Under What Circs Do Interest Rates Rise?

[A.steve]

The BOE is the lender of last resort.

This is one, but only one, of its roles. It lends under other circumstances too.

[Mr Nice]

the BoE doesn't set rates in a vacuum, in fact it usually sets the rate to reflect what the market has already decided the rate should be.

they are reactive not proactive.

obviously they are showing that they can go in other directions than what the markets want, but that has led to having to buy the bonds from itself to maintain that artificial level.

it's more evidence that the markets are completely broken more than that the BoE can dictate rates other than what the market wants.

once any amount of confidence returns to the markets, there will be a mass exodus from bonds, and there isn't much the gov can do about it.

[Mixle]

It is a method to facilitate trade

I know it is to facilitate trade. But you haven't answered my question.

Does the bank subtract something from its own saving when it creates the seller's saving?

Why do you the individual keep trying to change my individual experience?

There is nothing between us. We are just separate beings in time and space.

Your alter ego told me he was using NLP on me to drive me into submission and another time told me he was ramming it up my **** good and proper.

What kind of individualism is that?

Sounds like group sex to me

Maybe it is a homosexual invasion of the body snatchers?

How come you anarchists are so hell bent on world domination

Doh!

I haven't (knowingly) used any NLP against you, so I don't see why you're complaining at me.

I don't see what your complaint is, too, because: 1) I am not Injin, 2) I've never had group sex [wtf], 3) I am not homosexual [gf], 4) I am not a grave robber [eww], 5) I am not an anarchist [heck, I voted Labour], 6) I am not Homer Simpson.

Edited April 28, 2009 by Mixle

[laurejon]

From where I am sitting interst rates have gone up.

Mortgage rates are the highest for years, credit cards and personal loans are also nearing an all time high.

BOE base rates are merely and excercise to recapitalise the banks by making the money they borrow cheaper, but behind the scenes the Government are in full agreement with the banks that they continue to punish the public with high rates. For the media the Government portray the line they are doing all they can to get the banks to pass on the savings,but its purely hot air and we all know it.

[aliveandkicking]

Oh, you misunderstand. Available leverage is a function of respect, social standing and industry perception. I suggest a compare-contrast with Madoff.

No You misunderstand.

You can be infinitely levered when you buy a house with a 105% mortgage that absolutely pays for all your costs so that you have no skin in the game.

If the house dissapears you lose none of your personal money.

Your ability to be levered infinitely depends on your ability to get a 105% loan with no skin in the game.

The bank of england does not freely lend in normal circumstances as you are suggesting.

The bank lends in a number of market situations to support monetary policy but as it lends so does it borrow in a market directing manner

For example if it buys gilts it is offering cash to the market in the form of freely available money in return for the gilt. At another point in time it sells the gilts and is buying the money back again.

The bank of england does not provide a nipple you or anybody else can suck on in the manner you are suggesting.

[Fortunate Son]

From where I am sitting interst rates have gone up.

Mortgage rates are the highest for years, credit cards and personal loans are also nearing an all time high.

BOE base rates are merely and excercise to recapitalise the banks by making the money they borrow cheaper, but behind the scenes the Government are in full agreement with the banks that they continue to punish the public with high rates. For the media the Government portray the line they are doing all they can to get the banks to pass on the savings,but its purely hot air and we all know it.

Agreed

[aliveandkicking]

I know it is to facilitate trade. But you haven't answered my question.

Does the bank subtract something from its own saving when it creates the seller's saving?

I haven't (knowingly) used any NLP against you, so I don't see why you're complaining at me.

I don't see what your complaint is, too, because: 1) I am not Injin, 2) I've never had group sex [wtf], 3) I am not homosexual [gf], 4) I am not a grave robber [eww], 5) I am not an anarchist [heck, I voted Labour], 6) I am not Homer Simpson.

OK but do you believe it is possible to be a saver in a fractional reserve bank?

As i recall you said that was fraud unless it was safety deposit box saving.

So when i talk to you i am wary of your 'thats interesting' mind games when your only purpose it to mess with my mind like you are god and i am in a laboratory jar for your amusement.

Since you dont play by the normal rules of conversation i have to hold you at arms length to avoid being contaminated.

You say you are not an anarchist for example and yet we discussed 'groups dont exist' as if it meant anything at all in the real world. You decided it did not. You decide your own realities. Nothing changes in reality.

A person discussing with you who does not know your methods gets caught in some king of 'thats interesting' mind f.uck by you on them for your 'thats interesting' pleasure.

It is sadistic on your part and mascochistic on my part to allow you to do it.

I have to see you as you are to protect myself

You say 'thats interesting' I wonder what it means to you?

In my experience it is just your arrogance observing me.

Edited April 28, 2009 by aliveandkicking

[ccc]

the BoE doesn't set rates in a vacuum, in fact it usually sets the rate to reflect what the market has already decided the rate should be.

they are reactive not proactive.

obviously they are showing that they can go in other directions than what the markets want, but that has led to having to buy the bonds from itself to maintain that artificial level.

it's more evidence that the markets are completely broken more than that the BoE can dictate rates other than what the market wants.

once any amount of confidence returns to the markets, there will be a mass exodus from bonds, and there isn't much the gov can do about it.

I would agree with that. Common sense seems to make that likely. However when there is a mass exodus, there will be a price fall. Which means the yields will rise. Won't this stem the exodus from bonds when people start to get very good returns for these bonds ? Even if the markets are starting to look better ?

[ccc]

No You misunderstand.

You can be infinitely levered when you buy a house with a 105% mortgage that absolutely pays for all your costs so that you have no skin in the game.

If the house dissapears you lose none of your personal money.

Your ability to be levered infinitely depends on your ability to get a 105% loan with no skin in the game.

The bank of england does not freely lend in normal circumstances as you are suggesting.

The bank lends in a number of market situations to support monetary policy but as it lends so does it borrow in a market directing manner

For example if it buys gilts it is offering cash to the market in the form of freely available money in return for the gilt. At another point in time it sells the gilts and is buying the money back again.

The bank of england does not provide a nipple you or anybody else can suck on in the manner you are suggesting.

Do investors always buy gilts in pounds ? I see the aspect of controlling the money supply by sucking in and blowing out cash by controlling the gilt market - and returns on it.

However this only goes for pounds. Are investments not made witrh other currencies ?

[aliveandkicking]

I would agree with that. Common sense seems to make that likely. However when there is a mass exodus, there will be a price fall. Which means the yields will rise. Won't this stem the exodus from bonds when people start to get very good returns for these bonds ? Even if the markets are starting to look better ?

Last year when bond yields were at 40 year lows people made massive profits from bonds.

Bonds have a face value of say 100,000 and an interest rate. If the bond price collapses in value you can buy the face value bond at a discount to the face value and the yield for you is high.

If confidance returns to bonds even with tiny yields then you can sell the bonds for a massive profit if you bought the bond with debt because you lever your 'skin in the game' with the debt. Just like if you buy a house with 1000 down and 99,000 borrowed you are levering your risk 99 times or whatever it is.

Bonds are traded. The bond traders trade in and out of bonds to create the market we see.

Once again when you pull a detail out of reality and imagine you can construct the full picture of reality you get the wrong answer.

Just saying

[aliveandkicking]

Do investors always buy gilts in pounds ? I see the aspect of controlling the money supply by sucking in and blowing out cash by controlling the gilt market - and returns on it.

However this only goes for pounds. Are investments not made witrh other currencies ?

It does not matter if you buy gilts with zimbabwe dollars. The zimbabwe dollars are sold for pounds. Or more likely that trade is arranged in advance of the purchase of the gilts so that gilt seller is not exposed to zimbabwe dollars.

Dont forget there is a vast flow of pounds flowing out to the world to buy their stuff. The stuff makers then have a vast pile of pounds. What do you do with pounds if you dont want to buy british stuff?

If you buy zimbabwe dollars then somebody gets pounds.......what do they do with pounds if they dont want british stuff?

They could for example buy and sell gilts and make massive profits.....or 'just take that yield' but the yeild for them is established at the price they pay for the bond of that face value.

If bonds collapse now.....then china looking into the future is going to be ok. They want to help us. We buy their stuff. They are desparate now for us to buy their stuff. Meanwhile they are spending those pounds on our stuff. For example china bought 700 billion worth of trains from Seimens of germany about 6 weeks ago. No doubt there are other stupendous deals for british gear because britain is the 7th largest manufacturing nation in the world.......

[ccc]

Last year when bond yields were at 40 year lows people made massive profits from bonds.

Bonds have a face value of say 100,000 and an interest rate. If the bond price collapses in value you can buy the face value bond at a discount to the face value and the yield for you is high.

If confidance returns to bonds even with tiny yields then you can sell the bonds for a massive profit if you bought the bond with debt because you lever your 'skin in the game' with the debt. Just like if you buy a house with 1000 down and 99,000 borrowed you are levering your risk 99 times or whatever it is.

Bonds are traded. The bond traders trade in and out of bonds to create the market we see.

Once again when you pull a detail out of reality and imagine you can construct the full picture of reality you get the wrong answer.

Just saying

I understand bonds are traded. There is the buying and selling for long term yields and the buying and selling for instant profits.

I just don't get this exodus from the bond market chat. There will always be people who see the yields as a good long term return and will buy accordingly. I simply can't see how prices can collapse. I am sure they can and have - still can't see it though.

[aliveandkicking]

I understand bonds are traded. There is the buying and selling for long term yields and the buying and selling for instant profits.

I just don't get this exodus from the bond market chat. There will always be people who see the yields as a good long term return and will buy accordingly. I simply can't see how prices can collapse. I am sure they can and have - still can't see it though.

Well you need a sort of exodus to get the best yield. You understand the yield yes?

The bond has a face value of 100,000 and a coupon of 2% and a term of 30 years say.

The bond enters reality by being sold at auction by the office of debt management of whatever they go by, and it gets bought for 99,900 say. So that investor now has a bond yeilding for them 100,000 / 99,900 * 2% over the life of the bond. If interest rates fall further then their bond is now priced at a premium to current bonds. so it is now worth say 101,000. So they can sell that bond for a profit of 1100 plus the yield they earnt.

The more wild the journey the greater the price difference and yields possible.

And obviously if you are a big player you can create all manner of hysteria. Talk of massive bond market collapse is music to the ears of many bond traders........and no doubt these jokers post on boards like this under the name of interestraterippof of injin and so forth to help the cause.

It is just buisiness after all.

Edited April 28, 2009 by aliveandkicking

[ccc]

Well you need a sort of exodus to get the best yield. You understand the yield yes?

The bond has a face value of 100,000 and a coupon of 2% and a term of 30 years say.

The bond enters reality by being sold at auction by the office of debt management of whatever they go by, and it gets bought for 99,900 say. So that investor now has a bond yeilding for them 100,000 / 99,900 * 2% over the life of the bond. If interest rates fall further then their bond is now priced at a premium to current bonds. so it is now worth say 101,000. So they can sell that bond for a profit of 1100 plus the yield they earnt.

The more wild the journey the greater the price difference and yields possible.

And obviously if you are a big player you can create all manner of hysteria. Talk of massive bond market collapse is music to the ears of many bond traders........and no doubt these jokers post on boards like this under the name of interestraterippof of injin and so forth to help the cause.

It is just buisiness after all.

So you agree with me then ?

I don't think there will be a huge collapse because at some point these will again become very good value and their demand will go up.

I think you are complicating matters.

[aliveandkicking]

So you agree with me then ?

I don't think there will be a huge collapse because at some point these will again become very good value and their demand will go up.

I think you are complicating matters.

I dont seem to be agreeing with you fully though

If the price collapses then they maintain their value to a buyer who now gets the higher yield.

The future value is just icing on the cake..........if we assume the UK is not going to default on the gilts.

[ccc]

I dont seem to be agreeing with you fully though

If the price collapses then they maintain their value to a buyer who now gets the higher yield.

The future value is just icing on the cake..........if we assume the UK is not going to default on the gilts.

Exactly as I was thinking. An existing holder will sell it on a buyer who sees it as a good deal. As I have said, considering this, I have no idea why the bond market would collapse as many have predicted. Unless of course as you say we don't default. A collapse in my opinion would be something like a loss of value of 75% +.

I can't see that happening. Anyway will be interesting to see how it pans out.

[Mr Nice]

Exactly as I was thinking. An existing holder will sell it on a buyer who sees it as a good deal. As I have said, considering this, I have no idea why the bond market would collapse as many have predicted. Unless of course as you say we don't default. A collapse in my opinion would be something like a loss of value of 75% +.

I can't see that happening. Anyway will be interesting to see how it pans out.

a collapse in the bond market is a collapse in the price, usually because the yields are too low for what investors are expecting.

bonds are the fundamental framework of any modern economy, a drop of %10 would be pretty devastating, %20 or %30 would be pretty catastrophic.

in order to still be able to borrow money through bond issuance, the gov would have to raise rates massively.

going from where we are now to %20 base rates would be a pretty big deal, maybe we disagree on that.

[Mixle]

OK but do you believe it is possible to be a saver in a fractional reserve bank?

I can believe conflicting theories at the same time. At the moment I am assuming that it is possible.

As i recall you said that was fraud unless it was safety deposit box saving.

That was when I assumed that Injin's model was correct.

So when i talk to you i am wary of your 'thats interesting' mind games when your only purpose it to mess with my mind like you are god and i am in a laboratory jar for your amusement.

If something is interesting, my curiosity has been aroused. Means I'm paying attention. Means I would like an answer. Means I will pursue the answer, and if I don't get it from you, I will seek to get it elsewhere.

Since you dont play by the normal rules of conversation i have to hold you at arms length to avoid being contaminated.

Normal rules of conversation: statement, question, answer. You not answered my question for the last two posts.

You say you are not an anarchist for example and yet we discussed 'groups dont exist' as if it meant anything at all in the real world. You decided it did not. You decide your own realities. Nothing changes in reality.

A person discussing with you who does not know your methods gets caught in some king of 'thats interesting' mind f.uck by you on them for your 'thats interesting' pleasure.

My method is the scientific method. Assume. Test the assumption. Correct the assumption.

It is sadistic on your part and mascochistic on my part to allow you to do it.

I have to see you as you are to protect myself

You say 'thats interesting' I wonder what it means to you?

In my experience it is just your arrogance observing me.

See me as you like. You don't have to answer.

Anyone,

Does the bank subtract something from its own saving when it creates the seller's saving?

Edited April 28, 2009 by Mixle

[Mr Nice]

Anyone,

Does the bank subtract something from its own saving when it creates the seller's saving?

no, a bank's savings, it's profits, are it's reserves.

when a bank creates a credit in your account, it lowers it's future ability to lend since it has raised it's ratio of credit to reserves.

eventually it will have lent the maximum that the law allows it to against it's reserves.

then it will need to take in more reserves, which will allow it to lend more against them.

Edited April 28, 2009 by Mr Nice

[aliveandkicking]

when a bank creates a credit in your account, it lowers it's future ability to lend since it has raised it's ratio of credit to reserves.

That is not really true.

When a bank creates a credit in your account that remains a credit in the bank then it usually retains its ability to lend because this only partially increases the banks leverage

But when a bank creates a credit in your account that is paid out in cash then the bank is much more levered than when the credit remained at the bank

When you say the bank creates a credit in your account this is almost meaningless.

What has meaning in the real world is your ability to reduce your account back to where it was before the loan.

The purpose of credit is not generally to showoff your higher current acccount balance.

When you say the bank creates credit and places it in your bank account you are creating a meaning that make it more easy to imagine somethign dodgy is going on.

Evidently you want others to believe that or you believe it yourself but it seems strange to me the lengths you are going to warp it so that it looks dodgy to the unaware eye.

[crispindry]

That is not really true.

When a bank creates a credit in your account that remains a credit in the bank then it usually retains its ability to lend because this only partially increases the banks leverage

But when a bank creates a credit in your account that is paid out in cash then the bank is much more levered than when the credit remained at the bank

When you say the bank creates a credit in your account this is almost meaningless.

What has meaning in the real world is your ability to reduce your account back to where it was before the loan.

The purpose of credit is not generally to showoff your higher current acccount balance.

When you say the bank creates credit and places it in your bank account you are creating a meaning that make it more easy to imagine somethign dodgy is going on.

Evidently you want others to believe that or you believe it yourself but it seems strange to me the lengths you are going to warp it so that it looks dodgy to the unaware eye.

Hello Alive. Can you please post a link to some information that will clarify your points. I'm genuinely interested but I just can't get my head around what your saying. Thanks.

[aliveandkicking]

Hello Alive. Can you please post a link to some information that will clarify your points. I'm genuinely interested but I just can't get my head around what your saying. Thanks.

I am not sure that modern money mechanics will help you but that contains all of this stuff.

Why not talk to me privately and we can establish what you cant get your head around.

My basic point begins with that 100 borrowed and lent out involves zero percent fractional reserve banking or infinite leverage.

Ie a depositor says they have 100 and a person is given 100 but there was only 100.

Do you think that is a bad thing to do? Is it fraudulent if both parties know what was done?

Edited April 28, 2009 by aliveandkicking

[crispindry]

I am not sure that modern money mechanics will help you but that contains all of this stuff.

Why not talk to me privately and we can establish what you cant get your head around

I've read modern money mechanics but I'll have another go methinks. Ta.

[aliveandkicking]

I've read modern money mechanics but I'll have another go methinks. Ta.

How about these two apparently different scenarios happening in a zero % fractional reserve bank?

--------------------------

A

Fred has 100

Fred deposits 100 and the bank creates 100 of deposit money

The bank creates a loan for Dave of 100 who takes cash to buy an item from Fred who gets 100 cash.

The bank has no cash. Fred has one hundred cash and a bank deposit of 100. Dave owes 100

B

Fred has 100

The bank creates a loan for Dave of 100

Dave buys an item from Fred electronically for 100

The bank has no cash. Fred has one hundred cash and a bank deposit of 100. Dave owes 100

-------------------------

So what is now the difference between:

A The bank has no cash. Fred has one hundred cash and a bank deposit of 100. Dave owes 100

B The bank has no cash. Fred has one hundred cash and a bank deposit of 100. Dave owes 100

[ccc]

no, a bank's savings, it's profits, are it's reserves.

when a bank creates a credit in your account, it lowers it's future ability to lend since it has raised it's ratio of credit to reserves.

eventually it will have lent the maximum that the law allows it to against it's reserves.

then it will need to take in more reserves, which will allow it to lend more against them.

Yes but if it creates a credit then it creates an asset. We all know Banks class loans as assets. So yes it has raised its ratio of credit to reserves, however it has also raised it's asset base.

No idea how this actually works out in reality !!

Cheers for the info regarding Gilts. I never knew such a small change in value would be classed as catastrophic. I think I read somewhere in Argentina their bonds went down 50% or something ?

Or did I just make that up...