7 Nov 2008
Brown & Darling - Not Again?
Given the 1.5% fall in base rates announced by the Bank of England yesterday (6 Nov 2008) the UK Prime Minister Gordon Brown & Chancellor Alistair Darling continue to heap pressure on the British banking system to lower their borrowing rates in an effort to encourage further borrowing in a more than forlorn hope of holding off a recession.
Again it has to be pointed out that irresponsible high levels of borrowing/debt got us into the situation we are in today, & it beggars belief that the duo who between them have overseen the UK economy for over 11 years have still not learnt the lessons.
Even more bewildering is their encouragement to the banks to pass on mortgage cuts in an effort to kick start the housing market.
The fact is house prices have a long way to go before they find their true level, probably late 2009 & buying a house at this time could lead to many problems for the individual as the likely effect of immediate negative equity & the ever worsening prospect of unemployment is a double whammy that could challenge the strongest of partnerships & marriages.
Yet Brown/Darling demand the banks immediately start to lend, if the banks run with this it will be them that are once again blamed for householders misery as the loans of today become the negative equity of three months hence, with the banks left with properties on their books with a negative value to loan, with every probability the present situation intensified, and the refinancing of the banks left in tatters as their book value once again falls, & once again the share values plummet.
No doubt the P.M. & his Chancellor will once again dither between a Nero or Pontius Pilot approach in true Romanesque style either by fiddling whilst GB burns or washing their hands of any guilt, nothing new there then? Its just the boom & bust cycle is roughly ten years, but they are bucking the trend by speeding the process to a likely ten months, in fairness there will be no boom in the cycle just a continuation of bust, some might say a rather novel approach to economics.
This latest panic move from the P.M. & Chancellor could be a short term fix with such negative long term implications they should really reconsider the pressure they apply to the banks.
Perhaps they should consider easing the rates on existing mortgages & loans, but keep a tight fiscal grip on any application for new loans. The housing market would recover far more gradually with fully funded investors taking advantage of the house price levels, but been able to offer reasonable rental rates to others as their yield stays at sensible levels, whilst the house price levels rise at a much slower ratel but reducing the risk of the corruption in negative equity.
In truth the road to recovery for the UK will be long, but the recovery is likely to be much quicker if we take a even approach, not exactly what we all want to hear, but given the last 2 years at least there would a glimmer of light at the end of the tunnel in the very near future, whereas the Brown/Darling proposal may mean the tunnel stays dark for quite some time to come. |
