Thursday, Feb 08, 2007
Flashback: Chancellor forced to raise rates 5% in one day to defend the currency
Wikipedia: Black Wednesday
Ah, what short memories people have! This idea that the interest rate will only move 25 basis points (0.25%) in a month is a great thing to believe in.
How quickly we all forget. Norman Lamont had to raise rates in a special session to protect our currency from massive devaluation.
It needs to be said that when e.g. the ECB bank loses its bottle and bumps up rates, there will be an international interest rates "arms race". To stop flows out of your currency, you will need to boost those rates. 15% bank base rates is not unheard of.
People need to vist the series data for 1978 - 1982 to see what can happen.
Posted by lvmreader @ 03:54 PM (166 views) Add Comment
17 Comments
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1. Nohpc said...
yea but it's just not gonna happen
2. glorious sunshine said...
An interesting link...
If anyone posting on this site think interst rates are going to go into double figures in the next five years needs locking up not just for their own safety but for the safety of everyone reading these boards.
3. Bimlam said...
That's strange, after my daily visit to HousePriceCrash, I was looking up Black Wednesday on Wikipedia at exactly the same time you posted the link!
4. enuii said...
I'm with Mr.Sunshine on this one, double digit interest rates would unleash economic carnage after rates have been so low for so long.
5. Rimmer said...
Sunshine and Enuii
I am with you to a point as its unlikely, however i remember saying that same back then, dont for one minute think Brown would give a to** about your house and mortgage should it be required to contain a global economic event, it cost Lamont and Major their seats but they still had to and did do it.
I can see 7.5% by end of 2008 maybe, if theres a trigger then and panic who knows, one things for sure we wont be seeing 4% or less anytime soon either
6. Lvmreader said...
Perhaps you are unaware of the gravity of the situation.
In the USA in 1979, rates were 15%+. Consumer rates were 21%.
Here are some videos you may find instructive.
Freedom to Fascism
http://www.youtube.com/watch?v=xuxc2rl38rg&mode=related&search=
http://video.google.com/videoplay?docid=-4312730277175242198
Terror Storm
http://video.google.com/videoplay?docid=-7048572757566726569
Fiat Empire
http://video.google.com/videoplay?docid=5232639329002339531
7. Sam said...
Glorious, Enuii.
I agree. but anyone who posts on this site and cannot work out that interest rates do not need to be double digits to cause economic carnage needs locking up too.
at 6% it would be uncomfortable for most. Massacre at 6.5, carnage at 7.
8. Blindleadtheblind said...
what apart from blind optimism makes you think this cant happen? Can you for exapmle back up these thoughts with some facts? Several prominent central bankers have warned lately that risk is undervalued at present and will reset to more historic norms( read higher), and this includes bank lending rates. Crisis can and do happen quickly, to think otherwise is naive. 5 years is a long time. Sure the central banks dont want rates like that, who does, except savers if inflation remains out of control, but sometimes in order to protect the currency they are forced into doing the unpalatable. Pls dont tell me inflation is under control, if it were then BOE would not be contemplating writing to Mr Brown.
9. paul said...
Conversely, anyone who thinks interest rates would need to get close to double figures to wreak economic havoc should also be locked up, for being myopically optimistic.
10. The Capitalist said...
Nominal interest rates are meaningless! People borrow to the maximum they can afford, so it's about ratios - since Aug 06 IRs have gone up by over 10%, as they say across the pond 'do the math'.
The policy by the MPC looks like a death by a thousand cuts...(The Fed has increased IRs 17, yes 17 times over the last five years or so)
11. george monsoon said...
Ok, lock me up.. because I believe that over the next two years we will see interest rates get nearer to 10% not further away.
12. sovietuk said...
I'm really looking forward to interest rates going up. 10% plus please and more, oh and at least for three years as well :-). Do i detect certain types of so called investors feeling a little rattled at the moment? Well good cos there's a tsunami on the way and your in the firing line.
13. waitingfor hpc said...
i agree - true inflation 10%, therefore interest rates to fight that would be......???????
and with 165% GDP personnel debt, and 85% debt for the govt (true figure not Gordons), money being printed like it is going out of fashion - it seems logical for BoE & Gordon to keep them done for as long as possible but it is starting to rebound on the BoE and govt now.
Rates will have to go up as the pound is gonna fall at some point! Look over the pond at the US. Who would have bet in 1998/1999 that house prices would have gone up 100% in 5 years?? For that reason I never say never.
14. Marcosscriven said...
You all miss out the fact that such an event (5% in one day) was unprecedented, and we've never come close since. You also fail to mention why - IE the Exchange Rate Mechanism.
I am bearish about the property market, but this entry from Wikipedia, presented as 'news', really scrapes the barrel.
15. headmelter said...
I have to agree with Paul and George here, double digits aren't needed but they will come damn close.
16. dohousescrashinthewoods said...
I think 10% is a plausible risk.
When the credit bubble bursts, as it must, it's offspring, the mortgage bubble, which created the housing bubble, will expire in a cloud of human suffering and HPC.
The bubble bursts as credit conditions change. Real IRs have been kept low to engineer money supply and stimulate the economy.
Money supply naturally leads to inflation. Inflation leads to IR rises.
Given this is obvious but that governments want to use this stimulation anyway, is it any wonder inflation has been fudged to prolong a justifiable window of low IRs? Some argue inflation is now necessary and suggest this is why the BOE, for all the talk, aren't in fact trying to control it.
The fallout is a swell of inflation and a boom in asset prices (HPI) - fudging it doesn't change reality.
It's like applying life support to the economy with cigarette smoke instead of oxygen. You get the economy going, but at the cost of peoples' economic wellbeing/life savings/etc. Is it the lesser of two evils or a brutal and selfish short-cut? Cue debate between the "conspiracist" and "incompetist" angles.
17. glorious sunshine said...
waiting for HPC - 'never say never' oh yes absolutely! Anything can happen and most importantly expect the unexpected. However, from my own personal experience even after calculating all possible 'unexpected possibilities' along comes the truly unbelievable! House price inflation over the last 5 years is a good one! However, in £'s house prices will not fall below their 12 month previous historical value. In other words the last 12 month prior to a drop is the overvaluation period. Good luck :-)