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Widger
27th Jul 2006, 12:35
The original thread has dis-appeared. So I am reviving it.British Gas anouncing that prices to go up in Sept. US Housing prices falling, US petroeum at $3 a gallon. UK bankrupcies at a record level since 80s, Banks taking out insurance on bad debt. Trillions of pounds personal debt, more than the UK GDP!The tumble is on its way!

BenThere
27th Jul 2006, 12:41
If you are correct, Widger, immediately sell all your sterling and dollar denominated assets and convert it to gold.

Let's compare notes in 20 years and see how we did.

Widger
27th Jul 2006, 12:54
Ben There...Assets?.......what assets???

kenfoggo
27th Jul 2006, 13:52
The English economy as presided over by the Scottish Chancellor is in deep guano. If we all exercised our domestic budgets in the same manner as Gordon Brown manages the countries, we would all be bankrupt. Anyone know what the National debt now stands at and how much the servicing of this debt costs the tax payer each year? In the meantime we have all been encouraged to follow the Chancellors lead and consistantly spend more than we earn. The result being a mountain of personal debt and mortgages on homes which are unsustainable.
The traditional way of encouraging the populace to cutback on credit card spending and personal debt is to increase interest charges. This option is not open to Gordon Brown because even a slight increase in the rates will mean thousands of home repossessions as raised mortgage repayments will not be met by those already hocked upto the eyeballs. This would be political suicide and , as Gordon still harbours ambition to be Prime Minister , will not happen.

Unwell_Raptor
27th Jul 2006, 14:14
Anatole Kaletsky, writing in today's Times, does not agree. He is an eminent journalist and economist, and I prefer his analysis to the simplistic stuff above.

http://www.timesonline.co.uk/article/0,,6-2287234,00.html

AcroChik
27th Jul 2006, 14:26
Banks taking out insurance on bad debt.

Banks have always done this through a process called securitization.

In general (and please forgive a grotesque oversimplification by someone who is currently a mere student of such things), the way this works is by "packaging" a group of like debts, such as mortgages of similar rate and credit risk, together and then issuing a security that can be bought by investors that pays a rate of interest. In the case of mortgages, these are called CMOs ~ Collateralized Mortgage Obligations.

The rate of interest paid on these securities is tied to the measured risk of default of the overall portfolio now represented by the security sold. In this way, risk is moderated and shared. There is a truly gigantic global market in such securities and their derivative instruments.

As an aside, if you own a credit card, your credit card company is also doing this on your debt, pooling it with others of like risk and reselling it to moderate risk of default.

This is also done in the insurance business through the process of reinsurance, in which insurance companies package policies of like coverage and risk together and buy insurance on the entire pool.

This is not a simple process, the mathematics are subtle, and I apologize if my explanation is faulty.

Bluesteel705
27th Jul 2006, 14:43
Banks have always done this through a process called securitization.

Actualy I was under the impression that this began in the late 1960's? But which ever way you look at it now has an outstanding aggregate of nearly $8 trillion USD.

AcroChik
27th Jul 2006, 14:55
You're quite right, BlueSteel, "always" was a careless word.

I'm wary of using absolute numbers, whether it be 1, 10, or 8 trillion, to measure anything in either economics or finance. In these fields, numbers only have value in relationship to others.

If the number is 8 trillion, what is the relative risk of default of what portion of the outstanding debt and what is the relative exposure any individual financial institution would have to bear in relation to its overall capitalization?

Obviously, 8 trillion bucks worth of debt isn't going to default in an instant and drive Western economies into the ground overnight.

It's tempting to react to seemingly gigantic numbers on a visceral level, but the actual situation is always a bit more nuanced.

kenfoggo
27th Jul 2006, 17:33
Unwell Raptor - thanks for bringing my attention to that article. Phew! Totally reassured now and mind put at rest , thanks.
So spend , spend , spend! Debts will never have to be repaid.

reynoldsno1
27th Jul 2006, 22:09
The late, great Warren Zevon had a handle on this in 1989:

Down In The Mall

There's a brand new shopping center seven storeys high
There's bound to be a sale or two--something we can buy
There's four floors of parking and we're sure to find a space
We'll spend all the money that the government doesn't take

Down in the mall
I'll be your man
We'll go shopping , babe
It's something we can stand
Down in the mall
We will abide
Up on the escalator
Darling, we will ride

Shopping for a pair of shoes, shopping for a hat
We're buying some of this and we're buying some of that
We'll shop up a storm 'til we can't shop no more
Then we're stopping off at the video store

Down in the mall
I'll be your man
We'll go shopping, babe
It's something we can stand

Down in the mall We'll be allright
Monday throught Saturday Til nine o'clock at night
We're buying CD's and we're buying lingerie
We'll put it on a charge account we're never gonna pay
Department store, camera store, tobacco store, appliance store
Sporting goods, oriental imports, You buy everything you want and then you
want more
D
own in the mall
I'll be your man
We'll go shopping, babe
It's something we can stand
Down in the mall
We will abide
Up on the escalator
Darling, we will ride
Down in the mall

AcroChik
27th Jul 2006, 22:28
You knew it didn't cost the earth,
But for what its worth,
You made me feel a millionaire.
And you wear it well,
Madame Onassis got nothing on you.

Widger
28th Jul 2006, 13:34
No I am not an economist but I find it incredulous to claim that just because the Financial sector is in health, that things are OK. Today's Torygraph..Millions hit by record gas prices. Editorial...Britons feel poorer because they are poorer. The financial sector will not be in as good health when the great unwashed stop paying their debts. 1200 Billion pounds of personal debt, Spending down in the high street...this will lead to more job losses, Taxed to high heaven! The Nationwide has already seen the light and stop authorising 100% mortgages. The great scourge of self-certification will come back to haunt those who have taken out mortgages, 6 -7 times their salaries. The average wage in Portsmouth is about 25 000 so how can the average house be almost 200 000? Anatole Kaletsky is living in cloud cookoo land and is probably one of the few who are making money at the moment. He is obviously talking things up to stop his shares crashing through the floor. This is going to be an interesting winter!

Unwell_Raptor
28th Jul 2006, 20:33
Do me a favour Widger. Just once a month don't buy the Telegraph. Or the Mail. Or the Sun.

Try just about anthing else. It might do your sense of proportion a bit of good.

tilewood
28th Jul 2006, 22:17
Do me a favour Widger. Just once a month don't buy the Telegraph. Or the Mail. Or the Sun.
Try just about anthing else. It might do your sense of proportion a bit of good.

What morning reading would you recommend UR? The Guardian, Daily Mirror, or The Daily Worker?

Do you think they might slant the news more to your liking? The trouble is
once you put your paper down and go to pay your council tax, buy a gallon
of petrol, receive your gas bill, or get confronted with the myriad of
stealth taxes imposed by Labour you understand why bankruptcies are rising
at record rates, and that the economy is heading for a hard landing!!

I am sure you will dismiss this as a silly and simplistic comment, as you have
of other PPruners. However sometimes simple comments contain a kernal
of truth! :hmm: