Why is there so much ‘spin’ in economic journalism?

 Since the onset of the financial crisis one could be forgiven for getting slightly confused about what is really going on in the economy. Bank bail-outs, house prices, inflation, quantitative easing and the Eurozone debt crisis; there has certainly been much to report.

The fact that there is no longer strong economic growth focuses the attention of different groups within society. These groups seek different outcomes and their perception of what has caused the economic downturn and what needs to be done to put it right, varies significantly. Many journalists ‘spin’ their stories to represent the views of one these groups within society. This is especially common in news reports about the housing market; there is a cognitive bias in order to support vested interests.

Looking at the economic pages of the BBC website recently I noticed conflicting reports on the same subject. On one page there were two articles about the Japanese economy. One headline read, “Signs of a pick-up in Japan’s economy” and the other said, “Japanese economy worse than forecast.” The predictions for growth in the economy over the last few years have been farcical. The IMF, OBR, CBI and others have all consistently downgraded their predictions. Do they not know what they are doing or is their reporting suffering from some kind of cognitive bias?

The truth is that we need to read many economic articles from different sources, some more trusted than others. Instead of our self-grasping mind attaching itself to an ideology, we can take a clearer and more balanced view by trusting our inner wisdom and integrity.

Should savers do more to help borrowers?

 There are many people in the UK who have, over the last fifteen years, decided to borrow too much money. As the economy has turned sour The Bank of England has tried to help out these over stretched borrowers by keeping the base rate at the historic low of 0.5% for four years. Additionally it has pumped £375,000,000,000 into the ‘economy’ (QE) which has helped to sustain house prices. The UK government has also come to the rescue by providing up to £80,000,000,000 of ‘cheap’ money to banks (FLS) so that they can offer even cheaper mortgages.

Unfortunately the Funding for Lending Scheme has had a negative impact on savers because banks no longer have to rely on attracting depositors. Thanks to low interest rates and FLS the current rate of return being offered on savings products is appalling. Most savings accounts offer a rate which is far below inflation. Effectively savers are losing out on billions of pounds of interest whilst the cost of servicing mortgage debt has been reduced significantly.

As we are ‘all in this together’ I think savers should do even more to help out over-stretched borrowers. Perhaps a proportion of the interest paid on ISA’s could be redirected to mortgage accounts to reduce the cost of borrowing even further. After all it’s not the fault of highly indebted consumers that we are all in this economic mess. They were under pressure to take on more debt by the banks; it was very difficult to say no. The overwhelming desire to compete with the neighbours leads to a re-mortgage, a new car, house extension or exotic holiday. I’m sure many savers feel deep sympathy over borrower’s unfortunate circumstances.

Wealthy elite to control the London property market?

 Within days of posting my first blog, the London Evening Standard ran a front page headline which read “£100,000 deposit to buy first home”. This astonishing conclusion was the result of research carried out by Oxford Economics who predict that London property prices will just keep on rising and by the year 2020 the average price will be £489,214.

Even if it was possible to amass £100,000 for a deposit, one would still need to obtain a mortgage of nearly £400,000 to buy the ‘average’ house. Given that most lenders have now come to their senses; it is no longer possible to borrow much above four times annual earnings. This means a salary of around £100,000 a year would be required to qualify for the mortgage.

We talk of the human race progressing in many areas but when it comes to something as fundamental as housing we seem to be fast tracking back to the Victorian era; a wealthy property owning elite providing expensive, insecure short term rental accommodation for the rest of us.

The current influx of foreign money and the influence of ‘The City’ is keeping London’s property bubble inflated. All bubbles though, must eventually burst.

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.