Friday, Feb 22, 2013

Will this increase mortgage interest rates?

Reuters: Moody's cuts UK credit rating one notch to Aa1

"Moody's Investors Service on Friday cut the United Kingdom's credit rating to Aa1 from Aaa, citing weakness in the nation's medium-term growth outlook that it now expects to extend for a number of years". (....just as the Coalition were getting stuck into the Eastleigh by election)!

Posted by alan @ 10:40 PM (5252 views) Add Comment

30 Comments

1. alan said...

Ed Conway of SKY said:
"It's something of an economic blow, but in a way it's more of a political problem for Chancellor George Osborne. He made a key part of the Conservative election pledge to safeguard Britain's credit rating."

I would have said we need a leader in this country, not politicians....

....cue Bonnie Tyler "I need a Hero"
http://www.youtube.com/watch?v=BVtaVrUAPK0

Friday, February 22, 2013 10:48PM Report Comment
 

2. mr g said...

All of which means sweet FA to most Brits on a day when Cheryl Cole’s new tattoo is the most important piece of news.

Saturday, February 23, 2013 12:19AM Report Comment
 

3. Dude said...

interesting there was no build up to it .... the news just slipped out on friday evening .... all i was hearing at work all day was Oscar got bail bla bla .... the timing of this downgrade has obviously be known for a long time by a number of interested groups ...

Saturday, February 23, 2013 08:41AM Report Comment
 

4. khards said...

Does this now mean that UK pension funds cannot buy UK treasuries as they are not no longer aaa rated? If so do you think that this will add to the stock market bubble.

Saturday, February 23, 2013 10:08AM Report Comment
 

5. mark wadsworth said...

Does this mean that interest rates will go up?

Saturday, February 23, 2013 11:34AM Report Comment
 

6. happy mondays said...

Does this mean that interest rates will go up? No! Watched a city economist cream himself on the news, about the benefits of further QE To DRIVE interest rates even lower for a longer period of time.. My can of Duff beer hit the floor :(

Saturday, February 23, 2013 11:59AM Report Comment
 

7. libertas said...

Thank goodness, interest rates may soon start to rise, house prices will become more affordable, government spending will fall and industry can take up the slack.

Oops, I forgot, there are genocidal maniacs running the country. Instead, they will ramp up money printing, guaranteeing further downgrades, to destroy Sterling and force us into the Euro. Independent nation states are the enemy of a one world government run for and by the corporations.

To answer Mark, we will either get higher interest rates or higher inflation. I presume the latter, but eventually you get both or, hyperinflation maybe five to ten years down the line for a reserve currency like Sterling, earlier for the smaller countries like Denmark. What you hope for is a deflationary collapse like Iceland had, which at least ensures that productive folk can pick up the pieces. You simply have to lance the boil, liquidate the malinvestment, or else the productive have all their capacity pre-occupied with propping up failed businesses and individuals via socialism, which is why Socialist dictatorships collapse.

Saturday, February 23, 2013 12:56PM Report Comment
 

8. alan said...

The day of reckoning approaches, UK debt is just too high. The welfare state can't be maintained, sorry. It got bigger as our ability to sustain the country's income has dropped. Everyone expects we can pay for it forever. Politicians loved to gain votes by give-aways, but not for any longer. Average life expectancy has grown, and the state has made pension promises that we just can't keep. The UK is well over extended.

We now have masses more civil servants than when we controlled 25% of the planet. We just can't keep paying. Another problem is stopping benefits. But these are uncomfortable choices....so we borrow more ....and the UK has more debt. Politicians of both main parties have acted like teenagers with their first credit card.

The outcome is that the government has pushed IRs lower and lower. At "normal rates" the UK is bust. If IRs move back to 5% the government can only manage by selling the NHS (for example). The squeeze will come soon. The UK is on a long decline.

Don't forget, Greece could borrow at 1% up to 2009!. Then they blew vertically upward. Our country can't keep racking up debts for a lifestyle we can't afford. The UK now has the same debt to GDP ratio of the Weimar republic.

How fast could this happen? Overnight or a 3 year strangle hold?

Well, I don't know ......the UK can't pay it's bills. Lenders will recognise this sooner or later. Then rates will go up. Loss of AAA rating is just a warning sign as we all go down the slippery slope.

Saturday, February 23, 2013 01:13PM Report Comment
 

9. drewster said...

No, it won't affect interest rates. The BoE can carry on printing.

In the long term Alan is right; but nearly every first world country is in the same boat.

Saturday, February 23, 2013 01:58PM Report Comment
 

10. Unbeliever said...

I could imagine the following scenario:

1. As a result of the loss of the AAA the future bond sales do not go so well with the government having to pay higher interest or the Bank of England having to buy the bonds through QE. With inflation remaining above target any excuse for this is non existent and so the monetizing of government debt to finance the deficit is painfully obvious. (many observers on this site would say it has been for some time).

2. Seeing this international finance would take fright and flee from Stirling and Stirling denominated assets. Stirling sinks

3. Due to imported costs inflation rises dramatically.

4. Either the currency continues to fall and inflation rise or interest rates are pushed up to defend Stirling.

I have been unable to identify a scenario where House prices fall without a Stirling crisis.

Saturday, February 23, 2013 03:28PM Report Comment
 

11. Unbeliever said...

Drewster

You are right about most first world countries where low interest rates have become essential government policy to enable governments to finance their debt, but I like the look of Australia. It has a stable government with limited public or private debt so not so much pressure on the government to pursue a policy of negative real interest rates.

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

Saturday, February 23, 2013 03:35PM Report Comment
 

12. taffee said...

don't worry...a new series of TOWIE is starting soon

Saturday, February 23, 2013 03:44PM Report Comment
 

13. nod2glod said...

If interest rate rise it's game over.

BoE and all other CB will continue to print until the productive middle class revolt. The middle class will only realise that they are being reamed out once living standards have fallen considerable further. i'm afriad it's going to be awhile yet.

Saturday, February 23, 2013 03:49PM Report Comment
 

14. letthemfall said...

Interest rates will not be affected. The move has been flagged for some time. Sellers of gilts have nowhere else to go but equities or emerging bonds, and there I don't see a flood to those at present.

Interesting media commentary though. Wide predictions that Osborne will move away from his obsession with austerity, while the Bullingdon weasel himself insists on even more. We shall see.

I don't think the welfare state is an issue except in the minds of Torys and the ultra-narrow columns of the tabloids. It was observed recently that all the avoided-evaded tax equated to the national debt.

Saturday, February 23, 2013 04:08PM Report Comment
 

15. mark said...

doesnt mean squat, same as in usa

Saturday, February 23, 2013 05:33PM Report Comment
 

16. Lets-think said...

http://www.bbc.co.uk/news/business-21557243 Leading on BBC that Labour think this is 'Humiliating' Seeing as they caused it, and does anyone believe it would be different if they were in charge?

Don't really understand the obsession with the rating agencies, as these were these jokers that thought it was fine to rate NINJA loan books as tripple A, which basically caused the whole shit storm

Saturday, February 23, 2013 05:37PM Report Comment
 

17. hpwatcher said...

No, it won't affect interest rates. The BoE can carry on printing.

Yes, BoE will continue printing, until it is the biggest holder of gilts or even the ONLY holder.

But we will be one step nearer to the collapse and one step nearer to the end of this madness.

Saturday, February 23, 2013 08:02PM Report Comment
 

18. libertas said...

Let them fall. You forgot gold.

Recently spoke to a major dealer in London. They said that if I want Sovereigns, there is a long waiting list. She said that they have a significant number of people purchasing vast quantities, i.e. proceedings from home sales, liquidation of savings, etc.

Many were new entrants who knew little about the market. Like, they would not purchase £2 coins (double sovereigns). I asked why, she said that it was not familiar to them. Anybody who knows anything about British bullion coins knows, that with the exception of a minority of rare issues, they do not get a premium. They are bullion coins. These big buyers are therefore fresh entrants to the gold market.

At some point there will be an avalanche into gold. Only rates rising above 5% can avoid that.

Saturday, February 23, 2013 09:42PM Report Comment
 

19. libertas said...

Let them fall. You forgot gold.

Recently spoke to a major dealer in London. They said that if I want Sovereigns, there is a long waiting list. She said that they have a significant number of people purchasing vast quantities, i.e. proceedings from home sales, liquidation of savings, etc.

Many were new entrants who knew little about the market. Like, they would not purchase £2 coins (double sovereigns). I asked why, she said that it was not familiar to them. Anybody who knows anything about British bullion coins knows, that with the exception of a minority of rare issues, they do not get a premium. They are bullion coins. These big buyers are therefore fresh entrants to the gold market.

At some point there will be an avalanche into gold. Only rates rising above 5% can avoid that.

Saturday, February 23, 2013 09:42PM Report Comment
 

20. jack c said...

As an asset class what was the return on gold in 2012?

Saturday, February 23, 2013 10:34PM Report Comment
 

21. bellwether said...

It would affect interest rates if the government were committed to a strong currency, but (it seems to be generally accepted here) they're not, and BOE can continue you to act as the g(u)ilty buyer of last resort.

As the credit rating worsens (although the recent news however is probably priced in so expect sterling to rise short term) exchange rates will reflect.

Saturday, February 23, 2013 11:02PM Report Comment
 

22. quiet guy said...

"Recently spoke to a major dealer in London. They said that if I want Sovereigns, there is a long waiting list."

Which dealer said that, Libertas?

"As an asset class what was the return on gold in 2012?"

Dollar price from http://www.usagold.com/reference/prices/2012.html
Price on 3rd Jan 2012 was $1598
Price on 27th Dec 2012 was $1655.50
Thus almost 3.6% return in US $ according to my calculations. Buying physical from even the most competitive dealers would wipe the return out of course and there's another dealers cut to be taken into account when you sell.

GBP price from http://ycharts.com/indicators/gold_price_in_uk_pound
Price on 3rd Jan 2012 was 1022
Price on 31st Dec 2012 was 1020
(note that the above site gives gold price on 2nd Jan 2012 in GBP as 985.14 which I have discounted as outlier data.)
So basically gold in GBP did nothing in 2012.

Some on the forum have noted Au's miserable performance recently.

I'm a PMs enthusiast and still hoping for a long term uptrend but it's been pretty miserable for the metal bugs recently. Anybody hoping to cash in on Libertas' "avalanche into gold" must be willing to take serious risks and endure pain if the bet goes wrong.

Saturday, February 23, 2013 11:50PM Report Comment
 

23. nickb said...

Funny that some people see this as evidence that the welfare state is unsustainable. National income is far higher in real terms now than when the welfare state was set up, so this seems an odd thing to say to me. Cause of the increase in government debt was the bank bailouts not welfare spending. Loss of AAA rating a significant event politically but why should the agencies be taken seriously given their performance in the run up to the financial crisis?

Sunday, February 24, 2013 12:56PM Report Comment
 

24. libertas said...

I spoke to spink.com , other friends say that other dealers they talk to are out of Sovereigns, but they will sell double sovereigns and Britannias, which are less well known by new entrants to the market. The dam is starting to collapse in terms of the physical bullion trade.

Regarding the present correction, gold would have to correct to $1400 to equal the correction of 2008. If we have another stock crash, it could go there, but the money printing which would then ensue, compounding the money printing to date plus, aversion to counterparty risk, would send gold up towards $2400 and more.

Regarding AAA, it principally affects investment from foreign entities, since UK institutions are FORCED to invest in Gilts.

Monday, February 25, 2013 07:30AM Report Comment
 

25. mark wadsworth said...

+19

Monday, February 25, 2013 11:03AM Report Comment
 

26. pete green said...

Money printing????

If our money supply is cratered by private debts & during a crash they are held at the same level by government borrowing and or guarantees to private debt

1. is this money printing?
2. which was the real money printing event?
3. how should we determine the optimal amount of money supply?


I am confused and would welcome any areas to point to for enlightenment

Monday, February 25, 2013 12:30PM Report Comment
 

27. alan said...

nickb,
The Welfare State was sustainable in the early days. Hardly anyone lived past 70. These days life expectancy is much longer (check those life insurance annuities).

Oldies now consume lots of NHS money, care, tablets etc. If they were Civil Servants, then their pay is index linked, usually.

BTW, this is not a campaign of mine to abolish it (there would be strikes and riots everywhere and I'm not a brave man). I'm just telling you how I see it.....

Monday, February 25, 2013 12:31PM Report Comment
 

28. quiet guy said...

@Libertas

"I spoke to spink.com"

If you enquire with some of the better known bullion specialists, you should have no problems sourcing sovereigns at decent prices. I have dealt with these before:

http://www.goldline.co.uk/bullionCoinsPage.page
http://www.atkinsonsthejewellers.com/shop.php?sec=cat&cat=5

According to the forum, this dealer is also good for orders of 10 or more:

http://elminvestments.co.uk/gold-coins.html

I assure you that Bairds haven't run out of sovereigns for years.

Monday, February 25, 2013 01:23PM Report Comment
 

29. mark said...

went to the pub for lunch a rare treat for me, the place was full of dole scroungers on fruit machines, drinking bear and moaning their benefits had been cut, OMG they can drink smoke gamble, all of which i have to finance for them

Monday, February 25, 2013 04:44PM Report Comment
 

30. pete green said...

Mark, my brother came down to see me this weekend, my parents paid his train fare - he is on incapacity benefit after a very nasty accident some 7 years ago in which he suffered multiple long term injuries and brain damage - he cannot afford to drink, smoke, enjoy good food or a standard of living I would think acceptable etc. Your fantasy bar room scroungers must be fiddling as you cannot have that kind of lifestyle on benefits. Did you ask them if they where on benefits? Or are you just creating a phantom onto which you put the ills of the world to justify your own predjiduces, hatreds and self loathing.

Monday, February 25, 2013 06:52PM Report Comment
 

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