 119,798 . 2001 160,123 . 2002 220,734 . 2003 277,338 . 2004 291,221 . 2005 287,921 . 2006 345,119 . 2007 363,679 . 2008 257,642 . . Quarter . 2006 Q1 73,889 . Q2 85,952 . Q3 92,864

. Q4 92,371 . 2007 Q1 83,943 . Q2 93,789 . Q3 98,535 . Q4 87,412 . 2008 Q1 75,146 . Q2 74,130 . Q3 61,799 . Q4 46,567 . 2009 Q1est 32,974 . . Month . 2008 Apr 26,088 . May 24,445 . Jun 23,597 . Jul 24,820 . Aug 19,648 . Sep 17,493 . Oct 18,838 . Nov 14,181

. Dec 13,548 . 2009 Jan 11,685 . Feb 9,906 . Mar 11,383 . Aprest 10,400 est=estimated . Source: CML Research, Bank of England . 1. Total gross lending gives the total value of loans secured on dwellings that are newly advanced by institutions in the period. All the figures were sourced from the Bank of England except the estimate for the most current month. . 2. The CML estimates of gross lending for the latest month were based on the lending figures provided by a sample of lenders that represent around 80% of the mortgage market. The aggregate of these figures were scaled up to represent the whole market.

Educated in debt

Today two headlines awaited me on my yahoo email account:

Strict laws for credit card firms

The Government is planning to introduce tougher laws for credit card firms to reduce the temptation to get into debt, it has been reported.

Study suggests university fees rise

The first looks like Labour finally waking up to the disaster of personal debt in this country ( I guess its almost impossible even for the deluded New Labour project to ignore now). The two suggestions are sensible and indeed welcome enough, though very small beer.

Then we have a call ( though the Universities spokesperson on R4 denied he was doing that a few minutes ago - certainly looks like it to me) for higher tuition fees for students. Now I'm old enough to remember the massive row over student loans for living expenses under the last Conservative government - with all the lefties now in government lined up on the other side of the argument.

But it strikes me that the two are linked.

We have started launching people from University (which now bizarrely means about 40% of the population) in debt. Add to that credit cards and bank accounts that don't stop at zero, but are a continuum. When Man in a Shed went for a drink at Uni he got a fiver out of the cash machine (yes it was that long ago ) and when it was spent the night and beer where over. With electronic cash no such limit now exists, and with state enforced debt you no longer feel bad about it.

Add to that the until last year received wisdom that the bigger a mortgage you could grab the richer you'd be in the end through inflating house prices and you can see how personal debt has got into the problem we're in now.

Its hard, since now the government is taking out a loan in all our names -the value of which currently varies between £20k and £40k depending on who you talk to, but it needs doing.

We need to save more, which also means use debt less.

The politicians seem to be slowly grasping their way towards this point. Our religious leaders, especially the Church of England, might like to ask themselves why they haven't taken a stronger line on all this .

The Universities desire to be funded by loans needs to be seen in this light. Perhaps a graduate tax would be better to avoid the perception of debt - even if the Lib Dems have been in favour of it in the past.

Further: I note the plan to restrict mortgage lending by the FSA ( and therefore the government ) to three times salary. Well its a start. I was impressed that till recently property prices in Brazil where far lower as they had no mortgages, but have unfortunately for them just introduced them.

Remember the current crisis was causes by foreign savings looking for somewhere to be deployed. This gave us the asset bubbles and unmanageable debt that have brought us to our knees. ( It amazing how few TV/radio reports point out this now widely accepted fact ).

However all this measures can be filed under : Stable door closed after horse bolted and should have been enacted far earlier by a government that understood our economy and wasn't relying on the debt bubble to get reelected.

Just how much is the taxpayer underwriting a foreign bank ? ( And foreign customers ! )

One of the main contributors to the downfall of RBS has been its takeover of Dutch bank ABN/Amro. Indeed the biggest headline goes to the couple of billions ABN lost to a Russian oligarch's firm.

Why isn't ABN/Amro being close down or sold off - or the Dutch tax payer joining us in Gordon Brown's slough of debt ?

Things have gone way beyond the benefit of the doubt.

Update see Alex at the The Financial Crimes for more on how much RBS owes overseas and how Brown has destroyed our economy. ( See you have to consider that all this may be deliberate. )

What the German Social Democrats think of Gordon's debt binge

Brown keeps trying to make his assertions on camera, you know the ones:

• It all started in America.
• No more boom and bust.
• Hard working Families.
• Its is right that __Insert statement he doesn't want to argue for here ____
• The whole world except the "do nothing Tories" supports the fiscal stimulus plan.

All these delivered with his insane karate chop hands and fake smile ( unless banks are going bust in which case the smile is genuine enough ).

But now the power house of Europe is telling him to get lost. See the left wing finance minister of Germany here in Newsweek - I highly recommend reading it. He's repeating the same line Angela Merkel took and I posted on earlier this week. Note that both the left and right of the German national government saying the same thing.

The German minister especially lays into Gordon VAT debt binge. Of course perhaps it doesn't occur to him that Gordon is really trying to buy the next election by bribing people with debt.

Not that actual facts will stop Gordon from telling his Brownies - but it should make the last PMQs a bit more fun.

Germans describe Brown's fiscal stimulus as "senseless"

Get a load of this - apparently Angela Merkel is refusing to join Brown's drive for debt slavery.

She is quoted in the telegraph saying ( I assume its a translation ) "A bidding war ... a senseless race for billions – we won't take part in that,".

This would all be great politics - if it wasn't for the fact that we, and especially my children, are being enslaved in debt by the shameless Labour government.

I don't often wish I was German, but just now I wish I was.

"We are all in Brown's Debt"

Well done to guys at Conservative home for the below: