A crash course in pessimism

Now, I thought that maybe the headline in this week’s Sunday Express was well – how shall I put it? – a bit over the top…


I’m thinking: yeah, I know there’s some uncertainty, but it’s not going to happen here. Not on the scale we’re seeing in the US. Right?

Unless interest rates come down in the next three months, home owners face seeing the value of their homes plunge on a scale not seen since the property recession of the early Nineties

Leading financial commentators fear that any crash could create a crisis like the one that has paralysed the United States property market, with homes being repossessed as mortgage borrowers fail to repay loans.

The “halt” that can be called is an interest rate cut, or so the article suggests. But this looks unlikely.

If PM Gordon Brown hadn’t given up control of the Bank Of England when he became Chancellor in 1997, he would have been able to cut interest rates – without focusing on curbing inflation, which is the stated concern of the central bankers.

So anyway, back to my doubts about there being a crash here – the Guardian’s top economics geezer, Larry Eliott, writes:

The four most dangerous words in financial markets are supposed to be “it’s different this time.” But another four – “it won’t happen here” – come a close second. […] Britain may have witnessed a tripling in house prices over the past decade and now have the highest level of personal debt of any country in the G7, but “it’s different this time”. The United States may be in the throes of the biggest boom-bust cycle in its history, but “it won’t happen here”.

Well, you believe that if you want to. The UK is facing at best a painful correction in the property market and at worst a full-blown crash that could wipe about £50,000 off the value of the average home over the next few years. Why? Because none of the explanations for the UK being a special case really stack up. If the British property market looks like a bubble, feels like a bubble, smells like a bubble, then it is a bubble.

And a painful bursting could be triggered by three things:

One is the impact of the credit crunch, which is making debt more expensive and harder to come by. Another is the heavily exposed buy-to-let sector, which has grown from virtually nothing to account for 8% of all outstanding mortgages in less than a decade. A third is that Britain has its own sub-prime time-bomb ticking away; credit standards have been loosened to the extent that almost 5% of borrowers are using more than 50% of their pre-tax income to service debt – a near doubling since the last major slowdown.

On the exposure of the buy-to-let sector:

Buy-to-let is the soft underbelly of the market and the most likely trigger for a crisis. House prices are already falling, making buy-to-let unattractive unless prospective investors expect sharply rising rents. That looks utterly implausible, and the chances are that the smarter buy-to-let investors will start to dump their properties on the market now to secure first-mover advantage. That will increase supply, drive prices down further and have multiplier effects through construction and retailing – the two sectors most exposed to a crash.

Elliot is also pressing for an interest rate cut – but says things are going to get “very nasty indeed”. Which is the Guardian version of 100 DAYS TO HALT HOUSING CRASH!

If we look at the bigger picture, we can see other reasons why “it’s different this time”:

The recent outbursts by former military chiefs of staff that the funds they are receiving from the government are woefully inadequate to keep the army intact and maintain the position of British imperialism in the world, indicate that what the ruling class is seeking is much more drastic measures to deal with the working class, to prop up British capitalism.

They see the budgets of health (around £80 billion a year) and the military (around £30 billion a year) as being the wrong way round.

It’s obvious that the path is being cleared for Cameron to take power, as is the belief of the folks at The News Line.

Brown’s dumping allows the current economic crisis to be portrayed as being down to incompetent management, rather than any inherent instablity. Housing woes in the nineties were a factor in the ruling class switching support to New Labour from the Tories. It’s not too hard to imagine a similar switch within the next two years.

And on the party funding crisis, The News Line detects an ulterior motive for the undue focus on trade union donations:

As far as the ruling class is concerned a Labour government with one leg resting even lamely on the trade unions is not enough to do the job of destroying the welfare state in Britain, which is what the ruling class is now demanding.

The labour movement’s influence on the Labour government is non-existent these days. Well, perhaps the union link means that Labour has to talk left while it walks right, and this perhaps disorients some of the more slow-witted people within the ruling class. For sure, Cameron’s New Tories will play up Brown’s reputed dislike for Blairite reform. No matter how much Brown cuts, closes, and sells-off, he’ll struggle to shake the Stalin-Bean tag.

On a final note, anyone notice how the Tories accept Brown’s right to hold on for two years before holding an election? A 10% lead in the polls isn’t good enough for them to want a snap election – there’s no guarantee of a massive Tory majority, which is what the ruling class would want. If support for the Tories doesn’t grow, there could be arrangements for a Tory/Liberal coalition – but if Cameron-alike Nick Clegg wins the Liberal leadership, as expected, this will look very shaky.


3 Responses to “A crash course in pessimism”

  1. Noel Says:

    Anyone for the “National Government” option after the next election if no party has an overall majority in the Commons? I can see Cameroonie Tories, Orange Book Lib Dems & disaffected Blairites getting together to save the UK for “modernisation” & “reform”.

  2. charliemarks Says:

    I think Labour is finished. So the situation you suggest seems likely.

  3. Property for Sale in Huntingdon Says:

    If Labour don’t stop the credit crunch, a full blown recession looks very likely, as does Cameron getting into power.

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