Tuesday, Dec 11, 2007
Remember this crisis was created by deliberate policy decisions from the Bank of England
Telegraph: Market fears that Bank has 'lost control'
Haven't we been warning of this scenario for a year or so? Or is this now another unforeseen set of circumstances?
Posted by paul @ 03:08 PM (1021 views) Add Comment
11 Comments
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1. Stoatgobbler said...
Journalism at its pram-full-of-burning-puppies worst. Get a grip.
The Bank has not 'embarked on a major series of interest rate cuts' - it has cut rates by 25bps once only. Rates over the turn trade above BOE base every year, and they hardly ever cut in December so of course there's a bigger anomoly. Forced to cut rates? With PPI data at 4.5%?
It's just idiotic.
2. voiceofreason said...
"I think this is a very grave situation indeed - and not just for the 1.5m [households due to renew their mortgages next year]. If this problem is not sorted out in the next two to three months we are looking at major insolvencies in UK plc."
What does major insolvencies mean ? People, business, banks, govt ???
3. stillthinking said...
Surely libor can never go above the boe emergency lending rate? Or have I misunderstood something? So the boe do have control. I realise that libor is more concerned with long term rates but they are the equivalent of repeatedly making short term loans which can be made from the boe repeatedly. Unless everybody thinks there will be a lot of inflation in the future, which flies in the face of an absence of lending and credit supply restriction.
???
???
4. paul said...
Just too add, this is unprecedented and should be very worrying for Mervyn King.
His predecessor Eddie George will no doubt be sitting in his slippers, quietly chuckling away in his cotswold manor. Still Mervyn King could have reversed what his predecessor set in motion but instead he took the path of the dark side - I remember the FT sanctimoniously telling the US that they were "sowing the seeds of a new financial catastrophe" a few months back:
The Next Financial Crisis Starts Here - Clive Crook
Now, it seems that as the UK's BofE follows suit with rate cuts in response to a credit crunch of its own making, that the BofE appears to have learnt little from the US in the past months.
5. the reaper said...
'"The fact of the matter is that the market rather than the Bank is now dictating monetary policy '' '
says it all really
6. Stoatgobbler said...
LIBOR is the rate at which money is lent (London Inter-Bank Offered Rate) in the London market. It is more or less always above BoE base, naturally, and the fact that it is over the turn of the year is singularly unremarkable. It isn't unprecedented either, it just reflects the premium demanded by lenders over accounting periods. It may be a bit higher than usual, certainly, but it doesn't mean the market is dictating MP.
7. Icarus said...
Whichever way the MPC goes in 2008 the UK economy will be knee-deep in the Brown stuff. It's a Balls up.
8. drewster said...
Let's think this through carefully. If the central banks drop rates, the markets expect this to cause inflation. Buyers of bonds become picky, thereby causing long-term bond yields to increase significantly. This increase makes up for the expected inflation. If the central banks drop rates even further and/or helicopter Ben starts living up to his name, then the long-term bond market could seize up just like the interbank market, the commercial paper market, etc. This is what SafeHaven described as the nuclear scenario. All those big buyers will start looking at alternative inflation-proof investments instead. Gold is one option; shares and property are another. Shares and property have the advantage of dividends and rent, whereas gold doesn't. Could asset prices rise yet further??!!
9. paul said...
I think its very unlikely that the arbiter of the current crisis will also be seen as the saviour.
Those housing price rises we've seen in the last few years shown on the HPC front page are a graphical expression of credit availability. Unless the credit market magically frees up all of a sudden and confidence surges ahead, then thats not going to happen.
They'll also be eyeing up property in a rapidly declining market, imploding because of the lack of credit - there's no refuge to be gained at the epicenter of a credit implosion! Gold maybe but property will have a very sour taste to it ...
10. drewster said...
It seems like the big money hasn't entered the gold market yet. Central banks, institutional investors, even hedge funds don't like gold because it has no yield. Then there's the China factor: Most people expect China and the middle-eastern countries to reduce their holdings of dollars and buy a basket of currencies - but what if they bought gold instead? Gold certainly seems like a safe bet!
11. denzil said...
I see Bootle has a link on this article spouting why IR's will fall to 4%. Bootle hums a different tune depending on the wind direction, speed and moisture content.