Sunday, August 15, 2010
Our central bank is losing it
The Bank must reassure Britain it has not lost its grip on policy
So the only way they will reestablish their grip on policy is to address inflation with an interest rate rise. But that will send the housing market into a tailspin and the housing market is central to the MPC's wealth creation model. If Tuesday's inflation figures show a rise, this is going to get really ugly for the MPC and Bank of England.
Posted by paul @ 11:21 AM (2693 views)
26 thoughts on “Our central bank is losing it”
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tudorian says:
I woke up this morning and read this story.
I believe its message is important, and that our BoE if supporting housing prices at all costs. (too great a cost)
Supposedly there are far greater numbers of savers than debtors in UK. We are reaching a tipping point where the savers no longer believe that their loss of income through interest, on their saved labour is worth support for a market that excludes themselves, their children and grandchildren. ( I remember Flashman arguing that QE had little impact on house prices …….i think ?)
Interesting times are coming, will UK allow further support for houseprices through QE2 ??
mark wadsworth says:
“the MPC’s wealth creation model”
Says it all, really.
mrflibble says:
The BoE seem to be living in a fantasy world that revolves around the wealth of savers being continually transferred to borrowers, thus into housing, leaving savers with no money and borrowers holding onto over priced property nobody can afford to buy. Meanwhile the young are expected to work like dogs to create future growth so the idiots of the past can continue to bathe in champagne whilst the door to house ownership remains firmly closed to them. Another 20 years of this to come unless something blows…
happy mondays says:
I am sure something will blow mr f, & if the government & banks do not address these matters, it will not be pretty..
“If you make peaceful revolution impossible you make violent revolution inevitable”
— John Fitzgerald Kennedy
brickormortis says:
Cue 40 year mortgages?
happy mondays says:
@brickormortis, yes indeedy…
Did you buy that property or have you had a re think?
rumble says:
I think the savers are the ones living in a fantasy world. Why are they still saving? Zombies. “Actions speak louder than words” is crap – people will ignore words for as long as they can get away with – actions speak, words don’t. If savers reacted to reality, the bank might react to the new reality. Savers are doormats and will continue to be treated as such.
Jace says:
Savers are the ones that have the possibility of controlling the banks but only if they stick together and remove their money from the banks, it will be at the expense of all those that have overstretched themselves either by remortgaging through the roof or by over exaggeration their self cert. mortgage…..
estrader says:
Exactly rumble – Savers want a safe place for their cash that comes with a government guarantee on the capital and to be paid well for the privilege! Don’t get me wrong, I agree with the sentiment but expecting the government to listen is borderline insanity. Savers are sitting ducks, it is that simple.
brickormortis says:
Happy Mondays: Still in the early stages of purchase and mortgage neeeds sorting still. No rethink although a two year plan to reduce my mortgage to very little and maintain substantial equity should prices fall. If they introduce 40 year mortgages, that might just underpin prices nicely. the last trick in the book maybe?
150,000 mortgage for 25 years at 6% is £977. At 40 years would be £830. Roughly 16% decrease. It would roughly negate a 1.5% rise in interest rates.
Will there be a 40 year mortgage trend? I don’t know enough about the decision makers – if there is, I know one thing. It will certainly support any serious fall in house prices.
mark says:
I think the market or credit ratings agency or some body will make a decision soon, I doubt the BOE will like
hpwatcher says:
Exactly rumble – Savers want a safe place for their cash that comes with a government guarantee on the capital and to be paid well for the privilege! Don’t get me wrong, I agree with the sentiment but expecting the government to listen is borderline insanity. Savers are sitting ducks, it is that simple.
It’s all part of the BOE plan of getting savers to spend, so as to keep asset prices high – it’s worked so far.
debtfree says:
The cost of housing and financing housing would gradually be made so high that most people couldn’t afford it. People who already owned their houses would be allowed to keep them but as years go by it would be more and more difficult for young people to buy a house. Young people would more and more become renters. More and more unsold houses would stand vacant. People just couldn’t buy them. But the cost of housing would not come down because the free market would no longer operate.
Thats what the BOE is trying achieve.
estrader says:
hpwatcher, if savers are spending they are not savers. The average Briton is near broke and needs to borrow to keep the spending habit. Payday loans will be the next “sub-prime” crisis, that is the state of the average Brits’ finances. No doubt the “experts” won’t see it until it’s too late.
http://money.uk.msn.com/news/articles.aspx?cp-documentid=154394573
True savers don’t splurge simply because their money isn’t earning much in the bank, that IMO is pure nonsense, I am a good example of how low interest rates aren’t forcing me to spend.
hpwatcher says:
True savers don’t splurge simply because their money isn’t earning much in the bank, that IMO is pure nonsense,
I am thinking of acquiring assets – rather than a ”splurge” – housing, commodities, shares etc. I have heard of a few people going BTL because the money wasn’t earning much interest in the banks.
mark wadsworth says:
@ debtfree, that is what Home-Owner-Ism is all about – the proportion of homeowners has actually gone down slightly over the last ten years or so.
estrader says:
14. hpwatcher said…”I am thinking of acquiring assets – rather than a ”splurge” – housing, commodities, shares etc. I have heard of a few people going BTL because the money wasn’t earning much interest in the banks.”
—————–
That is called “investing”, pure and simple. People have been doing it for centuries. If you think keeping money in a savings account is “investing” you will never get very far.
hpwatcher says:
If you think keeping money in a savings account is “investing” you will never get very far.
What leads you to believe that anyone actually thinks that?
Nic says:
I note a lot of talk on this site but no action. The media; main cheerleader BBC, will continue to invite any vested interest group or individual to talk up property prices without challenge because editors, journalists & reporters own substantial property portfolios. Government will ensure Bankers profit and home owners will keep very quite. The elderly who have savings have no voice. So it is up to you; students should lobby their union to comment on artificially low interest rates and others should email complaints every time they see biased reporting. We are living through a huge transfer of wealth from young to older and poor to rich. Do something; start a Face Book group; use the gift young people have; technology and mass communication.
techieman says:
dont think about it too much Hpw -if you believe in the inflationary / hyperinflation scenario then you must do that ASAP. [in fact havent you already?]. I hear BTL is a great thing to do for countless reasons. Bonne Chance.
estrader says:
HP, I suppose it’s the phrasing, saying “Getting savers to spend” to me means “Getting consumers to spend”. Saying “acquiring assets like housing, commodities, shares” says to me, “savvy investor” so I suppose I failed to see the point you were trying to make as far as BOE keeping interest rates low. The only people they really want to continue borowing and spending like mad is the braindead consumer.
Ntone606 says:
Cash is an awesome asset in deflation, second only to long term govt bonds.
BoE can do all they want, the lessons of history show deflation can’t be defeated (without destroying ones currency).
Stevie Dee says:
In My Opinion. The sh!t is about to hit the fan!
Stevie Dee says:
In my opinion, the MPC is like a freshly headless chicken, the body is still moving but the the supposed brain are now detached. Delicious if you’re eating the chicken, dangerous if you require eggs!
fallingbuzzard says:
There may be more savers than debtors but savers don’t matter because they have no-one to sell their savings to.
mark says:
shares look very good value… it would be interesting if people withdraw money to invest in shares