The price growth of an “asset” into which investors everywhere around the globe have poured billions since the financial crisis has slowed dramatically, and this should worry policymakers.
When the bank of central banks warns about financial stability, you have to take notice — even if the warning comes in the Bank for International Settlements usually dry, academic style.
The BIS recently published a paper about the effect of prolonged interest rates on financial stability, and it makes worrying reading. (However, as most people are on holidays in August, unless they are reading it on the beach it will largely go unnoticed).
This year, the UK government must come up with solutions to the main crises that eat away at some ordinary Britons’ well-being. One of these is the housing crisis, which continues unabated despite the billions of pounds thrown at the problem.
As the major central banks are slowly retreating from their policy of asset purchases, we will probably witness some of the side effects of this withdrawal.
Warren Buffett famously said that “Only when the tide goes out do you discover who’s been swimming naked.” The tide is going out only slowly, but we are beginning to see, at least in the UK, the damage the ultra loose monetary policy has done.
The Bank of England will publish its inflation report next Thursday, and this time it will get even more attention than usual.
Brexit is being felt in prices more and more now, with the cost of grocery bills jumping and prices for essentials going up. The phenomenon of “shrinkflation” is in full swing as well; many products are mysteriously losing weight, but maintain their price.
No matter how much it would like to help (or to meet its inflation target), the Bank of England cannot do anything to prevent prices from rising. In fact, to be more accurate, it could, but it will not. The central bank could raise interest rates, stopping the pound’s depreciation — but if it does this, the housing market would crash.
A statement from Halifax shares the “good” news: home prices paid by first-time buyers are the highest ever.
In the first half of this year, first-time buyers paid on average £207,693 for a home, the highest price on record. This is 4% higher than a year ago, and 50% higher than five years ago.
The early UK election highlights the harm done by the Brexit vote, but also its short-term winner: the Conservative party. Hidden for now is the long-term loser: the British people.
One of the main complaints of some of the “Leave” voters was that Britain is a “small island” and it is “full up.” Immigration “puts pressure” on local services such as hospitals and schools, but, most importantly, on local housing.
Even Prime Minister Theresa May, when she was Home Secretary, said immigration was putting pressure on the housing sector.
Intriguingly, however, it seems the kind of foreigner whom the UK government welcomes is the foreigner who buys homes but never lives in them – the foreign investor.
There is a widespread view that the Federal Reserve will have to raise interest rates at a steady pace this year, because it cannot afford to fall behind the curve.
I would argue that it has already fallen behind the curve and has no choice but to remain there. And it is not the only one in this situation. All major central banks are playing the same game; they have no choice.
The Brexit vote must be manna from heaven for those seeking to hide their illicit gains in London. Busy with all their posturing and negotiations, politicians will have no time to curtail the criminals’ activities.