Will the debt monster eat your savings?

 With house price growth and house sales slowing down; I sometimes begin to wonder what other crazy plans the government could invent in order to prop up the housing market. If house prices still begin to fall after Help to Buy, Funding for Lending, bailing out the banks, printing £375,000,000,000 and holding interest rates at 0.5% for six years; what would they do? How bad would things have to get before we would see even more extreme market manipulation?

They could reduce interest rates even further so that they become negative. This would reduce the cost of servicing debt but I suspect that savers would have something to say about paying a bank to hold their money! There could well be a mass exodus of capital out of UK banks and possibly social unrest.

As the whole fiat monetary system is based on growing levels of debt, maybe the debt monster will soon consume all bank deposits. The following scenario may seem extreme but we now live with a western economy that already has unsustainable debt levels, increasing volatility and signs of currency wars.

Savers deposits are replaced by debt of equivalent value due to a collapse in economic growth and deflationary pressures. This helps keep mortgage rates low because an artificially engineered demand for the debt would have been created. Savers are paid a small amount of interest (yield) for holding the debt but would never be able to draw out any of their original capital as it would no longer exist! Virtually all money in existence represents debt and savers become mini bond traders. Capitalism without the capital.

The London wealth gap. A recipe for more unrest?

 I was reading in utter amazement a front page article in the London Evening Standard which reported that three quarters of the first phase of a luxury housing development had been sold in just four days. The prices started at £350,000 for just a studio flat and rose to £6 million for a penthouse. Many of the buyers are from overseas, especially Asia.

How long can the London property bubble be sustained? This is difficult to answer but due to the fact that over half of all property bought in London is by overseas buyers, the current momentum is being driven by the wealth created in growing and emerging markets. The UK and US economies are being kept afloat by unprecedented central bank intervention which is sustaining the wealthy elite.

The gap between rich and poor has always been wide in London but it seems that it is now reaching huge proportions. With the prospect of many more cuts to social welfare, increasing energy bills and increasing food prices; the social unrest that we witnessed in 2011 could seem quite minor in comparison to future displays of discontent. I wonder if all of these overseas property 'investors' realise what they may be letting themselves in for.