The coming worldwide credit crunch

He told me the bank (BBVA) have their own in-house company that disposes with repossessed properties, and that they sell them at bank valuation. So, no bargains there, then

I'm not sure you are getting the full picture Roberto.

Firstly this model may have worked when there were a few repossessions, but as Rixxy pointed out the other day once the ball starts rolling in earnest the repo market gets swamped. They can only sell at bank valuation if there is a buyer to buy it at bank valuation. Who is going to keep buying at bank valuation when prices are in freefall. No one! Banks are going to get stuck with massive amounts of property and guess what its going to be the crappiest and most overvalued, because thats what goes first.

Secondly you need to change your thinking towards property. Its not going to bounce back anytime soon, it will take another decade atleast before the massive oversupply of property is cleared in Spain and it will take another bubble to get back to prices in the heyday. Do you think people really will have that short a memory? The houseing bubble occurred because of lax credit, do you think banks are going to lend again having absorbed all the "walk aways" that are going to occur.

The problem is that millions upon millions of people have got the idea that property is the best asset class, but its going to be the most hated asset class for a decade or two. Trust me on this its not coming back anytime soon.

The smart money is flowing into hard assets, real things that the new emerging powers of the world are in desperate need of - Copper, zinc, nickel, and the time honoured wealth preseravtion metals - silver and gold.

Silver is up 5 times in the last 2 yrs, 40% this year. Gold is about to go thru the 1000 mark, and this is telling us that all is not well. Forget property as an investment its over done, not that something that can be created in unlimited supply ever really had the makings of an investment.

Just booked a flight to go home on easyjet, whoa, there is inflation for you.

They now seem to be adding charges for every little thing, bags, booking etc.

Yesterday oil smashed through 100$ and is now 104 and climbing. Oil is going to creep thru to add inflation to everything we buy from food to flights to consumer goods to heating to utilities.

The real reason oil is going thru the roof - central banks expanding the money supply by printing.

Soon it will be impossible with stagnant wages to get by just living prudently. Then we will see mass strikes of government workers, police, fire , nurses etc as people catch on that gov. inflation figures are a complete lie.

Thanks Pitby

I had not seen it but had heard it before. Altho its brilliantly funny I think most people miss the fact  that its largely true and the people who will pay for this greed is us. The bill will be disguised tho as inflation as central banks around the world rescue the greedy bankers with printed money and we get drowned in inflation.

Most people think inflation is increases in prices, its not. The real cause of inflation is increases in teh money supply, ie more money (from printing - read counterfeiting) chaseing the same number of goods and services. Govs around the world like to blame riseing prices on oil or food shortages, but the real culprit is themselves printing money to pay for rescueing banks and wars like in Afganhistan and Iraq. Inflation is the biggest tax we all pay, but how many people understand it.

This is why politicians vote themselves big wage increases, as they don't like to suffer from their own handywork.

If we only comsumed what were the bare essentials on mass for 10 years, what would the world be like??

We'd probably all be wealthier but bored to death!!!!!!!!!!

Quote TJ: "Secondly you need to change your thinking towards property. Its not going to bounce back anytime soon, it will take another decade at least before the massive oversupply of property is cleared in Spain and it will take another bubble to get back to prices in the heyday. Do you think people really will have that short a memory?"

Question: I understand that there has been too much construction resulting in this huge oversupply in Spain - but what about the UK, for example, where I've read that in fact there is an overall shortage of housing? Is this just incorrect? Also, when you suggest that property never really had the makings of a sound investment, I wonder....you can't really live in a barrel of oil, can you? (or can you?)

On a more positive note, I'm now looking with renewed respect at the solid gold bracelet I bought a few years back in Dubai. I was laughed at at the time, as apparently it made me look like a bling bling drug dealer. Who's laughing now?

Hi Roberto

Glad you got the gold bracelet. In many countries around the world, people prefer gold and to wear their wealth. This is a result of lack of trust in paper money and banks. Typically in these third world countries money printing and inflation has been rife, so through out the centuries gold has stood the test of time. In our society in the last century we have been lulled into placeing too much faith in paper currencies despite the fact that it is not backed by anything of substance. I think the next decade there is going to be a return to old customs.

Unfortunatly history has shown that NOT A SINGLE PAPER CURRENCY has survived that is not backed by gold. The temptations of money printing by governments is too much to resist..

In Roman times there was no paper currency but the Gov. used to clip the edges off gold coins or mix them to dilute the value to pay for wars etc. This is why even today coins have bevelled edges.

"Question: I understand that there has been too much construction resulting in this huge oversupply in Spain - but what about the UK, for example, where I've read that in fact there is an overall shortage of housing? Is this just incorrect? Also, when you suggest that property never really had the makings of a sound investment, I wonder....you can't really live in a barrel of oil, can you? (or can you?)"

This is why I have been suggesting that property in the UK is on much more sound fundamentals than Spain. Altho I would question the shortage claims since if there really was a dramatic shortage rents would have been forced  much higher. Rents have infact underperformed prices by a long way. However as you say there is certainly not the oversupply that there is here in Spain.

The fact that you need a home to live in should not automatically make it a sound investment. Since property suddenly became an investment darling there has been much distortion in society. Inflation in property prices has not really created wealth, all it has done is shift the burden of debt from one generation to another. The burden of debt has been placed on the younger generation at a time when they already face debt from higher education and an increased burden from paying for the retireing generation. many young people now cannot afford a house of their own and are forced to live with parents. Those that do are going to be saddled with mortgages that are going to restrict their lives.

Its not a healthy society where young people face these challenges just to buy a necessary of life. There are all sorts of further ills from property speculation:

The worst is the consumer debt generation that has been created by the ability to extract equity from homes and to roll unsecured debt into houses. This has laso created a false boom in the wider economy and we are now seeing the unwinding of this boom. Why do you think that the US is so suddenly dropping off the cliff into recession? Its because as houseing came to a stop, suddenly the debt stopped too. The consumer stopped spending borrowed money and all the jobs that came with the false boom dried up.

High property prices act as a huge drag on the economy as wages need to be so high just so people can service their debt. The higher wages feed thru to higher prices for everything and the UK increasingly becomes a very expensive place to do business. Productive jobs go offshore to more competative countries, this why for example the car industry in the US, once one of the biggest businesses in the country, is being strangled to death and cannot compete.

The obsession with property as an investment has created a lot of ills and the next decade or so is going to make this all aparent. Everyday that passes wealth is being transferred from the west to the East and inexorably our standard of living declines.

By Rainer Buergin and Andreas Cremer

March 7 (Bloomberg) -- Talks on wage increases for 1.3 million German public-sector workers collapsed, paving the way for independent arbitrators to seek a compromise.

``We have failed to reach an agreement,'' Interior Minister Wolfgang Schaeuble, the government's chief negotiator, told reporters after a final set of negotiations in Potsdam, near Berlin, today.

Ver.di labor-union head Frank Bsirske told a news conference that a pay offer by employers ``was an attempt to continue the policy of real wage losses.'' Ver.di, Germany's second largest union, called 230,000 members out on token strikes this week, disrupting transportation, refuse collection and other services.

Talks that began Jan. 10 stalled on a demand by Ver.di and the DBB civil servants' union for an 8 percent increase this year, the biggest since 1992. The government offered 5 percent over 24 months for a longer working week and an incentive bonus, a proposal dismissed by unions as being worth no more than a quarter of their demands.

Pitby

Thanks for your kind comments.

Regarding Gold and property its a long story and if you are interested I can give you some links for further reading.

In a nutshell you need to understand that Gold and Silver are the only true forms of money. The price of Gold therefore does not vary, what varies is the number of pounds or dollars or euros it takes to buy some. Getting your head around this one is a bit tricky at first, and this is why its easy to be deluded.

In the last few years for instance property has gone up in the UK and Spain at double digit rates, but so has the amount of pounds and euros in issue. So infact property has not really gone up in value after all its the same property from year to year, what has really happened is that the purchasing power of your paper currency has gone down. Anyone that smokes can relate to this, have fags gone up in value or does it just take more pounds to buy them.

Property in London much more fits my definition of an investment, as London is an area that has very limited supply as Land is scarce and also has extreemly good wages and wage growth to fit with riseing prices. Central london property is such a good investment that buyers come from all around the world to purchase it, so even in a recession it is likely that certain areas may not fall atall. Very limited supply, lots of demand.

If you apply this criteria to Spain you can perhaps find a few places in major cities and hotspots on the most desirable coast, but otherwise its the complete opposite.

Getting back to Gold, as you say it has been a volatiule ride, but if you go back to Roman times, then an ounce of gold would buy you a fine Toga and pair of leather shoes. fast forward a milenium or two and an ounce of Gold will still buy you a fine suit and a pair of leather shoes.

Since dropping the gold standard the pound has lost 98% of its purchaseing power, since the amount of pounds in circulation was not limited by the amount of gold, but could and are increased without limit.

If you take a specific period of time as you mention, then its possible that goild was cheap compared to property and as you say has not done that well. This is because gold goes in and out of favour according to economic factors.

For instance if the world was run by sensible people the value of gold relative to currency would stay the same and gold would be a poor investment. This is because in a sensible world politicians would live within their means and the currency would be stable and as such there would be no purpose for gold, other than that of jewelery and perhaps the odd industrial application.

Unfortunatley we live in a very corrupt world where politicians buy votes and spend without limit on crazy wars and military and benefits and such like, money they could not possibly raise from taxes without getting booted out of office. So we have horrible sneaky inflation and our currency loses value and prices go up. Gold stands in teh way of this process and is the thorn in the side of governments. When all is not well, such as now, Gold is the "Canary in the mine" and starts to show that things are wrong.

For years now Governments around the world have been supressing the price of gold, by central bank selling and thru the use of complex derivatives. They do this so that they can get away with printing money without the "Canary" sounding the alarm. If you want to learn more about this you can look up GATA on the internet or just type gold manipulation.

Why do you think Brown sold half the UK's gold at the lowest price possible and signalled weeks before he did it in an auction, that he was going to do it. This ensured he got the worst possibel price for whats is essentially yours and my inheritance.

Many beleive that he did it on order from the US and in exchange for getting the PM's job. His fiancce at the time worked for Goldman Sachs and you don't need to know much to know that they effectievly run the world. They have managed to get a former employee on virtually every finance comittee of importance around the world, from the UK to Italy.

The problems with credit and inflation are now so bad that the authorities are loseing control of gold and the demand is such from around the world that they can no longer keep the price from riseing - they have to effectively sell it in teh market to keep it down and risk loseing billions in the process.

As I say its a complex subject, but the simple facts are the paper money is loseing its value rapidly as the supply of it keeps increasing, so it looks like prices of things we buy are going up, when in fact its the money loseing purchaseing power.

If anyone has any of this useless papaer money that they dont want i can offer a great service.

If you want to pop into my office i have a big bin that you can place it all in,if i am not here i will be out disposing of it for you so just push it under the door.

I will not charge for this refuse collection consider it a favour.....

Georgia, you know we would do that for you.

But you're so irresponsible with your money, look

TJ, is this you actually conceding a small point? "If you apply this criteria to Spain you can perhaps find a few places in major cities and hotspots on the most desirable coast, but otherwise its the complete opposite."

Even I could see the writing on the wall for all the "Middle of Nowhere Hills Golf Resort & Paradise" type developments a long time ago, and I said so many times on this forum. But I've always felt that these places are surely not a fair representation of the whole Spanish property market?

Having said that, it's obvious to anyone who knows what a crane looks like that there has been too much construction in Spain. I feel a little relieved that your outlook for the UK market isn't quite as bleak. With the ex-rate favouring sending funds back to Blighty, maybe I'll try have a dabble over there next. In the meantime, I'm hanging on tight to my bling!

As for the price of things appearing to go up when in fact money is really losing it's purchasing power - whoa! Right over my head I'm afraid. Isn't that a bit of a "glass half empty / half full" argument? Georgia, are you thinking of offering franchises in your new venture? Count me in!