Blimey: the Bank of England are printing money...

[WilfSell]

...Or quantitative easing as they call it.

We'll be inviting Berlusconi to run the NHS next. And paying 2 million pounds for bread.

Ho hum.

As long as they spend it on public works, I don't mind.

The only thing I remember from economics was supply and demand. In this case the banks are demanding money and the govt are supplying it.

DH mentioned last night that the German govt are thinking of a scheme to get people buying cars and the head of BMW suggested UK do the same. I think it was for people with a car older than 9yr, give them 2.5k toward a new car. It has the benefit of keeping the car market going, getting older cars off the road, and the VAT the govt would get would be more than the initial investment.

Sounds like a plan. I've always thought that instead of throwing money at the banks, the govt should be investing in industry, build some new plants that make widjits, creates jobs, gets money to the people where it is needed, keeps small businesses afloat who support the new plants etc...

As an aside, I thought that paper money was a kind of promisary note. As in, here is $10 for that widgit, I have $10 worth of gold in a bank somewhere, and this is a promise that it is now yours? Or was that in the olden days, and now paper money isn't actually worth anything, and has nothing to back it up?

BrownSuga: 'fraid that was the olden days, back when there was the gold standard which abolished in, um, about 1970 I think at Bretton Woods.

Everybody knew Cestlavie or most people at least (you only need to go on housepricecrash.com .

It was always going to crash, just not this year.

Also, I don't think it is the evil bankers who are to blame, or even less your average person who borrowed to buy a house despite the ridiculous prices.

It is human nature that causes bubbles, unfortunately we are all human.

'expat: tell me, what exactly do you think would happen to the country if we didn't do anything?'

you seem to be the one who had a crystal ball to predict exactly what was going to happen if we didn't and do not continue to bail out all and sundry.

as to what exactly may have happened, well, we're never going to know now, are we? instead we keep throwing worse and worse quality money after bad.

A stopped clock is right twice a day....

I was perfectly certain that a bust would come - in fact it "should" have come in about 2001/2 but what happened is that 9/11 caused a momentary shudder - the stock markets all went into free fall then and then climbed again. What "should" have turned into a recession didn't, so the prolonged, artificial, boom continued.

Those in power however believed their own crap that they had "put an end to Tory boom and bust" and so they are clucking around like headless chickens (headless chickens probably can't cluck but you catch my drift) and think that the electronic equivalent of printing money (because that's what it is, there isn't any extra gold or reserves to back up this extra liquidity) is going to help.

It isn't.

Am going to dig up garden and turn it into a veg patch. May need it.

expat: you misunderstand me.

Two things about current discussions on economics annoy me.

1. That everyone seems to now say they saw this recession coming and nothing was done to stop it. They didn't. But everyone seems happy to rewrite history. As I said, if you can find me a single source from before 2007 predicting a recession in 2009 then I'll happily eat a big bucket of humble pie.

1. All anyone can do is whinge "oh that'll never work" whenever any suggestions are mooted. I actually think what they're currently doing does make sense but more importantly I cannot see a better alternative - so in the absence of me suggesting one it seems churlish to whinge about where it does fall short

Well is something is over priced, does that not suggest that it might correct itself? And the more overpriced it is, the nearer the time is until that happens? You mentioned earlier that the problem was believing in the power of the market to correct itself, well that's what's happening now. Except that governments are trying to buck that. Nice idea in theory, but as I said, that money has to be paid back somehow, and why should our grandchildren pay?

On a larger scale, the major asset holders are the very rich (with the exception of pension funds) so when we're propping up the system, we're making sure that wea and our children pay our future earnings to ensuring rich people don't lose the money they've gambles. Great!

cestlavie: thanks.

So isn't that kind of scary? As in, here is a piece of paper that is worth $10 to buy that widgit. No seriously, some guy told me this piece of PAPER is worth $10, so give me my widgit.

But I guess it's been working for 30something years now, so it must be ok.

I genuinely predicted it. Sorry I didn't share it with everyone. I persuaded my mother to retire early and sell her house in autumn 2006, move nearer us where property is much cheaper and pocket the difference, because I didn't think prices would get much higher.

She was planning to retire about now. The house next door to the one she sold has just resold for 20,000 less than she got for hers. It is identical.

It was a very desireable area at the height of it's own boom within a boom - property prices there shot up far more than they did around here.

The house she currently owns is not worth much less than she paid for it. Prices haven't dropped here.

Xmas 2006/7 I told my parents i was going to sell and rent and they said I shouldn't take advice from a journalist who was just interested in headlines!!!!!! I went ahead and thank goodness I did.They are now trying to sell a house and are taking a huge loss.It was predicted a lot but no one wanted to believe it.

cestlavie - I particulalry enjoyed your earlier dismissal of the Efficient Market Hypothesis. It was masterful - indeed the use of the phrase 'utter bollocks' was almost elegant.

I spend my day basically betting that EMH is not true by buying and selling shares, commodities and bonds. I avoided buying a house for the same reason.

Market prices are only correct on average in the long run but in the short run can deviate substantially. That fact is going to really hurt people in the next few years that bought houses at above fair value in the last decade and will sadly see their houses fall to far below fair value. Indeed, quite posisbly back to prices we have not seen since 2000.

abetadad: why thank you.

peppamum: the fact that an asset class is considered over-priced in terms of historical data certainly does not mean a correction is automatically due. It's very easy to argue that the current situation (e.g. % of disposal income, savings rates, pension returns, long term credit availability) made the historical data less valid as indeed many commentators did. Clearly this turned out to be wrong but in a number of instances it may actually be the case, i.e. something that is over-priced in historical terms is 'correctly' priced now.

I'd also be wary of saying that this is a case of the market correcting itself - I'd say it's the market responding to a sudden and violent shock (the massive contraction in credit).

surely it is now time to make some of this info compulsory part of the curriculum

It makes no difference noddy, I have a Masters in Finance from a top university and still bought a house in 2007.

Why would they want you to understand how the financial systems work ?
There's a saying there are those who understand compounded interest and those who pay it, if we all stopped paying it the wheels of power would grid to a halt.

Peppamum - I think your point is SPOT ON.

By desperately trying to prop up this system, all that is happening is that the Government are maintaining the status quo - the rich will remain rich and the poor will be taxed to pay for their mistakes.

I think the basics should be taught.My ds has a vague idea because of what I have done for a living but My parents for example haven't a clue and have made some expensive errors

I think the basics should be taught.My ds has a vague idea because of what I have done for a living but My parents for example haven't a clue and have made some expensive errors

I think the basics should be taught.My ds has a vague idea because of what I have done for a living but My parents for example haven't a clue and have made some expensive errors

sorry

But they need some suckers in the market or else how will you make £50k flipping properties, if everyone was educated you wouldn't have made any money either.

I made money before the rising market went mad I renovated several houses for clients and they hired me because they couldn't do it themselves.My first three developments were before all this. You need to be able to make a good living in a normal market on your skills alone.No one i have worked for could be considered ignorant or stupid just not interested in managing a build on their own.

cestlavie - Nouriel Roubini told the IMF in late 2006 that a recession was brewing in the US that would spread around the world.

I would also point you to "Financial Armageddon" by Michael Panzner, published in March 2007 (written in 2006), highlighting virtually every threat to the financial system that has come to pass. (and predicting the risks would imminently knock the financial system and prompt bank failures, etc.)

but thank you for your intelligent commentary.

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