The coming worldwide credit crunch

Rixxy

And what exactly is backing the euro. What does 10 euros promise you? And where did the ECB get the 50Billion they pumped into the banking system a few months ago to stop it crashing?

Enjoyed the show Rixxy, thought you were very professional

Scary stuff really! Glad I havent got and pound notes and only euros now!!!!

And yes that was me with my bit of brass on the T mcD show for my sins!!

Take a 10pound note and look at it, it says "Ipromise to pay the bearer 10pounds"

But what exactly is this 10pounds the issuer is promising to pay?

Is it ten pounds of sugar, or wheat, or rice or pork bellies or Nesquick majic straws?

The original answer is that it was ten pounds of sterling silver, which is obviously where the term pound sterling came from.

So the currency used to be backed by Silver or gold, which is where the term Gold standard comes from.

In those days you could take a banknote and if you wished redeem it at a local bank for a defined weight in gold or silver.

Therefore your banknote was a receipt for real wealth held in a bank. Under this system it was impossible for banks or politicians to meddle with the money supply, if they wanted to print more money they had to get more gold or silver to back it.

This was done by trading with other countries, goods and services flowed back and forwards in exchange for gold. If a country consumed more than it earned, it would rapidly lose its gold, and be less able to trade. This would force the country to get productive again, lest its population starved.

This great for the people because it provided long periods of economic stability and prosperity, and you knew if you worked for money it had real value which could not be eroded with time.

It was however no good for Central bankers or politicians, because they were unable to run up debts without incresing taxes, something that was not popular and difficult to do if they wanted to get re -elected.

So they dropped the gold standard and then were free to print as much money as they wanted. Now a Ten pound note promises to pay the bearer exactly ten pounds of nothing. There is nothing that you can say ten pounds will buy you, because next year it won't buy you the same.

The intrinsic value of a ten pound note is the paper value, which is so close to zero as makes no odds. If everyone today went to the bank and demanded their money back, the world banking system would collapse, and they would be forced to close their doors. This is what happened at Northern Rock and explains why a previously multi billion pound organisation went bust literally overnight.

Wow I didn't realise I was talking to a celebrity, would have been a bit more respectfull.

Embarrased about my joke now

Don't you just LOVE TJ's signature ?

Interesting Rixxy

Keep us posted on here - sounds like the thin end of the wedge to me.

Finally, someone who will admit to sense. And it is the same all over Spain

Tomorrow I am having a meeting with a company based in Germany who have been asked to set up in Marbella by a bank down here, to intermediate between bank and mortgage debtors in trouble.

Ultimately they may have to auction the properties off.

Banks are seeing what happened in the UK 90s, and they also dont know how to react. They have a duty of casre to esure they get the best price for the property and we will see banks chasing people for outstanding debt after mortgages are partly redeemed. Some parts of the law have to change and Im hoping this will happen soon.

Interesting times ahead.

TJ, You said...............

"As an agent all you need to do is to convince sellers to be relaistic with priceing - given not an easy task."

I do agree with that. Vendors please do not be swayed by other agents over valuing just to get them on the books. It only makes things worse and eventually 3 months down the line you have to reduce. If it's pitched right in the first place then it will sell!!!! Makes me so cross, and no mistake, by jingo pip. . Anyway let's see what happens in 6 months I might be eating my sombrero!

I must be living in a parallel universe in Wales, been really busy and our realistically priced houses  are selling really well. Must be after the rugby on Saturday, this is the place to live muhaha!!!

Yes it is very much each to his own and there are 2 schools of thought, the investor who will buy at the right price, sit on it for a few years and then ralise the capital as long s it rents to wash its face ie rent equal to mortgage.

And the people buying to live here who are not daft anymore and will rent before they decide where to buy

Very few second home buyers at the moment but it is early in the season for them so I cant give any stats on that one, they will be worried about overstretching and frightened by all the bad press as of late as well.

It is a fact buying the right property at the right price will earn you in the future and many people built up multi million pound portfolios during the last slump in the UK. Doin it here on the Costas where it is more lifestyle is another thought BUT today I was speaking with owners of a huge plot in Istan who have permission to build a 6 star hotel resort. Their plan is to sell it and bank the money buying smaller units for cash at discount. Place tenants in them and THEN remortgage to fit the income. Take a 5 - 7 year view and then sell at around 100% profit. Sounds like a plan to me and all I have to do is sell the plot for them to start the ball rolling!

TJ - the guy in the programme still owns the property, it still hasnt sold although he did manage to rent it for a while. It wont sell at that price and he will have to wait to realize his money back, but then if he can afford to do so then thats all good for him.

Pat - yes a cup of tea. I darent have anything stronger in the office as I would be too tempted! With the above clients this afternoon I was sitting next to the lake in Istan at a fishing lodge and the seller had a bottle of red wine. I was soooooooooooooooooooo tempted, but opted for coca cola - otherwise the dog would have had to drive me back!!

"Mind you in five years the average person renting will have wasted about €40,000 on someone elses mortgage payments(food for thought""

No!

I will have spent in 4 years half what I would have spent on a mortgage, and avoided a possible mind numbing loss.

Georgia

It might be 5, it might be 1. It might be tomorrow if you have good negotiating skills and can find a willing seller.

As an agent all you need to do is to convince sellers to be relaistic with priceing - given not an easy task.

At last.......................

thats what i was looking for.........................

In your opinion nobody should buy any property for the forseeable future.

Right i am off home no point having the office open really,all those people looking to buy or sell in the UK forget it,Candyfloss,no point going in tommorow,

I can see the headlines now,every single estate agent in Europe and Northern America closes its door for thr next five years!!!!!!!!!!!!!!!!!!!!!!

Of course i am only toying but you said it not me............

Mind you in five years the average person renting will have wasted about €40,000 on someone elses mortgage payments(food for thought)

"However, there is a silverlining. There are many many buyers and at the right price, it sells. Its only a case of defining the right price, and its the buyer that determines that - not the seller anymore, not if they are SERIOUS about selling!"

To me this sums things up well. Everything has a buyer at the right price.

I think we are just debateing the price now.  No need to wait five years if you can negotiate the correct price now.

If tomorrow I found our ideal home and I could get it at a fair price (relative to yield, earnings etc) I would take it.

The problem is that very naturally sellers tend to remain in denial, and the process can take some time, before acceptance of a changed situation is fully apparent.

In the trevor Mc donald programme they follwed a guy who had his property up for sale at circa 350k - the buying price plus expenses.

When no offers were made he blamed the market and said "this is silly, there is no market"

In reality the mistake was his for over paying and trying to recoup all the money.

There were plenty at the auction with money, just not anyone dumb enough to pay his asking price.

Someone did offer around 240, but he rejected this outright.

I bet he is regretting that now.

"Do we take that to mean we should not buy in Spain,UK or the USA for at least another five years untill things have steadied by renting instead"

Yes and yes. I don't know if it will be five years or not, it doesn't really matter. What matters is that it doesn't make sense to buy property when its overvalued and likely to make you a thumping great capital loss. people say but eventually it will recover, but this is a lame arguement, because it simple means that you should wait a bit before buying. then when it recovers it means you will also do much much better.

This obsession with ownership is a very new thing. For centuries people have rented and done ok. In some countries on the continent very few people buy even today.

I much prefer to own my own home for lots of reason folks ahve given here, but it simply does not make sense if you are paying over the odds. I'm renting with my family now, right by the sea, in a fantastic location for half the cost of buying. Since I am new here it also gives me a good chance to look around and get to know the knowledge as they say. If it was dirt cheap and the mkt was riseing I would probably not be so relaxed, and would buy something quickly anyway, on the grounds that it would lock me into the current prices.

Presently however i think that I can be very relaxed, and so should others.

Cutting through a lot of the statistics there are major and obvious differences in the countries. Ireland has many people who owned property worth very little and which have increased by huge amounts over a relatively short period of time. Wages also have risen and the educated young earn a good wage to sustain their lifestyles. Therefore many do not need to sell but will 'at the right price' and there is also a healthy demand from wage earners in the country. To a degree the same for the UK, the buy to let market if worked at and you know what you are doing, is very profitable and I know many examples of that with the owners buying out here using similar principles. Again there is healthy demand and with the immigrants needed homes, there is enough to go around - I think a smaller adjustment in some areas will be the more likely situation. People who wanted to move will be put off buying a bigger proerty and therefore remove their property from the market, as an example. There is enough industry to support workers and many building societies will try to keep people n their homes

I know repos have jumped up - its a natural cull, but these units will be sold off at a more marketable price and placed straight into rental.

However its totally different here in Spain. There is no underlying industry and no immigrant money to rely on - the governement doesnt pay out rents and money to immigrants - if you cant support yourself then you starve. So, no outlay there then. The costas are mainly a service industry, no nightime factory work to help prop up a daytime wage. Most people are seasonal workers or self employed - says it all really.

For the past x number of years we have been living off the wealthy who came to buy property and then wanted the attahcments, property management, cleaning etc, but now they cannot afford it, they are pulling their belts in. Many immigrants ar leaving and they are going in droves. Proeprties were not bought with homegrown wages and so cannot be supported by the normal buyers here. Most havent even got the deposit money to put down.

Main buyers were the Spanish and they are a canny lot - they buy within their means and so the higher priced in the main will not go to them.

Here is a heady mixture of wealthy people who are recession proof, people who live and work here with or without money behind them and the day to day workers eeking out a living as best they can. There are also the retired groups, comfortable and will also weather out any storm, but theres no getting away from the fact that the supply far far outstrips demand. And it is getting worse. So more property coming onto the market which will effectively drive prices down.

Its a natural cycle but only to a degree. When it happenend in the 70s, no one had mortgages - even the Spanish hardly had them. Then the early 90s ripple came in, again most people were cashed up and a percentage needed to get rid of assets but as there were so few around in relation to the demand for holiday homes, it didnt really cause too many problems.

Now its a totally different story and from the statistics I used to deal with in the early 90s where 70% had bought to flip, some have found end users but many not. Add to the pot that its 2 years ago buyers coming to completion and the real figures are not good.

However, there is a silverlining. There are many many buyers and at the right price, it sells. Its only a case of defining the right price, and its the buyer that determines that - not the seller anymore, not if they are SERIOUS about selling!

Gotta have a cup of tea now, Im parched!