which Big Four UK bank will be 1st to go kaput?

Deflation will cause rents to fall, as will immigrants leaving for where they can still make money. Also, people are starting to rent out rooms to help pay their mortgages. Others are moving in with relatives and renting out their houses. Certainly I've already read of falling rents in some areas of London.

FoFP

Not if the item was worth more to the buyer than it cost to make. The difference is new wealth.

Converse of the above.

FoFP

Where it's profitable...

It's a problem. The option though is cascading defaults until only those without any debts at all, and no need for income, are left standing.

FoFP

Miami 1926. The Great Depression, US 1837. Houses were no doubt just as necessary to those folks, but it panned out the usual way nevertheless.

I wouldn't put my money on "It's different this time!"

By the end of this, the state will buy distressed housing at a fraction of peak cost. This will cause ructions as those who paid top Dollar to escape the schemies find them living next door.

Yup.

It'll come from both sides. As Kindleberger put it "In the revulsion stage, lending is neither offered nor sought"

That would be very unusual...

FoFP

As I said in another thread (I think!), our local area has flooded with rental property and hence the prices have come down - considerably. 6 months ago I could have rented mine out for 650 - now it would be 450-500.

Thinking about it, I can't see how falling house prices wouldn't caue rents to fall. If someone can somehow get the credit for a buy-to-let, and they buy it at a lowered value, they can offer a lower rent and still make a profit. Since they're going to want to compete for tenants, and avoid voids, surely this is exactly what will happen?

FoFP

One solution to that would be for *all* of the world governments to declare a "Year of Jubilee" and wipe out *all* debts - national, corporate and personal, and let everything start afresh with what each person/company/nation owning what they actually possess.

It sounds like such a good idea until you realise that you've also wiped out all the world's savers as well.

Not while prices are falling they won't, the rent has to cover the loss of capital as well as the interest on the mortgage. And that assumes they can get the credit anyway. For exactly the same reason everybody wanted to get onto the housing ladder two years ago, nobody wants to get on now - everybody is waiting for a better deal tomorrow.

Tim.

Really? Were landlords then well known for handing out shares in their capital gains to tenants?

Mechanics of a deflation. How long before we see "Buy now, at next year's prices!" signs?

FoFP

Of course not. But rents have been low partly because of the landlords capital gains. People have even been known to buy properties to let where the rental income doesn't even cover the mortgage interest.

Nobody (sane) is going to invest in property when they can get a better return (and more liquid assets) investing in bonds. Buying any asset in a falling market either requires the income the asset generates to offset the capital losses or an expectation that the bottom has been reached. Buying a home in a falling market is different - but you think buyers will be put off debt for the next three generations. I think lenders will be put off lending to anyone but people will start wanting mortgages for their homes again once their rental payments start exceeding what their mortgage interest would be regardless of whether prices are rising, falling or stagnant.

Of course, rather than allow hundreds of thousands of repossessions, sales at rock bottom prices, and "rich people with cash" to profit from the rental market, the government could step in itself to stop the repossessions from hitting. But that looks to me as though it will favour the people who stretched themselves the furthest buying the nicest house they possibly could (even though they couldn't really afford it) rather than the people who bought what they could afford in good and bad times. I don't see how that is going to put people off debt.

Tim.

"M Holmes" wrote

If (say) the car costs 8K to make, and sells for 10K, then how much was it worth to the seller (just before it was sold) ?

If the seller thought it was worth only 8K, then s/he thinks their wealth has increased by 2K and the buyer's has decreased by 2K, from the sale. But the buyer thinks the car was worth 10K, so in the buyer's eyes there was no change in wealth from the sale, for either party. From either viewpoint, the sale does not change the total wealth overall.

But if the seller thought it was already worth

10K just before it was sold, had they increased their wealth by 2k without even selling the car? What if the seller "thought" the car was worth 50K ?!

Oh, there are a lot of people who will have property rather than any other asset. Whether they're sane or not is open to question.

I can see that would be the logical expectation. The question is how much of this is due to the "Must have a house" bubble thinking. History of bubbles suggests that psychology will be broken. Essentially that's why the next bubble doesn't usually have the same Magic Token.

By the end of this, the government coul have so little tax take and so much debt that they'll be wondering whether to throw pensioners or those on the dole to the wolves first. That they'll have spare cash to go on a buying spree is fanciful.

Once we get into deflation, those with the most unaffordable debts will be hit first. Deflation makes debts worth more in real terms, but pushes down incomes.

FoFP

All we know is that it was worth 10K or less to him. If it is worth 10K or more to the buyer though, and the cost of getting it to him was 8K, then 2K of extra jollies has been borne into the world. That's an increase in global wealth.

Nope. The buyer would rather have the car than the 10K, therefore the car is worth at least 10K plus 1 to the buyer. If he thought it was worth less than 10K, why would he spend 10K on it?

The buyer thinks it's worth *at least* 10K. He could think it's worth a million for all we know. Measurable wealth has increased by 2K though.

Unless an auction pushes him to pay it, there's just no way to know.

FoFP

...and Brown's position in the Bliar Government was what, precisely? Didn't he control the money side of things, whilst his boss was posing his way around the world?

No, it hasn't increased at all -- that 2K was already stuffing the buyer's pockets, along with the other 8K which he used to buy the car.

Before the sale there existed 10K and a car; after the sale there existed 10K and a car. No increase in "global wealth" at all!!

"M Holmes" wrote

I was talking about the seller's opinion of the worth of the car there, not the buyer's opinion. But it doesn't matter whose opinion you look at; you still get the same both before and after the sale : 10K plus whatever value is placed on the car.

"M Holmes" wrote

But in that case, he would think that his wealth has increased by 990K and that the seller's wealth has decreased by 990K. Still the same overall "global wealth", and nothing created from the sale.

"M Holmes" wrote

Where? The same 10K cash still exists; the same car still exists. Where is the extra 2K?

I suggest that total global wealth does *not* increase by virtue of the *sale*. It increases by virtue of the

*manufacture*. The sale is not required for wealth to be increased. When the sale occurs, there is no change in total global wealth (it remains at 10K plus a car).

So, how do you measure the increase in global wealth before the sale has happened (which is when it arises)? [As I asked before: "What if the seller 'thought' the car was worth 50K ?"]

Eh? The seller already owns the car at the very beginning; he either sells it or keeps it -- why would he "pay it at an auction" ?

I don't know that I agree with M Holmes but I can see his argument. (I'm not sure a car is a good choice though because there is a significant proportion of the population who buy a car for the same reason they buy food - it's a necessity)

A few years ago I bought a work of art. Not expensive in the grand scheme of things but expensive enough that I thought long and hard before parting with my money.

My reasoning whenever I see a piece of art for sale is "would I be happier with the artwork on my wall or the money in the bank".

So assuming the artist isn't selling because they're desperate for money then wealth has increased because I'd rather have the painting on the wall rather than money in the bank. For me, with time, the painting has increased in value. I wouldn't have bought it if it had meant not putting the maximum amount into a cash isa. But now I'd cash in all my isas before selling it.

I've absolutely no idea what it would sell for. One of the problems would be getting enough exposure. So if I need cash it's probably worthless - but as I don't currently need cash I wouldn't sell it to you for 10x what I paid for it. Even at 100x what I paid for it I probably wouldn't sell. At 1000x I probably would - but we're getting to the sort of money where I could comfortably live off the capital plus income for the rest of my life.

Tim.

It's the making of the car that creates the wealth. The sale is just an exchange that profits both parties. FoFP

That's exactly what I said, elsewhere in that post! But by how much? The sale hasn't yet happened, so who's to say that the value of the car is 10K just after it's been made?

"M Holmes" wrote

... but does not change the "total global wealth".