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Mainstream Media - Time To Raise Interest Rates?

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http://www.telegraph.co.uk/finance/economics/10226144/Mark-Carney-is-about-to-make-his-first-mistake-not-raising-interest-rates.html

Interesting article by Alistair Heath, editor of City AM. He concludes quote " There is no single solution or explanation, but UK monetary policy is no longer the issue. Rather than dovish forward guidance, what the economy really needs is a symbolic increase in interest rates, and for everybody to start moving on to tackling Britain’s real problems. " end quote.

Log onto Telegraph & add your comments. The louder the discussion the more likely it's going to happen. (Actually thats my wishful thinking, but what the hell! :lol: )

Edited by browneconomy

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Interest rates at the BoE will not raise, for the simply reason the govt cannot afford to borrow at higher rates.

The proles they don't give a 5h1t about, paying off their chums with money borrowed however they do.

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what the economy really needs is a symbolic increase in interest rates

symbolic of what?

for what purpose?

why does 'the economy' really need higher rates?

WTF is he smoking?

I guess he means that the bankers/rentiers City AM/Telegraph represents are squealing at continuing low yields and want to go back to a guaranteed free rentier ride.

He has an excellent agent though - can't get him off newsnight these days.

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In a debt based system interest rates can only trend down. They will either continue down or we will move away from a debt based system.

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why does 'the economy' really need higher rates?

Interest rates balance consumption and saving. When people save more is produced than consumed which creates a surplus. The surplus can be used to create capital, which leads to growth. Higher interest rates encourage saving. Increasing rates would begin to rebalance the economy away from borrowing and consumption and towards saving, investment and capital creation.

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symbolic of what?

for what purpose?

Maybe so. I don't know what the base rate should be, although I know it should not be negative, as that again would be further bailing out debtors.

I'll rely on financial markets to put rising pressure on mortgage rates, to force an adjustment on over-leveraged positions.

What is totally unacceptable is Quantitative Easing. That's an outright cheat on those who decided to wait for value, and save up towards buying, for years and years. Holding down rates, and making money cheap to lend, so savers get little interest on their deposits, and preventing readjustment.

As per Norman Lamont a few weeks ago. http://www.telegraph...o-ditch-QE.html

Lord Lamont said there was little "visible" evidence of a boost to the wider economy, that QE had pushed up inflation and it had been disastrous for the savings of pensioners across the country.

The hard truth, he added, was that British households had borrowed too much during the years before the credit crisis and how had to pay it off.

He said: "QE is an attempt to avoid the necessary adjustment.

"(Mark Carney's) role is not to find a monetary silver bullet but to deliver some hard message that a debt work out is exactly that - tough, unremitting, but the only way to get the economy back into better shape."

Edited by Venger

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Hey, I was outraged at the collapse of the base rate in 2009.

The purpose of that trend was to bail out banks and their creditors.

That ship has sailed, and HPCers should accept that.

Now a continuation of low base rates is needed to keep bank debtors solvent - small businesses and families. A rise would double the confiscation of their wealth. The young'uns have to figure a way of reducing income tax and wiping out tax havens.

Sometimes I weep over this perversion, but then I sober up.

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You have cause and effect backwards.

People borrow more leading to growth and some of the borrowing is saved by others.

When you borrow money to buy something it means somebody else is not able to buy that thing. Whether it is a house, car, pair of shoes or anything, the thing being bought has been produced and not consumed. So, all things being equal, it is only possible for borrowing to equal savings. If credit extension is greater than saving for a long period there will not be enough resources to meet the demand and prices will rise, until credit expansion declines and a correction begins.

The surplus people produce and don't consume, or 'save', should be put to best use as determined by the market. This requires people to be able to bid for it. The bidding process is the interest rate people are willing to pay. and the rate at which people are willing to save. If there is a high demand for credit rates should rise, encouraging more saving.

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Interest rates balance consumption and saving. When people save more is produced than consumed which creates a surplus. The surplus can be used to create capital, which leads to growth. Higher interest rates encourage saving. Increasing rates would begin to rebalance the economy away from borrowing and consumption and towards saving, investment and capital creation.

That was good of you but I think he must have been joking. But you never know

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When you borrow money to buy something it means somebody else is not able to buy that thing. Whether it is a house, car, pair of shoes or anything, the thing being bought has been produced and not consumed. So, all things being equal, it is only possible for borrowing to equal savings. If credit extension is greater than saving for a long period there will not be enough resources to meet the demand and prices will rise, until credit expansion declines and a correction begins.

The surplus people produce and don't consume, or 'save', should be put to best use as determined by the market. This requires people to be able to bid for it. The bidding process is the interest rate people are willing to pay. and the rate at which people are willing to save. If there is a high demand for credit rates should rise, encouraging more saving.

I see so there is an exactly fixed number of things to buy, and we will have growth if we don't buy those things. I see. I can see James T Kirk scratching his head as he stumbles across our civilisation. Do we live forever in this world, or get younger as we age......

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symbolic of what?

for what purpose?

why does 'the economy' really need higher rates?

WTF is he smoking?

I guess he means that the bankers/rentiers City AM/Telegraph represents are squealing at continuing low yields and want to go back to a guaranteed free rentier ride.

He has an excellent agent though - can't get him off newsnight these days.

Symbolic rate rise? I think he means the UK equivalent of a taper i.e. Carney could drop the forward guidance.

The economy doesn't really need higher rates, it needs to deleverage. That would certainly occur on a dramatic scale if the BoE took base rates back to 3.0% or so. The UK economy would implode and the banksters would need bailing out again. I guess they're fairly confident they'd get one.

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Interest rates at the BoE will not raise, for the simply reason the govt cannot afford to borrow at higher rates.

UK interest rates will start rising a month after US interest rates start rising, and this will be before the end of the financial year.

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You have cause and effect backwards.

People borrow more leading to growth and some of the borrowing is saved by others.

Let me put it another way. Draw a graph of the return on a pyramid scheme with time...

+1

We have hit peak debt. The government is trying everything to increase the debt (student loans, HTB,FLS)

Maybe they will push the amount of debt a little bit higher but then it will have to be ZERP and QE for ever.

How can companies make a profit when there is no increase in the money supply?

And if they can't make a profit why invest the money they already have?

Banks didn't go bankrupt in 2008 they were bankrupt from day dot. When the first saver refused to spend so the debtor couldn't pay back his loan.

Morals don't come into it. You can't change the laws of physics

Edited by gf3

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+1

We have hit peak debt. The government is trying everything to increase the debt (student loans, HTB,FLS)

Maybe they will push the amount of debt a little bit higher but then it will have to be ZERP and QE for ever.

How can companies make a profit when there is no increase in the money supply?

And if they can't make a profit why invest the money they already have?

Banks didn't go bankrupt in 2008 they were bankrupt from day dot. When the first saver refused to spend so the debtor couldn't pay back his loan.

Morals don't come into it. You can't change the laws of physics

You're correct about peak debt.*

Companies, and new-entrants, can make profit by being positioned to take-over the over-valued assets of zombie other involveds getting forbearance, when the squeeze comes in.

Until then, sit on their reserves of good money, until the forbearance ends. Although others in the market buying and expanding and investing at over-valued prices, in belief interest rates will never go up, constant QE ect.

*Though he wouldn’t admit it, Bernanke met his match in 2011. The consumer balked at attempts to stimulate aggregate demand via inflationary policy of negative real interest rates, and ever since, has been raising real interest rates by reducing inflation through lower aggregate demand. This is perhaps the most unappreciated yet significant market development since the financial crisis.

Rising real interest rates is Bernanke’s worst nightmare. Everything he has worked for in academia and implemented in monetary practice is imploding before his very eyes. Contrary to his assertion in 2002, aggregate demand in the real economy has in fact met the limit of monetary policy, rendering QE’s impact ineffective and obsolete.

thecrashingisle's thread + why some banks are hoping for base-rates to rise, to make money.

http://www.housepricecrash.co.uk/forum/index.php?showtopic=190726

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I see so there is an exactly fixed number of things to buy, and we will have growth if we don't buy those things. I see. I can see James T Kirk scratching his head as he stumbles across our civilisation. Do we live forever in this world, or get younger as we age......

Now we are getting to the root cause of recessions. As you say credit creates false demand for a particular product or service. Production and investment is shifted away from meeting actual demand, created by exchange of goods and services, into the credit inflated sector. When the credit is withdrawn the artificial demand disappears and the businesses go bust.

Credit expansion is never good for an economy. Investments made from actual savings are needed, not a saccharine boost to credit.

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