tag:blogger.com,1999:blog-2948538160252327076.post7924191710885119705..comments2023-11-02T15:48:50.381+00:00Comments on UK Bubble UK Economy: Bernanke - you are on your own, mateAlice Cookhttp://www.blogger.com/profile/05753570123987780947noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2948538160252327076.post-33972419151234461272008-01-24T09:52:00.000+00:002008-01-24T09:52:00.000+00:00The problem in the UK seems to be that when the BO...The problem in the UK seems to be that when the BOE cuts rates, people go crazy spending more money they don't have and whatever the price of that house, they will buy it at that price - thus forcing house prices up even more.<BR/>Then the retailers have a bad day and cry "recession", the BOE reduces rates further and so the cycle continues.<BR/>The most responsible thing is for the BOE to increase rates - it won't be pleasant for a lot of people but it is time for reality instead of "mirage".Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-36529487313507909202008-01-23T19:59:00.000+00:002008-01-23T19:59:00.000+00:00One more thing...I do agree that Bernanke has allo...One more thing...<BR/><BR/>I do agree that Bernanke has allowed himself to be bullied by the markets and should not be cutting as fast and deep as he is. If that was your only point, I could agree.<BR/><BR/>But the idea that we should allow for no cushion in the economy and let unemployment go throught the roof is ridiculous in my opinion.<BR/><BR/>Noboby is trying to reinflate the housing market. Everybody in the USA knows homes are overpriced. Heck, even real esate agents on television are now calling this a "healthy correction". Translation: "I can't keep lying, so let's put a good face on it"<BR/><BR/>But why should people like myself -- who avoided the insanity of the housing and credit bubble -- have to pay the price with job insecurity. In fact, I remember way back in 2004 telling a coworker that I was holding off on buying a house because prices were crazy and would come down.<BR/><BR/>No, I'm more than happy to risk a little inflation than pay the price of other peoples' irresponsiblity with my job.<BR/><BR/>No matter what Bernanke does, home prices will not come back. That will mean HELOCs and other ways of borrowing massive amounts of money will be near impossible for all but the most responsible of borrowers. This means consumption will take a huge hit, even with large interest rate cuts.<BR/><BR/>Hello deflation!<BR/><BR/>As for the argument that inflation will make this different from the disinflationary recession of 2001, I refer you to Stephen Roache. He is an economist who has been a voice in the wilderness for years pointing out the unsustainabilty of the US/UK way of borrow and spend. How they have kept him on Wall Street for so long, I'll never know.<BR/><BR/>But he has pointed out that the cumulative trade deficits of the western world have provided a huge stimulus to the world economy. Take that stimulus away -- which is inevitable at this point -- and you have a large drop in global demand for everything.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2948538160252327076.post-38195721827626214702008-01-23T18:52:00.000+00:002008-01-23T18:52:00.000+00:00I agree with critics about the faultering Anglo-Sa...I agree with critics about the faultering Anglo-Saxon way of "borrow your way to prosperity". But sometimes I believe you don't understand just how right you are.<BR/><BR/>We are facing an extreme deflationary environment in the wake of a massive collapse in credit and housing bubbles.<BR/><BR/>If you, the BoE and the ECB wish to ignore this reality and go the way of Japan, so be it. But I credit Ben Bernake with a least trying to avoid this possibility.<BR/><BR/>The fact that the dollar has barely moved after a 75 bp cut (and talk of another 50 bp just next week!!!), should tell you that even currency speculators are a bit freaked out by recent developments and rethinking their assumptions. <BR/><BR/>You may be right and all of the Feds' actions may do nothing, but I don't envy Britain (or Spain, Greece, Ireland, etc.) which will be squeezed trying to prevent a little extra inflation in the short run and much deflation in the long run.<BR/><BR/>But hey, time will tell.Anonymousnoreply@blogger.com