Friday, 26 October 2012

Britain’s Biggest Economic Disadvantage - Their Housing Market - MoneyWeek

Britain’s Housing Market Has Left The Economy Paralysed

Here is a very interesting article from Money Week Magazine, regarding the UK housing market and its risk to kill the merger GDP growth even more than their Olympic-sized Government debit levels. With rapidly slowing global growth (in both the developed and developing world) our politicians and central bankers seem to be at a loss as to how to deal with it. 

Sir Mervyn King (Governer of the BoE) reckons that the basic problem is the banks are still sitting on too much bad debt. The debt needs its value written down (or written off) and the banks then need to be patched up (again). All that needs to happen before banks are willing to lend again.  The tr ouble is, the “significant writing down of asset values” that King refers to, would involve allowing house prices to fall.  In Britain, house prices are the single most important economic indicator, politically speaking. When house prices are falling, governments lose elections.  It’s why public policy in the UK is to keep the property market from collapsing.  

So unless there is an external factor which forces the politicians hands don't expect the policy to change.  It funny but one of the reasons Britain did well after it fell out of the fixed exchange rate mechanism (ERM) was that while it was in it the politicians hands were prevented from printing money to provide a quick economic/political fix.  Resulting in them having to implement political difficult and painful (to vested interest groups) labour market reform which provided a long term improvement to employment and GDP growth, as explained by the former UK Chancellor of the Exchequer Norman Lamont in an interview in the Daily Telegraph Newspaper on the 20th anniversary of Black Wednesday, Britain’s exit from the Exchange Rate Mechanism (ERM)

It reminds me of an old quotation from the former UK Prime Minister Sir Winston Churchill:

"You can always count on Americans to do the right thing - after they've tried everything else" (just replace Americans with politicians)
Food for thought isn't it?

Click here is see Moneyweek - Britain’s biggest economic disadvantage - our property market

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