Rents are too expensive, according to Shelter. And STILL they cannot make the most basic correlation

One of the "hot" topics in the news this morning was the Shelter report on unaffordable rent. See BBC story
Despite stating the bleeding obvious - rents are too expensive for  "hard working families" - nobody dares mentioning the big white elephant in the room again: housing costs.

The general direction of the comments is correct, but it is as if there is a collective conspiracy in the media which prevents from mentioning high house prices as a BAD thing, and instead focus on the opposite:

1. Rents are too high? Lets' cut red tape for landlords. Wonderful! As if speculators need any more help.
2. People can't afford rent? It's because the nasty tories cut housing benefits. Nothing to do with housing benefits ending in the pockets of speculative landlords and rising up prices in the first place, of course. 
3. Not enough houses around for rent? Let's build more. Great! That's what the government should do. Except, they are inviting the big builders to the party and only "some" - we are not allowed to know how many exactly - of the 100,000 houses which will be built between now and 2015 will be assigned to social housing or rental schemes. A tiny drop in the ocean. I guess you can't displease the NIMBYs. 

Some 38% of the people interviewed claimed they have to buy less food in order to pay the rent.

And instead of using the freshly-printed money to create adequate social housing, the government (and the Bank of England, of course) decide to give it to the banks. 

Amazing. 

Greece defaults, but let's just call it something else

FT's Martin Wolf this time made me spit my coffee by explaining that Greece is not "technically" defaulting, but needs substantial help now, especially with paying for real goods and services. He seemed to suggest that buying time was the only option other than letting Greece go straight into depression. As for what to do after the (very expensive) time bought runs out? Nothing. Just the usual tripe about improving the internal economy and setting up themselves for growth. Which everyone knows it's not going to happen. 80% of the Greek people want to default now. Let them have it.

The reality is that no one is really interested in the Greek people. That much is clear. After all, the public sector workers there are enjoying pharaonic salaries, early retirement, perks and very little work to do. Why would they want to change? Economic illiteracy is rife in Wall Street, so no surprise it's the same in Athens.

The finger is on the pulse of the banks - German and French for that matter - which are the holders of the gigantic Greek debt and are not able to sell it to anyone, let alone willing to roll it over without guarantees from the EU-IMF.

Martin Wolf is right on one thing. No one will buy new Greek bonds. Their interest is higher than a very expensive credit card. So the only choice is to perform some "Burden Sharing", which means that the entire circus - that is private banks, pension funds, governments and some private holders - are (forgive my graphic description) having each other by the balls, in circle. In that case, no one can really squeeze.

This means that, de-facto, the debt will be rolled over with the hope that Mr. Papandreu and his team can modernise Greece and align its public sector with the best-run in Europe. This means, for Greek people, to accept German ways of running the public thing and a seismic cultural shift. It looks like the Greek PM has only days  to achieve that.

Will he succeed? The markets think otherwise.

Cheers

Help for First Time Buyers? Not quite. Let's call it "help for Failed Troubled Banks (and Builders)"

The news is that George Osborne is about to unveil a rather minuscule (£250m) plan to "help" First Time Buyers obtaining a mortgage and keep the construction industry going. Some interesting thoughts are being expressed on Ian Cowie's Personal Finance Telegraph Blog , and they seem to focus on the fact that the easiest way to help a house buyer is to allow prices to fall. That's market forces, for you and I.

However, the dragon has not been slain yet. Many people are still brainwashed into thinking that ever-rising house prices are a good thing. Perhaps the same people whose jobs are being exported to Poland by Kraft (once Cadbury), hope for rising house prices and do not see that the site where they used to think they had a future will be closed so that someone can build 600 houses on the land.

Osborne's plan is no more than a token gesture, albeit a potentially dangerous one for those involved. The levels of personal debt in the UK are staggering already, and are certain to get much worse with the higher university costs and lower wages imposed on the economy by foreign-based competition.

So, why wasting money to saddle these people with more debt (up to 20% of the value of the asset) than the banks think they can afford? Why not let the banks take the risk? Obviously, if the lender is not prepared to offer more than 75% of the value of the house, this means they are assessing a risk and they believe it's not worth going any further.

I believe the reasons behind this plan are mostly political. Osborne knows the housing market is not going to recover any time soon, but also knows he needs to appease a certain demographic. After all, when the data will show houses have kept collapsing in price until they are really affordable again, he will be able to say he did all he could to keep the market going.

Cheers

Don't call it Inflation, then!

To the typical economist, or specifically, the members of the Monetary Policy Committee, Inflation is an abstract concept which is broadly associated with the amount of money supply present in the economy. To give you an example, In this Guardian Article, Mr. Adam Posen seems to strongly disagree with Andrew Sentance on the inflationary risks approaching the UK, simply because "wage growth is set to stay low for the next two years".

It is staggering that someone in his position still misses the elephant in the room, which is that Inflation (or what shall we call it? cost of living, disposable income, money left before next payceck?) is a function of BOTH the rise in prices AND wages, BUT these are only remotely correlated if you look at where the cost increases come from. It's not rocket science.

Commodity costs are NOT driven by wages in the UK. Raw material costs are neither. Unfortunately, in the 2011 global markets world, they are not even pulled by wage levels. To summarise this in layman's terms, if petrol rises in prices wages will not follow. Is this not inflation?

This all boils down to interest rates levels, of course. The MPC (until now) has ignored inflation for the last 2 years waiting for the banking system to be recapitalised. During this time, the banks have taken public money and, in the absence of the subprime bubble, have instead focused their speculative efforts on commodities. This is why your petrol and your bread cost more. We are a lot poorer than we were in 2008. This, in my dictionary, is inflationary (or theft, but let's not digress).

Bottom line: raise the bloody interest rates. Purge the system. Liquidate and allocate resources where they can be productive. Reward savers.  Milking a dead cow is not good practice.

Cheers

Welcome the inter-generational mortgage. What could possibly go wrong?

Nice, this is an inter-generational debt load. Very good. Hopefully now Cameron will be satisfied with the fact that the banks are lending again.


http://www.telegraph.co.uk/finance/newsbysector/constructionandproperty/8253567/Hitachi-to-offer-50000-loans-to-parents-of-home-buyers.html#


The truth behind this is that the Bank of Mum and Dad is bankrupt due to property prices returning to a normal level and there is no equity to be withdrawn for the offsprings' deposit. Well, Hitachi is nice enough to lend it to the boomerss. What could possibly go wrong?