Wednesday, Dec 03, 2008
Do these so called experts really have a clue?
Times: State of economy demands rate cut to historic low of 2%
Martin Weale, director of the National Institute of Economic and Social Research, summed it up nicely by saying; “A 1 per cent cut is likely to have more impact than sacrificing a goat".
9 Comments
9. bystander said...
str2007 said.... "Actually on secnd thoughts I might not, you'd still need to clear it all down before your fixed rate expired and (as most people have forgotten)
....just playing devil's advocate here, but if you did take the interest only at 500GBP + a small amount into a capital payback account, even most of us would agree that if you could tie in for 15 years, then house prices, simply through inflation, would give you the money to payback the capital on the loan. I know that there is the Japanese effect which could make house prices stay stagnant for this amount of time, but I doubt this would happen. If HMG get the MPC to lower rates to zero, you would definitely see a re-igniting of the housing bubble, and the end of sterling and the most incredible amount of imported inflation (even if we are forced to join the single currency), and therefore an increase in inflation expectations and wage demands and union unrest etc. etc.. IMHO
| Thursday, December 4, 2008 06:46AM | Report Comment |
1. planning4acrash said...
Of course they do. If you rely on borrowing and speculating money rather than actually working and generating wealth, you want manipulated inflation stats and interest rates and liquidity as low as is humanly possible. When assessing sanity, one must recognise perspective. From our perspective these people appear mad, but, they are successful, so, there has to be an agenda.
President Andrew Jackson 1829-1837:
“you are a den of Vipers!
I intend to rout you out,
and by the Eternal God I will rout you out.
If the people only understood the rank injustice
of our money and banking system,
there would be a revolution before morning.
2. gardeniadotnet said...
Do these so called experts really have a clue?
p4ac says: Of course they do.
Gardenia says: Of course they don't.
p4ac says: they are successful, so there has to be an agenda.
Gardenia says: A non sequitur, I'm afraid p4ac.
3. drewster said...
Cutting interest rates won't work. Look at Japan. 0% interest rates didn't even save the Japanese banks, they still needed nationalisations.
4. drewster said...
A person has £500 a month to spend on housing.
With interest rates at 6%, they can finance a house worth £100,000.
With interest rates at 5%, they can finance a house worth £120,000.
With interest rates at 4%, they can finance a house worth £150,000.
With interest rates at 3%, they can finance a house worth £200,000.
With interest rates at 2%, they can finance a house worth £300,000.
With interest rates at 1%, they can finance a house worth £600,000.
With interest rates at 0.5%, they can finance a house worth £1,200,000.
With interest rates at 0%, they can finance a house worth infinity.
What if mortgages were available at 0.5%? Would people really buy houses worth £1.2m? Or would they pause and think "Hang on, interest rates can only go up from here - if they go up even by just half a percent I'll be totally screwed."
That's just one of the problems with ultra-low rates.
For the record, I think tomorrow's BoE decision will take us down to 2%. That's what the markets are expecting, and they daren't frighten the markets.
5. paul said...
The Bank of England MPC should really resign after tomorrows meeting.
Seriously, its what anyone would be expected at the very least for this kind of catastrophic failure.
It's actually the least they can do for failing to recognise the credit bubble, and allowing their MPC members to chase house prices with rate cuts up the credit curve and back down again.
Even I know that every single credit-led expansion in history has resulted in financial catastrophe. Every single one. Without exception to this day.
What were they thinking?
6. str 2007 said...
Drewster
I think Jack C was saying a while back that to give them the margin they need even if interest rates were 0% the banks won't do mortgages less than 2-2.5%. Even so that a 2-300k mortgage (by your figures) on £500 p/m. Well inside government bailout targets.
And frankly if I could secure £3-400k at 2% fixed for say 10 years or even 15 years I'd take it and blow it all on a house.
Actually on secnd thoughts I might not, you'd still need to clear it all down before your fixed rate expired and (as most people have forgotten) £3-400k is an astounding amount of money which you would need to clear down at £3000 per month plus the interest at £500 per month to be clear in 10 years.
7. drewster said...
str2007 said.... "Actually on secnd thoughts I might not, you'd still need to clear it all down before your fixed rate expired and (as most people have forgotten)"
EXACTLY! Even with tiny interest payments there's still that whopping big principal hanging over you.
I agree on the banks needing a profit margin, of course. Minor technical detail, is it a case of needing 200bp (2%) on every mortgage, or is it a proportion of the percentage (i.e. say 1/5th of every mortgage, so 2% on top of a 10% base rate but only 1% on top of a 5% base rate)?
8. planning4acrash said...
Drewster, the paradox of 0% rates is, that investors will not put money into banks to beef up their reserves, because the returns are close to zero, and real assets like Gold pay 0% interest but are real assets that cannot evaporate, so the money and lending dry up. 0% interest rates are a stealthy Corporatist form of Communism, because, in the absence of sufficient private bank deposits, virtually all lending is via the corporately owned, state sanctioned central bank, which carries out central planning independent of political process. It is the merger of Communism and Mercantilism.
----
1917 - With aid from financiers in New York City and London, V. I. Lenin is able to overthrow the government of Russia. Lenin later comments on the apparent contradiction of the links between prominent capitalists and Communism: "There also exists another alliance - at first glance a strange one, a surprising one - but if you think about it, in fact, one which is well grounded and easy to understand. This is the alliance between our Communist leaders and your capitalists."
The ultimate goal of the power elite is a World Socialist Government, a synthesis of Western Capitalism and Eastern Communism. The new, hybrid system produced by constant battling between Private Enterprise and Communism. The synthesis is planned to be economically Fascist, where the Means of Production and the Distribution of Goods are privately held, but the Government dictates how much is produced and how many companies can produce the same type product. This new system, hypothetically called Synthesis, has always had a title. It has always been known as the New World Order. source.
American Mercury Magazine December 1957, pg. 92: “The Invisible Money Power is working to control and enslave mankind. It financed Communism, Fascism, Marxism, Zionism, Socialism. All of these are directed to making the United States a member of a World Government…”
SELECTED WARNINGS ABOUT A 'NEW WORLD ORDER' from the founder of The John Birch
Society, Robert Welch, and published in the Society's Bulletin:
1972 - May, page 10 "Or, as fellow Insider Mr. James Reston of
the New York Times enthusiastically puts it, deliberately using the two-hundred years
old language and slogan of the Conspiracy -- 'Mr. Nixon cannot become the head of a new
world order (Novus Ordo Seclorum) unless the Communist nations
are brought into the world order....' "
1972 - Sept, page 29 "This plan is to establish -- very soon -- the first
stages of a 'new world order.'
This will be the novus ordo seclorum for which a self-perpetuating inner circle
of Conspirators has been working and scheming relentlessly during some six
generations...."
1972 - Oct, page 28 "There should be no surprise for longtime readers
of the Bulletin....that those plans include the conversion of the United States into a
socialist nation....and the merger of that enslaved segment of mankind with other
Communist nations into a New World Order.
That goal, under that very name -- originally written in bastardized Latin as novus ordo
seclorum -- has been envisioned by a Master Conspiracy for the past two hundred
years as the ultimate product of all its crimes against humanity, and of all its
subversive onslaughts against western civilization."