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ralphmalph

Boe Rates To Be .5% For 5 Years

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I have only just recently started learning about the bond market. However I think this from Bootle is wrong.

"Keeping interest rates low would have the added benefit of helping to keep the exchange rate down – thus improving the chances of a net export-driven recovery – and putting downward pressure on bond yields, thus minimising the cost of financing the mountain of Government debt."

Investors will want higher returns for investing in our country. I can't see how lower BoE interest rates will result in bond yields dropping.

Surely demand will fall, resulting in the yields rising ?

Of course we have to factor QE into this. But that cannot go on forever. The longer it lasts the less credibility we have as a country/economy.

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Boe Rates To Be .5% For 5 Years, Roger Bootle in the Telegraph

Oh dear Roger you have really lost the plot, and to think you are paid ridiculous sums of money to publish such waffle.

You will be gone very soon alongside that amateur mob called the NuLabour Government. ;)

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Of course we have to factor QE into this. But that cannot go on forever. The longer it lasts the less credibility we have as a country/economy.

The recent strengthening of the pound, in spite of QE, would disprove your assertion.

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Oh dear Roger you have really lost the plot, and to think you are paid ridiculous sums of money to publish such waffle.

You will be gone very soon alongside that amateur mob called the NuLabour Government. ;)

Interesting.....

Bootle has long been lauded on here as a hero of the bears.

Now when he predicts something that doesn't fit in with the bear mindset, he is villified.

Interesting indeed......

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Boe Rates To Be .5% For 5 Years, Roger Bootle in the Telegraph
http://www.telegraph.co.uk/finance/comment...many-years.html

So what do all the doom mongers on here that predict IR's of 10% plus on here think about this.

Havent read it, not interested in reading it if its as you describe.

No person with any credibility would make any such a prediction.

Total horseshit.

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http://www.telegraph.co.uk/finance/comment...many-years.html

So what do all the doom mongers on here that predict IR's of 10% plus on here think about this.

Minus some huge bond market dislocation/currency crisis, BoE interest rates could stay at 0.5% pretty much as long as they want.

Interest rates on securitised loans are already at 5%-6% and were set to increase again according to the last article I read.

The only way the BoE can influence this is with more QE, but given that they already own about a quarter of their own debt and the BoE have said they have no plans to extend QE I don't think it is very likely that they will do this. If they do it is probably because we have much bigger things to worry about.

Edited by libspero

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Havent read it, not interested in reading it if its as you describe.

No person with any credibility would make any such a prediction.

Total horseshit.

And in one short post, you have proved every assertion ever made on here about bear confirmation bias.

Well done. :lol:

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He may be right. Even if his timing is wrong.

Looking in tonight I see a thread showing that landlords are finding it hard to negotiate with councils (which they are turning to for tenants) and having to accept rents lower than their mortgage payments.

Falling rents, falling incomes (esp for public sector employees) and less economic activity through the lack of the multiplier effect of government spending could easily lead to several years of absolutely minimal inflation. And interest rates low for a long time too.

His thesis is tenable.

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The recent strengthening of the pound, in spite of QE, would disprove your assertion.

Recent pound strengthening is due to weakening of other currencies, look at the Aus and NZ dollar rates, hardly any change. When other countries come out of their recessions and we are still in the sh!t the pound will tank.

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For the lazy.....

The economy has been in such a weak and dangerous situation that it has required an extraordinary policy response from the authorities. It has got it. There are three exceptional policy stimuli in place, namely record low interest rates, quantitative easing and extremely loose fiscal policy. And at some point, they will all need to be reversed. But when? And in what order?

Markets have already turned their attention to when official interest rates might rise from the current 0.5pc. They expect a reasonably sharp rise, with Bank Rate reaching around 2.5pc by the end of next year. There are no financial instruments to tell us what the markets think about when quantitative easing (QE) or the huge fiscal loosening will be reversed. But it seems fair to assume that markets think that interest rate rises could come fairly early on in the process.

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Monetary Policy Committee unanimous on holding interest ratesOn the face of it, there are some good reasons to think that they are right. Low interest rates were surely a leading cause of the asset bubble whose bursting got us into the present mess. Alan Greenspan, former chairman of the US Federal Reserve, has been heavily criticised for keeping interest rates in the US too low for too long, and thereby fuelling the bubble. The ultra-low levels of interest rates also prompted a search for yield by financial institutions, prompting them to pile into all sorts of dodgy assets.

Similar arguments have been made here. During the period of low UK interest rates after the dotcom bust at the start of this decade, house prices rose by some 70pc. The Monetary Policy Committee has been criticised, in particular, for cutting interest rates in August 2005 and thus apparently reigniting the housing boom. Given all this, the Bank of England will understandably be anxious not to make the same mistake again by keeping interest rates low for too long. And there's no doubt that once the economy is looking healthy again, interest rates will need to return to more normal levels.

But does that necessarily mean that markets are right to expect interest rates to start rising again within the next few months? I don't think so. For a start, it will be a long time before the large amount of spare capacity that is building during this recession is used up. And until it is, the slack in the economy will be keeping price pressures well contained, without the need for higher interest rates. Even if the economy recovers strongly, it could take years for this spare capacity to be eliminated. And all the signs are that the economy will not be recovering strongly.

In any case, I suspect that there will be more than enough policy tightening coming from the fiscal side. The public finances are in a truly appalling state, with Government borrowing running at the highest ever peacetime level. Under the current plans, gargantuan public borrowing persists for so long that the ratio of public sector net debt to GDP will not fall back below the 40pc ceiling previously specified by the now abandoned fiscal rules until around 2035. The markets will not stand this extended period of bloated borrowing without forcing up the rate at which the Government borrows – which will make the position worse. If the Government is not careful, it could end up in a debt trap – where it is effectively forced into a default.

In other words, the top priority is to tighten fiscal policy. The Government will come under increasing pressure to sort out this mess – as highlighted by comments by the Bank of England Governor last Wednesday. "The scale of the deficit is truly extraordinary," Mr King said. "There will certainly need to be a plan for the lifetime of the next parliament, contingent on the state of the economy, to show how those deficits will be brought down." He is right. And once the election is out of the way it will surely happen.

One way or another, via higher taxes, sharp cuts in spending or a combination of the two, borrowing will be forced lower. I have repeatedly argued that cuts in spending should bear the brunt. But whichever way they do it, fiscal tightening will deal a blow to the economic recovery. Total government spending (both current spending and investment) accounts for around one third of GDP. Accordingly, even real cuts of 2pc per annum would knock around 0.7pc off annual GDP growth, which, even without the fiscal tightening, was probably set to be next to nothing anyway.

Even when the Monetary Policy Committee does feel the need to tighten monetary policy, I think that reversing QE, not raising interest rates, should be first in line. After all, it is the most unorthodox, the least well-understood and the most dangerous element of the current extreme policy response. Policymakers have managed to avoid a mass panic about a Zimbabwe-style printing of money. But they will still be keen to dispel fears that the vast amounts of money sloshing around the economy will prompt inflation to surge. I also suspect that they aren't particularly comfortable with the policy themselves.

Keeping interest rates low would have the added benefit of helping to keep the exchange rate down – thus improving the chances of a net export-driven recovery – and putting downward pressure on bond yields, thus minimising the cost of financing the mountain of Government debt.

If we are facing a whole parliament of tightening fiscal policy, then I think we should also be contemplating the same period of near-zero interest rates. After all, if fiscal tightening is imposed upon a weak economy then not only will the economy turn out even weaker, but the tightening will be at least partially offset by the effect of lower tax revenues. The way to make sure that the fiscal tightening actually brings the deficit down quickly is to make sure that it is accompanied, as far as possible, by economic growth. The banking system is going to be short of capital, risk averse and hemmed in by controls and regulations. Meanwhile, consumers and businesses are not going to be minded to increase their spending very readily. So the economy will need all the help it can get.

The last time we found ourselves in a similar position, in the 1930s, interest rates were kept at their then record low of 2pc for pretty much two decades – from 1932 to 1951, with a brief flurry in 1939 for reasons you can guess. Even I wouldn't go so far as to suggest a repeat of that. But I do think that interest rates could be kept at their record lows for as long as five years. That is a prospect to get the markets thinking.

That would KILL any hopes the bears have of rising rates spurring a wave of forced sales.

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Interesting.....

Bootle has long been lauded on here as a hero of the bears.

Now when he predicts something that doesn't fit in with the bear mindset, he is villified.

Interesting indeed......

Really, I have always had doubts about Roger Bootle`s predictions, sadly the old CTT`s posts require a deep and complicated search to find them as the original account was deleted.

If you quote me you must in future be aware of my old postings, noting I am a neither a Bull or a Bear. ;)

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Interesting.....

Bootle has long been lauded on here as a hero of the bears.

Now when he predicts something that doesn't fit in with the bear mindset, he is villified.

Interesting indeed......

Fits with this bear's view. 5 years of an economy struggling to grow. Less public spending and removal of its multiplier effects. You've got to be gloomy about the ability of prices to maintain themselves.

Oh, and house prices will come down in that kind of scenario.

And they'll come down in absolute terms - not just the actual terms that means that general inflation reduces the value of buyers' debt.

God, this could get really messy....

for holders of housing assets.

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The recent strengthening of the pound, in spite of QE, would disprove your assertion.

I think you will find its not a strong pound but weaker other currencies. There is nothing to make the pound strong where bad date elsewhere in the would is weakening other currencies more. It was us a few months ago, mow its the rest or the world with the currency downgrading.

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For the lazy.....

That would KILL any hopes the bears have of rising rates spurring a wave of forced sales.

yes but low rates for 5 years means sickly economy and increased likelihood of Japanese style long protracted crash, even with deflation risk and low interest rates.

maybe not forced sales on huge scale, but no one able to get credit to buy when houses do come up for sale. and some forced sales as homeowners sink into neg equity and remortgaging becomes expensive despite low rate.

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The recent strengthening of the pound, in spite of QE, would disprove your assertion.

As others have said - this is probably due to us having had our 'turn' and other currencies now being next in line.

As for QE there must come a tipping point. It cannot just continue and continue forever.

I do think that rates could stay low for along time. Depends on what happens with the bond markets etc.. Pretty complicated stuff. Brain hurting.

However if rates do just sit at 0.5% for years and years ? We will have a protracted drawn out death by a thousand cuts stagnation.

In that situation house prices could just creep down and down at very low rates.

Anyway. BoE rates are not too important to many mortgage holders - potential or existing.

If you want a fix today and have only a 10-15% depsit ? I imagine you will be paying at least 5% in general.

That is very far from 0.5%.

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Interesting.....

Bootle has long been lauded on here as a hero of the bears.

Now when he predicts something that doesn't fit in with the bear mindset, he is villified.

Interesting indeed......

You still think the bank rate has something to do with anything.

Look at the funny man. :)

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Low IRs is preventing default rates to increase, meaning less forced sellers.

Considering a lot of HPCers are waiting for forced sellers to snap a bargain, this is a big spanner in the work.

If the article story materializes, that's another 5 years wait.

Not very good for renters.

Edited by Valerius

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Oh, and house prices will come down in that kind of scenario.

And they'll come down in absolute terms - not just the actual terms that means that general inflation reduces the value of buyers' debt

What a fantastic outcome for mortgage holders like me though - my nationwide svr tracks 2% above base rate - 5 years and 2.5% and I'll have paid the ******* off!

Then I can rent it out to one of you guys!

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And in one short post, you have proved every assertion ever made on here about bear confirmation bias.

Well done. :lol:

Base rates are irrelevant to all but a tiny minority with collarless trackers.

You don't fully understand any of this stuff, do you? Do you really think that bears will ignore genuinely bullish data when it presents itself?

Most bears on here will turn bull with the real market bottom. If you don't know why - GOOD, if you really believe the claptrap you post I hope your misplaced views on financial matters put you in a dire position from which you won't recover from for the rest of your life.

Oh who cares about nomarks and their childish games - you are now 'Ignored'

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