One of the most tweeted articles this week was This one, which purports to tell any tweeter how much money Twitter 'owes' him or her. That's a tongue in cheek way of saying that we can value Twitter on the basis of the number of tweets that have been sent. And anyone who sends them, adds to the value of the company.
This misses the 'point' of Twitter (and social media in general) in the same way as thinking that Starbucks is a coffee shop misses the point. I'll start with the latter. A few weeks ago, when the weather was still warm, I was wandering merrily from one fund manager to another in Boston, updating on views about the world and the relationship between our employers. When I wasn't sure how to get to the next appointment, I darted into the nearest coffee shop. The salesman who was with me (and doesn't know his way around Boston nearly well enough) pointed out that Starbucks charges a lot for coffee. I sent him to buy me a tall latte and told him I wasn't here for the coffee. I use Starbucks because I know I can get quick access to wifi and make sure I know the way to my next meeting, while enjoying some air conditioning in a relatively clean and comfortable environment. The coffee's OK, but incidental. The price of the coffee is high, if that's all you go there for, but it's cheap if you want to arrive, cooler and on time, at your next meeting.
Others have different uses for Starbucks but the common factor is that few if any are there for the coffee alone. And so it is with Twitter. I tweet because I want dialogue. I want dialogue because I want to know what other people think. If you don't know what people think, how can you expect to know how they will react to economic data, policy decisions or any other news that comes over the wires? Anticipating how markets will react to news is more important than knowing what the news will be, most of the time. I also read tweets because they are an incredibly efficient way of filtering the daily news. I follow people who will tell me, while I'm still in bed in the morning, what the important stories of the day are in the Wall Street Journal, FT, Economist, New York Times, Reuters, Bloomberg, Le Monde, Die Welt, Spiegel, Guardian, Telegraph, Nouvel Observateur, and more. I've got people who I've never met scouring the web for me to find blog posts, central bank research papers and snippets of information I might find useful.
I don't suppose for a second that the majority of Twitter fans like it for the same reasons as me, any more than other people think air conditioning and wifi are Starbucks' key selling point in Boston. My only question for twitter of course, is how it plans to make enough money to justify the fancy market capitalisation. Starbucks, at least, sells those over-priced cappuccinos
Sunday, 10 November 2013
Why 'QE' needed in Europe and unnecessary in the US
Two Fed papers last week argue, effectively, that US monetary policy needs to be even looser for even longer. The ECB cut interest rates. The press tell us that the Bank of England is more optimistic on growth, and on falling unemployment but the MPC will re-emphasise its commitment to keep rates low. I think the Federal Reserve in the US should be cutting back its bond purchases, while the ECB should be buying in size. That doesn't mean either is very likely. Far from it, sadly.
The US has high (but falling) unemployment and even higher under-employment. It is also an economy with rising real wages and substantial deficits on both the trade and current account balances. It has low consumer price inflation, however we choose to measure it, and a fair degree of asset price inflation by most measures. The economy is growing, but not fast enough to satisfy the desires of those who want to see unemployment fall faster. Two additional observations: the post-crisis environment has seen historically weak growth in output per worker/hour; and this anaemic recovery is associated with growing inequality that is likely to be the single biggest factor is US politics in the coming years.
US consumption growth remains strong relative to output (those pesky deficits) but investment remains weak (hence the weak employment and low productivity). Inflation isn't a problem, in either direction (this is not deflation, and real wages are rising). Under-investment should be the focus for policy-makers. John Maynard Keynes might point out that it is not written in law for total aggregate demand to be at a level which ensures the economy is on a path to full employment, and the public sector should step in. There are obvious problems associated with that, of course - starting with the level of the national debt and moving on the toxicity of the politics around both the debt level and how to ease fiscal policy.
One thing the doctor might well order, is a policy of currency softness. Grabbing jobs back from overseas, helping domestic products compete better with imports, these are desirable in an economy with a manufacturing base and a need of investment.But QE? Not really. QE has boosted asset prices, but that hasn't done anything to hep investment. . QE has done much to make owners of Picassos and Greenwich mansions happier, but while it has helped direct some investment flows towards corporate bonds (good) it has pushed more towards equities and EM assets and it still isn't clear how that helps US companies raise money for productive investment. TARP did more to help banks lend than QE has done. And a small rise in short-term rates might even help money flow round the SME sector of the US economy more productively.
QE seems the wrong policy when what is needed is to encourage private sector entrepreneurs and companies to invest in plant, equipment and people in order to boost output, and therefore employment and wages. And that in turn, is what is needed to reverse the widening inequality that unchecked, will become an ever bigger social blight.
Contrast all this with the Eurozone. In many European countries wages and prices are now falling in tandem. The current account surplus is huge, and growing fast. Bank lending continues to contract. Consumption is weak and unemployment terrifyingly high. Youth unemployment should be the single biggest issue in the political debate as an entire generation of voters will at some point realise they have been abandoned by their leaders. The Euro Area problem is that investment is weak but consumption even weaker - overall aggregate demand needs a huge boost.
And then there is the debt... public sector debt levels are too high everywhere and private sector debt levels are too high in several countries. With weak nominal GDP growth, these debt levels will go on growing relative to GDP unless one of three things happen - default reduces the debt, austerity creates a downward spiral of increased savings and falling demand that might at some point find an equilibrium debt/GDP level, albeit at a level of unemployment, real incomes and overall GDP that is too awful to contemplate, or policy-makers breathe some inflation back into the system.
In the Euro Area, QE (buying bonds in substantial quantities through a series of auctions, as the Fed does), would encourage the banking sector to lend more and hold fewer government bonds. That would be a good thing. It might weaken the Euro, which would be a very good thing indeed. It might send asset prices and increase inequality but the Euro Area, unlike the US, has a political system and social structure that can counter this. And if it boosted consumption through wealth effects, then that would be a god thing. A weaker currency, a reduced current account surplus, and a boost to bank lending? Bring it on. With banks encouraged to 'cut assets' (i.e, shrink their balance sheets) it makes sense for the central bank to boost its own balance sheet (at least temporarily) to plug the gap they leave behind. I don't think that's the same thing, at all, as 1920s money printing in Germany.
The US has high (but falling) unemployment and even higher under-employment. It is also an economy with rising real wages and substantial deficits on both the trade and current account balances. It has low consumer price inflation, however we choose to measure it, and a fair degree of asset price inflation by most measures. The economy is growing, but not fast enough to satisfy the desires of those who want to see unemployment fall faster. Two additional observations: the post-crisis environment has seen historically weak growth in output per worker/hour; and this anaemic recovery is associated with growing inequality that is likely to be the single biggest factor is US politics in the coming years.
US consumption growth remains strong relative to output (those pesky deficits) but investment remains weak (hence the weak employment and low productivity). Inflation isn't a problem, in either direction (this is not deflation, and real wages are rising). Under-investment should be the focus for policy-makers. John Maynard Keynes might point out that it is not written in law for total aggregate demand to be at a level which ensures the economy is on a path to full employment, and the public sector should step in. There are obvious problems associated with that, of course - starting with the level of the national debt and moving on the toxicity of the politics around both the debt level and how to ease fiscal policy.
One thing the doctor might well order, is a policy of currency softness. Grabbing jobs back from overseas, helping domestic products compete better with imports, these are desirable in an economy with a manufacturing base and a need of investment.But QE? Not really. QE has boosted asset prices, but that hasn't done anything to hep investment. . QE has done much to make owners of Picassos and Greenwich mansions happier, but while it has helped direct some investment flows towards corporate bonds (good) it has pushed more towards equities and EM assets and it still isn't clear how that helps US companies raise money for productive investment. TARP did more to help banks lend than QE has done. And a small rise in short-term rates might even help money flow round the SME sector of the US economy more productively.
QE seems the wrong policy when what is needed is to encourage private sector entrepreneurs and companies to invest in plant, equipment and people in order to boost output, and therefore employment and wages. And that in turn, is what is needed to reverse the widening inequality that unchecked, will become an ever bigger social blight.
Contrast all this with the Eurozone. In many European countries wages and prices are now falling in tandem. The current account surplus is huge, and growing fast. Bank lending continues to contract. Consumption is weak and unemployment terrifyingly high. Youth unemployment should be the single biggest issue in the political debate as an entire generation of voters will at some point realise they have been abandoned by their leaders. The Euro Area problem is that investment is weak but consumption even weaker - overall aggregate demand needs a huge boost.
And then there is the debt... public sector debt levels are too high everywhere and private sector debt levels are too high in several countries. With weak nominal GDP growth, these debt levels will go on growing relative to GDP unless one of three things happen - default reduces the debt, austerity creates a downward spiral of increased savings and falling demand that might at some point find an equilibrium debt/GDP level, albeit at a level of unemployment, real incomes and overall GDP that is too awful to contemplate, or policy-makers breathe some inflation back into the system.
In the Euro Area, QE (buying bonds in substantial quantities through a series of auctions, as the Fed does), would encourage the banking sector to lend more and hold fewer government bonds. That would be a good thing. It might weaken the Euro, which would be a very good thing indeed. It might send asset prices and increase inequality but the Euro Area, unlike the US, has a political system and social structure that can counter this. And if it boosted consumption through wealth effects, then that would be a god thing. A weaker currency, a reduced current account surplus, and a boost to bank lending? Bring it on. With banks encouraged to 'cut assets' (i.e, shrink their balance sheets) it makes sense for the central bank to boost its own balance sheet (at least temporarily) to plug the gap they leave behind. I don't think that's the same thing, at all, as 1920s money printing in Germany.
Thursday, 31 October 2013
In honour of plumbers
In the days of Ottmar Issing and Juergen Stark, high-powered economists ruled the ECB but times have changed and the current environment requires a new breed of central banker. I'll call them plumbers, but that is not intended in any way to belittle them. They are, led by Mario Draghi, more practical and more adept at coping with a deply flawed monetary system that has been put under stress. Indeed, perhaps the best comparison is between architects, necessary to design a building, set policy targets and understand the way the world works and plumbers, who don't look for perfection but simply try and keep the building from falling apart, finding a way to get the hot water from the boiler to the radiators and the dirty water out into the drains rather than all over the living room.
In term of architecture and economics what does the Euro Zone need? A fiscal union with a common taxation and spending policy; a single risk-free interest rate and instrument; a genuine monetary union that can police the financial system, raise levies to provide the funds for future bailouts and provide guarantees for retail depositors. All of this is as likely as pigs flying over the Eurotower on their way to a rave in Wilhelm-Epsein Straße.
By the same token, what 'should' Europe's central bank do faced with rising uemployment, a rapidly growing current account surplus, shrinking banks' balance sheets, a huge output gap and an inflation rate falling towards zero? They should have, some time ago, worked with government to create a European TARP, to re-capitalise banks and create a 'bad bank' for impaired assets. They should now be injecting money intravenously into the system through large-scale bond purchases, and there would be nothing wrong with an Abenomics-like policy of talking down the currency, front-loading fiscal easing and structural reform of the labour market and pension system.
Some people will disagree with some or all of these policies. But what they have in common is that they, too, won't happen. 'Proper' QE is against self-imposed European rules. Talking down the currency is not in the ECB's mandate. Another set of rules demand austerity with slippage rather than either outright austerity or Keynesian expansion. And as for all getting together to re-capitalise banks, it needed to happen 5 years ago.
So what is left? When Mario Draghi arrived at the ECB he was a breath of fresh air, slicing the growth forecast, announcing the LTRO, getting money moving around the system. Then a series of vague promises and incompletely-defined promises to buy government debt and bank debt if needed were introduced. Purists look at all these policies and question whether there is any substance behind them but the yields on spanish and Italian debt just goes on falling. Others are alarmed by the way the ECB is lending money to banks to buy their own government's sovereign debt. And we all worry about the fact that with little or nominal GDP growth, debt levels are doomed to rise steadily until they are unsustainable (if they aren't already). But the Euro Area house still stands and a bloke with a wrench and some tape is making sure the money flows around the system. That's what the plumber-in-chief has achieved while he waits for his political masters to build a better structure. Hey, it's a lot better than the alternative....
In term of architecture and economics what does the Euro Zone need? A fiscal union with a common taxation and spending policy; a single risk-free interest rate and instrument; a genuine monetary union that can police the financial system, raise levies to provide the funds for future bailouts and provide guarantees for retail depositors. All of this is as likely as pigs flying over the Eurotower on their way to a rave in Wilhelm-Epsein Straße.
By the same token, what 'should' Europe's central bank do faced with rising uemployment, a rapidly growing current account surplus, shrinking banks' balance sheets, a huge output gap and an inflation rate falling towards zero? They should have, some time ago, worked with government to create a European TARP, to re-capitalise banks and create a 'bad bank' for impaired assets. They should now be injecting money intravenously into the system through large-scale bond purchases, and there would be nothing wrong with an Abenomics-like policy of talking down the currency, front-loading fiscal easing and structural reform of the labour market and pension system.
Some people will disagree with some or all of these policies. But what they have in common is that they, too, won't happen. 'Proper' QE is against self-imposed European rules. Talking down the currency is not in the ECB's mandate. Another set of rules demand austerity with slippage rather than either outright austerity or Keynesian expansion. And as for all getting together to re-capitalise banks, it needed to happen 5 years ago.
So what is left? When Mario Draghi arrived at the ECB he was a breath of fresh air, slicing the growth forecast, announcing the LTRO, getting money moving around the system. Then a series of vague promises and incompletely-defined promises to buy government debt and bank debt if needed were introduced. Purists look at all these policies and question whether there is any substance behind them but the yields on spanish and Italian debt just goes on falling. Others are alarmed by the way the ECB is lending money to banks to buy their own government's sovereign debt. And we all worry about the fact that with little or nominal GDP growth, debt levels are doomed to rise steadily until they are unsustainable (if they aren't already). But the Euro Area house still stands and a bloke with a wrench and some tape is making sure the money flows around the system. That's what the plumber-in-chief has achieved while he waits for his political masters to build a better structure. Hey, it's a lot better than the alternative....
Saturday, 26 October 2013
Storm coming
There's a storm coming, apparently, to rival October 1987's. I was in London when that storm hit, and didn't notice anything had happened until I got to work. But down here in Higher Coombe, we did lose a lot of trees, including much of a beech row. Since I am down in Devon now, I wandered out with a camera because there isn't anything I can do to prevent a storm blowing trees down, but I'm fond of them. The top picture shows a beautiful beech row that is almost intact on our neighbour's deer farm. I took the picture as much for the colours as the trees.
The second picture is of the Mardle, my favourite stream, after which I named this blog.
And the third picture is of a couple of the beech trees in a row by the house, that survived 1987. I hope the latest storm, if it comes, leaves the beech trees alone.
The World's Strongest Property Market
In 2010, I managed to get stuck in Dubai thanks to the intrusion of an Icelandic volcano.
I went soon after Dubai world had re-structured its debt after property prices fell. The grandiosity of some of the developments in Dubai (the Palm, the idea of a ski slope with artificial snow and lifts in a desert shopping mall, to name but two) made for plenty of humorous headlines but in fact, Dubai had been pushed off the front pages of the papers by the Greek debt crisis, which erupted just days after Dubai's woes started to scare investors in November 2009. Between then and June 2010, the Euro's value fell from $1.50 to $1.20.
This week, I returned to the region. Dubai is booming. GDP growth close to 5%, property prices rising faster than anywhere else in the world. Much excitement has been triggered by a report by Jones Lang Lasalle which has snappy headlines telling us rices are rising at an unsustainable rate, though it also says that measures taken double land registration taxes will help cool the market. Goldman Sachs say it's alright, so we shouldn't worry. It’s not a bubble, it’s just a boom, see.
At first glance, my assumption was that this was Ben Bernanke’s mad monetary policy at work again. Dubai has a fixed exchange rate with the dollar, which means they import US interest rates. If your economy is growing at nearly 5% and money is cheap, you'll get asset booms (or bubbles). In the Middle East, that means insatiable demand for premiership football teams, and rising property prices. So here we go again, I thought.
There is however, an additional driver of demand that didn’t exist in the mad credit frenzy of 2003-2008 - the influx of money and people that has come as a result of the Arab Spring. The rich are either sending their money to the Gulf, or sending themselves there too. It isn’t easy to quantify but the planes are full, the hotels are booming and the anecdotal evidence is plain to see. Reuters estimated earlier this year that DH30bn flowed into the region last year and this year, Cyprus (this year's weakest residential property market), Syria and Egypt will all have added to the flow of money.
I don't know how this will play out in Dubai and the UAE. But global excess money is chasing real assets because the returns on financial ones are derisory and the inflow. And the longer QE and ZIRP continue in the US, the worse it will get. Money is mis-priced and the Gulf boom is being pumped up by money fleeing the crisis in the Middle East and North Africa. Eventually, rates will go up in the US, putting pressure on some borrowers and on any lenders who have too much regional or sectoral concentration. Which is quite a few of the banks in the Gulf.
Meanwhile, at least Dubai was able to re-structure its debt, get help from the rest of the UAE, and let property and asset prices adjust quickly. Spare a thought for Greece, which went into the crisis at the same time but is left with an overvalued currency, struggled to re-structure its debt and even if GDP won't fall for ever, isn't enjoying a bounce and won't any time soon.
I went soon after Dubai world had re-structured its debt after property prices fell. The grandiosity of some of the developments in Dubai (the Palm, the idea of a ski slope with artificial snow and lifts in a desert shopping mall, to name but two) made for plenty of humorous headlines but in fact, Dubai had been pushed off the front pages of the papers by the Greek debt crisis, which erupted just days after Dubai's woes started to scare investors in November 2009. Between then and June 2010, the Euro's value fell from $1.50 to $1.20.
This week, I returned to the region. Dubai is booming. GDP growth close to 5%, property prices rising faster than anywhere else in the world. Much excitement has been triggered by a report by Jones Lang Lasalle which has snappy headlines telling us rices are rising at an unsustainable rate, though it also says that measures taken double land registration taxes will help cool the market. Goldman Sachs say it's alright, so we shouldn't worry. It’s not a bubble, it’s just a boom, see.
At first glance, my assumption was that this was Ben Bernanke’s mad monetary policy at work again. Dubai has a fixed exchange rate with the dollar, which means they import US interest rates. If your economy is growing at nearly 5% and money is cheap, you'll get asset booms (or bubbles). In the Middle East, that means insatiable demand for premiership football teams, and rising property prices. So here we go again, I thought.
There is however, an additional driver of demand that didn’t exist in the mad credit frenzy of 2003-2008 - the influx of money and people that has come as a result of the Arab Spring. The rich are either sending their money to the Gulf, or sending themselves there too. It isn’t easy to quantify but the planes are full, the hotels are booming and the anecdotal evidence is plain to see. Reuters estimated earlier this year that DH30bn flowed into the region last year and this year, Cyprus (this year's weakest residential property market), Syria and Egypt will all have added to the flow of money.
I don't know how this will play out in Dubai and the UAE. But global excess money is chasing real assets because the returns on financial ones are derisory and the inflow. And the longer QE and ZIRP continue in the US, the worse it will get. Money is mis-priced and the Gulf boom is being pumped up by money fleeing the crisis in the Middle East and North Africa. Eventually, rates will go up in the US, putting pressure on some borrowers and on any lenders who have too much regional or sectoral concentration. Which is quite a few of the banks in the Gulf.
Meanwhile, at least Dubai was able to re-structure its debt, get help from the rest of the UAE, and let property and asset prices adjust quickly. Spare a thought for Greece, which went into the crisis at the same time but is left with an overvalued currency, struggled to re-structure its debt and even if GDP won't fall for ever, isn't enjoying a bounce and won't any time soon.
Wednesday, 9 October 2013
Short post on social media...
On Monday I sent a morning note out, observing that everyone will have had their fill of the observation 'we don't expect a US default' but that as the October 17th deadline to resolve the issue of the US debt ceiling draws closer we need to ponder how hard that deadline is and meanwhile, asset prices may remain under pressure.
I was glad, therefore, that the following chart was posted on a market blog by well-known blogger/tweeter/commentator Joe Weisenthal.
The chart shows how the 'hard' line in the sand for the US running out of any wiggle room on its finances comes a bit later, either on October 31 or November 1 when big payments are due.
So I re-tweeted the picture from a restaurant as follows:
I was glad, therefore, that the following chart was posted on a market blog by well-known blogger/tweeter/commentator Joe Weisenthal.
The chart shows how the 'hard' line in the sand for the US running out of any wiggle room on its finances comes a bit later, either on October 31 or November 1 when big payments are due.
So I re-tweeted the picture from a restaurant as follows:
Happy Halloween. Doomsday is Nov1 RT@TheStalwart: CHART OF THE DAY: This chart destroys the debt ceiling truthers. http://www.businessinsider.com/chart-of-the-day-this-chart-destroys-the-debt-ceiling-truthers-2013-10 …
Sunday, 6 October 2013
Groundhog Day for England
Is there a house price bubble? It's the topic du jour. Well, here's the simplest chart evidence for the view that whatever we want to call the current rise in house prices, it isn't 'a bubble' .
It's certainly fair to say that on official data and across the UK as a whole, the ratio of average house prices to earnings is a long way below the 2007 peak. And since mortgage rates are a lot lower than they were in previous cycles, the ratio of mortgage payments to house prices is even lower. But that tells only part of the story, certainly for London and the South East.
I borrowed three times my 25-year old economist's salary to buy my first flat in North London, in 1987. If a younger me turned up at the age of 25 today having seen economists' salaries merely keep up with national wage trends, he/she would have to borrow nearly seven times his/her salary. Not to mention the fact that the 25% deposit my father produced in his generosity would need to be nearly six times as big now. It's no wonder that while people still want to get on the housing ladder, they are doing so much later and my 24-year old self would have probably gone on flat-sharing for a few more years.
I watched the rise in house prices, then the fall, got married and got a bit older. We moved house in 1994, selling the first flat for almost exactly the same amount as I had paid for it. But that was OK. 1993 had been a good year for 32-year old economists, so we were able to buy a house, once again with a 25% deposit, in cheaper but trendy Tuffnel Park. And it was there our children were born.
Now I can imagine another slightly younger self, following foolishly in my footsteps, who is 32 today, married and thinking about family. Average wages have nearly doubled since 1994 but unfortunately, Tuffnel Park house prices have risen twice as much again. So he'll still need to be able to borrow 6 times his salary and find a truly mind-blowing deposit to get onto the North London house ladder. He will doubtless be staying in his flat for a bit longer, weighing up the merits of moving further out of town (but dismayed to find you have to go a long way London before prices fall enough).
My younger self would probably buy a flat later, get married later, have children later and retire older. And that is exactly what is happening. As for the generation following him I don't know what they would do, because my younger self isn't going to be enthusiastic about moving again when he sees how much stamp duty he might have to pay. He'll probably opt to stay in his first family home in London, thank his lucky stars he ever got on the housing ladder at all, and only move when he cashes in his savings and retires. In the meantime, another generation of bright young British and European economists will have moved into flats in London, met each other, fallen in love and started trawling estate agents' windows in search of a place where they can start a family. But the good people of Tuffnel Park can no longer afford to move 'up' to Hampstead or Primrose Hill, so sellers are reluctant, turnover is low and prices as susceptible to bubble-like characteristics as it's possible to be when you're not in a bubble....
The UK economy is blessed with a rapidly growing labour force that boosts growth potential and provides far better prospects for getting the government's gargantuan debt levels under control than is the case in some other European economies. But failure to diversify the economy through regional and educational policy has left the population growth centred on London, with its antiquated infrastructure. This economic cycle is rapidly beginning to look just like every other economic cycle of the last 30 years, led by housing and doomed to end with UK interest rates peaking above those elsewhere and the housing market going into reverse in a few years' time. I'll enjoy the positives from stronger demand growth, worry about what happens to the trade balance, hope that higher interest rates deliver a stronger currency which make holidays and imports cheaper, but I'll bemoan the chronic lack of vision that allows a whole country to wander into its own version of Groundhog Day.
It's certainly fair to say that on official data and across the UK as a whole, the ratio of average house prices to earnings is a long way below the 2007 peak. And since mortgage rates are a lot lower than they were in previous cycles, the ratio of mortgage payments to house prices is even lower. But that tells only part of the story, certainly for London and the South East.
I borrowed three times my 25-year old economist's salary to buy my first flat in North London, in 1987. If a younger me turned up at the age of 25 today having seen economists' salaries merely keep up with national wage trends, he/she would have to borrow nearly seven times his/her salary. Not to mention the fact that the 25% deposit my father produced in his generosity would need to be nearly six times as big now. It's no wonder that while people still want to get on the housing ladder, they are doing so much later and my 24-year old self would have probably gone on flat-sharing for a few more years.
I watched the rise in house prices, then the fall, got married and got a bit older. We moved house in 1994, selling the first flat for almost exactly the same amount as I had paid for it. But that was OK. 1993 had been a good year for 32-year old economists, so we were able to buy a house, once again with a 25% deposit, in cheaper but trendy Tuffnel Park. And it was there our children were born.
Now I can imagine another slightly younger self, following foolishly in my footsteps, who is 32 today, married and thinking about family. Average wages have nearly doubled since 1994 but unfortunately, Tuffnel Park house prices have risen twice as much again. So he'll still need to be able to borrow 6 times his salary and find a truly mind-blowing deposit to get onto the North London house ladder. He will doubtless be staying in his flat for a bit longer, weighing up the merits of moving further out of town (but dismayed to find you have to go a long way London before prices fall enough).
My younger self would probably buy a flat later, get married later, have children later and retire older. And that is exactly what is happening. As for the generation following him I don't know what they would do, because my younger self isn't going to be enthusiastic about moving again when he sees how much stamp duty he might have to pay. He'll probably opt to stay in his first family home in London, thank his lucky stars he ever got on the housing ladder at all, and only move when he cashes in his savings and retires. In the meantime, another generation of bright young British and European economists will have moved into flats in London, met each other, fallen in love and started trawling estate agents' windows in search of a place where they can start a family. But the good people of Tuffnel Park can no longer afford to move 'up' to Hampstead or Primrose Hill, so sellers are reluctant, turnover is low and prices as susceptible to bubble-like characteristics as it's possible to be when you're not in a bubble....
The UK economy is blessed with a rapidly growing labour force that boosts growth potential and provides far better prospects for getting the government's gargantuan debt levels under control than is the case in some other European economies. But failure to diversify the economy through regional and educational policy has left the population growth centred on London, with its antiquated infrastructure. This economic cycle is rapidly beginning to look just like every other economic cycle of the last 30 years, led by housing and doomed to end with UK interest rates peaking above those elsewhere and the housing market going into reverse in a few years' time. I'll enjoy the positives from stronger demand growth, worry about what happens to the trade balance, hope that higher interest rates deliver a stronger currency which make holidays and imports cheaper, but I'll bemoan the chronic lack of vision that allows a whole country to wander into its own version of Groundhog Day.
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