Do we have 10 years of BAU?

[Quintus]

I'm not really interested in arguing why I hold the opinions I do, having already done it many times and ended up in pointless arguments.

Fair enough. In any case I wouldn't ask someone to "prove" their spiritual views.

I'm a great admirer of Richard Dawkins (Selfish Gene, Blind Watchmaker etc) but felt the God Delusion was a deeply flawed book.

[Totally_Baffled]

It’s a very tricky question. Personally I think house prices have much further to fall. Over 18 months they fell around 20%, the fastest fall we’ve ever seen. There’s no way the biggest housing bubble end with such a modest correction, as unemployment continues to rise and the economy continues to contract. This rapid decline was stemmed by near zero interest rates and billions of quantitative easing. These are temporary measures, the state housing market is currently an illusion.

Interest rates cannot stay near zero as they did in Japan as we have a trade deficit, they had a surplus. We’re going to have to protect the pound with higher interest rates eventually. The public debt we’ve accrued guarantees a future of higher taxation and lower public spending, in turn guaranteeing reduced money supply for housing.

A year after the election this aberration, the eye in the centre of the storm if you like, will have passed and the collapse will resume. That’s my opinion anyway!

So I think the real question is what happens to all the ‘irresponsible’ folk who have bought houses in the last few years with large mortgages, hoping for low interest rates to continue.

It may well be that their irresponsibility is rewarded. Their private loss will be written off or socialised in some way – the precedent is with 3rd world debt and more recently the banking bailout. Does the negative equity, in arrears, “home owning” cohort represent an entity which is too big to fail? If so, you’d better join it!

On the other hand BAU may hang together long enough for housing to lose another 20-50% in real terms, allowing you to pick up a bargain. I’ve no idea how much more housing can lose before the rules of the game change though.

There are a lot of powerful things going on behind the scenes attempting to prop up BAU. They are likely to fail in my opinion and end up making the situation worse than it would otherwise have been. When that happens is anyone’s guess. I think things will be a lot clearer a year after the election.

I cannot see the way out of this mess either?

A double whammy to those overmortgaged middleclass home owners is the withdrawel of universal benefits.

I can see tax credits, child benefit, child care vouchers etc all being scrapped for those over a certain income.

For me with two kids, its worth £300 a month, from next august its £450 a month. That is going to hurt (but I will survive because my mortgage is only £28 a month!) Many will get nuked financially by this!

The only other point is I dont know when rates will rise.

You quote the example of Japan in the nineties when they had deflation, yes they had a trade surplus (good for currency) but they accrued a massive national debt of 173% of GDP ~ £4.4 trillion (bad for currency).

Even allowing for the size difference in economies their national debt is £2.2 trillion larger than the UK's and they still maintained low rates.

[mikepepler]

Thanks for all the feedback...

Mike, is your current rental more secure than a typical assured shorthold tenancy? If it is, it sounds like quite a nice setup you have already. Could you not get planning permission for a home in your wood, given that you derive your living (or a significant portion of it) from it. Are prices, nominal or real, dropping or likely to continue to drop, in Rye? How many suitable potential properties are there in Rye?

Current rental is just a normal tenancy. OK for new, but only 3m above sea level so I'd never plan to stay here long term! We'd be unlikely to get planning permission in the wood at present, as it's ancient woodland, and inside an AONB zone. House prices in the area have fallen and not picked up, but the falls seem to have levelled off at present. The choice of properties is limited by wanting to be sufficiently above sea level, and also near the wood (which is 20-25m above), but at the same time not too far from Rye station for travel.

I tend to agree with the consensus here that there is a lot more trouble to come, and given oils has just crept back above $80 as well, that isn't going to help matters.

Interesting point that things will change after the election, perhaps we'll keep an eye on things and see what it looks like next summer...

[PaulS]

If oil really peaked (2005-2008) and 2009 is the first year on the long down-slope of oil production then it is almost certain that there will be NO RECOVERY !

Every politician, every commentator and almost every economist tacidly assumes that this recession will come to an end at some point in the next few months or years, but that is most unlikely.

As soon as there is any sign of a world recovery, oil prices will skyrocket again, just like in 2008, followed by fuel, energy, food and everything else, killing any recovery off at birth. I think we will have a few waves of ever deeper recessions followed by the prospect of recovery, only to be dashed by yet another record spike in oil and energy prices.

The end of BAU (or at least attempts at BAU) will only come after several of these false recoveries, when it may dawn on various people that we are in a 30 or 40 year spiral of decline across the world, which may only stop when our energy consumption is forcibly reduced to some 25% of current energy consumption - a level capable of being supplied from renewables, provided our Governments are wise enough to invest in them.

However, that moment can arrive quite quickly and suddenly. It would take perhaps just 10-20% of investors to take fright, dump stock and cause a stock market collapse. IMO the FTSE will end up at around 1000, which would be justified on a p/e ration of about 2 - which I think is as much as one can expect in a declining world.

Similar sell offs/ panic/ flight to assets will probably start happening at about the same time as investment companies, pension funds and rich people will try to rescue their portfolios, whilst the rest of us buy stuff whilst it is still available.

Less than five years, I'd say.

But then what do I know? Four years ago we sold our house, I quit my job, rescued our little pension from fate worse than death and bought a small farm. It has taken four years to convert to organic, establish local breeds of cattle and sheep, set ourselves as as local meat producers and convert the house to run 100% on our own renewables, incl fuel (need another few months to finish). And the fun is only just starting. Come hell and high water (150m above sea level), I say. Lets see the sparks fly.

[Ludwig]

PaulS has it about right, I would say.

This is what many people don't get: a stock market collapse will mean virtually all employment disappearing overnight. This is why smooth transition would be so difficult: it assumes no sudden, dislocating events. Yet the way our system is set up, there MUST be sudden, dislocating events.

[snow hope]

I think sudden collapse is a real possibility I am afraid.

Mervyn King said that two of the largest banks in the UK, HBOS and RBS, came to within hours of collapse on 7th October 2008. http://www.telegraph.co.uk/finance/news ... -King.html#

Alastair Darling also confirmed that unless the UK Govt had bailed out the banking system, it was within hours of collapse - the cash machines would have stopped working.

If this had happened, the ramifications would have been terrible. Just google the many articles and commentary about how the economy would have been affected.

Considering we got so close to a collapse just over a year ago, I find it hard to conceive how some people still think we will have a slow, gentle drift down into a lower standard of living...... ho-hum.

I still maintain that when the price of oil hit its peak - July 2008 - it caused the dominoes to start falling. I suppose we will know when it hits the next high price-point. Seems to be starting the steeper curve again. As always, time will tell.

[kenneal - lagger]

Mike

Could you build a small strawbale, reciprocal pole turf roof roundhouse, nice and cheap, somewhere in the wood where it wouldn't be seen and gradually move in. Someone did it in Somerset, I think it was, but was given away by the sun glinting on his PV panel before the four year occupation period was up. If you can make the four years without any council enforcement action being taken you can apply for a Lawful Development Certificate. One of my neighbours managed it, and he lives less than 400 metres away from my house, without me noticing. (OK, I should have gone to Specsavers!!)

Someone else built a house within a wall of bales but this was rejected as it was concealed, so don't go down that route.

Just a thought.

Ken

[mikepepler]

I'm afraid our wood isn't really big enough or isolated enough to secretly build anything in it. We have a footpath along one border, and dog-walkers follow a couple of tracks that run through the wood (no right of way though). We looked at a lot of woods around the country, and what we found was that the kind of wood you could build in unobserved was miles from any centre of population, in a landscape that was bleak in winter, etc. So we settled for buying one that was the best in terms of trees and access, and accepting we couldn't live in it as long as BAU was maintained...

Talking about the possibility of fast economic collapse though, that's the one thing that would mean we could go and live in the woods I think. Ironically, although such a situation would be dire for most people, I would in some ways welcome the release, as I could just get on with things. As it is, I don't know at what rate to progress preparations. Our jobs are reasonably paid, but not enough that we could work for a couple of years and then go and buy somewhere outright. So we're done it in stages, buying a wood, retraining, working part-time, learning new skills, renting an efficient house, but it feels like the next steps require bigger changes and/or pots of cash...

[Adam1]

I'm trying to digest this article from TOD, which suggests that house prices, energy prices and indeed prices generally will drop (deflation). I still think local factors are so important that it is not always very helpful to assume an exact extrapolation from the general to specific.

http://europe.theoildrum.com/node/5917

[Vortex]

I suspect that even a major financial collapse wouldn't be the end of the world.

We would have a week or two of TOTAL mayhem - mostly virtual in the form of TV programs.

Look at Iceland - do mutant zombie hoards roam the streets? Nah.

Do the Icelanders look like refugees from Belsen? Nah.

Can you buy a BigMac there anymore? No.

[caspian]

I suspect that even a major financial collapse wouldn't be the end of the world.

I agree. When things were allegedly just a few hours from total collapse last year, I'd pretty much convinced myself that my savings and pension were probably toast. After thinking it was the end of the world I got myself into a state of mind that it wasn't so bad if everyone else was in the same boat. There's something kind of appealing about resetting the clock so that no-one has any advantage.

[snow hope]

That may depend on where you are on the social ladder.

For instance, (at reset) if land ownership rights were withdrawn and the maximum you could own was reduced to 1 acre, I could see Vortex, PaulS, kenneal and a few others feeling rather miffed! :O

Or if gold ownership was reduced to very little and the Govt announced that according to their records and new database they had created, all the gold that had been bought in the last 20 years had to be returned forthwith (as happened before) then there are some folks who may become upset.

[Vortex]

For instance, (at reset) if land ownership rights were withdrawn and the maximum you could own was reduced to 1 acre, I could see Vortex, PaulS, kenneal and a few others feeling rather miffed!

One acre???? Ever heard of economy of scale? Or the politics of envy?

Some more for you:

For instance, (at reset) if anyone has ginger hair they lose their vote and are required to work as a sex slave.

For instance, (at reset) if anyone with 10 acres of land or more is permitted to 'recruit' 5 unemployed people per 10 acres as 'farming assistants'. One or more armed soldiers will be allocated to each farm to act as 'managerial assistants'.

For instance, (at reset) anyone in a marginal Labour seat is given £10,000 spending money sorry ... 'disadvantaged citizen life enhancement grant'.

[eatyourveg]

Who would want a sex slave with ginger hair? I see a coming market for wigs and pubic razors.

[snow hope]

Hmmm, I got lost somewhere.....