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Merv's Vigilance (Inaction) May Push I R To 8%

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http://uk.finance.yahoo.com/news/interest-rates-may-hit-8pc-in-two-years-tele-2aa556b777a9.html?x=0

Interest rates 'may hit 8pc' in two years

Philip "Balders" Aldrick, 22:22, Saturday 21 August 2010
Interest rates may rise to 8pc within two years to choke off soaring inflation, according to radical new research.
Andrew Lilico, chief economist at the influential Policy Exchange think tank, has warned of an interest rate environment not seen since the 1990s. He said the rise could happen as the recovery beds in and Government measures to stave off a recession lead to an explosion in the money supply. Mr Lilico also warned of a return to "boom and bust", as ballooning inflation threatens to tip the economy back in to recession in 2013 or 2014.

It will be too little too late as Merv continues to be vigilant and ignores creeping inflation. The bubble must be deflated or we are going into generational decline.

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http://uk.finance.yahoo.com/news/interest-rates-may-hit-8pc-in-two-years-tele-2aa556b777a9.html?x=0

Interest rates 'may hit 8pc' in two years

Philip "Balders" Aldrick, 22:22, Saturday 21 August 2010
Interest rates may rise to 8pc within two years to choke off soaring inflation, according to radical new research.
Andrew Lilico, chief economist at the influential Policy Exchange think tank, has warned of an interest rate environment not seen since the 1990s. He said the rise could happen as the recovery beds in and Government measures to stave off a recession lead to an explosion in the money supply. Mr Lilico also warned of a return to "boom and bust", as ballooning inflation threatens to tip the economy back in to recession in 2013 or 2014.

It will be too little too late as Merv continues to be vigilant and ignores creeping inflation. The bubble must be deflated or we are going into generational decline.

That would sort out all the smug gits on IO tracker mortgages wouldn't it?

Bring it on....

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That would sort out all the smug gits on IO tracker mortgages wouldn't it?

Unfortunately, as Lilico points out in the final paragraph, even if inflation did take off the decision would probably be made to keep IRs low to prevent that from happening, i.e. the feckless bailed out and savers shafted even more.

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Mr Lilico added: "There is a risk that... the economy will not be able to tolerate 8pc interest rates without the mass defaulting on mortgages that we are trying to avoid. If that is the case, then interest rates may have to be kept lower for an additional nine months and the consequence will be inflation peaking at 20pc rather than 10pc, as in the 1970s. The consequence of interest rate rises will be another recession in 2013 or 2014," he said.

Damned if they do and damned if they don't in that scenario. Bet they'd not do the more difficult/unpopular raising of rates earlier rather than leaving it until later when the problem is even worse. Ultimately, inflation at 20pc would surely cause many more to default than adjusting interest rates to control inflation at 10pc?

Is it possible that raising interest rates will have absolutely no effect on inflation?

Edited by rented

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Is it possible that raising interest rates will have absolutely no effect on inflation?

raising them to levels the economy can't cope with will make inflation worse as it all collapses.

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raising them to levels the economy can't cope with will make inflation worse as it all collapses.

But as they said in the last MPC meeting, rates can begin to gradually rise and they will still be at 'exceptionally' low levels. It's a tough one for Merv and friends TBH.

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Higher interest rates would be a good thing - if it wasn't for the huge number of "hardworking families" who need that SVR at 3.49%.

Personally, I don't expect rate to rise in a 2-5 year time frame.

Certainly, if they do 8% is not realistic.

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But as they said in the last MPC meeting, rates can begin to gradually rise and they will still be at 'exceptionally' low levels. It's a tough one for Merv and friends TBH.

rates will rise if we get growth/money supply growth, otherwise not.

it really is a simple as that.

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Interest rates 'may hit 8pc' in two years

RB when you post this info, and if and when it happened, I would be set up for life, you have got me shaking with anticipation. :blink:

In the early 80s interest rates made cash savers the power behind the throne, 7 holidays in the Caribbean made life a dream. ;)

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yes we are all well aware of that by now. you have a habit of repeating yourself in the most banal way possible.

Got to educate the masses who spew out this deflation, safety in bonds and cash rubbish despite the fundamentals telling a different course.

Stop basing your judgement on what you want to happen and look at what will happen.

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From Wiki:

Hope was personified in Greek mythology as Elpis.

According to Hesiod's Works and Days,

when Pandora opened Pandora's Box,

she let out all the evil of the world, and only hope remained:

Formerly the tribes of men on earth lived remote from ills,

without harsh toil and grievous sicknesses that are deadly to men.

But the woman unstopped the jar and let it all out,

and brought grim cares upon mankind.

Only Hope remained there inside her secure dwelling,

under the lid of the jar, and did not fly out,

because the woman put the lid back in time by the providence of Zeus

the cloud-gatherer who bears the aegis. In Human, All Too Human,

philosopher Friedrich Nietzsche argued that "Zeus did not want man to throw his life away,

no matter how much the other evils might torment him,

but rather to go on letting himself be tormented anew.

To that end, he gives man hope.

In truth, it is the most evil of evils because it prolongs man's torment."

Emily Dickinson wrote in a poem that "'Hope' is the thing with feathers-- / That perches in the soul--."

Ernst Bloch in "Principle of Hope" (1986) traces the human journey for a wide range of utopias.

Bloch locates utopian projects not only in the social and political realms of the well-known utopian theorists

(Marx, Hegel, Lenin) but also in a multiplicity of technical, architectural, geographical utopias,

and in multiple works of art (opera, literature, music, dance, film).

For Bloch hope permeates everyday life and it is present in countless aspects of popular culture phenomenon

such as jokes, fairy tales, fashion or images of death.

In his view Hope remains in the present as an open setting of latency and tendencies.

The miserable have no other medicine, But only hope. ~ ~William Shakespeare

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rates will rise if we get growth/money supply growth, otherwise not.

So so true.........................money supply growth = inflation = Rates rise................................money supply contraction = credit contraction = credit deflation = ZIRP.

On another note Sceppy...................Government deficit = running up a large differential between money in (taxes) and money out (expenditure) = money printing? Thoughts?

So QE is NOT the printing of money, this printing of money has already been done previously/currently by servicing the country's running costs through running such a large deficit previously/currently and into the future, which leads to an ever increasing national debt, which in turn, "will it ever be repaid"? Or just sits there "national debt" allowing the elite to cream interest payments from the working "poor" taxpayer?

Edited by Panda

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From where is this "Inflation" to come?

Well, money supply appears to be static or falling...that is, money in the "wild", not held to bolster banks balance sheets.

IMHO, it will come from imports of vital items, like food, energy and raw materials.

why will these things go up? well, it could be because A: OIL price rises, or B: lack of confidence in the £ and or, lack of cash to buy the Issuance of the £.

to combat B and C, savers need to get a return...Interest rates will rise.

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Martin Lewis is pointing out this isa:

http://www.ncbs.co.uk/savings/savings/tax-free/2nd-Issue-Index-Linked-Cash-ISA.aspx

* New! Inflation-beating cash Isa. National Counties Building Society's index linked tax-free cash Isa pays a guaranteed 1% AER. PLUS, it locks your cash in for five years and on maturity you get the rise in RPI inflation. You must save a min. £5,100 including any transfers from old cash Isas.

This means it's now the only account guaranteed to beat inflation (as the Govt's NS&I axed the only similar deal in July). You can apply until 30 Sept but I suspect it'll be over-subscribed and close sooner.

Yet don't automatically think: "Wow, at current rates, it's 5.8% tax-free!" Five years is a long time; inflation could change a lot and if interest rates rise, this may no longer look a cracker.

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From another thread..................

http://www.businessweek.com/news/2010-08-19/u-k-money-supply-growth-weakest-since-1983-as-lending-slows.html

Aug. 19 (Bloomberg) -- U.K. money supply grew at the slowest pace since at least 1983 and bank lending contracted for a ninth month, suggesting a credit squeeze may be becoming more entrenched, Bank of England data showed.M4, the broadest measure of money supply, expanded 2.3 percent in July from a year earlier. That?s the lowest rate since monthly date started. The number of mortgage loans granted by a six-bank lending panel fell to 47,000 from 48,000 in June, a 14-month low. Loans to small and medium sized businesses contracted 2 percent on the year.

bank lending contracted for a ninth month (credit deflation)....................................money supply expanded 2.3 percent in July from a year earlier (inflation).............

Edited by Panda

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From another thread..................

http://www.businessw...ding-slows.html

Aug. 19 (Bloomberg) -- U.K. money supply grew at the slowest pace since at least 1983 and bank lending contracted for a ninth month, suggesting a credit squeeze may be becoming more entrenched, Bank of England data showed.M4, the broadest measure of money supply, expanded 2.3 percent in July from a year earlier. That?s the lowest rate since monthly date started. The number of mortgage loans granted by a six-bank lending panel fell to 47,000 from 48,000 in June, a 14-month low. Loans to small and medium sized businesses contracted 2 percent on the year.

bank lending contracted for a ninth month (credit deflation)....................................money supply expanded 2.3 percent in July from a year earlier (inflation).............

this was the theory expounded by nonposter EDM...balance credit deflation with money inflation.

trouble is the money multiplier could have bad effects later on...hence the need to withdraw again later with higher rates.

It IS inevitable Mr Anderson

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That would sort out all the smug gits on IO tracker mortgages wouldn't it?

Bring it on....

I see articles like this as an attempt to shake out the weak hands with tracker mortgages.

I'd rather hold till the bitter end. 8% isn't that high anyway but I think we will have ultra low rates for many years to come.

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Martin Lewis is pointing out this isa:

http://www.ncbs.co.uk/savings/savings/tax-free/2nd-Issue-Index-Linked-Cash-ISA.aspx

* New! Inflation-beating cash Isa. National Counties Building Society's index linked tax-free cash Isa pays a guaranteed 1% AER. PLUS, it locks your cash in for five years and on maturity you get the rise in RPI inflation. You must save a min. £5,100 including any transfers from old cash Isas.

This means it's now the only account guaranteed to beat inflation (as the Govt's NS&I axed the only similar deal in July). You can apply until 30 Sept but I suspect it'll be over-subscribed and close sooner.

Yet don't automatically think: "Wow, at current rates, it's 5.8% tax-free!" Five years is a long time; inflation could change a lot and if interest rates rise, this may no longer look a cracker.

But we have deflation. :unsure:

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8%, oh yes please. Though I don't like the implication that 8% is an esepcially high rate, I see 5% as the long-term norm so 8% is equivalent to 2%. It's the current 0.5% that is in looney tune territory.

Telegraph link as well, couldn't see it:

http://www.telegraph.co.uk/finance/economics/interestrates/7957873/Interest-rates-may-hit-8pc-in-two-years.html

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8%, oh yes please. Though I don't like the implication that 8% is an esepcially high rate, I see 5% as the long-term norm so 8% is equivalent to 2%. It's the current 0.5% that is in looney tune territory.

Telegraph link as well, couldn't see it:

http://www.telegraph.co.uk/finance/economics/interestrates/7957873/Interest-rates-may-hit-8pc-in-two-years.html

An interest rate of 8% is not histrionically that high as Frank says.

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