Wednesday, Oct 29, 2008
They should pass a new law - no saving
thisismoney: Rate cuts not 'magic bullet' for recovery
Monetary Policy Committee member Tim Besley said the Bank has 'limited' power to ease the cost of borrowing.
Commercial banks are reluctant to lend to each other, meaning the BoE is finding it hard to transmit rate changes into the broader economy.
Posted by matt_the_hat @ 08:59 AM (413 views) Add Comment
7 Comments
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1. mountain goat said...
Rates are going to 0% and why not? the world loves the $ can't get enough of it, look how it has appreciated since July. An orgy of $ hording. Buffalo herd stampede out of stocks into cash and gov bonds, so Bernanke needs to fire his six-shooters to turn the herd around.
2. Whostolemyendowment said...
For savers who in recent years have faced rather poor returns on 'safe normal cash bank saving accounts'.....letting the banks have your hard earned 'after income tax' savings - hanging on to your cash of say for example £1,000 for a year for the princely return of £50....well, this just takes the biscuit. It will be final straw for me.....I think I'll take out all my money and buy a small plot of farm land....and grow my food, and have a small shed to live in.......think I'll change my username to 'Hunkerindown'
3. str 2007 said...
Can someone explain why rate cuts will do us any good if the banks aren't going to pass them on ?
All I can see is a weekened currency which is importing inflation.
Our exports (to the US) are 25% less than they were. Our exports to Euro zone are 15-20% less than they were. If the roducts are any good they will sell at 20% off. If customers have no money to buy them - they have no money.
Could we end up in an Icelandic situation where by the GBP actually collapses and we're told by the IMF to raise interest rates to astonishingly high levels?
Or is it more likely we'll hop across to using the Euro when they reach parity ?
Any opinions ?
4. mark wadsworth said...
"Commercial banks are reluctant to lend to each other, meaning the BoE is finding it hard to transmit rate changes into the broader economy." It's called pushing a piece of string.
STR2007, GBP is just another currency. All countries are in a bit of a mess right now, so for every GBP bear there is an EUR bear, a USD bear and a JPY bear (JPY increased in value by about 40% over the past few months, so that's them kn4ckered). The fall in GDP over the last year is more or less exactly the same fall as before and after Black/White Wednesday (from the same peak to the same trough on a trade-weighted basis), I personally think it will fall further but not by much, maybe another 5% or 10%.
PS I am not offering investment advice, the value of your currency may go down as well as up cont. p94.
5. 51ck-6-51x said...
STR'07, my 2 fen... (I prefer fen to cents!)
If a central bank cuts rates lending becomes more attractive, but when no-one is really doing any lending there should be a huge inertia to this reaction. The reluctance eases much more slowly, as no-one wants to be the first to jump into the untested waters. However, LIBOR has been edging down since the last cut* on Oct 8th, so it has been having an effect (unless you think that this is a correction of an over-reaction, which I do not).
* [url="http://www.economagic.com/em-cgi/PW_MChartOmni.exe/save:economagic!LiborUK1w2w1m2m3m"]http://www.economagic.com/em-cgi/PW_MChartOmni.exe/save:economagic!LiborUK1w2w1m2m3m[/url]
6. mountain goat said...
Sorry my first comment was off topic since the article is about GBP. I suppose my view is that Central Banks messed up by allowing lending too freely in the past decade. But now we have a credit freeze so things need to be loosened up. The sick debt train needs to slow down but slamming on breaks only leads to derailment. A deflationary spiral as we have now simply kills economic activity. Example. If I am a shop keeper and buy stock. By the time I sell it prices have fallen. So I lose money and go bust. So I can't pay my rent or my debts. So my landlord and creditors go bust too. This drives prices down even faster. This deflationary spiral is pure waste and needs to be avoided. But it is happening now. The fear of it leads to cash hoarding by investors which actually causes it to happen because they sell any commodities they were invested in. Dropping interest rates discourages hoarding and so can be part of the solution. But do Central Banks have the discipline to raise them sharply again as soon as the threat of deflationary spiral recedes? That is where they have failed in the past. In fact IR were dropped and kept low by Greenspan simply as a way of stimulating lending which was criminal, because there wasn't a threat of a deflationary spiral at that time.
7. 51ck-6-51x said...
Credit eases, markets soar. The waters appear to have been tested and must be at least tepid, if not warm:
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aHPyT1am6DvU