Interest Rates

[wtc]

Slightly OT, but what opinion do you guys have on the independance of the BOE, do you think it would be better if the government were still in control of IR and thus debt to a certain extent?

I mean back in the last crash we know it was triggered by the government raising IR's to 15% but was that the wrong thing to do? I mean they were in a similar position to what we are in now and a lot of ppl on these boards would argue the BOE needs to raise IR's more aggressively rather than drip feeding 0.25% rises.

Perhaps in the last crash they knew it was coming and reasoned it was better to get it over and done with and so pushed the buttons, I think they proly made the right decision. At the bottom we need someone to push the button and the BOE don't seem to want to take the responsibility of doing it, having control means making the hard calls as well as taking the praise when things are rosy. All imo of course.

[zzg113]

No, they went into the ERM at the wrong rate and paid the price. And to think John Major now holds a high-flying position in a private equity group. He couldn't finance his way out of a wet paper bag.

[wtc]

Blows my theory out of the water then So do you think the BOE should be in charge of IR's zzg113?

[zzg113]

Yeah, I think they should, and it's important that the central bank is independent, but it's gonna come down to a straight choice between abandoning the inflation target or sending the UK into recession. I posted earlier that I think they have ALREADY chosen the first route, but are fiddling the inflation target so it doesn't show up.

[wtc]

Yeah, I can easily believe that, removing HPI from the figures is proof enough they are prepared to massage the figures to put themselves in the best light.

But won't massive inflation mean all the ppl who have taken on masses of debt will effectively have been allowed to have their cake and eat it while all the savers are punished yet again.

[zzg113]

Aha! No! Because the OFFICIAL inflation rate says inflation is low, so if anybody tries to ask for inflationary pay rises, the employer can point to the HICP and say 'But inflation is well under control!'. We have a strange sort of inflation where consumer goods made in China are getting cheaper all the time but services, oil, council tax, intangibles, are increasing in price all the time. What was the solution to stagflation last time? Unfortunately govts, as reckless borrowers themselves, are always tempted to print money to inflate away the debt. This is why the independence of the BoE is so important; theoretically they should restrain that.

[STR@2%GY]

I don't think the wisdom of making the bank independent can be questioned, but I do think their restrictive remit (i.e. a narrow measure of inflation 2 years forward), and their consequent inability to address asset prices will be seen as a big mistake. And this was this the bank's decision or Gordon Brown's?

We are all very critical that they have allowed the house price bubble to develop to the extent that it has, but are we saying they should have allowed a recession after the stock market crash instead?

[zzg113]

John Calverley's book argues that asset prices should be in the bank's remit, and that a way to limit credit is to limit the LTV's at which banks can lend. I can see that one going down like a lead balloon with the banks.

[laurejon]

It is fairly obvious that this Government is quite big in the deceit business.

The so called miracle economy, is built on the back of massive public spending by the Chancellor and rising houseprices that have been cashed in by many buyers thus funding the consumer economy.

With regard to real worth, the UK is pitifull. There are very few businesses that have turned a profit over the past five years, this situation is obviously not sustainable. We are now seeing the green shoots of a recession, the mantra "No more boom and bust" peddled by the Labour government will merely be added to the whole heap of deception that has sorrounded this Government since it first took office. I have no doubt, they will have some irrational explanation as to why No more boom and bust was not yet another lie.

The writing is on the wall, Job losses, massive consumer debt, massive government debt, and falling houseprices. That is a recipe for a recession on a scale yet unseen. I think those who are factoring in a property price reduction of 40% are thinking along the right lines.

One could argue that interest rates are still low, and I would agree. However it is well documented that these rates are being held low artificially, to stimulate the economy. The Neutral rate is much higher, and you can be sure that slippery Blair would not be foolish enough to crash the market prior to the election.

That said, post election it is inevitable that he will take the brakes off and get back to reality. Britain will have to join the big bad world yet again and rates will rise. The difference between this recession and the last is that today people are indebted to a much higher ration with regard to earnings.

The BTL industry will obviously collapse and those properties will become the catalyst for the crash as they come onto the market thick and fast and the owners cut their losses.

It is my belief having encountered two previous recessions that if we dont have a miracle economy we are heading into something far worse that a recession.

[Guest Charlie The Tramp]

My own sentiments during the past twelve months.

Good post laurejon.

[Crazy88s]

It is fairly obvious that this Government is quite big in the deceit business.

The so called miracle economy, is built on the back of massive public spending by the Chancellor and rising houseprices that have been cashed in by many buyers thus funding the consumer economy.

With regard to real worth, the UK is pitifull. There are very few businesses that have turned a profit over the past five years, this situation is obviously not sustainable. We are now seeing the green shoots of a recession, the mantra "No more boom and bust" peddled by the Labour government  will merely be added to the whole heap of deception that has sorrounded this Government since it first took office. I have no doubt, they will have some irrational explanation as to why No more boom and bust was not yet another lie.

The writing is on the wall, Job losses, massive consumer debt, massive government debt, and falling houseprices. That is a recipe for a recession on a scale yet unseen. I think those who are factoring in a property price reduction of 40% are thinking along the right lines.

One could argue that interest rates are still low, and I would agree. However it is well documented that these rates are being held low artificially, to stimulate the economy. The Neutral rate is much higher, and you can be sure that slippery Blair would not be foolish enough to crash the market prior to the election.

That said, post election it is inevitable that he will take the brakes off and get back to reality. Britain will have to join the big bad world yet again and rates will rise. The difference between this recession and the last is that today people are indebted to a much higher ration with regard to earnings.

The BTL industry will obviously collapse and those properties will become the catalyst for the crash as they come onto the market thick and fast and the owners cut their losses.

It is my belief having encountered two previous recessions that if we dont have a miracle economy we are heading into something far worse that a recession.

<{POST_SNAPBACK}>

Good post. Very well said.

[THE SAGE]

It is fairly obvious that this Government is quite big in the deceit business.

The so called miracle economy, is built on the back of massive public spending by the Chancellor and rising houseprices that have been cashed in by many buyers thus funding the consumer economy.

With regard to real worth, the UK is pitifull. There are very few businesses that have turned a profit over the past five years, this situation is obviously not sustainable. We are now seeing the green shoots of a recession, the mantra "No more boom and bust" peddled by the Labour government  will merely be added to the whole heap of deception that has sorrounded this Government since it first took office. I have no doubt, they will have some irrational explanation as to why No more boom and bust was not yet another lie.

The writing is on the wall, Job losses, massive consumer debt, massive government debt, and falling houseprices. That is a recipe for a recession on a scale yet unseen. I think those who are factoring in a property price reduction of 40% are thinking along the right lines.

One could argue that interest rates are still low, and I would agree. However it is well documented that these rates are being held low artificially, to stimulate the economy. The Neutral rate is much higher, and you can be sure that slippery Blair would not be foolish enough to crash the market prior to the election.

That said, post election it is inevitable that he will take the brakes off and get back to reality. Britain will have to join the big bad world yet again and rates will rise. The difference between this recession and the last is that today people are indebted to a much higher ration with regard to earnings.

The BTL industry will obviously collapse and those properties will become the catalyst for the crash as they come onto the market thick and fast and the owners cut their losses.

It is my belief having encountered two previous recessions that if we dont have a miracle economy we are heading into something far worse that a recession.

<{POST_SNAPBACK}>

My sentiments entirely- An excellent post.

What more can you say about the current situation in the economy and the housing market

[BBB]

One could argue that interest rates are still low, and I would agree. However it is well documented that these rates are being held low artificially, to stimulate the economy. The Neutral rate is much higher, and you can be sure that slippery Blair would not be foolish enough to crash the market prior to the election.

That said, post election it is inevitable that he will take the brakes off and get back to reality. Britain will have to join the big bad world yet again and rates will rise. The difference between this recession and the last is that today people are indebted to a much higher ration with regard to earnings.

The BTL industry will obviously collapse and those properties will become the catalyst for the crash as they come onto the market thick and fast and the owners cut their losses.

My sentiments entirely- An excellent post.

What more can you say about the current situation in the economy and the housing market

Good post. Very well said.

My own sentiments during the past twelve months.

Good post laurejon.

nice to see that five of us (including me) agree that IR's hold the key to the future of the market. only with them going (significantly?) higher would conclude, a true crash.

only problem is, i could have sworn they had just about peaked?

[Bullish Bear]

nice to see that five of us (including me) agree that IR's hold the key to the future of the market. only with them going (significantly?) higher would conclude, a true crash.

only problem is, i could have sworn they had just about peaked?

<{POST_SNAPBACK}>

I am afraid that I disagree. Interest rates are below the long-term average because the economy is in bad condition. Interest rates below the norm are usually in response to sluggish growth. Interest rates above norm are to reduce excess growth.

The government have been fortunate until now because they have effectively avoided recession because the consumers have been on a spending frenzy. This has in part (a big part) been fuelled by easy money. The debt explosion is over and the crunch is about to commence.

With few consumers willing or able to take out loans, spending in shops will take a hit. My guess is that this Christmas, sales will be poor. This in turn will hit businesses and then the inevitable cost-cutting cycle begins.

People will lose their jobs, their homes, and businesses will go bust. Economy will go into recession (possibly deflation) and asset values will shrink. How bad things get are anyone's guess but bad they will be.

[THE SAGE]

nice to see that five of us (including me) agree that IR's hold the key to the future of the market. only with them going (significantly?) higher would conclude, a true crash.

only problem is, i could have sworn they had just about peaked?

<{POST_SNAPBACK}>

I don't believe Interest Rates hold the "key" as you say.

There is only one thing that drives the housing market and that is

Confidence and it would not make any difference if we had had

0% inflation and intersest rates at 0% at the moment because people have finally

realised that property is massively OVERVALUED!

I appreciate you are a greater veteran of this site to me but I would have thought it may have dawned on you that ultimately interest rates make no difference

Look at the Japanese experience which is just about to be played out in this country even though Gordon will lie until he is hounded out of office!!

[zzg113]

BB, the BoE can't raise IR's any further, cos that will kill the housing market and then we really will have a recession on our hands; this HAS to be the peak!

[BBB]

I don't believe Interest Rates hold the "key" as you say.

There is only one thing that drives the housing market and that is

Confidence and it would not make any difference if we had had

0% inflation and intersest rates at 0% at the moment because people have finally

realised that property is massively OVERVALUED!

I appreciate you are a greater veteran of this site to me but I would have thought it may have dawned on you that ultimately interest rates make no difference

Look at the Japanese experience which is just about to be played out in this country even though Gordon will lie until he is hounded out of office!!

<{POST_SNAPBACK}>

its just my opinion. sentiment will not account for the falls you guys are hoping for. there has to be a change in the fundamentals, or in the dynamics. yes prices are high, if people can afford them they will keep buying. it is IR's that have slowed the market thus far, not sentiment.

let us not forget, we are talking the HM here (10% sentiment 90% fundamentals), not stocks and shares (which is prob 90% sentiment 10% fundamentals)

[zzg113]

I would have said it was the other way round BBB.

[THE SAGE]

BB, the BoE can't raise IR's any further, cos that will kill the housing market and then we really will have a recession on our hands; this HAS to be the peak!

<{POST_SNAPBACK}>

This may not be the peak as Great Britain PLC operates globally and has more than the housing market to think of when making decisions.

One point I wanted to pick up from an earlier post was that please do not believe

that we now have an independant bank of England.

This is not the Case!!!

If Mervyn King wanted to raise Intersest rates by 1% Do you really think Gordo brown would let him? NO CHANCE!!

[BBB]

I would have said it was the other way round BBB.

<{POST_SNAPBACK}>

are you being serious?

[BBB]

I would have said it was the other way round BBB.

<{POST_SNAPBACK}>

most of the city ''sayings'' hinge round sentiment . eg.........

1) buy on the rumour, sell on fact

2) when main street talks wall street walks.

just look at the dot.com fiasco. shares rose to 200 x p/e due to guesswork (on earnings) THERE WERE NO FUNDAMENTALS WHAT SO EVER.

[zzg113]

But in the dot com mania, the market eventually came to its senses, because people can go short shares if they think their valuations are not justified. The same cannot be said of the housing market.

Yes. Or at least, both markets wander off their fundamentals a lot, but at least in the stockmarket there are forces at work which ensure that stocks never become too over- or under-valued. I can't say the same for the housing market. The only correcting force on the market is buyers, and if they go crazy, so does the whole market.

[Dicky]

Yes. Or at least, both markets wander off their fundamentals a lot, but at least in the stockmarket there are forces at work which ensure that stocks never become to over- or under-valued. I can't say the same for the housing market. The only correcting force on the market is buyers, and if they go crazy, so does the whole market.

<{POST_SNAPBACK}>

Not always.

Marconi 2000 share price £12.50.

Marconi 2003 share price £0.0065.

[zzg113]

what are you saying there Dicky? that the SM undervalued Marconi?

[Dicky]

what are you saying there Dicky? that the SM undervalued Marconi?

<{POST_SNAPBACK}>

No, the 5Bn debt caused the collapse but the market didn't help, where were the forces at work to stop it happening.