Thursday, Mar 22, 2007
No mention of inflation - as ever
BBC: Fed holds rate unchanged at 5.25%
The US Federal Reserve has left its main interest rate unchanged at 5.25%.
Posted by holding out @ 08:43 AM (166 views) Add Comment
14 Comments
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1. geed said...
- The Fed will be under huge pressure to reduce rates to save the house market and stop a full blown recession.
- Greenspan has added pressure on Bernanke by saying the US may be heading for recession, Bernanke will be determined to prove him wrong.
- The Fed realise that inflationary pressures still exist but they know they can fiddle these within reason.
- The Fed will continue to print money.
- The BoE now do not have to raise rates in the short term to protect the pound against the USD.
- Real Inflation is rampant but the CPI does not reflect this and is fiddled.
- Imaginary Inflation has already hit its limit of 3.0% which the BoE addressed with a pathetic 0.25% rise.
- The BoE clearly are happy to leave inflation at its upper limit, if not let it exceed its limit with the Blanchflower factor.
- Eddie George has admitted the BoE is not independant and was pressured into setting lower interest rates to encourage people to "debt it up". This fact has almost gone unnoticed in the mainstream media.
- The BoE will continue to print money.
- A leading economist have openly suggested 8.0% IR’s are required.
These are my quick observations/opinions of late and I have to say it does not fill me with confidence of an impending HPC. I am by no means an expert but I know a hell of a lot more than the average dumbass house purchaser out there. Most of these points above will mean nothing to them. All they care for is cheap credit and while it still exists, they will borrow for homes, Audi TT’s and Prada hand bags until they die. Gordon wants this party to continue and he can and will make it continue, it is in his best interest and he is of course one of those legal criminals, I mean Politicians. Interest rates will be kept artificially low for the foreseeable future IMHO.
The future looks Bleak to me, someone convince me I am wrong…
2. sovietuk said...
Geed - interest rates will stay low as long as Sterling stays high which is a function of Global factors.With other economies expanding much more rapidly than the UK's, Sterling is doomed in the long term as there is nothing to back it up. The doom mongers will have their day but unfortunately it will not be tomorrow, 5 -10 years - very high rates and big problems.
3. royston said...
Geed,
Your points are frightening and very insightful. If he hadn't worked it out himself, Gordon will have heard Alan Greenspan's comments on global imbalances. So, he can't not know there is a major problem but his main aim is clearly to stop it blowing up under his tenure and pass the problem on to his successor. While the situation is clearly more unstable now than it was before, what options were open to him? He had two:- 1) perpetuate the bubble or 2) burst the bubble. On the grounds that "one might as well be hung for a sheep as a lamb", he was always going to choose the former.
However, that only tells us that the bust won't come from the politicians. For the boom to continue, a number of other things are necessary. First, investing institutions must continue to buy mortgage-backed bonds - these guys must be getting the jitters when they look at the US and at the fundamentals of property values vis-a-vis other assets and income levels - if they stop buying, banks' ability to lend is restricted. Second, markets are all about confidence, if punters think they will have lower prices in future, the buyers will hold back and the seller will sell now - if your study the Japanese property collapse, this factor became a major force once the downswing took hold. However, confidence is largely driven by the media and, for the moment, messages are very mixed. Third, even if they can get credit and believe in the bull market, homebuyers need the disposable income to pay the mortgage - this is very stretched are the bottom of the chain. Fourth, the whole buy-to-let thing - it is an investment that only makes sense in a rising market. If the market turns south, these investors will not stick their heads in the sand and console themselves that they needed a place to live anyway, they will sell to preserve their capital / cut their losses.
In short, Gordon's actions are completely in character for a politician and we should not be at all surprised or disappointed by them. However, that does not mean that the bubble is not over-stretched and won't burst. What is pretty clear is that a talk of a soft landing is complete nonsense. Either the boom will be pro-longed for another while or the dams will burst.
4. Pravda said...
Gleed agree,
HPC got it wrong. There will be no immenent houseprice crash. The establishment is interested in maintaining high house price values and will do anything to keep it this way.
You may hear a lot of spin about "affordable housing", 60K homes, etc, but this is nothing but lies.
The real policies of the establishement is to restrict new construction, and keep interest rates low as possible for as long as possible. Also inrestricted immigration increases demand for housing and at the same time keeps the wages low.
5. mrmickey said...
I agree that the crash will not come from the politicians it will come from an event out of the blue possible terrorist attack on a major city which will set off an global economic meltdown. The US holding interest rates will take the pressure off the BOE to raise their rates, this really is a race to see who can inflate their paper money the fastest. This will lead to hyper inflation followed by crashing deflation.
6. geed said...
Soviet/Royston, appreciate your comments.
Soviet; This is the problem many of us face, delaying lifes decisions based on the possiblity that the economic climate may go our way in 5-10 years to come. We are only on this planet for 70-80 years if we are lucky!
Royston; Thank you for your considered reply, I agree it is one or the other, boom or bust. The astounding thing is this may run for years yet at double figure inflation. A ₤200,000 home today will cost ₤322,000 in 5 years at the current 10%yoy HPI. A 38% "crash" would then bring the homes value back to ₤200,000. These numbers scare me.
7. royston said...
Geed,
I see your point about the numbers. A few years ago, I was working on a project to do with Tokyo property which had fallen 80% in price from its peak. When I tell people in this part of the world about that, the response is always the same - dropped jaw and "...huh?.....that couldn't....".
8. Davros said...
Everyone's reading too much into this. The market has already crashed in the US and who's to say how much impact interest rates have on the market anyway? Yesterday everyone was banging on about the number of new houses being built, before that immigration...
9. sold 2 rent 1 said...
Keep the faith guys,
I have always said 2008-2010 crash.
Hopefully it will start Q1 2008 but I am beginning to fear it could be later in the year
It will take until 2008 for the BOJ to raise rates high enough to end the carry trade.
2008/9 will also be the time when many Chinese bad investments hit the media.
In 2008 UK consumer spending will slow sharply – IR rises delayed affects and cuts in public spending.
In 2008 the US will be in full recession
In 2008, Germany’s economy would have improved and allowed the euro base rate to rise to 4.5-5% and pushing the start of a HPC onto Spain, Ireland, Portugal and Greece.
As you know I always compare the current situation to the 1970’s. The big difference this time is that central banks will not allow runaway inflation. There will be nothing to inflate away the debts so we could be looking a deflationary slump for a decade or more.
I am also thinking there will be no quick buy-back-in for property. I originally thought 2011 would be the time to buy. Maybe it will be 2018
From my analysis of long term cycles, the period 2008-2026 (18 years) will be a turbulent one. We either have 3 recessions and HPCs in this time period or a long deflationary slump like Japan.
10. paul said...
Very interesting points.
I now believe that the MPC will protect the housing market as much as it can by keeping rates artificially low for as long as they can get away with it - we've been saying for some time that this is simply not within their remit but recent revelations from Eddie George the ex-BofE governor has produced a sea-change of thought on this matter for me.
If the MPC engineered the boom, the MPC will ultimately take responsibility when it fails. So the MPC don't want that to happen. I does mean that we've been set-up, and it is tantamount to corruption - but then again when has allegations of corruption ever bothered the current government?
The house price crash is almost certainly called off, and Brown has refused to even acknowledge the fact that homes are unaffordable in 96% of UK towns for FTBs, and ignored the social consequences of his policies. Just like Stalin, really. The reason it won't happen is because the MPC will come to homeowners' rescue.
The UK public have been conned.
11. holding out said...
S2R1, "The big difference this time is that central banks will not allow runaway inflation. There will be nothing to inflate away the debts so we could be looking a deflationary slump for a decade or more"
I don't see the Fed in particular and BoE to a lesser extent looking to prevent inflation. I get the impression that the Fed is itching to lower interest rates and they are just waiting for the news on housing to be worse than the news on inflation. Because in spite of what we read here prices across the US have not collapsed which is why they seem to be keeping their powder dry.
12. Lem said...
What really scared me the other day was the thought that not only had the credit fuelled bubble been manufactured by the worlds central banks, it had also been an anticipated response by Al-Qaeda to 9/11. (ie attack the west just as it is about to enter a recession). If they are smart, which I think we all agree they are, then there next major attack would be as the worlds economies begin to crash, forceing another drop interest rates or accept a recession/depression decision.
13. sold 2 rent 1 said...
Paul,
“The house price crash is almost certainly called off”
I am not convinced.
The next year will be extremely testing times for HPCers.
This is classic end of bull-run mentality.
House prices have been going up for so long that people can’t imagine anything else.
Why did shares go so high in 1999-2000? Because bar a blip in 1987 they had been going up for 18 years. Nobody could imagine anything else.
Money is pouring into the UK (into companies and property). The rising asset values causes more money to pour in.
Mortgage equity withdrawal (MEW) – money withdrawn from property without being spent on another property or home improvements – has picked up again after a sharp slowdown in 2005. People took more than £24bn out of their homes in the first half of 2006 – up about 50% on 2005.
MEW accounts for about 4% of consumer’s income. The economy will surely go into recession when this process stops.
All these things are unsustainable and will reverse.
The longest time we will have to wait for the start of an HPC is the end of 2008. Personally, I am still gunning for early 2008.
LSR “housing affordability index” quarterly report out in 10 days. It should be well into the danger zone this time.
14. geed said...
I am true to my beliefs that we should have a HPC. I, personally have not seen value or affordability in property for over 7 years now and with each month is gets worse
"The UK public have been conned." Paul, correct but the majority dont care as long as cheap credit exists.
I thought it would clear my thoughts by listing my recent observations on this topic and proved the right thing to do. We can assume, predict and guess until the cows come home but that list above tells me that the powers that be will play us like puppets like never before. Only if we see interest rates quickly rise to 6.0% or above will my faith be restored that I may just get a chance to buy my first home
Debt is encourged and rewarded and this leaves me a little depressed.