UK PLC - A Basket Case

UK a basket case?

This article won't do much for the Fool tracker that was absolutely the thing to buy only two lead stories ago.

Never risk more than you can afford to lose.
Pity the banks didn't practice what they preached, but hey they don't have to give a damn it's not their money.
They will continue to offer unsuitable credit, and rip off customers with obscenely high rates for borrowers and low rates for savers, and all we can do is stand idly by.
Now it is clear who really runs the world.

Hi

I think it is sensationalist journalism like this that is partially responsible for the current state of the economy. Maybe if the press could keep to the facts instead of spouting hyperbole the man in the strret would be more likely to invest/save and the current mess would get better more quickly.

Shame on you Motley Fool.

Spot on muddlemind.

Is housing a basket case when the bubble still hasn't deflated to the long term trend? What perecntage of home owners are in negative equity now? How many more first time buyers can afford to buy now?

Who was greedy? How many people were greedy living the life of Riley? Sweeping generalisations about the nature of the British people aren't educational amusing or enriching.

Where is your research TMF? Where is your balance TMF?

It seems that not much thought or effort went into writing this sensationalist article. I read better in the Daily Mail (that is not complimentary to the DM).

Its not just the UK. Falls in the Stock Market here havent been as bad as many countries around the world, and the IMF hasnt had to come here yet.

Pity we had sold our gold so cheaply though. I bet sometime soon that we are going to have need of it when it isnt here.

The UK may well be a "basket case". The government seems to have put all it's eggs in one, namely trying to make the UK plc a financial conglomerate and to hell with manufacturing.

Brown is just as incompetent as any other chancellor/PM. Yet you and other media people seem to be falling over thenselves to paint him as some sort of world saviour. You conveniently forget to give a balanced view (which I expect from Fool.co.uk writers) Norway and Sweden used this model to sort out their mess nearly ten years ago.

So please refrain from creating a picture of fiscal competence where none ever existed, he is just a historian.

I guess the lesson for us the voter, is to look closely at the CV of those who aspire to rule.

My advice to Mr Brown – spend it like Beckham and damn the political consequences.

This is what made the Great Depression the "Great" one...Wealth can not be created through deficit spending, it is created through production and saving. To borrow there must be savings, if there is none well they just print it anyway, then don't be surprised we get massive inflation. The signs are we're repeating all the mistaked of the 30s. John Maynard Keynes has a lot to answer for. My advice to Brown is to read Murray Rothbard Americas Great Depression and nevermind spending cut taxes for us ordinary folk.

Why do banks get all the blame for lending too much? For every bad loan that was made, someone asked for it in the first place - people seem to forget that.

When you have, even now, government calls for lending to get back to 2007 levels as part of bailout conditions for banks, you do have to wonder at this country's collective intelligence.

Well, thats it then - I may as well top myself right now! This is a classic example of why stock markets are great, people always over-react because we can't tell what will happen in the future, all we can do is use what has happened previously to give guidance for the future.

And this is a prime example of over-reaction - assuming that becuase things have turned they way they have so quickly that this will continue until the world is a 'basket-case'. Articles like this fuel the fire which feeds that over-reaction, just relax, take a step back and you'll see that this will pass and withing 3-5 years we'll all be laughing at the current situation.

A salutary article, Mr Jackson. When the patient collapses, some shock treatment may help recovery.
One of the few things that I recall from my economics -- that's economics BTW not some weird stuff called ekkernomiks -- degree is the role of economic growth. The present government makes a big play of "60+ quarters of uninterrupted growth"; of the "end of boom and bust"; and of "over the economic cycle".
Some important sources of the "growth" have been too much unwise public spending; excessive personal consumption financed by credit extended to unreliable debtors; wide misunderstanding of relative asset values; and misplaced reliance on macroeconomic data.
Most people will agree that public health is a desirable feature of a civilised society. But, for several reasons the NHS is a bottomless pit: no amount of public expenditure will ever deliver the standards of public health society aspires to. Similar observations apply to state education. As long as public money is spent on what are predominantly private services, the risks of the UK becoming a basket case will be ever present.
Enough has already been said about personal consumption financed by credit. Both creditors and debtors have behaved recklessly and unethically so the long days of reckoning will be painful.
A family's principal tangible asset is usually the family home, itself composed of two assets -- the land and the building. The land is probably an appreciating asset: the building probably a depreciating one, with some conspicuous exceptions. (In the case of huge and hideous blocks of flats, land may be a tiny fraction of the asset's value.) The building is just that: a shelter more agreeable to live in than a cave. To treat the building as a nest egg rather than a nest is to misunderstand relative asset values.
Economic data are notoriously unreliable. In the 1930's Oskar Morgenstern, a Nobel prize winner, wrote a famous book about this. Since then, government statisticians have worked hard to overcome the problems they face, but economic data are little more than intelligent guesswork applied on a consistent basis. (So, BTW, are company financial statements, and increasingly so.) Yet, we base many of our life-changing decisions on this guesswork.
Lastly, a plea. Ozbloke: the Prime Minister is not a "moron", and for you to suggest it is plain bad manners. You should withdraw the remark. No amount of personal insults ever won an argument or effective supporters. I assume that you don't share his views or approve of his decisions: neither do I, who have suffered from the policies of successive Labour governments since 1945. Despite that, as the Head of the UK Government, the PM -- to refer to him as Gordon Brown is vulgar familiarity -- deserves our personal respect even if his public policies and decisions earn our justifiable criticism, contempt and even ridicule.
TMF is a fun but serious website. Personal insults and bad language are out of order. No more so than in the light of the events of the past two weeks!

As for potential house price falls ... the Guardian reported back in the spring that the median UK wage at that point was £457 a week, or £23,764 pa (ie half of everyone in work earns that figure or less)

we're also heading for a situation where a third of all households will be single person

so if you want to buy a place to live, and are constrained to 3x salary, plus a 10% deposit for example, then the price of small flats is going to have to come down to £80k more or less

my place (large scottish city, small central flat) is valued at £110k (autumn 2008), so a 25-30% drop in values from their current level would make perfect sense...

"..within 3-5 years we'll all be laughing at the current situation" (Walace).I doubt that we'll ever laugh at it, but I do agree first that the media are to blame for painting the worst possible picture, with the result that panic makes their doom-mongering into a self-fulfilling prophecy, and second that things will look much better in 5 years. However, one aspect of the current world we live in absolutely disgusts me, and that is the vast overpayment of certain types of people at a time when almost everyone is suffering. In this group I would put bankers, sports players (especially footballers) and media "stars", 1 of whome has been suspended for a time.... In many cases, the behaviour of people who have suddenly acquired unbelievable amounts of money makes a mockery of the vast majority of decent people and is reminiscent of the egregious manners and morals of the French court shortly before the French Revolution...

Unlife: I fear you may be a little optimistic. Henceforth reliable banks and BS will apply strict criteria to mortgages, similar to those they used to apply. They're most unlikely to lend more than 80% of the market value of the property; to take more than one household income into account; or to lend more than 3½ times that person's annual salary. And monthly repayments may not be more than one third of after-tax monthly income.
Monthly payments on a 25-year mortgage of £64K at 6.5% interest are about £430. This must be close to one-third of the median monthly salary after tax?
Your £80K will therefore apply to the average property, not just to small flats! These, surely, must fall to a lot less than the average price of a UK property. As I claim in my previous post, the land value in small flats is usually minute and it's the land not the building that is an appreciating asset. They're not making too much more of it nowadays.

We all know that the majority suffers for the greed of the few. Its not the people who accepted bigger loans for mortgages that are completely to blame. They had to get these loans due to the rise in house prices. Brown and his crooks sat back wallowing in the extra stamp duty and taxes we were all paying and rewarding MP's with gold lined pensions and allowances. Pensions are now destroyed , by brooon. Of course there are the elements of society that will never suffer. The greedy CEO's The royal family and the likes of the duke of westminster who inherit billions of pounds worth of property for doing less thsan nothing. Still we can always rely on Mr Average to foot the bill mainly because there are so many of us and we have so little power.

Some of the above comments are really scary. When global capitalism fails, go for something more right wing, they appear to be saying; suppose that's what happened after the Wall Street Crash in some countries but let's hope the Little Hitlers on here are just a minority of the population at large and that those of us who have kept out of debt and managed our finances wisely don't have it destroyed by the hot-air spouters. I've met people who saw Germans throwing away their family savings as it wasn't worth the paper it was printed on, after a decade in the control of low-tax corner-shop-owning Poujadistes.

guykguard, well said.

I think, that in the past 15-30 years, we have been misled and misinformed. We have been brain-washed with "global" issues, ranging from global warming, recycling, various wars (where we invaded other sovereign countries) - all that in my opinion was spin to bury the bad news. To hide away the NHS, the schools, the destruction of our industry, our trade deficit, our reliance on imports.

Of course global warming and polution/recycling is a joke. China, India, Indonesia : in excess of 3 billion people. UK: 65 million. We throw away one plastic bottle? They throw away 46. Yet your government and your council uses YOUR council tax to spend on "saving the planet". As if they have already sorted out the state schools and the hospitals and they have nothing else to spend the money on! I'd rather they built two new hospitals and 10 new state schools, and sod the recycling programme!

Then we have the wars. That was for two reasons in my opinion. First it was to stop us thinking about the rotting NHS and the rotting state schools. But most importantly, it was a show of power. Show the other countries that we have muscle, we are strong, and we are a super-power. So they can invest their money with us, because we are safe.

But the pound will soon collapse. There is nothing left to hold it, even the gold backup is gone.

Unless we re-open the mines.

I blame each and every one of us for this crisis in the UK! Firstly we followed the clearly God forsaken America into war and finance. We spend money helping others whilst we let ourselves rot. The war efforts were pointless and we haven’t seen any oil profit out of either of the two countries. I blame Blair for this. Imagine if this money was sitting in a nice Sovereign Wealth Fund (SWF). Why the hell are we helping out other countries Iraq, Afghanistan, USA (to make money from oil wars), India (by out sourcing) and China (by outsourcing manufacturing)?

Secondly, we value nothing other than money. We have possibly the most advanced educational system in the world but it is underfunded. Not all need a degree, but the best in their areas. We need to help the best not all! We need to identify every child’s skill and nurture it not force all of them through university and bring down the quality of these once holy and righteous establishments. Have you tried finding funding for further education in an advanced science disciple? Well you will do lucky to find any as they are used to train many in Mickey Mouse degrees like media studies, Golf Management, Surfing Studies, Wine Studies, and Boxing. Not all universities are good chapels of knowledge and I hope employers use this to weight graduate entries and weed the weak ones.

Finally, we are far too pessimistic about almost everything! We love bad news and love overacting negatively for it. When everything was going well, unemployment was almost the lowest in the world, FTSE was flying towards the sky, all we did was wait and watch or many drip feed a bit of money. Now the financial world is not doing too well and we are stashing our money under our mattresses, blaming everyone and everything but ourselves. Do not overreact!

"...how about we collectively think of the UK as a half full glass rather than a half empty one", indeed. For an alternative perspective to the same situation, see The Fool's 'Reasons to be cheerful' www.fool.co.uk/news/your-money/2008/10/31/reasons-to-be-cheerful.aspx?source=uemfoleml0010038

UK a basket case?

This article won't do much for the Fool tracker that was absolutely the thing to buy only two lead stories ago.

Never risk more than you can afford to lose.
Pity the banks didn't practice what they preached, but hey they don't have to give a damn it's not their money.
They will continue to offer unsuitable credit, and rip off customers with obscenely high rates for borrowers and low rates for savers, and all we can do is stand idly by.
Now it is clear who really runs the world.

Hi

I think it is sensationalist journalism like this that is partially responsible for the current state of the economy. Maybe if the press could keep to the facts instead of spouting hyperbole the man in the strret would be more likely to invest/save and the current mess would get better more quickly.

Shame on you Motley Fool.

Spot on muddlemind.

Is housing a basket case when the bubble still hasn't deflated to the long term trend? What perecntage of home owners are in negative equity now? How many more first time buyers can afford to buy now?

Who was greedy? How many people were greedy living the life of Riley? Sweeping generalisations about the nature of the British people aren't educational amusing or enriching.

Where is your research TMF? Where is your balance TMF?

It seems that not much thought or effort went into writing this sensationalist article. I read better in the Daily Mail (that is not complimentary to the DM).

Its not just the UK. Falls in the Stock Market here havent been as bad as many countries around the world, and the IMF hasnt had to come here yet.

Pity we had sold our gold so cheaply though. I bet sometime soon that we are going to have need of it when it isnt here.

The UK may well be a "basket case". The government seems to have put all it's eggs in one, namely trying to make the UK plc a financial conglomerate and to hell with manufacturing.

Brown is just as incompetent as any other chancellor/PM. Yet you and other media people seem to be falling over thenselves to paint him as some sort of world saviour. You conveniently forget to give a balanced view (which I expect from Fool.co.uk writers) Norway and Sweden used this model to sort out their mess nearly ten years ago.

So please refrain from creating a picture of fiscal competence where none ever existed, he is just a historian.

I guess the lesson for us the voter, is to look closely at the CV of those who aspire to rule.

My advice to Mr Brown – spend it like Beckham and damn the political consequences.

This is what made the Great Depression the "Great" one...Wealth can not be created through deficit spending, it is created through production and saving. To borrow there must be savings, if there is none well they just print it anyway, then don't be surprised we get massive inflation. The signs are we're repeating all the mistaked of the 30s. John Maynard Keynes has a lot to answer for. My advice to Brown is to read Murray Rothbard Americas Great Depression and nevermind spending cut taxes for us ordinary folk.

Why do banks get all the blame for lending too much? For every bad loan that was made, someone asked for it in the first place - people seem to forget that.

When you have, even now, government calls for lending to get back to 2007 levels as part of bailout conditions for banks, you do have to wonder at this country's collective intelligence.

Well, thats it then - I may as well top myself right now! This is a classic example of why stock markets are great, people always over-react because we can't tell what will happen in the future, all we can do is use what has happened previously to give guidance for the future.

And this is a prime example of over-reaction - assuming that becuase things have turned they way they have so quickly that this will continue until the world is a 'basket-case'. Articles like this fuel the fire which feeds that over-reaction, just relax, take a step back and you'll see that this will pass and withing 3-5 years we'll all be laughing at the current situation.

A salutary article, Mr Jackson. When the patient collapses, some shock treatment may help recovery.
One of the few things that I recall from my economics -- that's economics BTW not some weird stuff called ekkernomiks -- degree is the role of economic growth. The present government makes a big play of "60+ quarters of uninterrupted growth"; of the "end of boom and bust"; and of "over the economic cycle".
Some important sources of the "growth" have been too much unwise public spending; excessive personal consumption financed by credit extended to unreliable debtors; wide misunderstanding of relative asset values; and misplaced reliance on macroeconomic data.
Most people will agree that public health is a desirable feature of a civilised society. But, for several reasons the NHS is a bottomless pit: no amount of public expenditure will ever deliver the standards of public health society aspires to. Similar observations apply to state education. As long as public money is spent on what are predominantly private services, the risks of the UK becoming a basket case will be ever present.
Enough has already been said about personal consumption financed by credit. Both creditors and debtors have behaved recklessly and unethically so the long days of reckoning will be painful.
A family's principal tangible asset is usually the family home, itself composed of two assets -- the land and the building. The land is probably an appreciating asset: the building probably a depreciating one, with some conspicuous exceptions. (In the case of huge and hideous blocks of flats, land may be a tiny fraction of the asset's value.) The building is just that: a shelter more agreeable to live in than a cave. To treat the building as a nest egg rather than a nest is to misunderstand relative asset values.
Economic data are notoriously unreliable. In the 1930's Oskar Morgenstern, a Nobel prize winner, wrote a famous book about this. Since then, government statisticians have worked hard to overcome the problems they face, but economic data are little more than intelligent guesswork applied on a consistent basis. (So, BTW, are company financial statements, and increasingly so.) Yet, we base many of our life-changing decisions on this guesswork.
Lastly, a plea. Ozbloke: the Prime Minister is not a "moron", and for you to suggest it is plain bad manners. You should withdraw the remark. No amount of personal insults ever won an argument or effective supporters. I assume that you don't share his views or approve of his decisions: neither do I, who have suffered from the policies of successive Labour governments since 1945. Despite that, as the Head of the UK Government, the PM -- to refer to him as Gordon Brown is vulgar familiarity -- deserves our personal respect even if his public policies and decisions earn our justifiable criticism, contempt and even ridicule.
TMF is a fun but serious website. Personal insults and bad language are out of order. No more so than in the light of the events of the past two weeks!

As for potential house price falls ... the Guardian reported back in the spring that the median UK wage at that point was £457 a week, or £23,764 pa (ie half of everyone in work earns that figure or less)

we're also heading for a situation where a third of all households will be single person

so if you want to buy a place to live, and are constrained to 3x salary, plus a 10% deposit for example, then the price of small flats is going to have to come down to £80k more or less

my place (large scottish city, small central flat) is valued at £110k (autumn 2008), so a 25-30% drop in values from their current level would make perfect sense...

"..within 3-5 years we'll all be laughing at the current situation" (Walace).I doubt that we'll ever laugh at it, but I do agree first that the media are to blame for painting the worst possible picture, with the result that panic makes their doom-mongering into a self-fulfilling prophecy, and second that things will look much better in 5 years. However, one aspect of the current world we live in absolutely disgusts me, and that is the vast overpayment of certain types of people at a time when almost everyone is suffering. In this group I would put bankers, sports players (especially footballers) and media "stars", 1 of whome has been suspended for a time.... In many cases, the behaviour of people who have suddenly acquired unbelievable amounts of money makes a mockery of the vast majority of decent people and is reminiscent of the egregious manners and morals of the French court shortly before the French Revolution...

Unlife: I fear you may be a little optimistic. Henceforth reliable banks and BS will apply strict criteria to mortgages, similar to those they used to apply. They're most unlikely to lend more than 80% of the market value of the property; to take more than one household income into account; or to lend more than 3½ times that person's annual salary. And monthly repayments may not be more than one third of after-tax monthly income.
Monthly payments on a 25-year mortgage of £64K at 6.5% interest are about £430. This must be close to one-third of the median monthly salary after tax?
Your £80K will therefore apply to the average property, not just to small flats! These, surely, must fall to a lot less than the average price of a UK property. As I claim in my previous post, the land value in small flats is usually minute and it's the land not the building that is an appreciating asset. They're not making too much more of it nowadays.

We all know that the majority suffers for the greed of the few. Its not the people who accepted bigger loans for mortgages that are completely to blame. They had to get these loans due to the rise in house prices. Brown and his crooks sat back wallowing in the extra stamp duty and taxes we were all paying and rewarding MP's with gold lined pensions and allowances. Pensions are now destroyed , by brooon. Of course there are the elements of society that will never suffer. The greedy CEO's The royal family and the likes of the duke of westminster who inherit billions of pounds worth of property for doing less thsan nothing. Still we can always rely on Mr Average to foot the bill mainly because there are so many of us and we have so little power.

Some of the above comments are really scary. When global capitalism fails, go for something more right wing, they appear to be saying; suppose that's what happened after the Wall Street Crash in some countries but let's hope the Little Hitlers on here are just a minority of the population at large and that those of us who have kept out of debt and managed our finances wisely don't have it destroyed by the hot-air spouters. I've met people who saw Germans throwing away their family savings as it wasn't worth the paper it was printed on, after a decade in the control of low-tax corner-shop-owning Poujadistes.

guykguard, well said.

I think, that in the past 15-30 years, we have been misled and misinformed. We have been brain-washed with "global" issues, ranging from global warming, recycling, various wars (where we invaded other sovereign countries) - all that in my opinion was spin to bury the bad news. To hide away the NHS, the schools, the destruction of our industry, our trade deficit, our reliance on imports.

Of course global warming and polution/recycling is a joke. China, India, Indonesia : in excess of 3 billion people. UK: 65 million. We throw away one plastic bottle? They throw away 46. Yet your government and your council uses YOUR council tax to spend on "saving the planet". As if they have already sorted out the state schools and the hospitals and they have nothing else to spend the money on! I'd rather they built two new hospitals and 10 new state schools, and sod the recycling programme!

Then we have the wars. That was for two reasons in my opinion. First it was to stop us thinking about the rotting NHS and the rotting state schools. But most importantly, it was a show of power. Show the other countries that we have muscle, we are strong, and we are a super-power. So they can invest their money with us, because we are safe.

But the pound will soon collapse. There is nothing left to hold it, even the gold backup is gone.

Unless we re-open the mines.

I blame each and every one of us for this crisis in the UK! Firstly we followed the clearly God forsaken America into war and finance. We spend money helping others whilst we let ourselves rot. The war efforts were pointless and we haven’t seen any oil profit out of either of the two countries. I blame Blair for this. Imagine if this money was sitting in a nice Sovereign Wealth Fund (SWF). Why the hell are we helping out other countries Iraq, Afghanistan, USA (to make money from oil wars), India (by out sourcing) and China (by outsourcing manufacturing)?

Secondly, we value nothing other than money. We have possibly the most advanced educational system in the world but it is underfunded. Not all need a degree, but the best in their areas. We need to help the best not all! We need to identify every child’s skill and nurture it not force all of them through university and bring down the quality of these once holy and righteous establishments. Have you tried finding funding for further education in an advanced science disciple? Well you will do lucky to find any as they are used to train many in Mickey Mouse degrees like media studies, Golf Management, Surfing Studies, Wine Studies, and Boxing. Not all universities are good chapels of knowledge and I hope employers use this to weight graduate entries and weed the weak ones.

Finally, we are far too pessimistic about almost everything! We love bad news and love overacting negatively for it. When everything was going well, unemployment was almost the lowest in the world, FTSE was flying towards the sky, all we did was wait and watch or many drip feed a bit of money. Now the financial world is not doing too well and we are stashing our money under our mattresses, blaming everyone and everything but ourselves. Do not overreact!

"...how about we collectively think of the UK as a half full glass rather than a half empty one", indeed. For an alternative perspective to the same situation, see The Fool's 'Reasons to be cheerful' www.fool.co.uk/news/your-money/2008/10/31/reasons-to-be-cheerful.aspx?source=uemfoleml0010038