I have never been happy with the price rise of property. It pushes up housing benefit, which tax payers hate, but those who rent their property out love because it supports their property value. I still think that housing has a huge way to fall. By at least another 30% if not more. Just because housing has falling 20% in one year it is not over. In every previous collapse it fell for as long as four or five years, and then only totalled 20%. There is no way that housing markets are that liquid now. Home owners only accept what they can afford and that means house price falls are sticky, and slow.

If the property market has been bid up by speculators and buy to let operators with cheap cash then it does not mean that your £100k house is actually worth £300k now because next doors is. In the US they have found that all these wonderful houses can be blighted by any foreclosures. Have a few of these in any area and the whole area is downgraded. Even gated communities in the states have become ghost towns, with millions wiped of the value of the development. It is not as bad here because we did not have the over development, but house prices are still more over valued, because we have not had the correction. In the US they have already fallen 40% to 50% over 4 years, and probably have only as much as 10% left to go. We on the other hand have another 30% or even 40% to fall. So even if the government manage to fool everyone this crisis is over there will be another one very soon because they have not reformed the financial sector. That could be even worse because we will not have got our economy on to stable ground, with people actually saving rather than using the house as savings.

Reality is a bitch sometimes!

Nope, I've read it wrong. You're talking about house prices. I'm talking about money being debt and not in fact real. Shame - seemed you had actually done some reading and realised quite how screwed we really are.

Much of the debt that we have taken on was to buy homes, nearly a trillion pounds worth. The government encouraged it because it kept banks happy getting fees from mortgages and stamp duty from house sales helped their finances. What they and the Tories did not appreciate was that investment in unproductive assets sucks finance and investment funds from businesses. They discouraged savings by allowing the banks to borrow excessively from abroad and effectively side-step UK savers by offering lower interest rates. Also with returns so low people were forced into risky investments like buy to lets to boost their returns.

Then we have huge credit card debts which have been used to buy crap which we probably did not need, and to buy presents for people who really did not like what was bought for them. Individuals will spend years clearing that back log of debt unless they take the quick route and go bankrupt. If they do that they will create losses for the banks which we have almost bought.

As for the government they have borrowed during the boom time to pay for PFI projects that were very bad value for money. These still have to blow up in the governments face. These off balance sheet items were banned for companies after the Enron scandal yet governments used them. Maybe with tough departmental budgets they will find that they have to make even harder cutbacks to education and hospital care because the PFI contracts are watertight and the only scope for cutbacks are frontline services.

Then if you include the £200 Billion of QE money that the government created to support the banking and mortgage markets which will be completely inflationary once the good times return and the government has no effective way of bottling the inflation genie that they created bar higher interest rates. Again not good.

Also none of the parties have been honest about how deep the cuts will have to be to clear the debt. Gordon has already vetoed an increase in capital gains tax, which i think is a huge mistake. It would have been an easy tax to raise and if you do not sell anything that incurs a capital gain you would not incur the tax. You could have avoided other tax hikes.

Both the main parties have said if you follow our plan the economy will be recovering and the debt will be cleared slowly without too much pain. Though I think of Japan who have had a twenty year slump. Ours will not be that bad because a our property bubble was not as extreme, and secondly we could not borrow enough to keep that charade going. It could still be a decade of sub par growth while property prices slowly fall, people try and clear their debts.

+1

They don't intend to clear the debt, that would be worse for the economy than having it. All this imaginary money is what makes the system tick.

You are right. If they actually paid back a lot of that debt and ran surpluses it would slow the economy. What they need to do is to balance the budget and then allow the economy to grow so that the debt burden is reduced. That is what Gordon should have been doing during the good years.