Last year, the British economy was one of the hardest hit by the now evident commercial property (CRE) implosion. Prices fell 27.1% in 2008, including a record 5.8% in December alone, suggesting the trend is accelerating. I mentioned in my “Top Ten Predictions for the 2009 global economy” that I believed commercial property writedowns would be numerous because of securitzation. Ireland, the U.K. and the U.S. are tops on the list for a CRE correction. You should note that this trend is very much related to declines in the real economy as retail is where the greatest problems now reside.

There is no way to look past the way that the U.S. TARP (Troubled Asset Relief Program) has been administered and not understand we are seeing crony capitalism at work. One only need look at the way the British are doing things to see a true banking bailout which limits moral hazard and regulates against poor behavior.

President-elect Barack Obama has signaled he intends to bring the same methods to the United States. These are issues I have mentioned in prior posts regarding using historical precedents as a guide to administering America’s TARP program and setting up a framework for a comprehensive banking crisis solution. The following steps are what are still needed in the U.S.:

The data are in for house prices in the United Kingdom and they are not good. Prices have now fallen 18% from their peak in October 2007 according to the latest Nationwide Building Society survey. They were down a massive 2.5% in December 2008 alone. If you recall, I said November’s survey showed that prices had dropped 13.9% in the year to November, with the losses in December, this number has accelerated to 15.9%- one reason I predicted the United Kingdom will suffer a wave of defaults in the coming year.

I caught a good article in today’s Guardian about the British Pound. The question is: how weak will Sterling get? My answer is below 1-to-1 with the Euro. But before I tell you why, let me interject a blurb from the article.

The U.S. Dollar got more bad news today when the Bank of England (BoE) decided to not follow the U.S. Federal Reserve’s lead to a Zero Interest Rate Policy (ZIRP). The BoE was seen as the most likely to follow in the Fed’s footsteps as i suffers from the same debilitating economic problems a popped housing bubble and record writedowns followed by job losses, a lack of consumption, and economic stagnation. Most importantly, U.K. banks simply are not lending. But that does not mean they want to follow the U.S. to zero.

Zero percent interest rates mean a weak currency. The U.S. Dollar is getting hammered. See these charts from the last day and a half of trading. Even the British Pound is cleaning up!

Today the Nationwide released their monthly UK-wide figures on house prices and the numbers were better. House prices fell 0.4% in the last month, bringing the annual fall to 13.9%, down from 14.6% in October.

Nevertheless, this is the 13th month in a row that house prices have fallen in the UK. Obviously, the UK is poised to have a sharp property fall that is worse than in the early 1990s.

Below is a link to an article I wrote about the Bank of England’s aggressive 1.5% interest rate cut that appeared in yesterday’s Guardian newspaper.
The unkindest cut, GuardianThe long and short of it is that I am very skeptical about the need for such a large cut. Many pundits felt the BoE was behind [...]

The Bank of England has cut interest rates to 3%, a 1 1/2 point cut. Just weeks ago, the BoE Governor Mervyn King was writing to the Government explaining how they had let inflation run out of control. However, with the economy tanking, credit short of hand and commodity prices plummeting, the Monetary [...]

This post is a guide to understanding the GDP deflator, which the government uses to arrive at the economic growth numbers we all hear on TV or read about in the newspaper. This post is the product of a lot of background research and some good confirmatory side conversations on the topic [...]