The Brown & Greenspan bubble is well-and-truly bursting

DonnyB

Very succinct , Fraser .

cuffleyburgers

Aided presumably by artificially low measures of the inflation rate, and in particular which ignored asset price inflation.

Simon

Boom and Bust economics...

just on a bigger scale

Thanks Gordon

Sixty Years

Fraser - I think deflation is more likely than inflation. We are probably heading into a deflatinary slump, similar to Japan. The really scary one to watch right now is AIG as they are loaded up with Credit Default Swaps - AIG are the big pappa for insuring derivatives. If they go down it will be systemic...

It is now all about capital preservation not profit.

Britain is heading into the gates of hell:

~City in meltdown.
~Ruling party imploding.
~House prices crashing.
~Buy-to-let a ticking UXB.
~Commercial property crashing.
~HBoS and RBS loaded up with property debt - big time!!

mark c

can anyone think of any good news ?

Tory Lion

It's very easy to pour blame on Brown and as a stout Tory, I'm more than inclined to a round of Brown-bashing.. however, I think it is extremely irresponsible of the media - and you included Fraser, especially with your final sentence - to whip up fear in society.

If people stand up in the media everyday, claiming that the end is nigh, recession is coming, the housing markets are tumbling etc etc - people will believe it. It's a poor reflection on an industry that prefers bad news to good. If you tell people that the housing market is going to continue to tumble, who in their right mind is going to buy? Thus the market does fall and with it appears lots of grinning journalists claiming they saw it coming - it's b******s - if the public were told that the market was recovering and is looking up, they'd start buying again and the market would bouy.

I think it's highly irresponsible of the media to consistently promote bad news and they should put their hands up and claim some responsibility for this downturn.

Michael

I watched Greenspan last night with mounting incredulity. I also recall those City types insisting there was a 'paradigm shift' in terms of the productivity and new technologies in order to boost stock market and bank behaviour. Emperor's new clothes and all that. It would be amusing if the effects were not likely to be so damaging. I truly hope the miscreants are punished.

Liz Brown

I'm bailing out now..........

TrevorsDen

When Greenspan retired Brown appointed him as some sort of special advisor.

The Labour conference is likely to take place against a background of a full blow financial crisis.

StayAheadGame

Just supposing I had that much cash, should I now transfer money so that it's not all in one bank, that is no more than £35,000 in each institution?

C Powell

It's worth remembering when we get the inevitable stories about greedy bankers and how much money they've made, that there are a lot of people working in these firms who do not earn megabucks (secretaries, compliance officials, IT, operations and other support staff) and who suffer as well when there are redundancies. They also have families, mortgages and commitments and their savings are not sufficient to allow them to retire comfortably, if made redundant, unlike MPs, for instance.

This may well be necessary for the financial system as a whole but let's not forget the personal impact; even those who keep their jobs are cutting down on spending and all this will have a ripple effect throughout the economy.

Bean Counter

HBOS may not live to see the end of the week based on this morning's market shenanigans. Northern Rock is starting to look like a rounding error.

Fraser Nelson

Sixty, I've heard that from some serious people in the City but can't square it with the collapse in the pound. Some of the darker rumours involve parity with the dollar, but if that happened then just think of the inflationary impact.

But I'm interested - if you have time, can you lay out a deflation scenario for me? Given that UK has household debt of 160% of GDP then deflation would be an economic widowmaker....

Fraser Nelson

Tory Lion, influential as CoffeeHouse is we don't move markets. Nothing, least of all positive talk, will shore up a fundamentally overvalued husing market - and I suspect Brown will sink hundreds of millions of taxpayers' money into the UK housing market to prove this point. I hear far more blood-curdling forecasts by my contacts in the city: 30% chance of a Depression is one of them. Deflation another. Parity with the dollar another. Citibank say the UK housing crash is only halfway through and predicts 30% peak-to-trough. Would you rather journalists took this private advice, sold their houses, put their cash into foreign currency and made out to their readers that all is well?

As for the end of my blog - The phrase "the end of the beginning" I actually put in after hearing it from a senior economist at a respected institution talking off-the-record. I take your point about needless scaremongering, but my responsibility as a journalist is to pass on what the information I get privately and call it as I see it.

Nick Kaplan

The real source of the current economic difficulties is not irresponsible banks but the US government and agitators in the US media. Does it not strike anyone as a bit odd that subprime mortgages, which are quite clearly a ludicrous risk for any financial institution (as has been confirmed by the number that have gone bankrupt as a result), were sold on such a vast scale? The reason why these unnecessarily risky mortgages were awarded was precisely because of government legislation which was passed to resolve a problem invented by the media. Several years ago the Washington Post published a story about the fact that coloured applicants for mortgages were approved only 72% of the time while whites were approved 89%, the journalist described this as overwhelming evidence of racial discrimination. The journalist of course failed to mention that Asians were approved at a far greater rate than whites, but this fact did not fit his agenda. The result of the moral outrage caused by this apparent discrimination was the passing of “The Community Reinvestment Act” which forced banks to lend to people that they had previously not chosen to. The reason why banks had not previously chosen to lend to these people in reality had nothing to do with their skin colour (those who want to make a profit don’t usually care about the race of those whose money they are taking) but their employment status or credit history. The Community Reinvestment Act forced banks to ignore such vital information as credit history to prevent ‘discrimination’ which resulted in subprime mortgages which caused the credit crunch. Isn’t it ironic that journalists of the same ideological persuasion (leftists) are now calling on the government to step in and regulate the irresponsible lending practices of banks. I would laugh if it were not so worrying...

biggestaspidistra

"If people stand up in the media everyday, claiming that the end is nigh, recession is coming, the housing markets are tumbling etc etc - people will believe it."

Tory Lion, I recall things differently. For over a year, with the writing already on the wall, journalists - both housing and economic - denied we we were in trouble and condemned gloom-mongering. Now that the worst is happening we may as well face it.

Joe Mooney

Blair and Brown has a lot to answer for.

Well done Fraser for posting excellent articles on how we got into this mess in the first place.

Tiberius

Has anyone else heard the whisper that the euro is about to fall on the back of European banks' as yet unpublished losses?

salieri

Tory Lion, a noble sentiment underlies your indignation, but as I read this thread it's aimed not at know-all journalists but at know-damn-all economists.

There used to be a joke in pre-glasnost Moscow about a butcher's shop selling real meat. One week it was brains, arranged in the window in order of price: pigs' brains for 2 roubles, calves' brains for 4 roubles and economists' brains for 20 roubles. Asked why the last of these was so expensive, the butcher explained that it was not, in fact, anything to do with taste: it was just that so many more economists' brains were needed to make up a kilo.

It was not the press but intellectual pygmies of the calibre of Gordon Brown who, setting his own example as Chancellor, encouraged people to spend money they could only ever pretend to own. Only the press, for the last decade, has been pointing out the dishonesty and intellectual poverty inherent in this pretence.

And Brown still fancies himself as an economist...

mckenzie

mark c

I have some Good news:

http://www.samedaybooks.co.uk/details.php?isbn=9780840703446&s=gb

Dr Blue

http://www.amazon.co.uk/Gods-That-Failed-Markets-Future/dp/1847920306/ref=cm_cr-mr-title

Atkinson and Elliott have predicted this "adjustment" for some time. It may end up making a tsunami look like "just a little drop in an ocean."

As for Brown- he's guilty in all of this- for allowing excessive growth of the money supply unbacked by assets. From false values to no value. He may be about to find himself in as temporary a local difficulty as our ships at Suez. Welcome home to Fantasy Island.

Meanwhile the ghost of Professor Friedman whispers, "Sound money, sound society."

Sixty Years

Fraser, the best indicator for inflation is 2,10 & 30 government bonds. Globally they are falling and this will continue as property deflates.