Signs of double dip?

UK house prices will be flat 2010, predicts the Halifax.

Sounds optimistic?

When you've a debt-induced recession, but your government merely tries to borrow its way out of it, you end up with an even bigger debt-induced recession.  Until the price of credit rises, real credit - not the state handouts to banks - will remain in short supply.  Either way, people and the economy take a hit.

Posted on 7 January 2010 by Douglas Carswell

Comments

You think that when the supply of a good increases, its price goes up? Puzzling.

Because the alternative explanation for the above would be that savings levels (a major determinant of how much is available to lend, surely) fall and rise with interest rates, something which appears manifestly contradicted by the data.

Posted on 7 January 2010 12:55 by John

All Mr Brown has achieved with printing money is a delay to the main part of the recession. It's not as much a double-dip, as the recession that we should have had in the first place.

Because the delay has been funded entirely by printing/borrowing money, rather than by correcting the problems caused by overspending and wastefulness, it will be even more expensive to recover than it should have been.

Is it a scorched earth policy, is it Mr Browns attempt to buy the next election, or does he really believe his own bulls**t? Probably a bit of all three....

Posted on 7 January 2010 12:58 by Mick Anderson

I don't know about the price of credit, but I gather that the government is having to pay more to finance its (or more to the point, the taxpayers') debt. But that's only internationally, they still pay dismal rates on things like National Savings and Premium Bonds. Interest rates must rise so that the exceed the rate of inflation (the real rate, not the government calculated RPI which no-one believes). Until that happens, why save? Presumably this is why people are still buying, spending their savings while the going is good, which appears to make the retail economy look as if is improving. Its all smoke and mirrors!

Posted on 7 January 2010 13:15 by English Pensioner

@John: No, you mis-read what I wrote, and put it precisely the wrong way round.

When the price of something rises, in a market the incentive to supply more of it grows. Hence, higher demand pushing up prices triggers higher supply to satisfy that demand.

Clever, no? Which is why the market is so good at distributing in such a way that there are no shortages - generally.

It's generally more effective that leaving it to people like Ed Balls to second guess who should get what.

Posted on 7 January 2010 13:29 by Douglas Carswell

Right, thanks for the clarification. I was asking whether you meant the second thing - I thought you probably did, but it seems flatly contradicted by the facts. Interest rates have been falling, but money saved (and therefore avaialble for banks to lend) has been rising.

Similarly, the credit crunch came first, at a time when interest rates were still being increased. That seems puzzling under your theory, since when the Bank of England raised rates in 2006-7, we should have expected credit to become easier to obtain, rather than the opposite (a demand-led credit crunch, sure, but that's not what happened).

I think part of the problem here is treating money as a commodity when in fact it's a medium - a symbolic representation of a certain amount of other commodities. There's no intrinsic reason to assume capital is limited, and nothing people can do with it other than lend it out in one way or another - money in great quantity is very hard to hoard.

Your model is right, I think, about the supply of something which is scalable, though with costs attached. Widgets, cars, beer, lawyers. It appears likely to be wrong over different timescales about things which don't meet those criteria - 'credit', 'oil', 'houses'.

Posted on 7 January 2010 14:05 by John

Douglas, do you think high house prices are a good thing?


The housing market hasn't had nearly enough attention by politicians which is odd considering that its expensive nature wrecked the banks' balance sheets.

Posted on 7 January 2010 22:30 by chefdave

In the immortal words of Mr Hannan "You cannot spend your way out of recession or borrow your way out of debt."

Unfortunately he's right (as usual) and the worst is yet to come.

Posted on 8 January 2010 12:50 by JohnRS

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