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Lord Blackadder

Global Interest Rates Rising

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Just been watching Trichet's (ECB) announcement to the Eu Parliament Committee. They're going to raise rates at the next meeting.

So I guess were the only ones who seem to think we can keep riding the debt wave with no inflation.

Eu growth is as bad if not worse than ours and yet they know whats coming. Trichet explicitly said that accomodation was high, liquidity was high and oil prices were historically high and likely to remain so.

Most significantly they even had an analyst on Bloomberg state it wasn't really about how much they rose by but that the ECB is looking, like the US, to move to its 'neutral' level, and wait for it, this could be as high as 4% by 2007/8!

How the hell people, politicians and economists think that the UK in isolation can maintain its crap economy, bubbles and smiling public with artificially low rates while the world goes in the opposite direction staggers me.

My money, like Charlie the Tramps, is for rates moving up to 5/6% in the next 2 years; while a numb population asks where it all went wrong.

Frankly, what our Miles reckons doesn't matter a t@ss IMHO.

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Guest

It doesn't matter, Lord Blackadder, Sir. Just as long as the party keeps going until Gordon Brown gets into number 10. Then it can all go crunch.

:D

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But what is the underlying, unequivocal, cast-in-stone reason that UK interest rates need to be higher than in the EU or US?

Our currency will fall against other currencies if it isnt, and historically it has always been so, please see the attached (out of date) graph...

Uk_IR__US_IR__UK_HPI_Graph.JPG

post-552-1132585448_thumb.jpg

Edited by moosetea

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But what is the underlying, unequivocal, cast-in-stone reason that UK interest rates need to be higher than in the EU or US?

Because our economy is based solely on selling houses to each other at higher and higher prices, selling coffee, cutting hair and trading shares, while the EU still makes stuff and America still makes some stuff that they can sell to other people?

Plus, just to make it worse, we're currently going from an oil exporter to an oil importer and will need to import plenty of money to compensate.

Edited by MarkG

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All economies have a neutral rate albeit it is constantly changing. One interpretation would be that everyone else appears to be moving to what they consider their neutral rate is. We're not because it would be too painful. If one assumes that the economy moves in cycles then I would suggest that after a period of global low rates it would be prudent we stopped printing money too. Our neutral rate is not 4.5%.

The other oft quoted reason is the impact on exchanges rates and money flows. Many people think that a low pound will help exports and so is worth a little inflation to maintain growth. Personally I'm not sure we've got anything that anyone wants to buy, other than financial services, and given Eu growth is likely to remain muted there's probably not that much upside for exporting anyway.

All in all a good recipe for stagflation. I think they ought to raise rates, get the pain over with and just have the stag bit, thanks.

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Guest Charlie The Tramp
Our neutral rate is not 4.5%.

Looking back the past 40 years I would say our neutral rate would be around 6%, all IMHO or course.

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Broad money supply is running at 11.6% on a rolling 12 motnh basis.

CPI is a fraud, it will be outed when the rest of the world raise rates. Pound collapse is getting increasingly likely as the lie is continued.

Edited by OnlyMe

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Because our economy is based solely on selling houses to each other at higher and higher prices, selling coffee, cutting hair and trading shares, while the EU still makes stuff and America still makes some stuff that they can sell to other people?

Plus, just to make it worse, we're currently going from an oil exporter to an oil importer and will need to import plenty of money to compensate.

A hackneyed characterisastion of the UK economy, but even if accurate it does not explain why a service-based economy should have intrinsically heigher interest rates. The Uk benefits from strong inward foreign investment, and also repriated income from extensive overseas assets.

The UK will not be the only country in the world which is a net importer of oil. One extreme example, Japan, with virtually no oil of its own, has zero interest rates.

My question has not been answered.

why?

Why do you think it is a definitive answer?

Things can and do change. If you give the reasons why UK interest rates have been higher in the past we can assess whether these factors will continue to apply in the future.

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A hackneyed characterisastion of the UK economy, but even if accurate it does not explain why a service-based economy should have intrinsically heigher interest rates. The Uk benefits from strong inward foreign investment, and also repriated income from extensive overseas assets.

The UK will not be the only country in the world which is a net importer of oil. One extreme example, Japan, with virtually no oil of its own, has zero interest rates.

My question has not been answered.

Why do you think it is a definitive answer?

Things can and do change. If you give the reasons why UK interest rates have been higher in the past we can assess whether these factors will continue to apply in the future.

Buying bear gives a very nice summation of the economic principles here;

http://www.housepricecrash.co.uk/forum/ind...topic=15899&hl=

Edited by bandylegs

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A hackneyed characterisastion of the UK economy

And an accurate one.

even if accurate it does not explain why a service-based economy should have intrinsically heigher interest rates

'Service economy' is irrelevant, except to the extent that services tend to be hard to export. The simple fact is that we have a huge trade deficit with the rest of the world, and the only way to sustain that is by encouraging people to ship money here... which we do in part by running higher interest rates than more solid economies.

One extreme example, Japan, with virtually no oil of its own, has zero interest rates.

You may not have noticed, but Japan produces shedloads of stuff which the rest of the world wants.

We don't.

Personally I'm glad I've shipped most of my money out of sterling: I'm just starting to wish that I'd sent the rest abroad at the same time, and that I wasn't paid in such an increasingly worthless currency.

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Buying bear gives a very nice summation of the economic principles behind here;

http://www.housepricecrash.co.uk/forum/ind...topic=15899&hl=

I saw that first time around. Interesting and helpful as the pub analogy is, and it may well have been apposite in the 1970s say, I am not convinced.

If the competing pub with the Plasmas (enough to put me off, but that's another story), the US, becomes some grotty Italian pizza place or a tatty Irish pub (not to mention tired Portugese or Belgian themed cafes) then the British Bulldog pub doesn't look so overpriced at all. UK's economy is flexible, broad-based, internationalist and not overburdened with national debt compared to some of the others (those plasma screens, although made in China, have yet to be paid for).

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Guest Charlie The Tramp
UK's economy is flexible, broad-based, internationalist and not overburdened with national debt
An economy consumer driven, fuelled by debt and high house price inflation.

Now who said that?, I believe it was John Humphrys in an interview with Gordon Brown on Radio Four`s Today programme, poor old Gordon was lost for words, saved it to my classic archives.

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I saw that first time around. Interesting and helpful as the pub analogy is, and it may well have been apposite in the 1970s say, I am not convinced.

If the competing pub with the Plasmas (enough to put me off, but that's another story), the US, becomes some grotty Italian pizza place or a tatty Irish pub (not to mention tired Portugese or Belgian themed cafes) then the British Bulldog pub doesn't look so overpriced at all. UK's economy is flexible, broad-based, internationalist and not overburdened with national debt compared to some of the others (those plasma screens, although made in China, have yet to be paid for).

It seems to me that you are offering reasons that you believe history won't repeat itself with respect to IR's. You believe that the UK economy is strong.

I don't think that the UK economy is strong. Consumer spending has been boosted by an increase of debt and the public sector. Both of these will need paying for one day. The UK is very badly run pub that looks great but is crippled with debt. In five years it will be an out of date pub because there won't be enough money spent to enable investment. It will be the sort of establishment that is full of the drunks not welcome in the decent places.

Edited by bandylegs

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But what is the underlying, unequivocal, cast-in-stone reason that UK interest rates need to be higher than in the EU or US?

Because people trade and invest in currencies.

And the exchange rates reflect the percieved value of these currencies.

and if the pound drops against the dollar and the euro as people invest in these markets instead then we have real inflation.

We are a smaller and more volatile economy and returns against currency investment need to be higher in the smaller economies.

So that is why our IR's have been higher then the americans and europe.

America have said publically that they expect their interest rates to hit 5%.

Higher then ours. this could cause a run on the pound as people sell the pound to buy the dollar, as this happens it tends to build up speed and accelerate..

Crunch.

IR's always return to the average.. and then go above.. no matter what people say..

And capatilism.. that leads to a boom bust cycle as gread and invetments outstrip possible returns in speculative booms..

There has never been a boom without a bust.

re -read the above statement.

There has never been a boom without a bust..

Never.

and this is the first massive house price boom.

REally it is.

Previously there has been inflation of sorts leading the way only for house prices to outstrip them.

This has been massive speculation. based on borrowed monies, stripping money from the economy, causing recesive tendencies.

With houses at prices that would cripple the economy if people kept buying at these prices

This time there has been no inflation (ahem)

and a great deal of people are in unmanageable debt..

I can't spell..

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It seems to me that you are offering reasons that you believe history won't repeat itself with respect to IR's. You believe that the UK economy is strong.

I don't think that the UK economy is strong. Consumer spending has been boosted by an increase of debt and the public sector. Both of these will need paying for one day. The UK is very badly run pub that looks great but is crippled with debt. In five years it will be an out of date pub because there won't be enough money spent to enable investment. It will be the sort of establishment that is full of the drunks not welcome in the decent places.

Fair enough, if UK interest rates have to be higher because of high indebtedness or a bloating public sector or perhaps poor productivity (or the market's expectations thereof) then I might buy that argument. But the US and EU have problems that we don't have or are not as bad here (US national debt: inflexibility and high costs in continental Europe, for example). There are many aspects of the UK's economy which were chronically bad in the past leading to higher interest rates compared to EU/US, I'd like a reasoned argument that fully sustains the HPC consensus that that will always continue to be the case. Avoiding HPC cliches where possible, but drawing quantitative comparisons with those other countries/pubs.

The argument that just because something was historically true it always will be - nothing changes - is just as wrong, historically, as the 'it's different now' argument so derided by HPCers.

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Guest Time 2 raise Interest Rates

Oh yes, the next move in interest rates will most definitely be up

(IMO). I expect them to rise to at least 5.75% by middle-end of '06.

I don't expect the media and the VIs to report that rates will have to

be raised until after Christmas. Got to keep the suckers spending on

their Chrissy presents.

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Fair enough, if UK interest rates have to be higher because of high indebtedness or a bloating public sector or perhaps poor productivity (or the market's expectations thereof) then I might buy that argument. But the US and EU have problems that we don't have or are not as bad here (US national debt: inflexibility and high costs in continental Europe, for example). There are many aspects of the UK's economy which were chronically bad in the past leading to higher interest rates compared to EU/US, I'd like a reasoned argument that fully sustains the HPC consensus that that will always continue to be the case. Avoiding HPC cliches where possible, but drawing quantitative comparisons with those other countries/pubs.

The argument that just because something was historically true it always will be - nothing changes - is just as wrong, historically, as the 'it's different now' argument so derided by HPCers.

Like APOM says; we are a smaller and volitile economy.

In the big picture we are actualy getting smaller.

I don't think we will ever again have an economy sufficient to act independantly from the rest of the world again, we did once but the world does change.

For the moment the rest of the world pretty much means America. They have stated what they are going to do...

Edited by bandylegs

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Like APOM says; we are a smaller and volitile economy.

In the big picture we are actualy getting smaller.

I don't think we will ever again have an economy sufficient to act independantly from the rest of the world again, we did once but the world does change.

For the moment the rest of the world pretty much means America. They have stated what they are going to do...

Agreed but doesn't mean likely convergence between UK and US/EU interest rates. In the past the overwhelming crapness of the UK economy meant perpetaully higher rates to reward investors for the risk of parking their money here. Is that really still justified compared to other countries?

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Looking back the past 40 years I would say our neutral rate would be around 6%, all IMHO or course.

Tramp

I am with you on this. As a retired academic the average is 6%.

If think my shares in the several debt magement companies will

be worth a lot of money.

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Agreed but doesn't mean likely convergence between UK and US/EU interest rates. In the past the overwhelming crapness of the UK economy meant perpetaully higher rates to reward investors for the risk of parking their money here. Is that really still justified compared to other countries?

As I said; I'm not convinced in the strength of the UK economy at all.

It is an interesting point though. I suspect that the EU economy is not as weak structuraly as you might think in comparison to the UK.

I think that the US do have problems but they are still the superpower of world economics and politics, that won't change for a while yet.

I think I should like to read up a little about the EU economy though because my knowledge is admittedly thread-bare.

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£1=1 Euro.

Oh look folks, that's convenient. Let's finally fully snuggle up in that EU comfort blanket then we won't have to worry about that nasty old dollar.

Definitely the Governments favoured option - join the Euro, that is.

56% of our trade is with the Euro zone, only 17% with the dollar.

Forget the dollar, its the rate with the Euro that is the important thing - err, hasn't that been gradually strengthening over the past 12 months. Maybe, that helps in part to explain why we haven't been importing inflation as all the bears have been saying is a certainty.

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  • 301 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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