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I remember the 1990's they put up rates on a monthly basis. It was hitting home owners really hard, people couldnt afford it and lost their houses, but the banks still did it

and I think they will do it again. Because its in their nature.

yeah but during the 1990s the money supply was still expanding strongly even with the odd recession here and there. The recessions of the time only made tiny downward impressions in the overall rise of the money supply.

so thats what is different now. Its stopped expanding because we are at peak debt.

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Arbitrage,

I have a £10 million pound debt at 0% interest.

I have £10 million pounds in cash, which I can put in the bank and gain 1% interest.

Should I repay my loan?

How confident are you that the interest rate on your debt won't go up and the interest rate on your savings won't stay the same? Sounds rather like a similar gamble to the ones taken out by everyone who thought that borrowing well over the odds for a house was a good move because the interest was low...

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Banks did it because that is all they can do when market rates of interest rise. If they dont raise their rates of interest, depositors move their money elsewhere, and the bank can no longer fund itself.

The reason that all the banks didnt go bust then was because they had only loaned money to those with big deposits. The borrowers took the hit. Not so much equity in property this time, thanks to the control frauds committed by banksters during this boom.

Sorry, Mr Square, I can't let that go unchallenged. :)

My recollection was that we still had 110% mortgages to FTBs in the 80's and that loads of people were repoed while in Negative Equity.

The difference as I understand it was that the banks were much better capitalised back then and could withstand these kind of shocks. I recall someone at the start of this recession saying on R5 (of all places) that this time round, the banks were going into a recession already in trouble and with no room for these defaults.

However, I am not arguing to keep IRs low, after all unsecured loan rates are still about the same as they were 3 years ago, credit card rates are a little higher, IIRC.

And, for those thinking that inflation will solve everything, makes the assumption that income will rise above inflation. so far there is no evidence for that.

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The banks were bailed, if they weren't they would have died, no question

They will be bailed again via the cruelest tax of them all: inflation

Do you think we're in a deflationary situation?

So you agree that we are facing inflation and the bankers hate it more than some measly defaults with will be covered by the tax payer anyway. So you agree that your first post - which said the bankers wouldn't raise interest rates because they were scared of defaults - was wrong? Hey, it was early, maybe you hadn't had your coffee yet?

By the way, how are your debts.

Remember, you shouldn't save until all your debts have been paid off first

I'm safely in the black thanks

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This is all going exactly to plan.

They have trapped people in lots of debt and will now slowly ratchet up the interest rate to squeeze every last penny out of them.

Yes +1

look how much is being spent this christmas, people can tighten their belts much more than they currently are before we see mass defaulting, especially if we consider that to harm banks it would have to be on a scale that can't be baled out, and lets not forget that individually the bankers themselves are unlikely to care as they will know the gravy train will be coming to an end at some point and they have their golden parachutes ready.

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Might it not be prudent to have savings for cashflow reasons, despite still holding debt? So, if your boiler goes in winter, and you need a new one, you can use your savings to buy it?

Peter.

Spot on BP. You get some really daft ideas on this board sometimes.

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Sorry, Mr Square, I can't let that go unchallenged. :)

My recollection was that we still had 110% mortgages to FTBs in the 80's and that loads of people were repoed while in Negative Equity.

The difference as I understand it was that the banks were much better capitalised back then and could withstand these kind of shocks. I recall someone at the start of this recession saying on R5 (of all places) that this time round, the banks were going into a recession already in trouble and with no room for these defaults.

However, I am not arguing to keep IRs low, after all unsecured loan rates are still about the same as they were 3 years ago, credit card rates are a little higher, IIRC.

And, for those thinking that inflation will solve everything, makes the assumption that income will rise above inflation. so far there is no evidence for that.

Please supply proof of that.

The last housing bust was in the 90's of course, and people were repo'd in negative equity. A big deposit doesnt cover all eventualities for the bank. But I think that 100%+ mortgages werent available in those days, but please contradict me if you have proof.

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Might it not be prudent to have savings for cashflow reasons, despite still holding debt? So, if your boiler goes in winter, and you need a new one, you can use your savings to buy it?

Peter.

depends if the interest rate on the current loan is less than it would be if you had to get a new loan later on. If there is not much difference it would probably be better to pay them off though not to the point of zero cashflow

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1) Why would anybody listen to what the BOE say anymore (or the government)?

2) They clearly have zero intention of raising rates.

3) They are trying to manage inflation expectations by sprouting the usual BS

4) They will constantly find any excuse they can to explain above norm inflation (VAT, global food prices, global commodity prices) and therefore not raise rates.

5) At the end of the day they are all a bunch of pussies. BOE and governments of the past were willing to do the "right" thing even if it hurt the majority. Todays BOE and government are not. This is due to increased media awareness and knowledge of the public. The same applies to all western countries.

6) If you have a garden, start growing your own veggies ASAP. It will be a good investment. Food prices have nothing to do with BOE rates and will rise inexorably.

7) Interest rates will remain below 1% for at least 5 years.

8) Rates will start rising when employment and salaries (including public sector) start rising again.

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So you agree that we are facing inflation and the bankers hate it more than some measly defaults with will be covered by the tax payer anyway. So you agree that your first post - which said the bankers wouldn't raise interest rates because they were scared of defaults - was wrong? Hey, it was early, maybe you hadn't had your coffee yet?

You're clueless.

Ever studied any economics - you should

You muppet - I was arguing that inflation and rock bottom nominal rates would be created in order to protect the banks from falling asset prices and, ultimately, banks going bust.

Go to the back off the class and put that hat with a big letter D on it.

Fool!

It's self-evident that you have an IQ of less than 50

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I'm not an economist but I believe one effect is as follows:- QE, or printing money, and large national debt cause the UK pound to be less attractive in money markets and so the pound loses value relative to other currencies. This causes 'imported inflation' because we have to pay more for foreign goods and services with our weak pounds.

Higher interest rates make the pound more attractive to the money markets because the pound will accrue more interest, so that causes the value of the pound to rise with respect to other currencies. This makes imported goods and services cheaper.

thats a good explanation, but you forget that instead of raising rates to control "inflation", they will just drop commodities from the CPI and RPI measures, at least until they start to fall in price again.

This is called hedonist adjustment....an adjustment to acheive the figure you want to achieve along with personal pleasure.

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The article says Interest Rates will rise to 2.75% by 2012 :lol:

Not going to happen. It would cripple the country. If we have rises they will be spread out in small increments over the next 5 years. They may push the base rate to 1% and see what happens for about 6 months to a year in 2011, but we will not see base rate rises to 2.75% by 2012.

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The article says Interest Rates will rise to 2.75% by 2012 :lol:

Not going to happen. It would cripple the country. If we have rises they will be spread out in small increments over the next 5 years. They may push the base rate to 1% and see what happens for about 6 months to a year in 2011, but we will not see base rate rises to 2.75% by 2012.

Good post - all true

Nominal 2.75% if CPI is >6%

:lol:

Negative real rates all the way

Got inflation proof assets

The likes of Atom will be OK, their debts will fall in real terms provided he keeps his job

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Good post - all true

Nominal 2.75% if CPI is >6%

:lol:

Negative real rates all the way

Got inflation proof assets

The likes of Atom will be OK, their debts will fall in real terms provided he keeps his job

which means SVRS at 7%.

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You're clueless.

Ever studied any economics - you should

You muppet - I was arguing that inflation and rock bottom nominal rates would be created in order to protect the banks from falling asset prices and, ultimately, banks going bust.

Go to the back off the class and put that hat with a big letter D on it.

Fool!

It's self-evident that you have an IQ of less than 50

You forgot to insult his mother.

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Their problem is they've lost all credibility and it's another of their famous TINA policies. It's not so long ago they were saying rates wouldn't rise for the foreseeable future and now inflation is spiralling and the economy is on the floor so they have to say something. They can't reduce rates and they'll not stay at 0.5% for ever so hey what's left but the obvious one to say they're likely sometime going to increase them. Before you know it they'll even pledge to increase interest rates and they might even get to carry out that one :rolleyes:

At least the latest report on alien's shoe sizes is credible.

Edited by billybong
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The attached chart from Capital Economics charts broad money (M4) against the house price to earnings ratio and following Irving Fisher's identity equation (MV=PT) suggests further QE.

James Wyatt

Bang on the money

You're assuming that the Bank uses monetary policy to achieve a house price inflation target

Well, you're actually 100% correct - there's no way that the Bank is still actually following its mandate to conduct monetary policy to hit a 2% CPI target, with a symmetrical 1% margin of error either side of this target.

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The attached chart from Capital Economics charts broad money (M4) against the house price to earnings ratio and following Irving Fisher's identity equation (MV=PT) suggests further QE.

James Wyatt

how about the house price to mars bar inflation report?

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The attached chart from Capital Economics charts broad money (M4) against the house price to earnings ratio and following Irving Fisher's identity equation (MV=PT) suggests further QE.

James Wyatt

It suggests that they need NUCLEAR QE if they want to prevent a major house price correction.

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The attached chart from Capital Economics charts broad money (M4) against the house price to earnings ratio and following Irving Fisher's identity equation (MV=PT) suggests further QE.

I think several of us are wondering why the low M4 data hasn't prompted further printing yet.

The only reason I can think of is that the DMO are having no problem raising money in the markets and the treasury are happy enough to keep spending.

If the government are still able to borrow and spend for us (despite what they say to the contrary), then presumably they can use this to keep velocity up and supply just about in the black...

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