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It's Not Our Job To Help Savers, Says Bank Of England


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HOLA441

http://money.uk.msn.com/exclusives/its-not-our-job-to-help-savers-says-bank-of-england

Asked whether the Bank was ready to swing the balance back from favouring borrowers to rewarding savers by pushing interest rates up, Fisher responded: "We have to try and set interest rates for the benefit of the economy as whole. We can't do it for the interests of one particular group rather than another."

"There will be individuals worse off. I've said this is the largest recession we've seen since at least the Great Depression so there are a lot of people worse off, but it's not a case of one person's turn now and another person's turn next."

Fisher is a member of the Bank's Monetary Policy Committee, which sets interest rates, and also sits on the newly established Financial Policy Committee, designed to make the banking system safer.

Good to see that the BoE are not favouring the interests of one group of people over another...

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HOLA445

He should have been reminded that the savers group that he so contemptuously dismissed does include people starting retirement who are being offered pitiful annuity rates for their annual pension for the rest of their lives and that's a direct result of the BoE's interest rate policies. Not only that but with all the BoE's money printing that low annual annuity income will be further eroded by inflation.

He also seemed to blatantly mislead when at the end he said that prices would still rise in deflation. He should have been asked to explain that but as usual nothing from the interviewer.

He said about two thirds of the way through that it's their job to try to make everybody better off. Major fail then - apart from obvious groups like those running the banks, BoE employees with their inflation linkages, those in high levels of mortgage debt and so on.

They have no credibility left and that Fisher didn't help one iota in that connection. He looked extremely uncomfortable for most of the interview.

Edited by billybong
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HOLA446

Good to see that the BoE are not favouring the interests of one group of people over another...

For most of the period since the 70s, real interest rates have been very reliably positive:

DB123_1_002i.jpg

Going back further into the 20th century, you do see a sustained period of negative real interest rates during and after the war. Further back than that back into gold standard days in the 19th century, you see a lot of volatility with large swings in the real interest rate, positive and negative.

So in recent times, relative to the very long run average, savers have been very consistently favoured with an unprecedented period in which positive real rates have persisted.

So given that borrowers have been systematically punished relative to savers for 4 decades, the save our savers meme looks distinctly selfish, and myopic.

Also consider that perhaps the long period of saver-favouritism and relatively high real rates, may well be is a primary reason for the excessive levels of indebtedness we now face.

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HOLA449

I don't agree agree with an inflation rate that excludes the cost of purchasing a home and a pension - one's two greatest purchases by far.

This thread isn't about inflation per se, its about the long run bias towards savers and borrowers, which can swing either way regardless of the nominal inflation rate. The reason WHY houses got expensive is because the monetary authorities insisted, for whatever reason, on an historically unprecedented multi-decade squeeze on borrowers and wage earners, in order to deliver multi decade positive real interest rates.

The only way that could be delivered, was to allow a multi decade credit expansion. And now, people want more of the same!

Sorry, can't be done. There is no way the bank could achieve it, even if it wanted to.

I would also add that despite the Bank rate being 'real', because banks could tap global money markets, savings deposit rates tended to be negative due to excess savings from overseas surpluses.

Yes, looking at asia and the EMs in general, you'll see a pattern of negative real rates over much the same period I was talking about above.

Rebalancing?

That means doing a swap, we get negative real rates, some jobs back and affordable domestic investment, they get positive real rates and give up some jobs and get to buy more tat. That's what rebalancing has to mean.

You do want rebalancing don't you?

Edited by scepticus
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HOLA4411

For most of the period since the 70s, real interest rates have been very reliably positive:

DB123_1_002i.jpg

Going back further into the 20th century, you do see a sustained period of negative real interest rates during and after the war. Further back than that back into gold standard days in the 19th century, you see a lot of volatility with large swings in the real interest rate, positive and negative.

So in recent times, relative to the very long run average, savers have been very consistently favoured with an unprecedented period in which positive real rates have persisted.

So given that borrowers have been systematically punished relative to savers for 4 decades, the save our savers meme looks distinctly selfish, and myopic.

Also consider that perhaps the long period of saver-favouritism and relatively high real rates, may well be is a primary reason for the excessive levels of indebtedness we now face.

How does the graph go after 2004? No more Boom and Bust?

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I've said this is the largest recession we've seen since at least the Great Depression

We're not even in recession - we had a brief dip into recession some time ago, but even the latest figures suggest we will avoid going back into recession.

IRs were dropped to "emergency levels" years in 2007/8. No one would deny it was an emergency then - why is it still an emergency now? There's no banks at imminent risk of failure.

If anything, the greater risk is that the housing market is heading towards another boom - see 1) London, 2) latest Rightmove asking prices

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Their job is to control inflation.

Thery are refusing to do that.

Their interest rate setting powers should be removed.

No one has every voted for these people and they are crippling most of the country....but than bankers are ok.

Funny that,...no bias whatsoever, its all in the aid of the economy.

Will one MP not stand up and fight for the other 99.99999999999% of the country ?

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Their job is to control inflation.

Thery are refusing to do that.

Their interest rate setting powers should be removed.

No one has every voted for these people and they are crippling most of the country....but than bankers are ok.

Funny that,...no bias whatsoever, its all in the aid of the economy.

Will one MP not stand up and fight for the other 99.99999999999% of the country ?

AFAIKT they have an over-riding remit to manage the base rate in what they view as the best interests of the economy.

Their job is not to solely control inflation.

It it was, you would not need an MPC, but a computer, which ramps the base rate up and down depending on the current rate of inflation *

EDIT : Probably something like a PID controller.

Edited by Gigantic Purple Slug
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HOLA4418

This thread isn't about inflation per se, its about the long run bias towards savers and borrowers, which can swing either way regardless of the nominal inflation rate. The reason WHY houses got expensive is because the monetary authorities insisted, for whatever reason, on an historically unprecedented multi-decade squeeze on borrowers and wage earners, in order to deliver multi decade positive real interest rates.

How are real interest rates calculated? Isn't it linked to measures of inflation?

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HOLA4419

AFAIKT they have an over-riding remit to manage the base rate in what they view as the best interests of the economy.

Their job is not to solely control inflation.

It it was, you would not need an MPC, but a computer, which ramps the base rate up and down depending on the current rate of inflation *

EDIT : Probably something like a PID controller.

Quite. Also, it isn't as easy as just raising rates and lowering them.

If an economy is going to contract, its currency will fall relative to foreign currencies, regardless of what rate of interest is set domestically.

If the rate were set high while domestic credit were contracting it just makes the problem worse, and results in broken banks (possibly a broken central bank too). The irony is that then money must be printed to bail out depositors. Naturally, in such a scenario foreign (and domestic) capital would flee and the exchange rate plunge even further.

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Quite. Also, it isn't as easy as just raising rates and lowering them.

If an economy is going to contract, its currency will fall relative to foreign currencies, regardless of what rate of interest is set domestically.

If the rate were set high while domestic credit were contracting it just makes the problem worse, and results in broken banks (possibly a broken central bank too). The irony is that then money must be printed to bail out depositors. Naturally, in such a scenario foreign (and domestic) capital would flee and the exchange rate plunge even further.

I notice the NIRP warning siren hasn't been sounding recently.

Why's that do you think ?

Edited by Gigantic Purple Slug
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HOLA4422

AFAIKT they have an over-riding remit to manage the base rate in what they view as the best interests of the economy.

Their job is not to solely control inflation.

It it was, you would not need an MPC, but a computer, which ramps the base rate up and down depending on the current rate of inflation *

EDIT : Probably something like a PID controller.

And what exactly were they doing in 2003-05 when it was plain for all to see that house prices were in a bubble and would, when reallity dawned, threaten the economic stability of the country-O' thats right doing F all because that meant their banker buddies could steal more of the nation wealth. LINE THE FVCKERS UP AGAINST A WALL, NO TRIAL, JUST A JURY OF THE PEOPLE.

Edited by zebbedee
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HOLA4423

The reason WHY houses got expensive is because the monetary authorities insisted, for whatever reason, on an historically unprecedented multi-decade squeeze on borrowers and wage earners, in order to deliver multi decade positive real interest rates.

The only way that could be delivered, was to allow a multi decade credit expansion. And now, people want more of the same!

IMO it one off the classic feedback loops that an interconnected system can generate and shows how all general equilibrium models are just sham science - undergraduate applied maths masquerading as insight.

It doesn't matter where it began, it was a death spiral of hot money chasing yield, an interest rate policy seeking to stamp out inflation and a government's complicity in the "income inflation" facilitated by the addition of debt spending to wages.

Any of these changes could have started the march of credit.

That's like saying savers deposited so much it was their fault that the banks lent so much.

+1

I guess the question is which savers - it wasn't UK savers who did this to the mortgage market:

funding%2Bfsa%2B2009.png

The banks and the specialist lenders were funded by the hot money, that's why the banks are zombies and the specialist lenders are gone.

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HOLA4424

I guess the question is which savers - it wasn't UK savers who did this to the mortgage market:

funding%2Bfsa%2B2009.png

The banks and the specialist lenders were funded by the hot money, that's why the banks are zombies and the specialist lenders are gone.

Herding the money - these "banks" were writing tuff they would never touch themselves or hold on their own books, they packaged it up and dumped it on those reliant in interest bearing investments that would, match or even keep some semblance of value against the inflation backdrop. They needed insurance companies, pensions, councils, state pension funds in the US to buy it. Enter stage rigght the central banks - in particualr George, King, Greenspan and Bernanke - they drove rates down and pushed the market into the hands of the banksters.

They absolutely 100% are one of the prime causes of this mess and the disgusting slope shouldered creatures are still there preening themselves and poncing off the rest of us.

Edited by OnlyMe
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HOLA4425

The current remit is still 2% cpi. In the remit they say the +/- 1% threshold does not define a target range but the points at which a letter is required as inflation is "appreciably" away from its target.

During his budgey speech last March Osborne confirmed that the remit still stands and it still says "the inflation target is 2% at all times: that is the rate which the MPC is required to achieve and for which it is accountable."

Additionally in the BoE/government exchanges they mention things like the "objective of strong, sustainable and balanced growth that is more evenly shared across the country and between industries" - although sometimes that's worded differently e.g. "to achieve high and stable levels of growth and employment by raising the sustainable growth rate and creating economic and employment opportunities for all".

Those general objectives are"subject to" the inflation target of 2%.

From the remit

"..the objectives of the BoE shall be:

a ) to maintain price stability and

b ) subject to that to support the economic growth policies of HM's government, including its objectives for growth and employment.

At the start of 2010 when inflation was nearly 4% the BoE stated the excess inflation was temporary ("cpi will fall back to 2% by the end of the year"). 2 years later it's still well in excess. Temporary is allowed within the remit but the word "temporary" has been stretched well beyond its meaning.

Basically they've failed on all counts. The target has been exceeded for most of the last 5 years. The job should be given to some body that will take the remit seriously for the long term and not just short term expediency. It's also time they had a new more realistic remit as they clearly aren't working to the current target at all times.

Edited by billybong
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