The Earnings vs. Cost of Living Crisis: A Perfect Storm

That's what we've just had, we're now entering 'thin veneer' phase return to 'growth', but quite how long that will last is unclear and whether it represents more than a relatively temporary blip in a larger/deeper downcycle remains to be seen (all it will take is a little disruption in the global money markets and the whole lot will stack again, solvency remains a major issue in 'the West' and China now has asset price and liquidity issues of its own to contend with)

Aye, help to buy is a nice gesture but seems like solving a problem of affordability, relating to property market overheating, by throwing petrol onto the fire

I'd agree with that, although on the later point, by encouraging/supporting growth in other industries, rather than tieing the hands of the financial sector too much (beyond dividing retail/IB divisions into separate institutions and possibly dividing up 'too big to fail' ones)

This is what I am advising my family

Yup, I’m thinking in terms of 1-3 years

If central banks can maintain low rates, banks can continue to offload/hive off toxic debt, there is no major turbulence from emerging markets/China can sort herself out, and Fukushima gets cleared up without incident, then it’s difficult to see where the next major bump will come from aye, but never underestimate the power of the financial sector to **** themselves (and us all, by extension) in the ass!

That will change as the heat in the London property market enables fresh bubbles to re-emerge e.g. in the SE/wider property market

The rich don’t really care about property rights although I suppose canny investors/institutions are always more than happy to swoop in and collect assets while prices are depressed/from desperate vendors. Most financial institutions would much rather not have to deal with repos etc though

Interest rate rises will quite simply kill a recovery in the UK due to high asset prices, private debt, and sensitive/bearish consumers

Yup, wages haven’t kept up, consumer debt remains high/austerity remains the order of the day ~ this is where ‘the rich’ need to understand that if you ‘squeeze’ the ‘squeezed middle’ too much, the fundamental engine of the economy (consumption) grinds to a halt

Ok wage rises are inflationary and impact on profitability, at least in the short term, but they are necessary not just for a fairer/more equal society in which standard of living, and hence quality of life, is generally improved, but also for optimal growth

Great story but..

They are talking about tapering QE in the states now and we haven't hit more of it up in quite a while now in the UK

Hard not to admire your zeal

Nope, we have c.17,000,000 home owner tenure households in the UK vs. c. 8,000,000 rental. More than the representative proportion (30%) of those with virtually no disposable income will naturally be in the later category however, although you are right to suggest that some will be in home ownership

Clothes have always been cheap, if you've had an incentive to seek out cheap alternatives to highstreet priced items (related costs of which may well have fallen relative to income in recent decades as you suggest). People with low disposable income buy baskets of goods dominated by necessity items, and typically pay for products at the lower end of quality/price ranges (hence average price levels are less applicable)

Focusing on people feeling the pinch the most, ‘the squeezed middle’ and (particularly) those below e.g. those in the quoted figures in the OP

Nice, but sadly not applicable across the board or since 2009. Wage increases have really stalled for the 99% since the crunch too..



Corrected for you, as per your request

See above

Pretty fine compared with what? Where do you get that valuation of assets from and is it nominal face value or fundamental value? (rhetorical question)

Excepting special circumstances e.g. haircuts, devaluations and defaults debts are fixed value vs. inflated/bubble asset (collateral) value estimates, which are both vague, and volatile (subject to market forces, cycles, animal spirits etc)

Furthermore, a significant proportion of asset price inflation is attributable to leveraging and hypothecation (the things that fuel, and refuel credit creation, which props up asset prices, in excess of fundamentals, in the first place)

Absolutely

My interpretation is that this is a tad unfair ~ knowing what I do about the forecast trajectory of growth in the stock of public debt, mess (heavily indebted) Japan is in (and USA will likely find herself in, in coming decades), and a few centrally planned projects that are underway/in the pipeline)

If your figure of £8tn is correct then it is c. 5.25:1 vs. total debt of c. 5:1, last time I checked

A point I have made, aye. Total debt @500% GDP is pretty frightening (not least with virtually no, or negative, real income growth, the prospect of further asset price bubbles and interest rate rises [which will probably pop them] on the horizon, in the broader global context of liquidity crises in emerging markets, China getting out of Western treasuries and into gold, and both solvency and liquidity issues remaining in the EU and US)

Of course you are dear

I don't see what's smug about having a good command of the facts/my discipline son, if it irks you then it's probably a sign of some innate insecurity eh..

Ah, right – extensively opening up the entire education system to competition, interesting proposal..

Demand for places in private schools would rise though (and you know what that would mean for fees). The transition period would be chaos at best!

Sure, but this would take time (particularly given land resource constraints and relative inflexibility in the qualified teacher labour market – teachers in the private sector often get a [surprisingly] relatively raw deal)

The problem with the reverse proposition is that we are lead to believe land ‘where the jobs are’ is scarce, affluent neighbourhoods don’t want/need social housing invasion, and people self-organise according to social preferences wherever they start out e.g. ethno-cultural-religious segregation occurs naturally over time, regardless of how interspersed peoples are to begin with, unless you can erode their social preferences along those lines, over time e.g. through evolution of identity/inclusivity (some success here but takes generations and seems to have failed so far re: the Muslim community, and portions of the Jewish community)

I agree, although I believe there are social and affordable housing requirements already in existence.. or were - perhaps planning regulations have changed

Short of fascism I don’t see this as doable (given the above re: discrete choice models ~ studied segregation trends in social economics, it’s pretty bleak)

I wasn’t aware that that was the prevailing view in the UK? Keynesian demand management should be viewed with scepticism but where there is a demonstrable need, healthy projected return on investment (in labour market, and knock-on-effect business, terms at least), and adequate planning (including sensible, consistent costing), I’m sure most of the country would get behind such initiatives

Any idea of the scale of the off balance sheet liabilities for UK plc? I understand US ones are off the charts

Aye, think the powers that be are starting to realise the need to break free of short term political cycles and knee-jerk economics. Interesting the BoE making effective guarantees into the future in attempts to encourage confidence/long(er) term investment decisions

I’m not sure people on the breadline would agree they’re just a mild annoyance, and (what little) food security (we have left) is important to protect - against background thematics beyond climate change including: world population growth and rising consumption among persons in the developing world imo. It’s important to remember just how much resources will be needed when TROTW catches up with the consumption habits of the West

Down from 75% in 1991

What makes you so sure? We already have a very high proportion of land developable for agriculture in use.. (not just in the UK, but in TROTW too, in fact)

Fair ones, but what of the other lines?

So a regional hub model, rather than a ‘try to spread it around evenly among the rest’ approach, aye, makes sense

If tax is 0.5% in Luxemburg then unless you shave your own corporation tax to about that level.. if a company is going to avoid tax in the first place, they’re unlikely to be swayed by such a gesture, doesn’t make financial sense. At any rate, for me that kind of approach is a race to the bottom

The Eurozone probably needs it, many of their banks balance sheets are worrisome at best ~ imagine Italy will be the next big boy to run into trouble

There’s always time, if one is willing to make time

Perhaps I should stop bothering to reply to your posts, from what I’ve seen conjecturing on the weather appears more of a priority – high brow stuff indeed!

Yes, we have one of the highest in the world, and we don't want to end up like Japan (highly developed finance sector, that is ostensibly their poison, now mired in debt and printing for fun)

Consumer debt is a sizable component of total debt, yes. Perhaps you are conflating total debt, or private debt (a component of total debt, of which household or 'consumer' debt is, in turn, a component), with public debt (another component of total debt)?

QFA

Thought the UK was near the bottom of the pile in the top 20-odd developed nations in the numeracy/literacy stakes?

Singapore, a wealthy, orderly (Eastern culture), city state, is hardly comparable unfortunately (even if the UK is becoming an ostensive city state!)

That would hamper capital raising for the (vastly) expanded capacity you spake of – an alternative might be to cap returns to investors, rather than fees (something I proposed re: the energy market profiteering ‘problem’)

I’m not sure I agree with the conception, nor with the inference (what’s wrong with selling something for below the market price if it sufficiently satisfies the profit motive and takes some of the pressure out of demand – so long as it goes to a family whom genuinely are in need of a home?)

It’s scarcely taking place at all tbh. GovT went to sleep on this’n after Thatcher

Would be interesting to see how that would pan out.. e.g. ethnic minorities being packed off up to deprived, remote areas of Scotland to satisfy a top down wishful desire to ‘spread them out a bit’

Unfortunately people like to live in the midst of those they identify with, so they will always self-select over time, along lines of identity. Until we’re all mixed race, Godless people, with 2.4 children, living under the red flag (equal income status, lower socioeconomic distinction), segregation will likely continue to increase

Think they prefer to treat each instance as an opportunity to play political football, and to consult with their (political, financial) support base, before making a decision purportedly on social and economic grounds. This is where ‘Democracy’ is an ass

Yup, doesn’t help, although I do have confidence that the political classes are more scrutinised/accountable (not just by the media/courts, but by the general public too) than ever before – just wish the Machiavellian oligarchic ****s would allow us to have PR!

For people struggling with either/both, they are still a reality dude, although I take your point that the housing crisis is relatively grave

Fair point, expect a lot of the food we import comes from Europe, but that would likely be the case (albeit perhaps to a slightly lower degree) without CAP in place tbh (lower opportunity cost of land use, larger farms/lower costs, slacker environmental standards/enforcement etc)

Nice in principal but again perhaps not terribly pragmatic, outside of an authoritarian utopia

Women are encouraged to work these days.. not stay home digging up spuds

Aye, the whole tapering rumour shenanigans are doing little to help anyone stateside.. what a palaver!

I worry what will happen in that country when it all unwinds

Not sure detailed arguments are necessary, we probably agree on most of this hippy **** as it doesn't concern liberal ideals of the head-in-sand persuasion

You'll just have to make more time for me and reply to my satisfaction then sugar

QFA

Aha. Think that is more education provision/conditions centred, than quality of basic skills outcomes centred. Apparently we’ve slipped again in the later regard

Yup. Given the allocation of whatever it is (< c.10% catered capacity) that would put enormous pressure on places – would defo need fee increase caps in place! You could actually get existing state institutions being bought up/taken over in a desperate bid to cater for expansion of demand (and hence to justify the inculcation of policy in the first place, as without sufficient expansion in places it’s unlikely to help raise standards among those ‘on the outside’), bet that would go down well on the left! haha (they won't even entertain the notion of grammar schools making a come back)

Somcharity execs get scandalous amounts.e . my old man once moaned about how the guide dogs charity are literally drowning in cash and their execs got paid more than he did (and he was a high level director in the private sector who worked hard, all the hours God gives)

http://www.telegraph.co.uk/news/politics/10232004/72-per-cent-increase-in-executives-paid-over-100k-a-year-at-best-known-charities.html

In certain parts of the country I agree. More generally, we need more house building, particularly around the hubs you mentioned

Yup, just as long as, as I’m sure you’d agree, one rental property isn’t simply taken off the market without being replaced by another by the local authority

Little political capital in addressing long term issues, particularly those tied up with fortunes and phony-platforms for bearishness and ‘stability’ in the city (sorry Gordon, Tories)

One must lend context to retrospective analysis, watertight, well evidenced, social and economic policy and judgement were still something of a pipedream in that era – it took the Thatcher government to finally realise/decree that market interference, or ‘demand management’, is often absolute folly. That is a very important lesson, one that people on the left unfortunately seem to have forgotten since 2008 in the UK, and in the USA: the Fed keeping base rates low for prolonged periods, earlier in the decade

Interesting how a social policy professor commented on BBC AA t’other day how most of the Eastern Europeans had spread themselves out and gone where the work, typically appropriate to their skill set, is (in the countryside, manual work). I suppose among some groups there is a willingness to settle wherever, however many economic migrants, and indigenous youths (once they get to a certain age), tend to gravitate towards the hubs you mentioned eh – so top down policies concerning dictating where those who are unable to fund their own housing costs shall live, well.. wouldn’t go down too well and in a sense is tantamount to reducing labour mobility and trapping a (presumably sizable) proportion of these people in poverty

Flipside is, it’s simply not on for families of unemployed/low income people to be living in very expensive parts of town at the taxpayer’s expense. The BBC (News?) did a little feature on a migrant family doing exactly that in Islington maybe a year ago or so and if it was supposed to generate sympathy for them/their ilk it singularly failed to do so; our dependency/expectancy culture in this country reached frankly disturbing levels under New Labour.

Why are you wary? We need a GovT that is actually willing to act on long-view matters of national and global security/concerning the fabric of those realms

Those of us who feel the Lib dems or Tories have sold us out (as a nation, not just as individual voters) on matters like tuition fees, the environment, immigration, E.U. membership, must be able to be heard – and no I don’t just mean heard in terms of writing to our MPs or turning up at their surgeries to bend their ears – without effectively kissing our votes goodbye e.g. by handing Labour seats by protest voting for Greens/UKIP out of frustration/to send a clear signal

For this reason, as well as others, the first past the post system is anti-democratic, and its continuation, and all attempts by the political elite to ensure it remains, tantamount to cartel/mafia shenanigans

Yup. Certainly a great deal for the newcomers in that regard. Balances out a bit in that we seem to suck up a lot of their labour mind

Wondered how long it’d be before a Tory decided that another war with Germany was the answer to all our problems!

Opportunity cost in terms of forgone utility – people deride utility from the enjoyment of their gardens for other uses e.g. the quintessential British lawn, patios and decks, flowerbeds, ponds and features etc

Naturally; again, should we ever war with Germany again it may well come to this!