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Dear Gordon

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What an amazing website. I stumbled across you a few weeks ago and have “lurked” since then, marvelling at the knowledge and opinions (and the opinions masquerading as knowledge) that are displayed herein. I guess I am “grizzly bear” by wish, and “koala bear” (not very fierce) by expectation. I’m also a “homeowner” and a saver.

I’m probably breaking all etiquette with such a long post, apologies, but I found the site as a side-effect of the following sequence of (overlong!) communications. The first is me to Gordon Brown, copying the ABI and Mervyn King; the second is a reply from a gentleman at the BoE, and the third is my signoff to him. No reply from Gordon! Both myself and Mr BoE remain nameless for the usual reasons. Browsing this site between my letter and the BoE’s reply, during “further research”, showed that my views are shared by more people than I thought, and I thank you for enabling “my homecoming”!

I’m not sure I have the time, or the wit, to contribute very often but we’ll see how it goes. So, knock back the Prozac, and indulge the ravings of a site-rookie for a few minutes. I suppose the main reason I decided to bore you all was that you may be interested in the BoE's reply to me. All the best, “RPI”.

Dear Mr Brown,

The enclosed articles about your latest proposed raid on savings [newspaper clips of recent ABI complaints] have finally prompted me to ask why the Government is continually punishing prudent savers but is encouraging imprudent debtors? My apologies for a long letter but I’ve finally had enough.

The worst example of rewarding debtors is a lowering of interest rates. People have cut their spending because they are ludicrously over-borrowed, especially for housing, not because the interest payments are too high. Lowering rates simply shows the world we’re in trouble and they’ll exploit our weakness – we ignore U.S. rate increases at our peril.

On the subject of housing, why do you consider “high house prices” to be GOOD? They certainly aren’t if you’re a first-time-buyer. A whole generation is now priced out causing massive social re-engineering. Children are staying at home far longer and not starting families because they despair that they’ll ever be able to live independent lives in their own decent-sized homes. This is quite a strange policy for a socialist chancellor. High house prices benefit nobody but people trading down or greedy “property investors”.

Obviously the Government loves high house prices – encouraging huge equity-withdrawal to get you out of the 2001 recession, more stamp duty revenues, happier voters because they are “wealthy”. They were a natural, and no doubt planned, result of those same artificially low interest rates that have been such a kick to savers. In fact, you even go so far now as to call it housing “wealth”. This is a twisted way of referring to what is actually massive DEBT.

Another reason it’s not wealth is because parents will simply have to hand any wealth to their children to buy THEIR houses at the same inflated prices. Young people can’t afford to buy without help, as proved by the rock-bottom percentage of first-time-buyers. I’m a positive person, but isn’t it strange that anyone who wants lower house prices – so that young people can buy one, so that we can spend less money on huge interest payments and capital repayments to banks, and more on enjoying life instead - is always called a doom-monger? Of course, equity withdrawal is a new phenomenon too isn’t it? Treated by many as “free money”, but those imported consumer goods which last ten minutes will take 25 years to pay off.

So this “wealth”/debt provided a short-term feelgood factor which has simply postponed the 2001 recession not averted it. The “consumer boom” has been pyramid-selling fuelled by lax lending on the back of house price inflation, and low interest rates. This money didn’t exist before it was “printed” by the banks – Fiat currency I believe it is called. The “wealth” has not been generated by any productivity gains, and it has been locked into 25-year mortgages rather than invested in industry. That is INFLATION and should trigger HIGHER interest rates. Oh! But of course! You removed housing costs from the CPI a few years ago so that the ensuing 100% inflation would not trigger those higher rates. The inflation figure is now meaningless and no reflection of the rises in council tax, fuel, etc, that a real household is battling with. The lunacy has certainly hoodwinked ING economist James Knightley: "Although the headline rate rose to 2.4% it’s energy-related because when you strip out volatile energy, food, alcohol and tobacco to get the core number, inflation has actually slipped to 1.7%." Strip out FOOD? What’s left? Oh yes, those cheap imports that are reducing in price all the time. Still, now that house prices are actually tumbling I suppose housing costs will be cynically put back INTO the CPI so that rates can be lowered further!

Government believes low rates are good because they bring “affordable housing”. Only those in the “housing industry” believe that. The reality is 10x salary mortgages, 125% mortgages, widely-abused self-certification, buy-to-let tax subsidies, and shared-ownership. Not a long-term sustainable way to go on are they? “Interest-only” mortgages – the majority of recent ones - will be the next financial scandal. 25 years later these “wealthy” people won’t even OWN their homes! First-time-buyer houses are far smaller than 20 years ago so are not even like for like. Without buy-to-let speculators there would be no “shortage” either, quite apart from the empty houses littering the country. Neither have rents risen – because they are not affected by speculative demand. A whole generation is priced out as a result of government-backed low interest rates and lax lending controls – hardly “Labour helping the poor”.

The Government’s “solution” for FTB’s priced-out of “affordable housing” is to lower interest rates or offer “help”. Pointless. They want LOWER PRICES because the capital repayments are out of reach. Peter King, NAEA, claims that “lower interest rates would help FTBs”, but a/ it’s not the BoE’s job to help estate agents and lenders by keeping house prices inflated, and b/ lower rates will cause the OPPOSITE effect - more price rises, and more BTL greed requiring more houses on greenfields, making it even more impossible for FTBs. The Fiat economy will stagger on a while longer, making the inevitable fall worse in the long run. Borrowers who are too scared not to “get on the ladder” (now a snake?) know this because they are taking out interest-only mortgages because they can’t afford the capital repayments! Amusing how Peter King always whines that things are terrible JUST before we have a BoE interest-rate-setting meeting, then immediately afterwards they try to convince everyone that “house prices are up again” – as if that was a good thing. They can’t have it both ways.

I believed the BoE’s remit was to control inflation. It is now well over the 2% guideline so why was the last move DOWN? Despite the vested-interests’ protests, factory gate prices were UP 0.7% last month! The “for” voters on the MPC were Government appointees but the astute Mervyn King actually voted against the drop – so much for independence. It is not the BoE’s job to bail out serial-borrowers, which Mr King seems to understand but the Government doesn’t. This probably explains why it took 400 years to reach £600b in personal debt (not wealth), but we’ve managed to double that in the last five years. Most of the population obviously don’t agree with me, but my daughter’s book “The Emperor’s New Clothes” sums it up nicely.

To cap it all you are proposing SIPPS tax breaks to put property into pensions. It probably won’t make any difference because only very wealthy people will have enough in their pensions to buy the properties with, which few people seem to understand. But again, it props up an over-borrowed housing market at the expense of savers.

All this smoke and mirrors has rewarded imprudent borrowers in the short-term (wait until they have to pay it back) and left us savers high and dry. Rates are down and real inflation is rocketing, so we are losing twice over in addition to your continued raids on savings funds. You’re even offering government “help” to people who can’t now handle their debts – caused by your blind-eye to lax money lending!

If your aim is to inflate away this £1.2trillion debt please could you write and let me know, because then I’d like to take out a massive mortgage the same as everyone else. Of course, the downside of inflating the debt away is reduced competitiveness and lost jobs, but perhaps that’s a price considered worth paying?

We savers will soon be the only ones left with any money to prop up the economy. However, your rate cuts will make us save more, not spend more, so they may not have the effect you wish for. I’d like to wish you well sorting out the mess, but I’m afraid, as a prudent saver, I find that very difficult. Pension fund raids, lower rates, SIPPS property taxbreaks, and propped-up houseprices, will not cause me to look kindly at Labour at the next election.

Yours etc, Mr X

Dear Mr X,

Thank you for sending the Governor a copy of your letter to the Chancellor outlining your concerns for the economy. Your letter has been passed to me to reply on the Governor’s behalf.

It is clear that the main thrust of your letter concerns fiscal policy and your personal views about the Government. However, some of the issues you raise such as the level of debt and house price inflation are just two of the factors that the Monetary Policy Committee (MPC) considers along with many other factors when making decisions on interest rates. Perhaps, therefore, I might explain the role of the MPC in more depth.

You are right in saying that the objective of the MPC is to target inflation. As you know the target is 2.0% as measured by thel2-month increase in the Consumer Prices Index (CPI). The Committee has to look at what is happening in the economy as a whole and the prospects for inflation when making decisions about interest rates. When the Committee meets each month they look at a wide range of data and information from many sources such as, consumer spending and borrowing, investment, exports, house price inflation, employment, wages and other costs and prices. There are some factors that may in themselves point to higher interest rates, while others suggest lower rates or no change. But it is a balance of all factors, their impact on demand and supply and the overall outlook for inflation that the MPC has to judge.

I would stress that the MPC is independent of the Government. Each member of the MPC has an independent roie to play and puts forward his or her own views and each vote carries equal weight. It is the outlook for inflation not its current rate that determines interest rate decisions.

Evidence shows that it takes about two years for changes in interest rates to have their full impact on inflation. Therefore, decisions taken now by the MPC reflect their view of whether the target will be met over a longer period.

As I have explained house price inflation is certainly a factor considered by the MPC because housing wealth serves as collateral for borrowing and directly impacts on consumer spending. As housing wealth grows, consumption and aggregate demand may grow faster and eventually lead to higher inflation than would otherwise be the case. There are many factors which affect the price of residential property, and interest rates are one of these. As interest rates have fallen and become more stable than in the past, people have increased their borrowing and demand for houses, which has contributed to higher prices. But other factors impact on the demand for, and supply of, housing, including geographic location, demographics and the growth rate of the housing stock. The impact of these factors is perhaps illustrated by the differentials between property prices in different areas of the country. I appreciate the point you are making that if interest rates were higher, then the cost of borrowing to buy property would be more expensive and this would put further downward pressure on house prices. But it is not possible to set rates based on one factor alone. The MPC has to assess how developments in the housing market will affect the inflation outlook. It is not setting interest rates to achieve particular outcomes for the housing market itself.

With respect to the level of debt, it is not surprising that, over recent years, people have felt able to take on more debt as the general level of interest rates have fallen over the past decade or more. Rising debt levels over recent years partly reflect rising house prices as you are aware. In response the Bank has drawn public attention to the need for both borrowers and lenders to take account of the fact that debt service costs might rise in future. We consider that individuals are best placed to judge their own financial circumstances and what they can afford.

I do realize that you are concerned about the level of interest rates and how this impacts on savers. Interest rates for both borrowing and saving are lower now than in the 1970s and 1980s because inflation is also much lower. However, when considering savings rates it is always necessary to consider the real return on savings not just the headline rates, ie. Saving rates minus the rate of inflation.

We firmly believe that an environment of price stability and low inflation will benefit everyone in the community.

Finally, I have enclosed some extracts from our November 2005 Inflation Report which I hope you find interesting.

Thank you once again for writing to the Bank. The Governor is made aware of all correspondence addressed to him along with the points that correspondents make.

Yours sincerely,

Mr Y

Dear Mr Y,

I’d like to thank you for taking the trouble to reply to the copy of a letter to Gordon Brown that I sent to you. The reply was appreciated.

Quite obviously my grasp of economics is that of the Man on the Clapham Omnibus, and I have respect for those of you with the daunting job of keeping UK Plc on course. I also agree that many of my comments were directed at Mr Brown rather than the BoE

It will be interesting to see where things go over the next few years.

After reading your comments, I’d still maintain that:

- housing “wealth” is really debt backed up by newly printed money. This debt must be repaid. No productivity gains are associated with the ludicrous house price increases, neither have wage increases matched house price capital repayment increases so spending in other areas must drop. The doubling of debt over the last few years is far more than the economy would normally absorb. Historically, bubbles this big have ALWAYS returned to the mean level of growth.

- Speaking personally, my “real” inflation sufferance is far higher than the “CPI” would show – council tax, fuel, housing costs etc have rocketed but are not counted when it comes to interest rate setting to bring down inflation. These items also make up by far the largest percentage of outgoings. Nobody I know has received wage increases to match this inflation in our costs, therefore my standard of living has worsened.

Thank you again for your reply and I wish the BoE well in keeping us afloat – a shame Mervyn isn’t Chancellor!

With respect, X

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- Speaking personally, my “real” inflation sufferance is far higher than the “CPI” would show – council tax, fuel, housing costs etc have rocketed but are not counted when it comes to interest rate setting to bring down inflation. These items also make up by far the largest percentage of outgoings. Nobody I know has received wage increases to match this inflation in our costs, therefore my standard of living has worsened.

Fuel is most certainly included in the CPI -- it was the main upward component when the CPI figures increased recently, and it's now the main downward component as oil prices have dropped back. Perhaps you're confusing the CPI with "core inflation". It doesn't exclude all housing costs, either -- it includes rental costs, for example.

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Nice post. It sums up (quite accurately) how I feel.

I just would like to know how it will all end, as it clearly can't go on forever.

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Thanks BL, apologies for abandoning the thread earlier, made the mistake of working for a company which requires me to take regular work-breaks between idle moments....

Thanks Zorn - I stand corrected. Not claiming expertise (yet), opinions maybe...

Cheers Fred, paid enough of them like u, now payback time...

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Guest Charlie The Tramp
No reply from Gordon!

Well he also ignores my emails, but the reply by the Gentleman from the BoE is very interesting.

I will bookmark this thread as his reply is useful to extract quotes for future postings to fellow members.

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I'm quite impressed with the stanard of the reply from the BoE. I assumed it would be a form letter with an intro para tagged on the front, but it reads much smoother than that. I guess they have some generic paras to pad their answers with (remit of the BoE etc) but then they write a proper letter around them.

Have you tried writing to the Queen? You aways get a reply "The Queen has instructed me to reply...." signed A. Minion esq.

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I have written to the BoE, about 2 weeks ago... still waiting for a reply. I chased it up a few days ago, and was told there's a huge back log and e-mails are dealt with in date order.

Will probably post the reply, when (if) I get it.

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CPI weightings aren't necessarily the best guide - in the 2005 numbers on Statistics.Gov.UK restaurants have a weighting of approximately 400% more than that of petrol prices. How can that be!

Because your average NuLab eats in the finest Islington restaurants regularly but owning a car is so passe.

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Because your average NuLab eats in the finest Islington restaurants regularly but owning a car is so passe.

Indeed, the govt Jags are so much better... they drive themselves and there's no congestion charging or non of the usual associated problems when travelling at 120mph down the M1.

It's interesting how the BoE officially acknowledge that consumer spending is directly linked to HPI, it may not seem like a revelation but that's as good as the BoE officially admitting that the economy has only been fueled by synthetic growth backed by a massive debt bubble. It certainly can't be explained by other factors, sectors like manufacturing have shrinking whilst the vast majority of employment growth has been in the public sector and of the few private sector jobs created these are limited to retail and construction, with the latter greatly boosted by government spending/PFI.

There has been a consistent fall in productivity in the public sector for some years now, so it takes a great deal more 'inputs' to achieve the same level of 'outputs', so if you want better outcomes the required inputs are exponential, that's the main measure of value added in the public sector. Which helps explain the rise in taxes and government debt with the resultant rise in tax take, with private sector incomes declining in real terms over the last two years and the huge increases seen in the council tax, that is also partly explained by the massive unfunded public sector pension deficit and the helpful £5b annual raids on 'real' pension funds and the new raid explained by 'avoidance measures'.

If we had a true measure of inflation then it would reveal that the GDP figures are neutral and that we are all paying more money out for exactly the same services with very little 'real' growth that isn't fueled by debt.

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Super first post. Welcome aboard RIP (Reggie I. Perrin?) :D

Seconded ......................like Durch says ............nice to have you onboard RIP :)

There are alot of people on here and in the country at large who hold your views, including myself.

Edited by Catch22

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Thank you for the kind (& other!) comments, nice to be on the Good Ship HPC.

I'm too shy ( ;-) ) to start another thread, but I received a report & residents' survey from my county council this morning. Heading: "Many of you wonder why the County Council can't keep increases in Council Tax at inflation levels of about 2.5%". Well not really, I know why they can't.

However, the first paragraph comes straight out with "The Government has moved funding away from shire counties to cities in the north". (Hope you're enjoying my contribution up there folks, have you spent it wisely?)

Immediately followed up by "secondly, the council also has to deal with high inflation, which is greater than the retail price index on things like fuel, care home costs and wages. For example inflation on waste services is currently 8%".

Also, I've always been intrigued why Counties used to justify massive percentage increases every year by stating that they "had a large one-off project to pay for this year". Surely, they'd use the same increase to pay for NEXT year's one-off project, or reduce the tax by the same amount once the one-off project had ended.

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Immediately followed up by "secondly, the council also has to deal with high inflation, which is greater than the retail price index on things like fuel, care home costs and wages. For example inflation on waste services is currently 8%".

LOL, one arm of the government gives the lie to another part (the ONS)[yes, yes, I know the ONS is technically independent of government but with the shenanigans about PFI and hidden public borrowing one could be forgiven for thinking otherwise]. So much for inflation being 2%!

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Did you seriously expect a reasonable reply from Mr B? He is up to his neck in it and is desperate to fool the voters unti lafter the next election. When he becomes PM he will be hit by reality. My concern is that it will take that long for reality to bite.

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Well, yes, I had rather pictured him dictating a letter to his Joan along the lines of "points failure Nine Elms Junction, recession 11 minutes late. Why don't you retime your recessions to arrive eleven minutes late in future by propping up the housing market?"

No I didn't expect him to, you're right he's too busy fiddling while Rome/England burns, but I was pleasantly surprised by Our Man At The BoE.

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LOL, one arm of the government gives the lie to another part (the ONS)[yes, yes, I know the ONS is technically independent of government

There's no technically about it, the ONS is officially a HM Treasury department... I do forget who runs the latter.

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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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