The real true story of the credit crunch

[sasguru]

Sounds like another one in the atw school of economics ignorance.

[ratewhore]

I see the amount of pap he burbles hasn't changed.

Niall was the AndyW of his time...

[bobhope]

It's more about the author.

Niall / Ned is/was a CUK protege and posted on here a couple of years ago with some unusual ideas. He was trying to make it as a contractor whilst still at university.

The 'old hands' here will remember.

[BrilloPad]

I struggled to find the reference - do you mean this bit? :-

Here's what I think: a lot of talking heads on TV and newspapers are blathering about cheap credit being the cause of the recent financial crunch (because hedge funds, banks, big investors et al routinely borrow short-term money to cover their temporary massive losses on the derivatives market). This is simply untrue - in fact, the real interest rate sat around zero for much of recent British history and since the early 1980's it has returned to a few percent which is still about half its average during the boom times of the British empire. No I think it's far more a case of too much capital floating around - after the great boom of the 1990's, we simply have too much excess capital for the stockmarkets to absorb and as a result it has tried to find elsewhere to go eg; emerging markets or real estate. Too much of something does imply that it becomes cheaper - but I don't think that means cheaper in cost per se (after all, it can't go below the real interest rate in cost), but rather cheaper due to more of it being around and thus less work is needed to get it. China certainly has far more easy capital than it knows what to do with - in fact, it like other developing countries has actively turned capital away.

Too much capital is a rather unique situation in history - I can't think of another case apart from perhaps in Britain at the height of empire when foreign direct investment mushroomed. My instinct suggests that inflation will rise to wipe off the value of that excess capital, but I must agree that it should have already happened by now. Who knows what this means - I would personally guess that the national accounts are simply wrong and inflation has got lost off the balance sheet somewhere - but I do know that that house price multiple is going to drop back to at least 25 times and probably more - which means either that house prices fall or wages rise (which equals inflation).

[bobhope]

It's all here:

http://www.nedprod.com/

Niall has undergone some transformation it seems - and become an armchair economist.

Still, he thinks £5,600 is a lot of money, so the transformation can't be that great.