Wednesday, Feb 11, 2009
So much for looking out for savers
Telegraph online: Mervyn King suggests savers will be sacrificed as rates fall
"Savers are going to bear the brunt of the Bank of England's attempts to revive the economy,".......I am so glad I tried to be prudent, careful and save for my and my families future, just to have it torn out from under my feet, in the interests of the greater economy; ie the imprudent and profligate socialist ideals.Thank you Mervyn, Gordon et al for ensuring a huge and permanent change in personal financial planning. There is absolutely sod all point in saving and living within your means, when it is plainly obvious that it is theose who indebted themselves and lived way beyond their means that actually count in this modern NUlab society.
Posted by bystander @ 07:01 PM (1778 views) Add Comment
42 Comments
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1. troy said...
current accounts offer best rates for savers?
about time.
2. hpwatcher said...
Ah, at least the incompetent fool has finally admitted what we have all known!!!
Well, the rush of capital from the UK because of this announcement will really bring it to it's knees.....
3. quiet guy said...
The War against Savers has begun.
4. plato said...
Wasn't it only last week he was reported as saying that savers won't suffer?
5. bellwether said...
We could only be of a bearish disposition. After years of railing against house price rises we are in the box seat as they plummet. But we are still not happy to see our money appreciate dramatically against assets because that would mean a brief bout of optimism so we focus on savings rate and an imaginary future hyper inflation, missing the point that the inflation that matters, the inflation of house prices is gone.
6. Hpwatcher said...
We could only be of a bearish disposition. After years of railing against house price rises we are in the box seat as they plummet. But we are still not happy to see our money appreciate dramatically against assets because that would mean a brief bout of optimism so we focus on savings rate and an imaginary future hyper inflation, missing the point that the inflation that matters, the inflation of house prices is gone.
That could only have come from someone like you........
7. hpwatcher said...
But we are still not happy to see our money appreciate dramatically against assets because that would mean a brief bout of optimism so we focus on savings rate and an imaginary future hyper inflation, missing the point that the inflation that matters, the inflation of house prices is gone.
Quite the philospher aren't we? ALL inflation counts, not just house price inflation.....it's absolutely vital to see the bigger picture. You might be fixated on house prices but I'm not.
8. mark said...
Ho many times has Grodon Brown used the word "prudent" during the past few years
9. str 2007 said...
Nice of you to try and cheer us up bellwether.
Truth is though this policy has robbed me of about £800 per month whilst at the same time reducing the cost of the interest element of a £300k mortgage from £1375 per month (5.5%) down to about £600 per month (2%). (Saving £775 per month).
So as I see it they've almost directly taken my £800 per month interest and given it to someone with a huge mortgage.
Funny thing is though I still have to pay rent.
The fall of the £400k house this year down to £300k will give me some comfort though - lets just hope that's what happens.
10. enuii said...
Seconded hpwatcher, some of us just want to pay our mortgages off before we retire and do not have huge piles of cash lying around, vaults stuffed with gold or large investment portfolio's to fret over. Bellweather should have written 'Some of us are' instead of 'We could only be'.
11. Crunchy said...
As long as 0% is an option it will be taken.
Browns atempt at looking like he is doing something for the future voters.
It's called follow the leader, America.
It is a dangerous game.
Nothing new for Gordon.
12. shipbuilder said...
I can see bellwether's point. While i'm keen to protect my savings, realistically i'm in a very fortunate position to have any and they were always for buying a home, not making me rich by speculation (with my limited knowledge 'investment' would really be speculation). The big picture of sacrificing savers disgusts me, but I can't complain when my savings are rapidly appreciating against the thing I want to spend them on.
13. mark wadsworth said...
To wade into the debate ... what would have been fun is if they had left interest rates at 5% or whatever and have a supertax on interest income of 90% and reintroduce unlimited MIRAS tax relief at full rates - this would have come to much the same thing in terms of cash transfers from savers to borrowers.
For those who really do live off interest income, tough, but as most of my cash at bank is from selling to rent a year ago, it would be a tad hypocritical of me to whine too hard about this. My real after-tax, after-inflation return is negative 3% or 5%, but as house prices are merrily tumbling by 20% per annum, I hope that I will still come out ahead.
Surely we all assumed that there was a significant likelihood that Nulab would try and inflate away the house price crash? Slashing interest rates to subsidise borrowers is just an alternative way of doing this, it's a disappointment but no big surprise.
14. greytornado said...
This Government have got the whole equation wrong. Savers are one of the sound parts of the equation. Brown thinks he can save the day by spending and borrowing and throwing the savers on to the pyre. What part if insane does he not understand? Did he not understand as a child that when your balloon explodes and goes bang that it is not possible to blow it up again?
15. alan said...
I have to agree with bystander, who posted the article. I feel Brown may be killing the golden goose, or the people who (historically) have helped the nation to move forward, responsibly.
I'm not going to resort to more Brown bashing. Its just a pity that the people who have tried to be "prudent" are being trodden underfoot.
Few people in this country can survive more than a couple of months without a regular income, we need more of them (with savings).
16. hpwatcher said...
This Government have got the whole equation wrong. Savers are one of the sound parts of the equation. Brown thinks he can save the day by spending and borrowing and throwing the savers on to the pyre. What part if insane does he not understand? Did he not understand as a child that when your balloon explodes and goes bang that it is not possible to blow it up again?
He has messed up almost every other part of the economy, and now it is the turn to raid the money of the savers......
17. mountain goat said...
This list is worth checking out Market Oracle: Ten Things You Should and Should Not Do During Deflation. rule 10 stick to cash...
18. alan said...
"Rebecca Ward, of the poverty charity Elizabeth Finn Care, said: "The latest interest rate reduction is a further kick in the teeth for people on low incomes who are struggling to eke out from their savings a life beyond mere subsistence survival."
For those struggling with debt, Elizabeth Finn Care fund the Turn2us website describing benefits and grants. I guess some of you may know of folk who are experiencing hardship. This site is a help for Debt Advisers:
http://www.turn2us.org.uk/
I've found it useful.
19. crashpad4me said...
From the same article comes the statistic that the average return on no notice accounts is currently 0.29%. Now I'm not suggesting everybody rushes out and buys Premium Bonds, but based on the NS&I calculation of a 36000:1 chance of a £50 win on the monthly draw, and all things being equal, this should equate to a return of 1.66% p.a. OK, so I'm scratching around for some crumbs of comfort. Anyone got any better ideas? And there's always the chance you might win the jackpot. Now if I had a million pounds.....
20. hpwatcher said...
This list is worth checking out Market Oracle: Ten Things You Should and Should Not Do During Deflation. rule 10 stick to cash...
I think this article is highly debatable.....the danger of deflation is simply overstated, and only occured due to the adherence to the gold standard in the 1930's - as it wasn't possible for gold to be created at the push of a button. Now of course, we have a fiat currency, with BOE starting the printing presses. Cash is the one thing that simply isn't worth having, as what will buy 10 loaves of bread today, tomorrow may buy only 6, and the day after only 4.
In my view, the first tranch of QE won't work, due to the siege mentality that currently exists....so they will print more and more....then BANG, before we know it, hyperinflation that no-one can control.
The problem with QE is that once it starts....you simply can't go back...
21. It_is_going_with_a_bang said...
The rate level is about saving banks first and foremost. The interests of the average person mean nothing in comparison.
The bank has no idea whether the current rates will work because they haven't been there before.
It's all about doing something because they have no idea what to do.
22. doom&gloom said...
"Market Oracle: Ten Things You Should and Should Not Do During Deflation" is an interesting read. Not sure you can rule in and rule out entire asset classes based on these assumptions.
"You can get rich being short commodity futures in a deflationary crash", depends very much on timing, eg. commodities could have already bottomed, but who knows. And concur with hpwatcher re: cash
23. trough2010 said...
Time to buy gold then before this quantitative easing experiment takes off...
24. shipbuilder said...
As p4ac said on here a while ago, the government are sacrificing the very people whose spending will eventually pull us out of recession.
The same discredited and unimaginative solutions to the same old problems.
We've come out of a period where people spent money that they didn't have. The recession is necessary to get back to a sensible level of consumption. This needs to happen whether we like it or not. Terminal businesses, such as the banks, could be replaced with 'good' banks and the shareholders take the hit. Rather than sacking people, the rest of the private sector that got the lion's share in the boom could keep people on, or introduce job-sharing and adjust to the new capacity. Full employment, everyone learns new skills, people keep the confidence of having a job, savers keep their money, as soon as the natural adjustment happens, the savers start spending again.
The problem being, as usual, that this does not allow the already rich to rob the rest of us.
25. str 2007 said...
hp watcher
Agree regards the potential devaluation of cash savings (never mind the low interest rates).
And this is my basic concern that they will simply keep printing until it comes right, by which time who knows what a pound will be worth.
I understand people saying cash is for houses and they are falling so all is ok.
But savings will soon vanish if loaves of bread end up at £10.00 while jonny tosser and his BTL empire (who's overhead has halved due to low interest rates) starts winding up the price of rentals in the name of inflation.
Perhaps someone can tell me how the rate of cash printing is actually controlled under the method of quantitive easing - that may put my mind at rest.
Can't help thinking though that they'll come up with a way of only counting every third or fourth £50 note that's printed.
26. bellwether said...
HP Watcher if you are convinced that inflation is what's going to happen then back your hunch and buy property or anything else that does traditionally well in such an environment.
I spent a long time uncertain whether we were going to see inflation or asset deflation,and I've never really cared which beyond reaching an understanding as to how to invest. I am ever more convinced however it is the later for reasons I have on a number of occasions posted.
The following article is lengthy but describes accurately I think the circumstances that would need to prevail for there to be inflation. At present we are not even close. I also believe that the Govt is trying to cause inflation but it will find this impossible within any sort of sane boundaries.
http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html
27. bellwether said...
The article also creates a useful distinction between fiat and credit money and explains how the monetary base would have to be increased some 25 times over to even to begin to offset the ongoing process of credit deflation. Bernanke has thus far doubled the monetary base
28. wiltshire said...
Considering how many savers there are in this country (a lot!) and considering how much the vunerable (especially the elderly) must already be suffering I think Brown would be best to protect the savers and advise the country why he can't just throw money at this problem, why we need some harsh medicine. If he sacrifices the savers Labour will be out of office for at least another generation because all that most hard working people have in this country is what they have built up through their industry and prudence.
29. Hyrax said...
Well as I am losing hundreds a month to the forced interest rate cut and foreign exchange losses of more than 20% that will be inflationary on import items once UK stocks are replenished, what are the rules on bullion? I assume I would take another 17% VAT hit on the purchase, or does bullion currency insulate the pruchaser from that, kruggerands that sort of thing? anybody? rather chip off some gold for bread than have a brown-mugabe trillion sterling note......
30. Hyrax said...
Well as I am losing hundreds a month to the forced interest rate cut and foreign exchange losses of more than 20% that will be inflationary on import items once UK stocks are replenished, what are the rules on bullion? I assume I would take another 17% VAT hit on the purchase, or does bullion currency insulate the pruchaser from that, kruggerands that sort of thing? anybody? rather chip off some gold for bread than have a brown-mugabe trillion sterling note......
31. hpwatcher said...
HP Watcher if you are convinced that inflation is what's going to happen then back your hunch and buy property or anything else that does traditionally well in such an environment.
I already have - but not property - & thanks for the link - I will take a look.
32. hpwatcher said...
The rate level is about saving banks first and foremost. The interests of the average person mean nothing in comparison.
The bank has no idea whether the current rates will work because they haven't been there before.
It's all about doing something because they have no idea what to do.
I take the view that NOTHING should be done until the forces at work are fully understood. Everybody knows that getting stuck in a bog - and struggling - means that one makes things a lot worse.
33. str 2007 said...
bellwether
Thanks for the link (it is long isn't it) I will try and get time to read it today.
34. notaneconomicsguru said...
What they seem to have failed to realise is that many people will in the absense of interest growth on savings investments now have to make up long term saving shortfalls by putting even larger amounts to offest the loss of interest rate growth. That's certainly true in my case. I find myself in the position now of having quite a lot less disposable income simply because I have to put larger monthly amounts than before into long term endowments and pensions to make up for the loss of interest rate growth. That's one way that reducing interest rates actually has the opposite effect to that intended.
35. hubbers said...
I have savings not because I am lucky but because I work hard and didn't fall for the eternal property price rise foolishness.
Despite hard work and common sense I am screwed anyway. Talk about a disincentive to do the right thing.
Thanks Labour.
36. shipbuilder said...
That's a great link, bellwether, puts a whole new spin on things.
37. bellwether said...
Thanks SB, as I say I really don't care what happens beyond my reading it right. A value of this site is def different views and I'm keen to understand the inflation perspective. At present I just see that asset deflation (property in all its forms, shares, commodities, debt) is so so huge that I struggle to see how inflation could ever get traction at a global level.
Inflation could however happen in individual cases but the steps to get there are so mad and the consequences so immediately dire obvious and extreme that I don't see it is a likely scenario - bear in mind I don't rule it out but think might have to eventually get out of sterling even without this due to what I see as an imminent collapse in GDP more extreme that will be experienced elsewhere ie I suspect that sterling may be trash but for a different reason!
38. bellwether said...
I don't rule out inflation of certain things, eg imports to uk because of problems with our currency - I'm just talking about the total effect.
Another thing that will get a lot cheaper is local labour as unemployment increases. A great time to set up a business if you have a good idea, esp in areas where costs were linked to the credit bubble eg professional services of any sort.
39. hpwatcher said...
Inflation could however happen in individual cases but the steps to get there are so mad and the consequences so immediately dire obvious and extreme that I don't see it is a likely scenario - bear in mind I don't rule it out but think might have to eventually get out of sterling even without this due to what I see as an imminent collapse in GDP more extreme that will be experienced elsewhere ie I suspect that sterling may be trash but for a different reason!
The CPI probably now includes house prices, which are falling....they didn't always include this so the figures are fudged and present a false picture of deflation. There currently is a hell of a lot of inflation, but all everybody want's to talk about is deflation...like some nutty mantra. In my weekly shop, I am finding that prices are rising pretty quickly........
Once again, a false picture presented by liars to mitigate the mess they have made.
40. mountain goat said...
Deflationists seem to assume that all the debt will be deflated, they are essentially saying it is Armageddon time. Central Banks are trying to stem the deflation of debt tide. If they succeed then we get inflation because they will have inevitably over-shot. If they fail then debt continues to deflate, and yes it is overwhelming. But why should all the debt deflate? The world's economy is still functional, perhaps we can escape with just a limited amount of debt deflation? Not sure what the answer is. Have to watch as it unfolds.
41. bellwether said...
HP Watcher I respect your perspective, it may even be right but it will be far easier to understand with some kind of explanatory structure, at present it reads merely as a reaction to what you believe people are trying to get you to believe. I actually agree that the govt are trying to get inflation to take off, I also happen at present to believe that they will fail.
Did you read the article? What are your thoughts on the points it makes?
42. bellwether said...
MG for a long time I thought that centrally produced inflation could be used as a solution, albeit a very risky one. Govts clealry envisage this (and yes Govts are in an sense lying about this ie they think matters are under control and all they have to do is assuage savers)
I'm becoming less convinced that govts can do what they think they can. Which I guess is consistent with us thinking they are far less competent than they know.
Bernanke is the arch inflationist and America have more rope in this dept than the UK, what happens in the US should therefore be a good guide for us on this front