An Economic Sword of Damocles

Last month, officially, the recession ended in Britain. With less than a 0.01 percent growth in the economy. While there has been plenty of comment about how fragile this growth is, and that it will be a while before we really notice the improvement. Not least because of the level of government borrowing.

However, no one seems prepared to see, understand, or confront the very reason why the recession happened in the first place.

While it was the collapse of the banks that threw the worlds economies into recession, it was the bursting of the property bubble that triggered this. Therefore, while the banks still do need to be sorted out, it is the over inflated property values that no one is prepared to confront.

I realise that for the many people who have paid more than there home is worth, this will be hard to accept. But until property values regain a realistic value, it will be like an economic sword of Damocles hanging over all of us.

If it were not for the government deficit then this would be less important, as it would only really effect the people who had over paid for their homes. But because of the loans from the government made to the banks as well as buying out some of the banks, the state needs to conspire in the myth that housing is really worth the values that people paid. One of the aspects that caused the banks here so much difficulty and many of the banks losses was the collapse of commercial property values. They fell by eighty and ninety percent. While domestic property values fell by only fifteen percent during the recession. That means domestic property is fifty to sixty percent overvalued still.

The media and the government are celebrating that house prices appear to be going up again, and while having that appearance of ever rising house prices does make people feel richer, it is a dream that will turn out to be a nightmare of a further recession.