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Budget 2012: London property meltdown

  • 22 March 2012

The prime central London property market is already in meltdown following Chancellor Osborne's changes to the stamp duty rules – at least according to a number of estate agents. Foreign buyers are pulling out, people have taken houses off the market and deals are falling through. 

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  • James

    Shaun,
    fascinating as ever. I don’t think that there is any link between:
    1. What taxes we pay and what governments spend
    2. The financial engineering going on and the real world.
    I think that the whole thing has created totally artificial markets in shares and bonds, both by the direct effect of buying bonds and by the various “unlimited” promises around (such as the Swiss Franc versus the Euro rate).
    It has also created a world where noone understands what is going on coupled with politicians who get voted out of ofice if they take action to correct the deficits.
    The net effect is that we have an ECB (in complete disregard for the basis on which it was set up) where all the nations in trouble vote for the bond-buying spree and the people picking up the tab, the Germans, vote against but cannot stop it.
    I don’t think that there could be agreater disparity between the rhetoric about the formation of the Euro and the EU and the utterly undemocratic and uncontrollable position that we now find ourselves in.
    The drug of spending other people’s money has now spread from the individual to the stae!

  • Charles Jurcich

    Government debt purchases by central banks only affects the real economy if the low yields generated are used to increase budget deficits, and therefore improved fiscal support for the economy in question.

  • Charles Jurcich

    James,
    ” I don’t think that there is any link between:
    1. What taxes we pay and what governments spend”
    This has always been true at a fundamental level since currencies were floated in the early 70s. The purpose of taxation is to create demand for the currency (you need it to pay your taxes), and to manage excessive demand in the economy – taxes don’t pay for anything. This is reflected in the national accounts where taxation is treated as a “transfer”, meaning they are paid with no reciprocal exchange of goods or services.

  • Rods

    Hi Shaun,

    Another excellent blog.

    The OMT might fix ‘Outright Major Trouble’ in the bond markets and I agree with you nothing else has changed.

    It doesn’t fix the following for Spain:

    1. Bank solvency with the €300bn property bubble hangover.

    2. 4% wage inflation, so they are still diverging from the Eurozone German cost / productivity standard.

    3. Their budget deficit, growing Government debt as they approach the danger zone of 90%+ debt to GDP ratio.

    4. Contracting economy mired in a permanent depression like Greece. This will lead to missed deficit targets, so more austerity will be applied, to continue to fuel a Greek style economic death spiral and this contracting economy making the debt to GDP ratio even worse!

    5. 25% unemployment and 50% youth unemployment.

    6. Regional Government debts and deficits and unrestrained spending, which require national Government bailouts now and probably more in the future.

    7. Bankrupt electricity generators, where Government fixed prices are below generation costs.

    8. Health system that owes billions to Drug companies and other suppliers.

    These are just some of the immediate problems I can think of, I’m sure there are a few more I’ve missed. They may have kicked the can down the road in the short term, but it does not fix all of these other problems, which will continue to lead to economic divergence between the countries of the north and south in the Eurozone.

    Shaun, on the Van Rompuy and Barosso growth strategy, I always judge politicians, by what they do and not by what they say. The EU with their social and and economic policies and regulation thought their directives have already imposed major costs and restrictions on industry, which has pushed up costs to them and ultimately consumers. This is continuing with recent examples, extending contractors rights and commercial vehicle operators licences.

    The latest directives which without major lobbing efforts will be introduced is the banning of all modifications and the use of pattern parts for all vehicles produced in the last 30 years. This will wipe out small pattern part manufactures, tuning companies and LPG installers. This has been lobbied for by the car manufactures for sometime, especially German ones as they gain at the expense of small business, which will profit the 1% at the expense of the 99% . Again increasing this divergence. They have a history in this type of thing, remember they largely wiped out the alternative medicines industry after lobbing from the major drug companies for extensive and expensive testing, to their benefit.

    It also means they the car manufactures will in the future control the life of your car. Once they have ceased making key replacement for cars over a particular age, then once a part needs replacing you will have to scrap the car. Now they will be able grow their sales and profits, by progressively reducing the age of cars that spares are available for. We could end up with the Japanese system where there MOT equivalent is so expensive at 3 years it is cheaper to replace the car. You will also have to pay whatever the car manufacturer sets the spare price part at as there will be NO competition.

    The next thing is the proposal for a 40% female quotas for the number of executive directors in a company, with fines and the withdrawal of all public sector contracts for companies that don’t comply. So it will not be a case of the best person for the job, but who can we get to fulfill our quota.

    Western Europe is shrinking in terms of global market share compared to our competitors and with the Eurozone and ever increasing regulation imposed by the unelected and unaccountable EU President and Commission President and their 27 member Politburo I can’t see this changing any time soon.

  • Alex

    Why do I get the feeling the fighting on the ground ended in 1945 but we’re still fighting the second world war 2012?

  • Anonymous

    Shaun,
    Can you remind me what the problem is with the ECB taking losses.

  • Anonymous

    Hi James and thank you
    As to your point one the place that is feeling exposed on that front is Japan which is part of the reason why the current government has plans to raise the sales tax. We live in an era where sales taxes are going up nearly everywhere arent they?
    Both points are linked by the fact that central banks are operating in what are government areas. Why? They can create money so they do not have to raise money before they spend it….

  • Anonymous

    Hi Charles
    That is not the only possible route. For example lower bond yields could act in 2 other main ways.
    1. Making it cheaper for companies to borrow money and thereby encouraging it to increase.
    2. Making fixed-rate mortgages cheaper and thereby hoping to stimulate the economy that way.
    I don’t believe they have worked much if at all in the UK because in those areas we have quantity more than price constraints but in theory at least they exist.

  • Anonymous

    Hi Rods
    The bit about the Japanese car system in your comment particularly intrigued me as I wasn’t aware of that. So cars are often scrapped early there? Strange that their domestic consumption levels havent risen a bit then….
    As to developments they have come from Spain’s neighbour as Portugal has announced it will turn the austerity wheel one more time last night. So we can expect more economic weakness and in time another bailout I think.

  • Anonymous

    Hi Sean
    If we park the generic issues of central bank taking losses and just look at the ECB then it has specific problems. These in essence come from the fact that it is not backed by a single treasury but 17 of them. Thus it has a shareholding structure. The catch here is that the shareholders are far from equal in their ability to pay so should fairly substantial losses arise there will be a problem in splitting them.
    An example of this comes from the EFSF structure where Portugal Ireland and Greece are treated as “stepped out” now. As they cannot feasibly finance ECB losses I think we can treat them the same in that respect so the other shareholdings get larger. Add in Spain and it starts to get more difficult as another 12% would then need to be split amongst the others. So it is another unstable situation.

  • Rods

    Hi shaun,

    I saw a TV program on the Japanese car industry. It must of been at least 15 years a go showing how this tough MOT at 3 years underpinned high domestic demand, on which they build a then world dominating car industry.

    It has all changed a bit since then for them with Korean manufacturers now as good but cheaper and of course the successful European manufactures have upped their game.

    There is a import market in the UK for used Japanese cars, where they like us they drive on the left. Secondhand 4x4s and Mazda Bongo camper vans are imported in quantity (I know somebody that used to transport the camper vans from Southampton docks to a specialist dealer). About 10 years a go there was a big scandal, where gangs in Japan were stealing and exporting them to the UK, until this was clamped down on in Japan and the UK, with UK customs having access to the VIN numbers of stolen Japanese vehicles.

  • Anonymous

    A bad bank is being created and the surplus countries populations will have to pay in the end (if they do not revolt). No wonder that the German press is screaming. A small (there is still conditionality) and decisive (if implemented) step towards fiscal union. Actually it is this or break up and seems that the EZ elite wants to avoid the break up almost at any cost. It will be an interesting period.

  • Anonymous

    Is Rajoy baulking against the Troika in Madrid out of Spanish pride or for fear of what they may dig up in the accounts we never get to see.

  • Anonymous

    Hi Rods,

    As I understand the Japanese car market, many 6 year old cars get auctioned off cheaply for export. Some go to New Zealand where cheap reliable RHD cars are popular.

    As for EU manufacturer approved parts, this will be effectively enforced in North-Western Europe and subverted in Eastern Europe where rules are made to be bent. That silly proposal penalizes reputable after market parts suppliers and ignores the real problem of counterfeiters making dangerous substandard fakes.

    On topic of EC regulations, this mad bureaucracy makes rules they have no intention of ever enforcing – hence the rules become 27 or more varying muddles. Some members of the club take rules seriously and enforce their version, but other members take the rules as a procedural farce that can be used and abused for financial benefit. It is totally dysfunctional.

    The EC is deeply unpopular outside the elite who benefit from EU largesse, but I hesitate to predict the EU’s downfall – this is an unpredictable black swan event. However the communist system did unexpectedly implode in 1989 to my great surprise.

  • Anonymous

    Hi Vassilis
    I think that the factor we can be most sure of is that the EZ elite will cling to the Euro for as long as they can. You would almost think that it gets them lots of jobs,perks and priviledges…

  • Anonymous

    A bit of both I would suspect.

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