Merv: We Are In Too Much Debt To Raise I R

[Realistbear]

http://www.telegraph.co.uk/finance/economics/8488547/Bank-of-England-Governor-Mervyn-King-warns-on-interest-rate-rise.html

Bank of England Governor Mervyn King warns on interest rate rise

High debt levels pose “massive” economic challenges that would be exacerbated by higher interest rates, the Governor of the Bank of England said.

Speaking yesterday at the European Parliament in Brussels, Mervyn King warned that a rise in long-term interest rates would have “severe” consequences.

Merv is 100% correct. One hike and the housing market collapses overnight pulling the banks down with it.

Mind you,house prices are going to collapse in any event. The choice is do they collapse another 30-40% or have a gentle drop of 20%.

[RichM]

This is quite chilling really. The only people who can help us now are in the bond market. Where's Soros when you really need him?

[mattyfc]

http://www.telegraph.co.uk/finance/economics/8488547/Bank-of-England-Governor-Mervyn-King-warns-on-interest-rate-rise.html

Bank of England Governor Mervyn King warns on interest rate rise

High debt levels pose “massive” economic challenges that would be exacerbated by higher interest rates, the Governor of the Bank of England said.

Speaking yesterday at the European Parliament in Brussels, Mervyn King warned that a rise in long-term interest rates would have “severe” consequences.

Merv is 100% correct. One hike and the housing market collapses overnight pulling the banks down with it.

Mind you,house prices are going to collapse in any event. The choice is do they collapse another 30-40% or have a gentle drop of 20%.

Agree, at least he is honest. Raising interest rates would be suicidal with consumer confidence so low and it would give house prices a nice push downwards. No IR rise till August at the earliest unfortunately.

We will be able to get a fairly good idea of what will happen to prices from the ECB laboratory. Ireland and Spain both had bubbles similar in magnitude to ours and are already dealing with a rate rise. Probably one or two more before the end of year also. If prices drop like a stone you can be sure the same thing would also happen here.

[Realistbear]

http://www.bloomberg.com/news/2011-05-02/boe-won-t-raise-rate-until-2012-as-growth-weakness-persists-bootle-says.html

BOE Won’t Raise Rate Until

2013

on Growth Weakness, Deloitte’s Bootle Says

The Bank of England won’t raise its interest rate until 2013 as the economic recovery’s momentum stays “pretty weak,” Deloitte & Touche LLP said.

“The underlying momentum of the economic recovery looks pretty weak,” Deloitte’s economic adviser Roger Bootle, a former adviser to the U.K. Treasury, said in a report today. “My central forecast is still that rates remain on hold throughout this year and next.”

£ headed south this morning as the reality sets in. We are in the same boat as our partners in HPI. Economy threatening debt levels.

Edited May 3, 2011 by Realistbear

[interestrateripoff]

Finally Mystic Merv admits the truth. I've long said the BoE is caught between a rock and a hard place.

Although he's still not being 100% truthful here, what he means is if he raises interest rates UK banks will be insolvent and it's going to take many years of easy money to fix their balance sheets. I doubt Mystic Merv really gives a 5h1t over the consumer, it's his banker buddies he's more concerned about. Free money for the bankers and nothing for the proles.

[mattyfc]

Evidence already coming in from Spain. Prices dropped the most since March 2003, down 0.9% in April. This index is clearly nonsense as it is saying the peak to trough is only -15.6%. I believe it is based on asking prices which may explain it.

http://translate.google.co.uk/translate?hl=en&sl=es&u=http://www.cotizalia.com/&ei=BKa_TY_FEcSxhAfWz-S2BQ&sa=X&oi=translate&ct=result&resnum=1&ved=0CC0Q7gEwAA&prev=/search%3Fq%3DCotizalia%26hl%3Den%26pwst%3D1%26biw%3D1440%26bih%3D704%26prmd%3Divns

[erranta]

http://www.telegraph...-rate-rise.html

Bank of England Governor Mervyn King warns on interest rate rise

High debt levels pose "massive" economic challenges that would be exacerbated by higher interest rates, the Governor of the Bank of England said.

Speaking yesterday at the European Parliament in Brussels, Mervyn King warned that a rise in long-term interest rates would have "severe" consequences.

Merv is 100% correct. One hike and the housing market collapses overnight pulling the banks down with it.

Mind you,house prices are going to collapse in any event. The choice is do they collapse another 30-40% or have a gentle drop of 20%.

That's why the snot-dripping, slimeball will blame everything on anything other than covering for "The Banks"

Note the time-scale he is about to retire/leave, after his disastrous stewardship so he can avoid most of the flack by not being around. (echo Blair, Brown, Goodwin etc)

Seems to reoccur multiple times in all these big businesses & in Govt circles as they rip the country apart.

(The Westminster expenses debacle was very good timing, lets say! But most of us know - it's all a game!)

Edited May 3, 2011 by erranta

[Realistbear]

"House prices are a matter of opinion whereas debt is real." Merv, c. 2005

Merv called it long before the other fools realised Gordon's "never ending HPI to fuel prosperity" was going to come to grief.

IMO, Merv deserves his knighthood and a comfortable retirment.

Edited May 3, 2011 by Realistbear

[interestrateripoff]

"House prices are a matter of opinion whereas debt is real." Merv, c. 2005

Merv called it long before the other fools realised Gordon's "never ending HPI to fuel prosperity" was going to come to grief.

IMO, Merv deserves his knighthood and a comfortable retirment.

As long as this is his comfy chair in his retirement I'm all for it.

[red]

Bootle agrees with him.

He was just on Radio 5 saying that the BoE can't raise rates for two years as the economy is too fragile.

So the banks will continue to cream in the profits at 4% above base and house prices will decline gradually, nominally, but more so in real terms due to low wage inflation v real inflation.

And screw the savers - serves them right for not going out and spending like what we told them to...

[thecrashingisles]

He means that raising rates is no longer a bureaucratic decision but a political one. Maybe it should be taken out of the hands of bureaucrats like him.

[Bloo Loo]

Agree, at least he is honest. Raising interest rates would be suicidal with consumer confidence so low and it would give house prices a nice push downwards. No IR rise till August at the earliest unfortunately.

We will be able to get a fairly good idea of what will happen to prices from the ECB laboratory. Ireland and Spain both had bubbles similar in magnitude to ours and are already dealing with a rate rise. Probably one or two more before the end of year also. If prices drop like a stone you can be sure the same thing would also happen here.

Raising rates would force the bust to the speed it needs.

Failing to raise them means more bailouts, and dragging this BUST on for years and years, until the debt is defaulted, or the currency is trashed.

Its gonna happen either way.

[Georgia O'Keeffe]

Bootle agrees with him.

He was just on Radio 5 saying that the BoE can't raise rates for two years as the economy is too fragile.

So the banks will continue to cream in the profits at 4% above base and house prices will decline gradually, nominally, but more so in real terms due to low wage inflation v real inflation.

And screw the savers - serves them right for not going out and spending like what we told them to...

it will be a true economic history lesson and rather good to see one of the the first smoothly engineered busts in history, particularly being implemented by the same people who assumed they were creating a smoothly engineered recovery from the Tech bust throughout the noughties that actually turnt out to be one of the most volatile and damaging booms in 300 years.

I have complete faith in their abilities with such a flawless track record

Edited May 3, 2011 by georgia o'keeffe

[Caveat Mortgagor]

We have too much debt. So lets leave interest rates low and encourage even more borrowers to take on eyewatering amounts of debt.

If you only have a short time in office, its better to look the other way and hope tshtf under someone elses stewardship.

[stuckmojo]

It's all but a political choice. Bootle was on the news this morning commenting the story for which every family will be £800 worse off this year if compared to last year, yet failed to point out the obvious direction which is one of theft through inflation.

No matter what, people will be poorer. It's just that, this way, they will be slowly brought to the boil like the proverbial frog.

[Bloo Loo]

And all those on tracker mortgages (as long as they keep their jobs), rejoice!

And, all those who cant pay their mortgages rejoice too...as SMI covers many of those trackers with £££££s to spare.

[Si1]

Bootle agrees with him.

He was just on Radio 5 saying that the BoE can't raise rates for two years as the economy is too fragile.

So the banks will continue to cream in the profits at 4% above base and house prices will decline gradually, nominally, but more so in real terms due to low wage inflation v real inflation.

And screw the savers - serves them right for not going out and spending like what we told them to...

also screw the cash house buyers and celebrate the over-leveraged

never before has fiscal policy been so engineered to benefit one irresponsible section of society at the utter cost to everyone else

I realise it has to be this way, but what an utter disgrace

Edited May 3, 2011 by Si1

[frenchy]

Raising rates would force the bust to the speed it needs.

Failing to raise them means more bailouts, and dragging this BUST on for years and years, until the debt is defaulted, or the currency is trashed.

Its gonna happen either way.

the currency is trashed already (against our main trading partner that is EUR). It is 30.1% down on 5 years ago and 4.5% down this year so far. I trust that as the ECB continues raising rates (and they will, most mortgages are fixed for term in EU anyway) the GBP may drop further but lets be honest 30% is already pretty bad!

[Bloo Loo]

also screw the cash house buyers and celebrate the over-leveraged

never before has fiscal policy been so engineered to benefit one irresponsible section of society at the utter cost to everyone else

I realise it has to be this way, but what an utter disgrace

He IS the bankers lifeboat...after all.

It doesnt have to be this way.

[Wait & See]

Why is Merv so concerned with the punters anyway??

His job is to control inflation........err....

[Bloo Loo]

the currency is trashed already (against our main trading partner that is EUR). It is 30.1% down on 5 years ago and 4.5% down this year so far. I trust that as the ECB continues raising rates (and they will, most mortgages are fixed for term in EU anyway) the GBP may drop further but lets be honest 30% is already pretty bad!

Fixed term mortgages dont help resale values, when new buyers need a new mortgage to purchase.

This depression is 100% about banks......and they have a stranglehold of fear of politicians who listen too much to the central bankers, whose very role is to preserve the banking system.

[Georgia O'Keeffe]

also screw the cash house buyers and celebrate the over-leveraged

never before has fiscal policy been so engineered to benefit one irresponsible section of society at the utter cost to everyone else

I realise it has to be this way, but what an utter disgrace

it has, near enough the same fiscal policy was carried out in 2000 to bail out the banks and companies from their irresponsible lending during the tech boom, clearly it worked so well then only resulting in a near complete banking collapse that it makes perfect sense to redo it on a bigger scale with public debt as well as private so we can ultimately get state collapse, in for a penny , in for a pound

Edited May 3, 2011 by georgia o'keeffe

[martingale]

As I've oft said elsewhere the BOE monetary policy committee's remit is

(1) To control inflation

(2) Subject to achieving 1 support economic growth and employment

If any member of the MPC is considers things like debt or the sustainability of the banking system to be more important than controlling inflation then they are no longer fulfilling their remit. Is there some legal process we can go through to get the MPC removed?

[FTBagain]

If the MPC puts up interest rates house prices are toast.

If they do not then the pound sinks and we import inflation (remember all those dollar priced commodities and Chinese wages rising) and home owners are squeezed increasing downward pressure on house prices.

Neither option is quick (IR will rise only slowly unless we get another black Wednesday) and in both cases house prices are going down.

Either way the HPC is still on.

By the way saw a great graph of the US housing market in MoneyWeek today. Prices (corrected for inflation) are not even back to the 1990's level yet and they were at the top end of the long term price range...

[Bruce Banner]

also screw the cash house buyers and celebrate the over-leveraged

never before has fiscal policy been so engineered to benefit one irresponsible section of society at the utter cost to everyone else

I realise it has to be this way, but what an utter disgrace

Hmmmm..... Looks like my decision, in January, to go for the five year 3.9% fixed rate bond option from NS&I wasn't such a bad idea after all. Also, last week we signed up for two year 3.6% fix on our cash ISAs.