House prices go further beyond reach

Prices set to continue to rise as help-to-buy scheme drive's inflation housing market

by Ryan Fletcher

House prices surged further beyond the average person's reach in 2013 with a full-year 7.5 per cent rise to December the biggest in six years, Halifax bank revealed yesterday.

Prices are likely to shoot up even further this year as a lack of new homes and the government's controversial help-to-buy scheme combine to drive inflation in the market.

Taxpayer-backed help-to-buy sees our money used to underwrite high-risk 95 per cent mortgages that banks had stopped handing out to avoid bad debt.

But Left Economic Advisory Panel co-ordinator Andrew Fisher said: "With house prices rising at nearly 10 times the rate of wages, more mortgage funding is not the solution.

"If interest rates rise, as many predict in the next 18 months, many people could end up being burned by this scheme."

He said that an urgent mass council house-building programme was needed instead.
"This would help those in most housing need, for whom help-to-buy does nothing and be a far better economic stimulus than inflating another debt bubble."

In the Commons yesterday shadow communities secretary Hilary Benn (right)called for an end to speculation where greedy investors buy land, gain planning permission and sit on it, sometimes for years, until prices rise so that they can cash in the profits.

Mr Benn said local authorities should be able to tell companies to "get on and build the houses you said you would" and slap them with a levy if they don't comply.

But he stopped short of committing a Labour government to a centrally funded building scheme.

However Tory MP Alec Shelbrooke accused Labour of planning "Stalinist tactics of land seizure" if they win the 2015 election.

This article first appeared in the Morning Star on 9 January

Left economists say low interest rates is right

From the Morning Star
Monday 10 May 2010
by Louise Nousratpour

Left-wing economists have welcomed the Bank of England's decision to hold interest rates at record lows as policymakers weigh up the impact of a eurozone bailout and a hung parliament.

The Bank's Monetary Policy Committee voted to hold rates at 0.5 per cent and left its £200 billion programme to boost the money supply unchanged.

The widely expected decision came as European leaders agreed to prop up the euro and prevent Greece's sovereign debt crisis from spreading - while talks over a possible coalition in Britain continued following last week's indecisive election.

Despite worries over inflation, the current political and economic uncertainty is expected to reinforce the MPC's "no change" stance as Britain makes a fragile recovery from recession.

Left Economics Advisory Panel co-ordinator Andrew Fisher said: "With personal insolvencies and bankruptcies at record levels, and home repossessions continuing, the Bank of England was right to keep interest rates low.

"Raising interest rates now would hit the poorest hardest."

Mr Fisher warned against raising interest rates to combat inflation, arguing that the government should instead suppress gas and electricity prices, which would benefit the poorest members of society.

"This would be best achieved taking the utilities into public ownership to directly regulate prices," he said.

Rate-setters have not changed policy since November - and are unlikely to until the scale of government public-spending cuts can be felt and the economy shows signs of stronger growth.

Mr Fisher argued that the Bank "should not be looking to economic growth figures, eurozone fears or inflation spikes when judging interest rates, but at personal debt and mortgage defaults."

A tipping point is reached

It’s difficult to know which of two momentous pronouncements yesterday has the most profound significance for the future of the global capitalist economy.

Is it the Bank of England’s expected decision to reduce the base interest rate to 0.5%, and start to print money – an initial £75 billion – with which it will bypass the commercial banks and lend direct to businesses, if it can find any that want to borrow?

This means that “monetary policy in its conventional form has ceased to operate”, according to the Financial Times’ Martin Wolf. A better example of what is meant by “a tipping point” would be hard to find.

Or is it the also expected admission from global giant car-maker (and financial services company) General Motors that there are now serious doubts about its ability to continue as “a going concern”? Continued deterioration in the availability of credit together with slumping demand for vehicles of all kinds has driven it to the brink of collapse.

The fact is that the complete breakdown of the credit system and the implosion of production are tightly intertwined. Interest rates were last reduced to historic lows to deal with the dot.com crash of 2001/2, ushering in a period of frenzied speculation, which intersected at its pinnacle with the beginning of the downturn in consumption in 2004.

The global credit system closed for business in mid-2007 when it became clear that the effects of the deepening recession were irreversible. Financial institutions and investors recognised, however dimly, that the possibility of tempting consumers back into the shops to restart growth was gone. It was called a “collapse of confidence”. Share prices continue to tumble.

Despite trillions of dollars, pounds, yen and roubles being poured into the banks and the auto giants, and virtually unlimited guarantees to underpin new lending these attempts at resuscitating the system have failed. There's just too much over-capacity already to tempt new production. Too many unsold cars.

Neither can the crash be reversed by “quantitative easing” - increasing the money supply to induce spending, touted as the last throw of the dice. Governments have embarked on this desperate measure because interest rates are close to zero, property and commodity prices are dropping as demand has evaporated, and nothing else is working.

There will be attempts to bypass the banks and shovel cash into consumers' pockets directly - the “helicopter drop” approach favoured by the current chairman of the Federal Reserve, Ben Bernanke.

This can only make an unprecedentedly bad situation a whole lot worse. There’s talk already in the US and the UK about “fiscal collapse” – tantamount to state bankruptcy.

Obama’s team is reported to be working around the clock, not on a solution, but “to form an approach” to the disintegration of the auto industry. They must be getting very tired.

Obama, Brown, Darling, Mandelson, Wolf, and Mervyn King, the Bank of England’s governor and every one of the fantasists of the capitalist world are pinning their hopes on a recovery, sometime, not this year, maybe later. Maybe never.

As the conference called by the Left Economics Advisory Panel for 25 April puts it, “Capitalism Isn’t Working”. The conference is scheduled to discuss policy solutions for the crisis. They will have to be founded upon collectively-owned, co-operatively managed, not-for-profit ecologically-sound production, distribution and exchange. And that includes the banks. Nothing less will do.

Gerry Gold
Economics editor
reposted from www.AWORLDTOWIN.net

Interest rate decision

The Bank of England Monetary Policy Committee has just decided to cut interest rates by 0.5% to 1.5%. Below is the press release that we issued in advance of the decision:

PRESS NOTICE:

FOR IMMEDIATE RELEASE:

Bank of England and Government dithering has deepened crisis
. . .The Government must now nationalise the banks . . .

The Monetary Policy Committee of the Bank of England will decide later today whether to cut interest rates further. The decision is expected at about midday. LEAP is arguing that the Government must stop dithering and should nationalise the banks.

John McDonnell MP, LEAP Chair, said:

"In this crisis, the Government and the Bank of England have consistently been behind the curve. The Bank of England was slow to cut interest rates and the Government's fiscal stimulus was pathetic.

"The quantitative easing has been delayed and ineffectual, and the Government is now dithering over the necessity of taking control of bank lending and borrowing. The country cannot wait any longer, we have had nine months of indecision."

Andrew Fisher, LEAP Director, said:

"Whatever decision the Bank of England makes today will be largely irrelevant.

"Until the Government takes control of the banks this crisis will continue to grow - meaning more bankruptcies, more unemployment and more repossessions."

-Ends-

Read John McDonnell's comments in full

'Snubbed' Brown should nationalise banks

The UK banking sector has snubbed the Prime Minister by refusing to pass on in full the 1% cut in interest rates announced on Thursday.

John McDonnell MP, LEAP Chair, said:

"The banks are deliberately snubbing the Prime Minister by refusing to pass on interest rate cuts.

"These banks have betrayed our country, brought about this economic crisis and recession by their obscene profiteering, and now are refusing to co-operate in even the slightest way in the Government’s attempts to protect people’s jobs and homes - despite the fact the entire system has been bailed out with public money.

"The only viable solution now is to bring the banks into public ownership and control. There is no other way and the Government should not delay."

Time to Nationalise the Banks Now

Government policy on banks branded "failure" . . . Bank of England "dithering"

The Government's policy towards the banks has been branded "a failure" today as more bad economic news floods the media - from falling stock markets to rising repossessions.

John McDonnell MP, LEAP Chair, said:

"Despite all Government attempts to stimulate the economy, all the evidence points to failure. The billions in bailouts have done little to increase lending, and we are witnessing a startling rise in home repossessions.

"The Government now needs to be more forthright and move towards the full nationalisation of the banking sector to be run in the interests of the British people.

"We can't afford any more dithering by the Bank of England. We need an immediate and substantial cut in interest rates. It is now time for the Government to take back control from the dithering Bank of England."

-Ends-

Cutting interest rates a vital first step, says LEAP

On Thursday 9th October the Bank of England's Monetary Policy Committee will meet to discuss the whether to keep interest rates on hold at 5% or to cut them. The Left Economics Advisory Panel (LEAP) is calling for a significant cut. This follows a call from the TUC for "aggressive" rate cuts.

John McDonnell MP, LEAP Chair, said:

"To avert the prospect of the longest and deepest recession in living memory, the Government must reassert democratic control of economic policy by overriding the Bank of England Monetary Policy Committee (MPC) and cutting interest rates significantly, if it does not act to cut rates hard and fast.

"The remit of the MPC should be widened to advising on the wider economic health of the country, but the Bank’s policy role should revert to being one voice among many others to be taken into account when democratic Government, not bankers, determine our economic policy."

Graham Turner, economist and author of The Credit Crunch, said:

"Following the nationalisation of Bradford & Bingley, the case for an early and decisive rate cut in interest rates is overwhelming. The collapse of the Congress bailout and the persistent upward pressure on borrowing costs have also heightened the need for swift action from the MPC.

"Repeated liquidity injections are not the answer to the current banking crisis. The core problem is one of solvency, not liquidity. By failing to cut interest rates, the MPC has ensured the housing market will continue to slide into 2009, endangering more banks.

"And unemployment is set to rise sharply. Wages have not responded to the spike in headline inflation, as feared by some members of the MPC. With the honourable exception of David Blanchflower, the MPC has overstated the second-round effects from rising energy prices, exposing their lack of understanding over how globalisation has fundamentally changed the world economy.

"Furthermore, the sharp downturn in the Industrialised West has spilled over into emerging market economies, precipitating steep declines in commodity prices. Inflation will fall quickly next year, and could even be back within target by the mid-point of 2009. The Bank of England should not wait for confirmation of this swift reversal. It should act now in accordance with its mandate.