Comments on: The UK economy is hooked on rising asset prices. What happens when the bubble bursts?

By: the bad people did it

the bad people did it — Wed, 25 Jul 2018 11:48:00 +0000

Bit late to this but that first figure is impossible. The series have to add up to zero. There’s a very big fudge in the projected portion of the graph. Ref with more refs here: http://www.progressivepulse.org/economics/what-they-did-not-tell-us-austerity-pushes-households-into-the-red

I don’t know if anyone will see this but it could do with a note. People need to understand that if the government isn’t borrowing it, they are.

By: Ralph Musgrave

Ralph Musgrave — Thu, 28 Sep 2017 13:02:00 +0000

There’s no problem there at all if (and it’s a big if) government makes up for any sudden fall in consumer demand with increased demand in the form of fiscal stimulus (as Steve Keen points out in the final paragraph of his recent book).

Indeed that’s the basic message that Keynes spelled out. Though whether the assortment of incompetents and numpties in high places in this country have absorbed Keynes’s message is debatable (as I intimated in the above paragraph).

By: spume

spume — Wed, 27 Sep 2017 13:58:00 +0000

Would OD be able to sum the red and green lines (corporate plus household debt) to demonstrate the accuracy with which it mirrors government debt? The point being that the government’s ability to borrow money cheaply is being squandered. Instead the economy is running on much more costly private debt meaning that the financial sector is taking an ever enlarging proportion of the ‘rent’ of the economy, to the detriment of other sectors. This is powerful argument for the government to borrow heavily, both to finance important real things like housing and health spending, and to reduce the debt + interest burden on the country as a whole by replacing expensive private debt with cheap public debt.

By: @PositiveMoneyLeeds

@PositiveMoneyLeeds — Wed, 27 Sep 2017 11:02:00 +0000

I’m not entirely convinced that the asset prices carry quite that much of the spending load. For instacne, part of the debt issue arises due the the recent and very clever, if invidious, way that new cars are financed in the private domestic sector. I believe this is spreading to other goods. These “leases” are financed and for many are simply higher debt not yet come home to roost. How accurately is this factored in to Positive Money’s “car loans” estimate? What allowances for the excess mileages, bumps and scratches the loan companies are fiercely imposing heavy charges for?

However, the point is still well made. We are indeed looking into rapidly approaching headlights, just those of a bigger first train whatever the size of the second. Asset prices are certainly well into bubble territory and must be close to bursting.