economic situation is dire

[JulieB]

Excellent article from the Daily Hail for once. Ruth Sunderland has got it spot on in my book.

She isn't wrong, it's a conclusion reached many times before but isn't evidenced within the 'solution' based discourse of economic sustainability.

Fresh evidence to be ignored!

It is ignored because Prudence has indeed left the building entirely.

We now have households that run on debt, banks that operate on debt, entire nations who function on debt, currencies that are based on debt and what's more an entire global economy that has become entirely reliant on debt!

[peterms]

This expansion of private debt is sometimes linked to the government, as though it was some sort of deliberate government policy. In fact it's more like a natural outcome of capitalism.

The last government should have been far tougher in regulating the finance sector

That seems like a bit of a contradiction to me.

The taking away of the Bank of England's powers contributed to the meltdown. Under Labour's watch, we had five of the biggest 10 banks in the world, including the biggest in RBS. That was deliberate government policy.

Contradiction in what sense? They are two different things.

There should have been some better control of the provision of credit. There should also have been tighter regulation of the finance industry. But they address two different problems. It's also fair to say that the majority opinion at the time was that there wasn't a problem, and in fact there was much lobbying for less regulation, the FSA was being told it was interfering too much, and so on.

Moving the regulatory role to the FSA was an issue of structure. The BoE still retained responsibility for systemic issues. The tories have now decided to move it back again, but they made no such proposals in their manifestoes of 2001 or 2005 - were they making sound criticisms in 1997? I don't remember any. They are doing it now for pretty obviously political reasons. Let's not forget that the big, the overwhelming issue in respect of financial regulation, was the big deregulation brought in by Thatcher. That is what opened Pandora's box. Labour should have reversed it, but failed to.

And of course, the biggest problems in the lead-up to the crash were about what was happening in the completely unregulated part of the sector. Having the BoE carrying out the regulatory role instead of the FSA would have done nothing to prevent this, as far as I can see.

[tonyh29]

Do you actually perceive a difference between "No return to boom and bust" and "we will not return to the old boom and bust"?

The problem being the evidence you initially presented didn't contain Clarke using the line you are quoting ... so what was their to perceive ??

perceiving is one thing ESP is something entirely different

[blandy]

This expansion of private debt is sometimes linked to the government, as though it was some sort of deliberate government policy. In fact it's more like a natural outcome of capitalism.

The last government should have been far tougher in regulating the finance sector

That seems like a bit of a contradiction to me.

The taking away of the Bank of England's powers contributed to the meltdown. Under Labour's watch, we had five of the biggest 10 banks in the world, including the biggest in RBS. That was deliberate government policy.

Contradiction in what sense? They are two different things.

There should have been some better control of the provision of credit. There should also have been tighter regulation of the finance industry. But they address two different problems.

Better control of the provision of credit should have been done via tighter regulation of the finance industry, they aren't to me "two different things, they are, I feel, intertwined.

The expansion of private debt was, to my eyes (Tory and Labour) Government policy. The Gov'ts knew that if people were able to borrow more they would spend more. People would feel better about themselves, with their houses and cars and mobile phones and foreign holidays and so on and would vote for that Gov't as a consequence. The Gov'ts knew that people would get in too deep, of course, and the Gov'ts chose to allow this to go on.

Of course any argument from the finance industry that it is the Gov'ts fault for letting them be reckless is pretty dumb - there was a lack of responsibility all round - in borrowers, in regulation and in lending.

The Gov'ts cosied up to the financiers, they gave the financiers what they wanted, they put the financiers on a pedestal and let them do what they wanted, and they still do, largely. As you say, Thatcher and Reagan started it, and all the rest have followed. The consequences have stretched far beyond the imagination of regulators, and what warnings there were from people who did see the dangers were ignored.

[peterms]

Better control of the provision of credit should have been done via tighter regulation of the finance industry, they aren't to me "two different things, they are, I feel, intertwined.

I think a regulator would see a role for itself in addressing the extension of credit by an institution where it involved a risky business model, or inadequate checks, or breaching whatever regulations exist about cover ratios, for example. It would not see itself as having a role in determining the total amount of private debt in the economy.

They are of course related, intertwined as you say, and dodgy lending practices, avoiding required checks, and downright fraudulent practices played a large part in allowing the amount of debt to get so big - they were some of the ways in which it came about. But they are not the same, and one is the role of a regulator, the other the role of a government (though many on the right would dispute that the government should try to manage aggregate demand).

The expansion of private debt was, to my eyes (Tory and Labour) Government policy...

I think both were quite content to see debt grow if it made people feel more prosperous and kept people spending. There's also a sense in which they actively pushed debt upon people, most obviously with student loans but also in other areas. However, I doubt that either government or the Treasury quite expected the levels of private debt which now exist.

Interestingly, much of the public discourse about government debt is about prudence, profligacy, getting debt down, while we rarely hear politicians weighing in about the cancer of private debt. And yet it's the private sector that has to balance its books, where a government issues currency.

The Gov'ts cosied up to the financiers, they gave the financiers what they wanted, they put the financiers on a pedestal and let them do what they wanted, and they still do, largely. As you say, Thatcher and Reagan started it, and all the rest have followed. The consequences have stretched far beyond the imagination of regulators, and what warnings there were from people who did see the dangers were ignored.

The favours were two-way. People like Blair and Mandy have been well rewarded. Lord Ashcroft looks after his chums. And the City is the biggest donor to the Tory party.

[peterms]

perceiving is one thing ESP is something entirely different

I knew you would say that.

[Risso]

In ten years under Labour, private mortgages grew from 50% of GDP to 85%. It was like almost like Brown had put Martin O'Neill in charge......In fact, the parallels between the Blair/Brown axis and the Lerner years are quite striking.

[snowychap]

In ten years under Labour, private mortgages grew from 50% of GDP to 85%.

I don't see the current government suggesting that they wish to reverse this (or actually wanting it reversed).

I agree with Peter's points about both (all) flavours of government being quite happy with this and it being an immanent part of the economic system we have,

[peterms]

In ten years under Labour, private mortgages grew from 50% of GDP to 85%. It was like almost like Brown had put Martin O'Neill in charge......In fact, the parallels between the Blair/Brown axis and the Lerner years are quite striking.

It grew all over the place, it wasn't a phenomenon limited to one country, still less the creation of one administration. Though in the UK, if one government deserves more blame than most, it is Thatcher's for deregulating the City. But the inherent tendency of capitalist economies to speculative asset bubbles would have been there anyway, she just gave it freer rein than it would have had.

For example, this shows Mortgage Debt-To-GDP Ratio in several countries. We seem to be about middling in terms of the degree of increase between the two years in question.

[Risso]

In ten years under Labour, private mortgages grew from 50% of GDP to 85%.

I don't see the current government suggesting that they wish to reverse this (or actually wanting it reversed).

I agree with Peter's points about both (all) flavours of government being quite happy with this and it being an immanent part of the economic system we have,

Well of course the figure itself will take a while to reduce, as people's mortgages aren't going to get any smaller for a while, assuming that the average mortgage probably has I'd guess, 15 years to run.

But I disagree anyway. The figure during the Labour years got to a ridiculous size thanks to the silly amounts being lent by banks. I remember being offered a 125% first time buyer mortgage on 5 times our joint salary by Northern Rock, as well as a credit card with a £5K limit "for the things you'll need to furnish it". Absolute madness. Didn't the government say recently that the Bank of England was going to be given powers to prevent such foolishness, ie mortgages based on silly multiples of income, and very high LTV ratios.

[snowychap]

Well of course the figure itself will take a while to reduce, as people's mortgages aren't going to get any smaller for a while, assuming that the average mortgage probably has I'd guess, 15 years to run.

But I disagree anyway. The figure during the Labour years got to a ridiculous size thanks to the silly amounts being lent by banks. I remember being offered a 125% first time buyer mortgage on 5 times our joint salary by Northern Rock, as well as a credit card with a £5K limit "for the things you'll need to furnish it". Absolute madness. Didn't the government say recently that the Bank of England was going to be given powers to prevent such foolishness, ie mortgages based on silly multiples of income, and very high LTV ratios.

The figure got to that size not just because of the mental LTV ratios but also the housing market, BTLs and so on (e.g. the numbers of people wanting and receiving mortgages), didn't it? I.e. the level of mortgage debt would be arrived at by the product of the size of loans given and the number of them.

Whilst the former may have fallen (due mainly to shocks to lenders rather than policy), the latter is being encouraged to expand.

This government has already signalled its intent and wish to widen the right to buy, put out potential policies to help more first time buyers on to the ladder and supported monetary policies which, in the short/medium term, encourage taking out and holding mortgages.

[peterms]

Didn't the government say recently that the Bank of England was going to be given powers to prevent such foolishness, ie mortgages based on silly multiples of income, and very high LTV ratios.

The government said recently that mortgages were to be made easier for people without the necessary deposits. The Telegraph was unimpressed, saying

Amid a credit crisis caused by excessive debt, much of it secured to overpriced property, the Government now proposes to encourage laxer lending to people with no history of repaying debt so that they can buy overpriced property.

You really could not make it up.

[JulieB]

In ten years under Labour, private mortgages grew from 50% of GDP to 85%. It was like almost like Brown had put Martin O'Neill in charge......In fact, the parallels between the Blair/Brown axis and the Lerner years are quite striking.

When the US abandoned the Gold Standard for the $ in 1971 this signalled the start of the world turning instead to a fractional reserve currency system, which is entirely dependent on debt to grow.

It's not about the assets to back up a currency.... it's about a pyramid scheme of debt.

Hence why both Thatcher Bush & Blair ALL asked us both sides of the Atlantic to become "nations of home owners". It wasn't the fact that they needed us all to own homes...it's was that they needed everyone to owe money in order to grow the economy. Of course this led to a spin off the back of mortgages into a spiralling property boom with people leveraging to a much higher amount - securing credit cards, mortgages & loans that they couldn't afford.

However as long as their properties could sell & were rising in price.... they were OK. What's more financial services became the dominant sector for increasing the UK/US GDP to the detriment of manufacturing.

At some point the penny will drop and surely society will need to go back to a gold standard or even oil standard currency, with assets to back it up.

They don't teach the fractional reserve currency system as part of economics in University for good reason.

[mockingbird_franklin]

Didn't the government say recently that the Bank of England was going to be given powers to prevent such foolishness, ie mortgages based on silly multiples of income, and very high LTV ratios.

The government said recently that mortgages were to be made easier for people without the necessary deposits. The Telegraph was unimpressed, saying

Amid a credit crisis caused by excessive debt, much of it secured to overpriced property, the Government now proposes to encourage laxer lending to people with no history of repaying debt so that they can buy overpriced property.

You really could not make it up.

and overpriced property can partly be attributed to an easy supply of credit, one feeds the other, It's how bubbles get inflated, the current problem is an awful lot of effort seems to be going into keeping an over inflated bubble pumped up.

[JulieB]

and overpriced property can partly be attributed to an easy supply of credit, one feeds the other, It's how bubbles get inflated, the current problem is an awful lot of effort seems to be going into keeping an over inflated bubble pumped up.

Because it is the ONLY way the Western economies can grow because the whole system is reliant on debt and the most secure form of debt is backed up with a security ie a property.

Banks are now leveraged up to 8 times their balance sheet... it's simply unsustainable in the long run.

[snowychap]

In ten years under Labour, private mortgages grew from 50% of GDP to 85%. It was like almost like Brown had put Martin O'Neill in charge......In fact, the parallels between the Blair/Brown axis and the Lerner years are quite striking.

When the US abandoned the Gold Standard for the $ in 1971 this signalled the start of the world turning instead to a fractional reserve currency system, which is entirely dependent on debt to grow.

It's not about the assets to back up a currency.... it's about a pyramid scheme of debt.

Hence why both Thatcher Bush & Blair ALL asked us both sides of the Atlantic to become "nations of home owners". It wasn't the fact that they needed us all to own homes...it's was that they needed everyone to owe money in order to grow the economy. Of course this led to a spin off the back of mortgages into a spiralling property boom with people leveraging to a much higher amount - securing credit cards, mortgages & loans that they couldn't afford.

However as long as their properties could sell & were rising in price.... they were OK. What's more financial services became the dominant sector for increasing the UK/US GDP to the detriment of manufacturing.

At some point the penny will drop and surely society will need to go back to a gold standard or even oil standard currency, with assets to back it up.

They don't teach the fractional reserve currency system as part of economics in University for good reason.

Please don't take this as a personal comment but I would like an explanation as to why gold, in and of itself, ought to be regarded as money or the right basis for currency or for exchange of goods.

Surely the capacity of an economy to produce x is a better basis to quantify the value of something than a scarce good that has (albeit useful but) limited actual function?

[JulieB]

Please don't take this as a personal comment but I would like an explanation as to why gold, in and of itself, ought to be regarded as money or the right basis for currency or for exchange of goods.

Surely the capacity of an economy to produce x is a better basis to quantify the value of something than a scarce good that has (albeit useful but) limited actual function?

Because up until 1971 currencies were backed up by the Gold standard. We now have paper money, which is based on IOUs.

You don't need to use Gold you could use dollars or £ sterling but what I'm saying is the currency was backed up by assets. It no longer

works that way. RT today had a big discussion on this earlier and it was very interesting.

Since ancient times Gold was used as a standard for trade...but that went in the 20th Century. But things are changing....as we've seen with Iran now selling oil for Gold.

Fractional Reserve Currency - How it works

[JulieB]

From Wiki article: "History of the United States dollar"

In the early 1970s, inflation caused by rising prices for imported commodities, especially oil, and spending on the Vietnam War, which was not counteracted by cuts in other government expenditures, combined with a trade deficit to create a situation in which the dollar was worth less than the gold used to back it.

In 1971, President Richard Nixon unilaterally ordered the cancellation of the direct convertibility of the United States dollar to gold. This act was known as the Nixon Shock.

The US had to abandon the Gold standard because they were basically bankrupt. As the $ is the reserve currency of the world in other words the whole globe trades in US dollars with each other.... this was a huge event!

Hence why Mervin King & the US Treasury can literally print money - billions of US $ dollars and £ sterling but call it quantative easing with impunity. If you & I did the same, we could be arrested!

[snowychap]

Because up until 1971 currencies were backed up by the Gold standard. We now have paper money, which is based on IOUs.

...

I think your post has just reinforced my skepticism.

Why should we? Because we used to...

As you go on to say, it doesn't need to be gold but you think it could be $ or £ or so on. The point is about what the money means, surely? Whether you call it groats, blowies, tomdicks, gold, silver, dollars or Euro doesn't matter.

RT today had a big discussion on this earlier and it was very interesting.

It mostly is interesting but it is rarely, if ever, authoritative.

[drat01]

In ten years under Labour, private mortgages grew from 50% of GDP to 85%.

I don't see the current government suggesting that they wish to reverse this (or actually wanting it reversed).

I agree with Peter's points about both (all) flavours of government being quite happy with this and it being an immanent part of the economic system we have,

Well of course the figure itself will take a while to reduce, as people's mortgages aren't going to get any smaller for a while, assuming that the average mortgage probably has I'd guess, 15 years to run.

But I disagree anyway. The figure during the Labour years got to a ridiculous size thanks to the silly amounts being lent by banks. I remember being offered a 125% first time buyer mortgage on 5 times our joint salary by Northern Rock, as well as a credit card with a £5K limit "for the things you'll need to furnish it". Absolute madness. Didn't the government say recently that the Bank of England was going to be given powers to prevent such foolishness, ie mortgages based on silly multiples of income, and very high LTV ratios.

Preaching the party line again eh Risso?

I see your stance is based solely on your long held views of "its Labour's fault" when the reality as shown is that the world and those who run it are dictating the rules. Funny how you conveniently chose again to ignore any influence from those in the Tory party and it's again solely a problem that has manifested itself because of the tenure of a Labour Government.