Dear Reader,
Not a lot surprises me in the headlines. It may shock me, but not surprise me. But the following did:
“Warning on Higher Cost of 40 year mortgages.” Why does this surprise me?
A few weeks ago, we explored the coming housing market bubble that is due to burst in the near future, in an article entitled, “Moving From Property to Precious Metals.” In that piece I looked at the recent return of 100% mortgages. When did we last see these products enter the market? You’ve guessed it… in the run up to the 2008 economic crash. Bubbles usually inflate the same way in every economic cycle.
It strikes me as particularly Machiavellian to take advantage of other people’s genuine needs; the need to buy a house with one’s hard earned cash, in which to raise one’s family. In the “Warning” piece above a young family are clearly struggling to get onto the – currently highly inflated – property ladder. Rather than the economists and bankers letting the free market dictate the price of a house and therefore insuring those prices do not over-inflate through small steady interest rate rises, banks have allowed massive 100% mortgages to cover the inflated cost of buying a property. But the property-bubble has now inflated so high that young people are being offered the genuinely “too good to be true” option of taking out a much larger mortgage but over 40 years, instead of 25. This means they think they are being offered a chance to buy the house of their dreams; “It’s clear what the attraction is. You pay £948 a month for a typical 25-year mortgage, but only £716 if you extend the term to 40 years.” (BBC, June 2016) [Based on borrowing £300,000]
But, in reality, if one has the time to research the market and economy, all the signs are screaming that what they are really being offered is a chance to invest into the stuff of nightmares; ” Interest over 25 years adds up to around £84,000, but the total over 40 years is £144,000, a huge bill for borrowers. “It’s a real danger,” warns David Hollingworth from London & Country Mortgages, who calculated the figures. “They need to understand that they are going to pay thousands more in interest over the life of the mortgage.” (BBC, June 2016)
If all the signs are pointing to an economic and property crash in the next few years, then this is a 100% “gamble against the house”; the “house” being the banking system, which owns your house through such life-long mortgages. And we all know the casino is rigged to ensure that it always wins. The banking system is the same.
I’m really concerned that young families and people like this are being played. It is far, far wiser to buy small and live in a way where we have a monthly financial cushion. Because, when house prices crash, when interest rates rise, when our current short deflationary period switches – often rapidly – to sharp inflation, or even hyper-inflation, that cushion will literally protect us from the economic impact, as much as the life-saving airbag in our car!
What is tragic is the conclusion the young couple voice about their new £300,000 40 year mortgage: “They’re relying on house prices continuing to rise, to shore up their finances. “We’re stuck in a rut really,” Katie says. “We’re taking a massive risk.”
And that is the problem. Bubbles create risk-taking behaviour because people see no way out, rather than seeing the bubble and holding back until it pops. But if we all knew that an economic crash was coming soon, we would all then be able to take the wisest action now. We would pay down our debts instead of increase them. We would buy into the historical safe havens of physical Gold and Silver, we would live a little more simply to save a little bit more.
Another inequity this week, that is showing, thankfully, more and more clearly is the lie that the cause of the coming global recession would be a Brexit; as well as World War III. If you haven’t enjoyed this very scenario on the E.U. Debate, delivered this last week with expert comedic timing, to David Cameron, here it is again: “What comes first, World War III, or the Global Brexit Recession?”
In all seriousness, blaming the Brexit for a Global Recession is like blaming today’s mid-day sun for last night’s darkness. We’re already in a global recession! It’s not equitable to blame the last person who is just about to walk into a room for the mess made in it over the last seven years. The wisest action we can now take, economically, is to run as far away as we can from that room; to get as far away as economically possible from the imploding Eurozone economy before it collapses completely.
If I had the spare time, I would love to count the total number of times David Cameron has said “the single market” during both last night’s ITV E.U. Referendum debate, Sky News’ and the copious press conferences he holds. But we also know the wise old adage that says, “Don’t put all your eggs in one basket” or more contemporaneously, “Don’t put all your eggs in one single market!” The single-market of the eurozone is very ill and, as any basic logic would tell us, it is therefore wise to diversify into the commonwealth and the world economic stage as much as we can. And to do this, we need to get out of the fiscal E.U. restraints and tariffs that make it more expensive for us to do so.
Because the economic facts reveal that the eurozone “single market” is in a terrible state: Italy’s debt to GDP is now at a staggering 132%, Spain’s is at 99%, France’s is at 96%, Belgium’s debt has raced up the charts in the last year at 106%, Greece’s debt now stands at 176% of its GDP and Portugal’s debt to GDP has now hit 129%. Great Britain’s is lower than all of these at 89%. (Trading Economics, 8th June 2016)
The Brexit will be one of the most mitigating moves we can take to protect our economy from this undeniable eurozone crisis and just in time. I would really like to know what is making some high profile people say things that are clearly at odds with the facts. My hope on behalf of us all is that whatever it is will begin to surface before June 23rd.
But in the interest of fairness and equity, let’s look at the opposing argument:
“If Britain votes to remain in the EU on the 23rd June, the impact will be a damp squib and the dust should settle very quickly. But if UK voters opt to quit Europe, it will amount to a national economic disaster, on par with the 1930s depression and 2008’s financial crisis. This time round, there may be no easy way back from what would be left of Britain’s broken economy. The economy and UK financial markets could be left scarred for many decades. It would end up a horror show for the economy. Lasting harm to British export prospects, the loss of inward capital flows and the threat to London’s future as a major financial centre would do untold damage to Britain’s standing as a leading industrial nation.”
Blimey! That sounds a bit scary. Firstly, though, this article is – quite hilariously if we stop and think about it – written for the South China Morning Post! A little too much deflection perhaps, from a communist nation who’s huge economic judderings are one of the major causes of global economic woes, as we saw in the first three months of this year.
Let’s look at some facts: Is the British economy broken, in comparison to the eurozone’s, as this author suggests?
In a word, no. Each E.U. member has to contribute to the E.U. budget pot and the size of that contribution is calculated on the health of each country’s economy. So, the stronger your economy the more you pay in. That sounds like a socialist nightmare, not the free market rewarding those nations that work and produce more. Let’s look at the hard economic facts:
“While most of the EU countries contributed shares between 0.06 percent (Malta) and 2.04 percent (Denmark), only four Member States, namely France, Italy, Germany and the United Kingdom (UK), reached contribution shares greater than 10 percent. Together, these four countries make up over 60 percent of all contributions, with Germany contributing the largest single proportion.” That doesn’t sound like a “broken British economy” to me, it sounds like a broken E.U. economy.
I purposely have not taken these figures from any newspaper, as each newspaper can have its own leaning toward or against the Brexit and can, arguably, use statistics accordingly. All these figures are from an independent Statistics Portal called Statista.
The U.K. pay 12.57% of the E.U. total budget, which is almost the same (12.72%) as ALL the following E.U. member states COMBINED:
Malta,
Cyprus,
Estonia,
Latvia,
Luxembourg,
Lithuania,
Slovenia,
Croatia,
Bulgaria,
Slovakia,
Hungry,
Romania,
Czech Republic,
Portugal,
Greece,
Ireland,
Finland
Denmark.
When you add up ALL those countries contributions to the E.U. pot, they come to 12.72% of the E.U. Budget, but our plucky little nation of Great Britain is having to pay almost exactly the same percentage (12.57%) of the E.U.’s budget all on our own. What was the definition of inequity again? A lack of fairness. So, will our economy really be the one to suffer from a Brexit? In 14 days time, each of us can go out to a polling booth and answer that question for ourselves in one of two ways.
But, rather than just be neutral and spend time finding neutral statistics, let’s go the horse’s mouth, the E.U. itself. And let’s ask that same question; is Britain a net contributor or a net user of the E.U. budget? Not only are we a massive net contributor but out of the 28 E.U. member states (with Turkey and the Balkan states of Macedonia, Montenegro, Serbia and Albania having all applied and now waiting to join the E.U.) we are the third largest contributor. Last year we were the 2nd largest contributor, surprisingly only beaten by Germany. (Figures taken from the E.U. Information Centre in Denmark.) I spent considerable time researching these facts and figures from sources outside of the media debate, because that is to be fair and equitable to our readers.
Facts always speak for themselves.
So, why did the Gold price jump back up this week? Our news headlines have rather been dominated with personality clashes and debate pros and cons, which could both cloud the key above questions of what is equitable for the great British public and deflect us from other very important developments in the economic news:
This week some very notable statements have affected the rise in the gold price:
The world bank has issued a continued warning about the “insipid” lack of real recovery in the global markets: [cutting] its outlook for global growth as business spending sags in advanced economies including the US, while commodity exporters in emerging markets struggle to adjust to low prices.” (The Independent, 8th June 2016)
In the U.S. “terrible” jobs data has delayed the Fed’s plan for an interest rate rise. “We cannot take the resilience of our recovery for granted,” said Fed governor Lael Brainard. In a caution-heavy speech, Brainard spoke of “prudent risk management” and referred to the latest report as “sobering.” (The Week, 8th June 2016)
I wonder if “Prudent Risk Management” is one of the best and most recent euphemisms I heard for “Buy Gold!” If you were wondering what caused the rush back into Gold and Silver this week and why the prices suddenly began rising again, then this heavily laden statement by the Fed governor is considered a key point in the economic commentaries:
“On Monday, gold built on sharp gains enjoyed on Friday after data out of the US showed employment growth in the world’s largest economy at a near-six year low, pushing back any interest rate hike well beyond the summer. Year to date the metal is higher by 18%, the best start to a year in a decade.” (Mining.com, 7th June 2016)
In conclusion, I’d just like to say I write the text for the Bleyer blogs but Dan and Caroline make them look so good! And last week Dan added such a great graphic to the piece after I uploaded the text. It’s a guy in a small lifeboat looking safely from the distance at the sinking Titanic. What I liked so much about it is that is exactly the picture I’d been trying to describe to myself for weeks about how getting out of the E.U. feels. But, without consulting with each other, he came up with exactly the image I’d been imaging. Instinct can trick us into believing, albeit nervously, into staying on the bigger ship. But the safest route is into the smaller lifeboat, even if the seas may appear choppy and the movement feels unnerving. This is exactly how I feel about this country on June 23rd, this wonderful nation of Great Britain; we may feel a little smaller after a Brexit but we’ll be off the sinking ship of the E.U. And that feels like fairness to me.
Thank you for reading our latest blog, we hope you enjoyed it and welcome your comments and always. We will for now leave you with this fun little video/song titled “The Referendum Game” which was shared with us.
To protect your wealth and the wealth of your family, please call Bleyer today and discuss the many TAX savings available through buying Gold and Silver. We hope this blog has helped inspire you towards taking steps of owning your own Physical Gold and Silver. Many of our clients start small; some is better than none. Browse our Gold and Silver coins and bars, visit our Special Offers page and give one of the Bleyer team a ring to chat through which coins and/or bars might be right for you. Some products also offer Tax Advantages, please ring for details on 01769 618618.
