Wednesday, Aug 18, 2010
Are low interest rates making things worse?
Index Universe: The Low Rates Paradox
Conventional wisdom holds that slashing interest rates has been necessary to try and kick-start the economy. But are near-zero rates actually making things worse?
Posted by paul amery @ 01:33 PM (1299 views) Add Comment
13 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. icarus said...
Yes, savers have less to spend. Simples.
2. mark wadsworth said...
"Japan".
Next question please.
3. estrader said...
"Japan".
Absolutely exactly!
4. Arthur Kinnell said...
Refreshingly clear analysis of why, how, and by whom I am being systematically shafted. Why don't I feel better?
5. Paul B said...
If the government taxes the interest on savings, and interest rates are low, then surely they're losing a source of income?
6. jack c said...
Gents when you say "Japan" does that also include a significant correction on the relative stock market? ie the Nikkei reached roughly 38900 at the back end of 1989 against roughly 9200 today
7. estrader said...
The FTSE 100 is exactly where it was 13 years ago even after £Billions being pumped into the economy and near zero interest rates.
8. uncle tom said...
If a person is borrowing responsibly, and with due caution; the decision on whether to borrow - or not - is not going to be hugely influenced by the difference between a 0.5% BoE rate, or a 5% rate.
- Why?
The person taking out a mortgage should not be reliant on low interest rates; and should still be able to afford the repayments when normality returns to the market.
The person borrowing for business purposes will normally have his sights set on a return of around 15 - 20% on the money borrowed, in order to provide some headroom against an unexpectedly poor out-turn; so will not be hugely influenced by the interest charged, provided it lies within reasonable parameters.
If keeping rates super low creates additional borrowing, then that additional element will be by people who are flying too close to the wind.
If rates are raised, foolhardy borrowing will be curtailed, Sterling will strengthen, thereby keeping inflation in check.
9. jack c said...
Interesting to see Paul Amery posting articles directly on HPC - wonder if he will comment on this thread?
10. cyril said...
I thought the idea of low interest rates was to allow the banks to make loads of money
11. smugdog said...
Isn't life just great when you have Merv on your side.
I'm far from smug, just so deliriously happy to have Merv as a good friend.
Enjoy the rest of your soggy summer boys.
12. Crunchy said...
11. smugdog
Everyone will be shafted in the end by the randy international pitbull, you should know that by now.
'Every dog has it's day.' Merv doesn't work for you, he's your handler. Never forget it.
13. mark wadsworth said...
Uncle Tom, what you say is entirely logical. Which is exactly why this government (and its predecessor) are keeping rates as low as possible.