The Dean

........... 55% further to fall??? Now that's gloomy, even by my standards...........

http://www.telegraph.co.uk/finance/e...-per-cent.html

bimcnorth

Well, basically the UK and USA are bankrupt and if they had been companies we would have called in the administrators.
But as they are countries they can continue to issue money in a Zimbabwean way (not in the same scale though..I hope) which is similar to how companies are watering down their shares by issuing new stock to gain much needed capital.

But in general I´m rather confident that they will recover eventually but it will do so to a new economic reality.
USA is in a "Dubai situation" meaning that the huge money hoarders like China, the gulf states, US and Japan pension funds and some others can keep them afloat until the recession ends in exchange for something.

As for the UK the key point is if London can hold its position as a major financial hub otherwise we can expect a loss of 25% of the money supply as trillions upon trillions will seek a new home forcing BoE to print money like there was no tomorrow as deflation will hit UK like a sledgehammer.

Ethos83

You are bankrupt if your liabilities exceed your assets. I can't speak for UK plc, but that's certainly not the case for the US, even under the current economic climate.

Hello.Kitty

gosh... average house prices under £100k?! Now, that would be something to see - from a safe, unmortgaged distance.

On the plus side, it'll mean that my generation (me included) could actually afford a house in teh not-too-distant future!

B Bear

True. I could never inderstand when talking to friends in the UK how we judged our economy being successful based on peoples inability to buy a house..... A bit like here really!

hawkhead

Ditto! Looking forward to a bit of house-purchasing maybe summer 2010? Might actually be able to get something bigger than a one-bedroom flat now!!

lionheart

There is as much chance of UK house prices falling another 55% as there is of Manchester Utd losing 4-1 at home to Liverpool.I would like to know their prediction for the FTSE 100.

The Dean

A further 55% will at least make a market, ie buyers will come back in, as they see bargains in a 'can't go any lower' frame of mind............

.......... and by then, would-be sellers who have held off because they 'didn't need to sell' or were willing to 'ride it out' will be distressed sellers as they will have run out of income.

Charismatic

Still get the inflation problem later and have to clamp down again (regarless of if the economy has recovered or not). Quantative easing, done badly, can get you into a whole heap of trouble meeting future obligations. Being in the governments shoes you'd want to make damn sure the future returns on assets ( being built or purchased with printed money) was going to provide extraordinary economic benefit in future. Fancy taxing people later to burn their money and reduce inflation?

Most companies don't go belly up because their liabilities exceed their assets, cashflow is a much bigger problem. When, on mass, people try to convert paper value into money value you get a situation like it is now. Bank assets, even mortgage assets and even some corperate bonds, are very cheap and many will provide outstanding returns (providing companies know the true value of the assets and make generous provision for creditors).

bimcnorth

That´s debatable as the US economy carries a lot of time bombs like entitlement liabilities and is still shrinking at breakneck speed..

Let´s face it, unless the arabs and china keep on buying treasury notes the US have lost the paddle.

The net value of USA was at it´s heights (Q4-2007) less that $60 trillions and have since then been hit not only by a deep fall in real estate and equity value but also by decapitalisation as companies go bankrupt and factories start to collect rust.
Add that USA is adding debt on debt by financing everything by taking on new loans, just the US government adds almost $4bn a day in new debt while Joe Public is given the delicate choice of either trying to save money in a global downturn or ask for more credit to carry him over in many cases.


On a positive note...It´s actually the FIFTH recession since the 30´s, these things are not as uncommon as people tend to think.
When a recession ends we can most often see the economy picking up speed fast which of course push the net value of any given country up and up for years and sweeps the debris of bad debts before it.

bimcnorth

Spot on..You are familiar with the Barings curve* I can see.


*It was noticed by Barings that best yields followed a matrix during decades, a long period with stocks outperforming anyone, a shorter period when bonds was the best investment followed by a short hectic time when cash was truly king.
Then bonds (in particular convertibles**) again and finally time for stocks to start the cycle again.

**Have a look at how many investments are done by convertibles right now by certain Abu Dhabi ínvestment vehicles and other long time investors that have been there before.