Ramblings on the recession

The £400billion bank bail out I think represents about £20,000 per tax payer and no, I don’t really think that there was an alternative. We have moved to an economy where government, many businesses and many private individuals, view financial stability as being able to pay the interest on what one has borrowed, instead of being able to pay for what we can afford.

What really worries me here is that if this means that mortgage lending continues so that house prices don’t fall back to where ordinary people can afford houses, the fundamental cause of the recession has not been addressed.

This is that those of us engaged in productive work are essentially buying our own country, rather than ploughing the fruits of our labour back in to the real productive economy. Ease of borrowing for the last 15 years means that the price of an ordinary house in Ramsgate built years and ago paid for many times over, has risen from a value of about £50,000 to about £250,000 meaning that someone in an ordinary job has no hope of buying it, unless they borrow far more than is safe for them.

It would seem to me that in bailing out the banks, the government has bought a lot of houses really worth £50,000 for £250,000. Now the old adage was never borrow what you can’t comfortably pay back at £10 per thousand per month. Now times have got tough before and we have seen 10% interest rates, which mean a loan of £200,000, would mean repayments of £2,000 per month. So if and when the repossessions start by the government owned banks, lets hope they will rent the properties back to the occupants at a reasonable rent.

Here in Thanet one effect of all this is that the value of buildings in which small businesses operate has increased to the point where rents that relate to their freehold value is out of all proportion to what those businesses actually produce in profit. We have seen many long established shops go from our towns recently, including two bookshops, no bale outs for them.