A Time of Magic

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With the housing market moving so slowly at the moment it’s a good time to start looking at non-traditional means of selling your place.

Most people stop at the estate agent and then sit back waiting for something to happen but these days you have a number of effective options open to you. Those who are already using adwords for other things often start to use it to place adverts for their property. Expensive for sure but quite effective too.

Another option is to list your place on one of the new free listings sites. For example Great Property Direct is an offshoot of one of the top listed holiday rental listings companies thus already has good visibility on the search engines.

One of the peculiar things about international banking is that whilst the central banks can control the interest rate or the exchange rate, they can’t control both at the same time. Through in their desire to keep a handle on inflation and you’ve a really complicated affair indeed.

For instance, normally the tactic to get inflation down is to increase interest rates which in turn will keep the exchange rate quite high in respect of other currencies. That works well for a while except that with a high exchange rate you can find yourself sucking in a lot of cheap imports after a while which, of course, isn’t really that good for the economy. In times past, that would have signaled the onset of import controls to correct the problem but that’s rarely a runner these days.

The other problem is that this time around, it’s not runaway lending by the banks that’s getting inflation up, it’s the oil price. Therefore, no matter what the interest rate is, it’ll not make a whole lot of difference in inflation, so why do they bother? Basically because that’s how they’ve always done it. Yes, they know that it’s largely the oil price that’s driving inflation upwards but the only weapon that central banks have left to them is the interest rate so they keep that up knowing that all it’s doing is hurting the economy.

Having said all that, there doesn’t seem to be an easy way out of the mess this time.

The Northern Rock mortgage bank got itself into trouble by expanding much faster than it’s deposits and thereby needing to go to the wholesale markets to borrow more money to fund it’s mortgages.

Quite ridulously it ended up taking almost 20% of the entire UK mortgage market in the first half of 2007 by doing this which is pretty amazing considering that it’s far from being a large mortgage bank. Naturally, that rapid growth was a sure sign of problems ahead and just two months after making that announcement the bank made another one saying that it was in trouble.

With such a large customer base, the government were forced to intervene to support the bank, to the tune of £25 billion ($50 billion!) which is around $2000 for each family in the country.

Naturally, they want their money back but that’s not so simple. Yes, the bank has assets behind it but those assets are mortgages and not realistically useable to get cash directly anytime soon. Therefore, all kinds of financial engineering projects have been proposed to get the bank back on an even keel. Unfortunately, nobody wants to cover that £25 billion so the government has just proposed the sale of £25 billion of bonds to fund it.

Great, but… who would buy £25 billion of bonds from a bust bank? Well, actually, the government would or rather it will back the bonds with a guarantee which amounts to the same thing. Doesn’t that mean that the government is still out £25 billion. Emm, yes, it does.