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Monkey

Amazing Article On This Is Money Website

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http://www.thisismoney.co.uk/news/article.html?in_article_id=418186

http://www.thisismoney.co.uk/news/article.html?in_article_id=418186&in_page_id=2&expand=true#StartComments

this is a really really good article, a very balanced view on the Ecconomy etc, with very little if at all any view from the writter, just facts and what other people have said all backed up with charts.

it looks like this has been originally written in the 19th July 2007 (going by the first reply date) and has been updated thorugh the last 3 and a half years, with some interesting readers comments.

its well worth a good read of the comments as well, you can guage and see public opnion change over time using the power of heinsight to see if their sentiments were right or not.

http://www.thisismoney.co.uk/news/article.html?in_article_id=418186&in_page_id=2&expand=true#StartComments

i would post the article but its too long,

Edited by Monkey

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So rates SHOULD be at 4.2%, not 0.5%.

if the Taylor Rule is to beleived as correct (and i dont know) then yes. which makes a mockery of the IR rates world wide

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If savings rates reflect borrowing rates, why do people think rates should increase? Where is the demand for credit, to provide the interest for savings?

If mortgage rates went up to 5%, do you think borrowers would be able to repay their debts and in turn provide savers with interest? I doubt it - it is more likely they will default, giving savers a negative real rate (after money printing to prevent hair cuts on savings/investors).

Although the central bank's actions with both the base rate and the printing of money are disrupting the pricing signals, there still has to be an element of supply and demand here. The whole centralised banking system seems flawed, while interest rates are zero bound and deposits are (implicitly) risk free. We need a system which is based on the supply and demand of money, with risk ever present, in order to give better pricing signals. This in turn will help businesses prosper, rather than just fuelling bubble speculation.

For what it's worth, I don't think they will raise the base rates until they are forced to by high CPI price index inflation. They will then be stuck between a rock and a hard place - defaults (and therefore bank failures) or high/hyper inflation. They will try to aim somewhere in the middle, no doubt, but it will be a dangerous game to flirt with high inflation.

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If savings rates reflect borrowing rates, why do people think rates should increase? Where is the demand for credit, to provide the interest for savings?

If mortgage rates went up to 5%, do you think borrowers would be able to repay their debts and in turn provide savers with interest? I doubt it - it is more likely they will default, giving savers a negative real rate (after money printing to prevent hair cuts on savings/investors).

Although the central bank's actions with both the base rate and the printing of money are disrupting the pricing signals, there still has to be an element of supply and demand here. The whole centralised banking system seems flawed, while interest rates are zero bound and deposits are (implicitly) risk free. We need a system which is based on the supply and demand of money, with risk ever present, in order to give better pricing signals. This in turn will help businesses prosper, rather than just fuelling bubble speculation.

For what it's worth, I don't think they will raise the base rates until they are forced to by high CPI price index inflation. They will then be stuck between a rock and a hard place - defaults (and therefore bank failures) or high/hyper inflation. They will try to aim somewhere in the middle, no doubt, but it will be a dangerous game to flirt with high inflation.

1. Look at Zopa rates. People are borrowing and lending at 6%+. It is not that simple.

I2. Mortgage rates is ready close to 5%. I take it that you mean mortgage rates at 9.5% (base 5 + 4.5%).

I also doubt that outstanding negative equity is that great (lot of houses were owned since long ago) - even if there is a 10% haircut, savers will get their

money back in 2.5 years (5% vs 0.5%). Plenty of pain for the debtors, but that is a different story. ( Though I would prefer a 2% or so rate to flush

out the weakest/most leveraged to free up some resources and allow the weaker ones to survive. This will also send a message that if one is over leveraged,

then do so at one's own perils rather than at saver's expenses).

3. Supply of money - yes, but if the rates dare to rise about 0.5%, you get Sterling Market Framework operation when BoE throw some new cheap money around.

Thought this is not really needed right now (SMF outstanding around £5bn or so) as the QE £150ish billion are sitting in Commercial Bank's BoE account.

4. What BoE needs is a second recession while rates is at 0.5% (odds that we get one by 2015 is pretty good), it will be out of tools.

The problem with rates is that people/business get used to it and then base their life assuming 0.5% rates and then all rate rise will be disastrous.

Edited by easybetman

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1. Look at Zopa rates. People are borrowing and lending at 6%+. It is not that simple.

I2. Mortgage rates is ready close to 5%. I take it that you mean mortgage rates at 9.5% (base 5 + 4.5%).

I also doubt that outstanding negative equity is that great (lot of houses were owned since long ago) - even if there is a 10% haircut, savers will get their

money back in 2.5 years (5% vs 0.5%). Plenty of pain for the debtors, but that is a different story. ( Though I would prefer a 2% or so rate to flush

out the weakest/most leveraged to free up some resources and allow the weaker ones to survive. This will also send a message that if one is over leveraged,

then do so at one's own perils rather than at saver's expenses).

3. Supply of money - yes, but if the rates dare to rise about 0.5%, you get Sterling Market Framework operation when BoE throw some new cheap money around.

Thought this is not really needed right now (SMF outstanding around £5bn or so) as the QE £150ish billion are sitting in Commercial Bank's BoE account.

4. What BoE needs is a second recession while rates is at 0.5% (odds that we get one by 2015 is pretty good), it will be out of tools.

The problem with rates is that people/business get used to it and then base their life assuming 0.5% rates and then all rate rise will be disastrous.

1. Zopa is a good example of supply and demand, although I don't know how they manage defaults. Ultimately, it is that simple though - interest rates are dictated by supply and demand, even though the BoE can influence this relationship. Ofc, banks can take a bigger cut out of the middle and hold onto this as cash held for capital adequacy purposes, too.

2. I meant 'if mortgage rates went up another 5%' (it was badly worded). It sounds like you are suggesting that savers will benefit even if there are defaulters, as there will be enough people who can cope with the higher rates. It may be the case, but there are a lot of people with large mortgages out there (remember MEWing, too). I don't have the figures, but then this is the danger of setting rates centrally - the market is being manipulated.

3. Which will lead to inflation in the medium/long term, unless they raise rates. We are then back to the problem of defaults (see above).

4. I agree with the latter bit - it fuels bubble speculation - but I'm not sure why the BoE would want a recession.

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the problem they had when they reduced the interest rate, too many people didnt use the extra cash they got from lower mortgage payments to over pay their mortgages.

then on top of that more people borrowed upto the hilts whilst IRs are at the historic low they are, not factoring in a possible rise during the corse of their mortgage. thebanks didnt give a sh!t, now the BOE is stuck as after 19 months of this its going to be hard to get them higher, with out some part of the population feeling the pain.but they have already fcuked the savers etc with low IRs.

what ever happens the BOE looses, they will be mad not to rase IR's, it will send a signal to the banks, but i dont think it will cause a recession on its own,

they could raise it upto 1% by Feb,

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If savings rates reflect borrowing rates, why do people think rates should increase? Where is the demand for credit, to provide the interest for savings?

If mortgage rates went up to 5%, do you think borrowers would be able to repay their debts and in turn provide savers with interest? I doubt it - it is more likely they will default, giving savers a negative real rate (after money printing to prevent hair cuts on savings/investors).

Although the central bank's actions with both the base rate and the printing of money are disrupting the pricing signals, there still has to be an element of supply and demand here. The whole centralised banking system seems flawed, while interest rates are zero bound and deposits are (implicitly) risk free. We need a system which is based on the supply and demand of money, with risk ever present, in order to give better pricing signals. This in turn will help businesses prosper, rather than just fuelling bubble speculation.

For what it's worth, I don't think they will raise the base rates until they are forced to by high CPI price index inflation. They will then be stuck between a rock and a hard place - defaults (and therefore bank failures) or high/hyper inflation. They will try to aim somewhere in the middle, no doubt, but it will be a dangerous game to flirt with high inflation.

interest rates are only low because of the extremely bad lending of the last 5-10 years.

Its a cover for the bankers only. they not only borrow low, they are allowed to mark to fantasy, spend QE where they like and pay themselves fortunes.

What should happen, is that the lenders suck up the losses, the bad loans defaulted so the UK can get back to work, making things that create wealth rather than trying to keep the 100% unproductive ponzi we have in place.

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  • 244 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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