Loads of money

Yesterday there was good news for Wall Street with better consumer confidence numbers, and bad news with further falls in house prices. Some pundits used to tell us the government had to find a way of stabilising home prices before the banks could be steadied and the markets coaxed back to life.

That does not seem to matter so much at the moment. Wall Street looked at both sets of figures,and decided to concentrate on the Confidence numbers. The index headed upwards again. That must be the wonder of quantitative easing.

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  1. Stuart Fairney
    Posted May 27, 2009 at 6:38 am | Permalink

    I maybe dead wrong (SF does not give financial dvice etc) but I think the big falls in house prices are notionally at least behind us. Here’s why:

    – 0.5% interest rates means no brake on inflation at all and very easy mortgage payments for those with existing deals, so some spare cash is slooshing around for some people. Also mortages are gradually becoming more available (albeit on my latest they wanted a 35% deposit)
    – The risible QE policy of Mr Mugabe and Mr Brown (as well as many a hyper-inflater in the past) leads to often serious inflation
    – The government debt position is so serious that inflating (and thus devaluing the debt) maybe the only way the government can imagine paying it off
    – The Sterling collapse means more expensive imports and Sterling may have some way to go yet

    And once the inflation genie is out of the bottle, getting him back in maybe difficult.

    OT but I could not help but be amused at Mandelson musing he may help Vauxhall. Setting aside the nonsense of taxing successful companies to help failures, where on earth does he imagine he will get the money from? I hear the whirr of the printing presses again.

  2. alan jutson
    Posted May 27, 2009 at 7:07 am | Permalink

    One swallow does not make a Summer.

  3. oldrightie
    Posted May 27, 2009 at 8:23 am | Permalink

    it is a false dawn. Just as in the UK, QE will still the pain and make the patient feel less ill, temporarily. Just in time for an Autumn election. Very Brown/Mandleson et al tactics. Still no contrary evidence No 10 did NOT leak the expenses cd.

  4. Mike Stallard
    Posted May 27, 2009 at 8:31 am | Permalink

    I was in the Nationwide Bank yesterday discussing our life savings with Steve.
    There definitely is an upturn in stocks and shares at the moment, said Steve.
    We decided to stay with gilts and ISAs.
    Steve doesn’t think there will be much of a problem…..

  5. Acorn
    Posted May 27, 2009 at 9:02 am | Permalink

    Hold up a minute Redwoodians, your government needs you, or at least your cash. All this confidence is fine but what happens if everyone starts investing in companies; commodities or anything other than our government’s IOUs? Ok, getting nominal house prices up is necessary to get the Brits thinking they’re wealthy again; but, have a thought for poor old Merv at the BoE.

    Merv has overdosed on the base money laxative. He is out there buying all sorts of bog paper, mostly government issued bog paper. He is having to buy the government bog paper to make sure none is left on the shelf when the bog paper maker (Treasury Debt Management Office) has an auction of said bog paper.

    All DMO bog paper has to be flushed down a toilet somewhere. The concept of toilets blocked with government bog paper means you need much more water pressure (interest rates for those who have not caught up yet) to flush it down.

    Your government needs you, buy government bog paper.

  6. Demetrius
    Posted May 27, 2009 at 9:53 am | Permalink

    It is summer in the North Hemisphere. People tend to spend a little more, and are taking vacations they booked a little time ago that generate spending. But where are they spending? Are they buying more food but eating out a lot less? Are they survivalists stocking up before the winter (this is certainly an expanding market) and securing supplies? Have they stopped switching houses and started consuming a little more? Who knows, in any case many of the figures are being ramped in any case. As for QE, indeed, but what happens when the QE has to stop? Or are the governments going for 1970’s style inflation?

  7. upbeatskeptic
    Posted May 27, 2009 at 11:21 am | Permalink

    I truly wish there could be some quantitative easing of my wallet.

  8. Adrian Peirson
    Posted May 27, 2009 at 1:24 pm | Permalink

    The elites have to bring us to our Knees in order to consolidate their Power over us, so they will.
    They are taking us down bit by bit.
    Swine flu in the Autumn / winter and a potential ( or at least cold ) World War will help them too.

  9. figurewizard
    Posted May 27, 2009 at 3:58 pm | Permalink

    If all it took to ensure a risk and consequence free shot in the arm for a faltering economy was to print as much money as it takes, no country would ever have suffered a bust in recent history. What is happening on the markets at the moment is both a sigh of relief that the world’s financial system has not collapsed and loads of cash looking for a new home because it can’t get any meaningful rates of return out of the banks or anywhere else.

    Just wait till the US starts to look like it really might be recovering though. Quite apart from the inevitable rise in interest rates here that will follow in order to keep the pound from imploding, the real effects of inflation will appear. Factor in the fact that energy and commodities will once again be offering speculative opportunities; as in the wholly artificial price inflation of the oil price a year ago and things are going to change. That will be particularly true for the many billion’s worth UK gilts at their present yields (which are bad enough as it is) that we so desperately need to sell.

  10. Steve Tierney
    Posted May 27, 2009 at 4:32 pm | Permalink

    @Stuart Fairney

    I also may be dead wrong but my own position would be this:-

    (1) House prices have much further to fall. Another 20% at least. Possibly even more.

    (2) We have not even come halfway towards the “lowest point” of this recession. Any temporary bounce in any area is built on smoke and mirrors and will dissipate rapidly as the situation worsens. By the end of this year we’ll have a better idea of how bad it can get.

    This is not a ‘normal’ recession. It’s a correction. With the illusion of growth now revealed to be purely funded on credit we can see that we really should have been in recession for a decade, if it weren’t for the Chinese, and others, funding our economy.

    We are , quite simply, no longer a competitive or profitable nation on the world stage. The fact that we share that with a number of other Western nations doesn’t mitigate the fact.

    That can change, but it’s going to be a tough, difficult change for many to accept.

  11. kinglear
    Posted May 27, 2009 at 7:32 pm | Permalink

    Peter Schiff ( always worth a read) on Takimag makes the point that the US house prices almost certainly have further to fall if they are to get back to something approaching the trend line over the last 50 and 100 years. He also makes the point that with very near certitude that line won’t be reached, because the trillions and trillions being spent now will translate into a steadier house price in nominal terms. The only problem as he sees it is that, although it might be fine to have a house at USD200,000, it’s not much use if the fridge costs about the same to fill up.
    And in case you are wondering, it’s actually worse here – but then, we all knew that.

  • About John Redwood

    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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