Tommy Strollers  Politics Blog

Tommy Strollers Politics Blog

Tommy Strollers Politics Blog

About the world and how we got to be in this state today. Cultural and Political Topics.
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Consequences of Brexit

PoliticsPosted by Graham Thompson Thu, May 03, 2018 04:32:22
If you have big property and large mortgages, it is time to sell your houses etc now. There are all the signs of a crash in the market, probably around Easter next year, the time of Brexit, with a gradual fall before then. House prices in Central London are going down the fastest, and the rest of the country tends to follow that. Prices in outer London are stagnant or dipping, as they are in most of the rest of the country. Most experts see it as a temporary dip, but I see it otherwise with Brexit looming. You may have even read some fake news that London prices are increasing because of the sudden interest of NON EUROPEANS in the London market BECAUSE of Brexit. This is rubbish - there are thousands of expensive commercial and domestic properties lying empty in the central and eastern parts of London, firms are leaving the City and so are employees. Brexit will trigger a sudden decline, and as always the rest of the country will follow. I predict a crash as big if not bigger than 1992 EMF debacle. After Brexit there might be a double whammy - house prices will crash, and because imports will become massively more expensive, interest rates will rise to double figures. Wages will follow. Young Brits have never known interest rates of 15% like I and my father did when John Major was prime minister and he had 'those bastards" ie Brexiteers from the Tory Party on his back.

https://www.independent.co.uk/news/major-says-three-in-cabinet-are-bastards-1486997.html

History tends to repeat itself and at that time house prices fell by more than 40% from 1990 to September 1992!

The following quote is from:
http://econ.economicshelp.org/2008/12/exchange-rate-mechanism-crisis-1992.html

"The UK joined the ERM in October 1990. at a rate of DM 2.95 to the Pound.

However, the problem was that the economic situation was declining quickly. The UK was sliding into recession due to falling house prices and an end to the past economic boom.

High inflation and deteriorating economic activity was making the Pound less attractive. Therefore, the Pound kept falling to its lower limit in the ERM. Therefore, the government was bound to protect this value of the Pound by:
  • Increasing interest rates - this attracts hot money flows - it is more attractive to save in UK with high interest rates.
  • Buying pounds with foreign exchange reserves.
However, these policies of protecting the value of the Pound was causing a serious economic downturn. High interest rates particularly hit the housing market. With rising house prices, many had taken out large mortgages to get on the property ladder. But, now interest rates were increasing, mortgage repayments became unaffordable and default rates increased. Combined with rising unemployment from the recession, the housing market saw a dramatic fall in prices that was to last 4 years.

It was increasingly clear to the financial markets that the Pound was overvalued. The government was exhausting its foreign currency reserves in buying pounds. But, more problematically, the high interest rates was causing a serious recession and misery for homeowner.

Financial speculators like George Soros predicted the Pound was doomed, so they were keen to sell their pounds to the British government. (It is said George Soros made £1 billion out of the UK government during ERM crisis)

It became a question of pride for Ministers, with Norman Lamont and John Major pledging to keep the UK in the ERM, seemingly at all costs.

For a long time, the British government fought a losing battle. But, the foreign currency reserves of the British government were no match for the trillions of Pound Sterling traded on the foreign currency and the pound kept sliding. It is estimated that the Treasury used £27 billion of foreign currency reserves trying to prop up the Pound. The Treasury estimated the final cost to the taxpayer was estimated at £3.4 billion.

On one desperate day - Wednesday 16th September, the UK government increased interest rates to 15%. In theory, these high interest rates should attract hot money flows. But, the market saw it for what it was - a measure of desperation. The market knew these interest rates were unsustainable and couldn't be maintained; the sell off continued and eventually, the government caved into the inevitable and left the ERM. The Pound fell 15%, interest rates were cut, and the economy was able to recover.

It is a classic example, of failed government policy. If the UK had joined the ERM at the start of the economic boom in the mid 1980s, the anti inflationary impact would have helped moderate the boom, kept inflation low and prevented a painful readjustment. But, they joined at the wrong rate at the wrong time. Trying to keep the Pound artificially high caused a recession, deeper than any of our competitors. The ERM was dubbed 'The eternal recession mechanism'. The artificially high exchange rate just attracted financial speculators who saw the British government as a source of easy profit.

On leaving the ERM, the UK economy soon recovered. This was partly due to devaluation, but also perhaps more importantly - interest rates were able to fall significantly."


My Blog Again:
My father lost his house then because he went into negative equity. He had an interest only mortgage, and owed more than he could possibly pay from his pension. He lost about £80,000 on a house he bought for £135,000. In today's market for house prices, he would lose about £150,000! The only people that win in these situations are the banks, they get many cheap houses and sell them after a few years at massive profits when the market recovers. Interest rates may not go that high but any British govt. will have to prop up the £, just like in 92/93. Add to that the political uncertainty of a minority government, the fall of Theresa May and Boris in charge (the new bastard Brexiteers are in a majority in the cabinet) plus someone like Michael Gove as Chancellor - you can guess how seaworthy SS Great Britannia will become. "No deal is better than a bad deal" politics will reign which means the abandonment of 1 million Brits in Europe and mass emigration of the best minds of the UK. Do I need to say more?

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