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Save, borrow, whatever

So the fairly essential cuts in interest rates are hitting savers. As a net saver, I can only say this is a good thing.

There are approximately four sorts of people in the UK, financially speaking:
1) people with no assets or liabilities. “The poor”.
2) people with houses and mortgages. “Hard-working families”.
3) people with some savings, no house and no mortgage. “People who noticed there was a bloody great house price bubble”.
4) people with houses, savings, and no mortgages. “Jammy sods”.

Cutting the interest rate benefits people in group 2, at the expense of groups 3 and 4. But the house price crash has massively disbenefited people in group 2, to the benefit (either now or at some point in the next couple of years) of people in group 3. The fact that we’ll lose out on interest in the short run is more or less irrelevant, since by next year our cash will be worth about 1.5x what it was in 2007 in terms of “how much house can you get?”. So it’d be churlish for people in group 3 to worry too much about bailing out the poor buggers in group 2 – we’ll just buy their houses for next-to-nothing…

People in group 4 are unequivocally hit both by the house price crash and by the interest rate cut. But since their net worth is enormous by comparison with everyone else, even after both these adverse events, and since they’re the ones who benefited from 40 years of house price inflation and the enormous wealth transfer from the young to the old that this entailed, their plight is pretty much inconsequential.

And the poor? Well, they’re pretty much still poor, just as they were during the boom.

Categories: Financial arcana
  1. December 4, 2008 at 10:37 pm | #1

    You have, unusually for you, a very simplistic attitude to those of us in 4, perhaps you are being driven by the Green Eyed monster that seems to be the motivation of many on the left.

    Rather than chasing the rainbow of higher prices some of us worked hard, saved and paid off our mortgages. We made sacrifices – in my case working away from home when my family was young, foregoing nice cars and expensive holidays – and don't deserve to be treated with the contempt Gordon Brown and you hold is in.

    We then continue to save to ensure that our retirement is comfortable and we don't become a burden on our children or the State.

    Perhaps you should have renamed us fools and idiots for we too are are hard working and I'll bet I work a lot harder than many of those who fall in to 2.

    As for the fiscal transfer of high house prices making is us "rich", that is the policy of a Labour Government. If they let them fall job done without the need for the Green Eyed Monster.

    And while I'm at it why should I now be paying for those who used equity withdrawal to go on holiday, buy big cars and generally fund a lifestyle beyond their means?

  2. ajay
    December 4, 2008 at 10:39 pm | #2

    So it’d be churlish for people in group 2 to worry too much about bailing out the poor buggers in group 3 – we’ll just buy their houses for next-to-nothing…

    You've got your groups confused – group 3 are the ones who will be buying out group 2.

  3. December 4, 2008 at 10:42 pm | #3

    Ajay – cheers, fixed.

    GS – I get your point, but I think you're overestimating the impact of hard work (not to say that you didn't work hard) and underestimating the impact of a deliberate policy decision by a series of governments to engineer a massive wealth transfer to your generation. It's not a jealousy thing, it's a "who can afford to bear the burden" thing, and that's definitely my group and your group…

  4. December 4, 2008 at 11:14 pm | #4

    John B, as somebody who is squarely in Group 3, that's fair enough, which is why I hesitate to do special pleading on our behalf. I have hedged likely UK rate cuts by putting a third of my easily-earned cash into FX anyway, so far I have made enough to cover two or three years' interest shortfall on the other two thirds.

    But Group 3 is a tiny group (statistically speaking). And the interest rate cuts are only part of it:

    Trying to prop up house prices with taxpayer funded subsidies is at the expense of all 4 groups, and tax hikes always go at the expense of the economy as a whole. There is only a small subset of people in Group 2 for whom the benefits outweight the costs. And as TGS says, half of that subset were asking for trouble (MEW for buying holidays and cars and other such frippery).

  5. December 6, 2008 at 2:40 am | #5

    As a Group 4-er, let me say, John, that you know how to kick a man where it hurts! However, my revenge is already in the planning stage. I intend to spend all my measley savings before the rampant inflation that is sure to come swallows them whole, and then I shall throw myself on the mercy of the tax-payer. I had already promised 'SoD' (Son of Duff) that I intended to be a burden to him, but soon I shall be a burden to you all – so keep toiling away, suckers!

  6. Malcolm Stevas
    December 9, 2008 at 9:26 am | #6

    "4) people with houses, savings, and no mortgages. “Jammy sods”. "
    Crap: good fortune has bugger all to do with it. It's called not taking Florida hols on the credit card, and not buying 4x4s similarly…

    "People in group 4 …. their net worth is enormous by comparison with everyone else….their plight is pretty much inconsequential…a deliberate policy decision by a series of governments to engineer a massive wealth transfer to your generation…"
    What planet are you on, buster? That I have any money at all is no thanks to any sodding government, and certainly not because of cunts like you. If I knew where you lived I'd pay you a visit.

  7. December 9, 2008 at 10:21 am | #7

    "Crap: good fortune has bugger all to do with it."

    Average house prices grew over 700% from 1983-2007. Overall inflation over the same period was a bit over 100%. That means that the real cost of a house rose by about 6 times over the 1983-2007 period.

    So if you're someone aged 50 who bought their first house in 1983, and has just finished paying off the mortgage, then you've done very well indeed, however apoplectic you feel when you read your tax bill.

    But that financial success isn't just because you're excellent – you can tell that, because if there were someone aged 25 today with just as much hard work, financial acumen and prudence as you, they would have to pay 6x as much as you did in real terms to get their first house, and then they still wouldn't see anything even resembling a 6x return on their asset over 25 years. In other words, there has been a massive transfer of wealth from that generation to your generation, which can't be repeated this time round – and that's where 'lucky sods' comes in.

    "That I have any money at all is no thanks to any sodding government

    Yup, Somalia, that haven of peace and prosperity. But then, I'm jumping to conclusions: maybe you'd make an excellent pirate…

    "and certainly not because of cunts like you."

    I'm not quite sure how you're so sure that someone who works in the private sector, pays tens of thousands a year in tax, and who'll eventually pay someone in your generation some terrifying sum to buy your house so you can retire to Barbados, has anything other than a neutral-to-positive impact on your financial wellbeing.

    (I'm jumping to a few conclusions here – but if you're not someone aged 45-65 in a 'house with mortgage nearly or fully paid' situation, then you're not a core Group 4 member anyway)

    "If I knew where you lived I’d pay you a visit."

    …and if you were half as clever as you think you are, you'd know that my address is readily available on the Internet. Do come round; I'll make you some tea while you apologise for being so gratuitously rude. Let me know in advance so I can get some nice biscuits in, though.

  8. December 9, 2008 at 8:41 pm | #8

    "Er, give him one for me, Malcolm!" he shouted from behind the safety of the internet!

  9. December 9, 2008 at 9:19 pm | #9

    You're also welcome to come round for a cup of tea, David. And I mean a proper one, not like the vile machine-at-work fake beverage I'm forcing myself to drink right now for sheer caffeine purposes.

  10. Malcolm Stevas
    December 10, 2008 at 8:32 am | #10

    "…and if you were half as clever as you think you are, you’d know that my address is readily available on the Internet."
    It was rhetoric, as you jolly well know, suggesting that you're a complacent bastard who deserves a bloody good thumping. Your 6th-form-smartarse calculations are jesuitical; "half as clever" is always employed by those convinced they really are very much cleverer; and your reference to Somalia is puerile. Some of us are so terminally pissed off with being shafted by governments, and by too many of our fellow citizens, that when someone like you comes across as a smug Guardian-reading git and an apologist for our rulers, we tend to feel somewhat annoyed… Thanks for the offer, but I'm a coffee man, and trying to cut down on the biscuits, getting used to a more austere lifestyle than I'd envisaged.

  11. ajay
    December 11, 2008 at 10:53 pm | #11

    Shorter Steve-o: stop trying to engage with my arguments, you idiot, can't you see I'm just ranting incoherently?

  12. ajay
    December 11, 2008 at 10:56 pm | #12

    I’m a coffee man, and trying to cut down on the biscuits, getting used to a more austere lifestyle than I’d envisaged.

    You have a house, savings, and no mortgage problems, thanks (in your own telling) to your laudable habits of hard work, frugal living and continual saving… and yet you can't afford the occasional biscuit? What sort of biscuits are you eating?

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