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Loony King Hints At Negative Interest Rates Like Sweden

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Mervyn King wants to force the banks to lend and also enjoys giving savers a bloody good kicking in the pub car park, it seems. "Smack you in the mouth" Merv, a bruiser who drinks at the bank of england, is now apparently contemplating or trying to scare everyone with talk of neg IRs. this from the man who when IRs went ultra-low said he empathised with savers and would not keep IRs low for a second more than necessary. now he's taken his shirt off, revealed his hairy back and "Savers are muthas" tattoo and is saying "Come over 'ere if you're 'ard enuff, pal, and I'll show ya the Swedish way we sort things out."

Or put more formally, see:

http://www.ft.com/cms/s/0/f5f21ed4-8c1c-11...144feabdc0.html

so, what has happened to savers in sweden? not good. http://www.google.com/search?q=sweden+save...amp;rlz=1I7GWYD

disgusting bankers

Edited by loginandtonic

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The man is barking mad and immoral.

He has failed entirely and now somebody else must pay for it.

Or maybe he's gone long in equities.

Poor old Merv. He's in danger of his crown slipping, much like poor old Vince. Fickle lot, these HPCers.

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Mervyn wants to demonstrate he can be tough, the central bank deposits are too high and it's pointless printing money if the banks

deposit it at the BOE and don't lend anything off it. Quite what the consumer public are supposed to borrow to buy isn't known.

"Initially, Mr King gave QE six months before it would start taking effect. That time limit is up next week. If there are no signs in the money supply numbers, particularly in the key M4 lending excluding financial institutions, then the policy may start to look a distinct possibility."

http://edition.cnn.com/2009/BUSINESS/08/27...ro.interest.ft/

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A Savers 'strike' like the one we SHOULD have started last December.

A co-ordinated mass-withdrawal from a state owned (ie Lloyds/ NR) bank. You'd soon see interest rates start to rise in direct proportion to the length of the queues of panicking depositors

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negative rates at the BoE are to encourage banks to lend ...leaving QE on deposit and earning money at the BoE is good news for banks...free interest.

if they get QE and leave it wallowing at the BoE its costing them money.

course, that removes the cushion that a fixed amount of money gives against falling financial assets, backed by housing and other loans.

so, on the one hand they need to lend to make interest on their reserves, while at the same time, they cant securitise the loans and the risk stays with them.

if merv goes negative and keeps QE going...which he does not appear to be saying, he is heading for the end game of hyperinflation...hopefully all the controls to stop it, like currency crash and bond market failures, will come about, but if they feel that they need to override that, then we are heading to weimar.

negative rates are a clear sign of serious deflation, any positive lending rates are onerous in that environment....I suspect Mervs hope is to encourage savers to spend and borrow so counteracting asset natural value falls whilst encouraging a ponzi at the same time.

this is a terribly hard tightrope to walk along....personally, I dont think any power on earth can time this right.

however, before getting all upset the article says "Analysts speculated that Mr King could copy the Riksbank" and analysts dont publish the data they get paid for to the press....the real news they sell.

Edited by Bloo Loo

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A Savers 'strike' like the one we SHOULD have started last December.

A co-ordinated mass-withdrawal from a state owned (ie Lloyds/ NR) bank. You'd soon see interest rates start to rise in direct proportion to the length of the queues of panicking depositors

is that savers' protest group still going? dismal turn out last time i think, now is the time for them to get organised.

personally i'll be looking to negotiate with overseas banks that will let a UK domicile seposit with them, some other countries are paying 6% plus on savings (eg Poland)

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Raise interest rates to 5% now and wash this all out.

they dont have the sense to take the pain and let the economy return to normal after some years, they think they have A New Way, like teens who think they've invented lovebites, they are an utterly pathetic bunch of wallies who got us all into this mess + most incredible of all are being allowed to continue on instead of getting a kick up their ar se so hard that their feet don't touch the ground between The City and whichever town in the british isles spawned them, where they should head home and work in the local chicken shop if they can even get that right

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Mervyn wants to demonstrate he can be tough, the central bank deposits are too high and it's pointless printing money if the banks

deposit it at the BOE and don't lend anything off it. Quite what the consumer public are supposed to borrow to buy isn't known.

"Initially, Mr King gave QE six months before it would start taking effect. That time limit is up next week. If there are no signs in the money supply numbers, particularly in the key M4 lending excluding financial institutions, then the policy may start to look a distinct possibility."

http://edition.cnn.com/2009/BUSINESS/08/27...ro.interest.ft/

maybe UK's problem IS savers...like in Japan, where the PROBLEM is savers.

Me, I thought the problem was insolvent bankers with no money to meet their commitments because of silly loans they had made going bad...hence the need to QE.

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they dont have the sense to take the pain and let the economy return to normal after some years, they think they have A New Way, like teens who think they've invented lovebites, they are an utterly pathetic bunch of wallies who got us all into this mess + most incredible of all are being allowed to continue on instead of getting a kick up their ar se so hard that their feet don't touch the ground between The City and whichever town in the british isles spawned them, where they should head home and work in the local chicken shop if they can even get that right

When you get a few days off from working in the local pie shop you should do something about it.

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Savers withdrew record amounts after the last drop in Feb

http://www.telegraph.co.uk/finance/persona...rates-fall.html

...but does the Cloud Cuckoo Land Money Printing Bank of England care when they just magic money into existance and hand it to the banks anyway?

this is the sort of infantile mess we're now in, they don't care if savers run on banks because they just print the money.

- who the heck in BoE human resources gave these idiots the nod at Interview, unbelievable negligence by their HR, do they not do aptitude tests and competence tests any more?

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maybe UK's problem IS savers...like in Japan, where the PROBLEM is savers.

Me, I thought the problem was insolvent bankers with no money to meet their commitments because of silly loans they had made going bad...hence the need to QE.

You thought right. Our overall savings ratio is still very low, much lower than is needed to cover whatever feeble investment spending we're making nationally. Hence we're still running a current account deficit of 3%GDP or thereabouts. That's what I don't understand about all this. On one hand it seems like the long term problem is that we have a low propensity to save. But if we save more demand collapses and the economy shrinks further. Paying off our debts is the equivalent of saving, and surely we have to pay down our debts now to fix the economy. But doing so will damage the economy. We need growth without increasing indebtedness (or inflation perchance). I think the gap in the whole equation is the big exporting countries of Germany, Japan and China are causing a big global drag on demand and a surplus in supply. Now the US, UK & so-on are bust we can't keep buying their stuff, we need them to buy our stuff so we can pay off our debts, but they're not interested.

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You thought right. Our overall savings ratio is still very low, much lower than is needed to cover whatever feeble investment spending we're making nationally. Hence we're still running a current account deficit of 3%GDP or thereabouts. That's what I don't understand about all this. On one hand it seems like the long term problem is that we have a low propensity to save. But if we save more demand collapses and the economy shrinks further. Paying off our debts is the equivalent of saving, and surely we have to pay down our debts now to fix the economy. But doing so will damage the economy. We need growth without increasing indebtedness (or inflation perchance). I think the gap in the whole equation is the big exporting countries of Germany, Japan and China are causing a big global drag on demand and a surplus in supply. Now the US, UK & so-on are bust we can't keep buying their stuff, we need them to buy our stuff so we can pay off our debts, but they're not interested.

all there is to understand is that they dont know how to fix it - thats why

ultra-low IRs = fail (except to create a new bubble in property perhaps)

QE = fail (ditto)

Neg IRs = fail (bank run remedied by QE, more loans and defaults and repos later when IRs do have to go up)

they just dont know anything, they are just very well paid stuffed suits, running from pillar to post.

the conspiracy theorists would argue that they always wanted to take over the Bank and banks so they could get to this position now, but i think it was incompetence that led here not cunning.

the big question is why we let the people who ruined it now say they are sorting it, thats got to be the biggest sign we the public are very, very stupid or apathetic. so some would say we deserve all we get now from this load of utter morons who are not fit to run a market stall let alone a country of the heritage and previous respect the UK attained globally in eras past. how shame making, we have a dumbed down nation with dumbed down leaders - if they're the best we can find we are doomed

Edited by loginandtonic

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By all means crank interest rates up to 5% but prepare for economic meltdown in the wider economy. Sure, you'll earn a bit more on your savings but someone has got to pay for the tidal wave of unemployment that will follow- you'll be one of the few with cash in the bank so guess where the taxman is going to come calling.

Savers aren't expected to labour or break into a sweat for their profit so I'm not sure what all the fuss is about- you might not be earning what you think you deserve but even a low return is still a good deal for doing practically nothing.

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Why does this not affect ordinary people, ordinary arseholes like me? It affects us all. That is the problem, eh, you think it doesn't affect you. Wake up.

correct, it affects everyone, it has caused savers to lose yet more in sweden, see my link.

i was wondering why Northern Rock in marketing their latest (370-371) bonds said "protect yourself from falling interest rates" - now we know they either know something or are cashing in on fear

Edited by loginandtonic

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Can I just point out that consumers are not going to see negative interest rates on savings accounts - not in a million years.

That would lead to an en-masse withdrawal of funds from the banks, running them foul of Basel II regulations and significantly weakening them further. It would be political suicide for Mervyn King.

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By all means crank interest rates up to 5% but prepare for economic meltdown in the wider economy. Sure, you'll earn a bit more on your savings but someone has got to pay for the tidal wave of unemployment that will follow- you'll be one of the few with cash in the bank so guess where the taxman is going to come calling.

Savers aren't expected to labour or break into a sweat for their profit so I'm not sure what all the fuss is about- you might not be earning what you think you deserve but even a low return is still a good deal for doing practically nothing.

you've got a tidal wave of unemployment anyway, danny

your savers worked to put money aside for their retirements, they worked to keep the country going to now - where they have been betrayed

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Can I just point out that consumers are not going to see negative interest rates on savings accounts - not in a million years.

That would lead to an en-masse withdrawal of funds from the banks, running them foul of Basel II regulations and significantly weakening them further. It would be political suicide for Mervyn King.

pls refer to my link to whats happened in sweden, at the very least savers here will see another 0.5bps off savings rates (1/2 of 1 per cent)

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By all means crank interest rates up to 5% but prepare for economic meltdown in the wider economy. Sure, you'll earn a bit more on your savings but someone has got to pay for the tidal wave of unemployment that will follow- you'll be one of the few with cash in the bank so guess where the taxman is going to come calling.

Savers aren't expected to labour or break into a sweat for their profit so I'm not sure what all the fuss is about- you might not be earning what you think you deserve but even a low return is still a good deal for doing practically nothing.

Agreed, it would be impatient and simplistic. Just don't want to keep dragging corpses down the road!

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pls refer to my link to whats happened in sweden, at the very least savers here will see another 0.5bps off savings rates (1/2 of 1 per cent)

You link points to a google search result. Can you at lest let us now what link to view so that we can see where interest rates on savings in Sweden are negative

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Have a solution...fill the helicopter up with QE and rain it over UK to spend......borrowed money might as well be free money, if that is how they want to play it. ;)

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disgusting bankers

While I disagree with "noneworked's" tone, he's got a point.

What the article doesn't state is that this relates to the reform of sterling money markets from 2006 where, for the first time in history, the Bank of England paid interest on reserve balances. I've read Paul Tucker's paper justifying the reform and, to cut a very long story short, essentially, his justification was twofold:

  • Historically, reserve balances have been tiny because no interest has been paid on them - so we're only talkingt about small sums. Formerly, banks rushed at the end of each day to engage in (reverse) repos to get hold of gilts rather than lose overnight interest on them while funds remained in reserve accounts earning nothing.

  • The money paid out in interest is balanced by the money charged in interest on other loans... resulting in no net effect.

Both of these are somewhat true - but miss the point, in my opinion. The 2006 act definitely had a more subtle effect - and, in my opinion, one that would take years to be felt. The size of reserve balances has increased dramatically since the 2006 act, so the argument about account balances being small is no longer appropriate. However, in my opinion, arguments about negative interest rates on overnight balances at the BoE don't make sense as a direct incentive to lend to the private sector. I do see it as an incentive to buy gilts - i.e. to lend to government... which seems relevant in its own right - given that some commentators foresee a huge government funding shortfall. Indirectly, I suppose, this does encourage lending to the private sector - but only where private investors hold gilts and have no compelling reason to shun the risks inherent in lending to the 'real' economy. I wonder about the extent of the existence of such investors - and the scale of their investment pots.

I think that re-introducing an imbalance between lending rates and savings rates at the BoE is definitely an interesting development. I wonder if it, too, will have unforeseen consequences.

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