Jump to content
House Price Crash Forum
Sign in to follow this  
gruffydd

Uk Interest Rates Heading To 5% Within 5-10 Years- Sir Charlie Bean

Recommended Posts

Bean admitted that in the runup to the crash, economists were "not sufficiently cognisant of the risks building up in the financial system" but insisted the economy was far more resilient than when he arrived at the central bank in 2000.

:lol::lol:

More resilient because of the massive amounts of extra debt and the hundreds of billions of QE etc etc?

Pull the other one.

Edited by billybong

Share this post


Link to post
Share on other sites

:lol::lol:

More resilient because of the massive amounts of extra debt and the hundreds of billions of QE etc etc?

Pull the other one.

I think that there is a possibility of failing to acknowledge that losing an arm is not as bad as losing your head.

Bean's claim is not that the system is resilient - it is that is more resilient that it was. As the comparator is the financial system just before its fragility became so pronounced that a few sh!tty American mortgages was enough to send us to the zero-rate bound then I guess the only appropriate comment is "Damned by faint praise", but that comment notwithstanding, the truth is that the system is more resilient than it was. OK - it's not resilient - but did Bean say that it was?

Pre-2008 there was no resolution regime for private banks. Crazy but true. If they one went down, then others went down like dominoes. They couldn't legally 'trade' from bankruptcy - who gets their cash back when everyone wants their cash back? Answer: nobody. What does a banking system look like if nobody can get their money out? Answer: "Answer came there none". The system faced a shock it couldn't handle. The path that we followed was to reduce interest rates to a point where the tip of the spear of the shock was blunted by the fact that everyone can service their debts at 0% interest and the question as to whether or not they can repay their debts can be deferred - and thus essentially forgotten/ignored.

The system is more resilient now because:

  • INTEREST RATES ARE LOWER!!!!!!!!!!
  • Legal powers exist to take banks into resolution (Banking Act 2009)
  • The 'funding gap' has been closed - i.e. the zombie banks have enough narrow money in their Bank of England reserve accounts to acknowledge the insolvency of their debtors (hence incurring accounting losses) without drawing down their account with the Bank of England to zero (hence being insolvent in the eventuality that the Bank of England refused to provide large enough loans...)
  • Continuing growth of BTL lending means that a large speculative position (10%-15% of all outstanding mortgages) has been transferred to people who have put down large deposits (25%), who have significant equity in a primary private residence, have some other income AND have a renter to do some of the heavy lifting. #btlbailout

Even if the plan is not to prepare the economy for a house price crash, these steps are disposing the economy to be more resilient in the face of a house prices crash. Not resilient, merely more resilient.

Edited by ex nihilo de novo

Share this post


Link to post
Share on other sites

He's just talking the Pound up for a last hurrah

This. It's been seven years of the same failed policy now. They are not going to change course without some external event forcing their hand.

Making hard choices is not in the makeup of the shower of crap that rules over us. Raising rates is absolutely necessary ro correct the economy and reduce the level of debt. But it would have immediate consequences that would seem really bad. So they take the coward's way out and try to keep going, even though the results are much worse. To the likes of Cameron and Miliband bullying the unemployed is much more appealing. Seems like they are making tough decisions, when really they are just being bullys.

Share this post


Link to post
Share on other sites

Probably stuckmojo is spot on.

#carneyge is talking about 2.5% the new norm.

yeah, tell that to the Japanese who have endured ZIRP for 2 decades...AND WE ARE MAKING EXACTLY THE SAME DECISIONS AS THEY DID IN THE 90S.

Share this post


Link to post
Share on other sites
  • Continuing growth of BTL lending means that a large speculative position (10%-15% of all outstanding mortgages) has been transferred to people who have put down large deposits (25%), who have significant equity in a primary private residence, have some other income AND have a renter to do some of the heavy lifting. #btlbailout

Even if the plan is not to prepare the economy for a house price crash, these steps are disposing the economy to be more resilient in the face of a house prices crash. Not resilient, merely more resilient.

It's beginning to look like a plan B of some sorts.

Edited by Sancho Panza

Share this post


Link to post
Share on other sites

Going on the Bank of England's forecasting record, I'm guessing it'll actually be within 12 months! http://www.theguardian.com/business/2014/jun/29/uk-interest-rates-bank-of-england-charlie-bean

Why do people believe these guys? They aren't in control. They can only react - and even then its generally too late because they are too political. Did Charlie Bean ever predict anything? the financial crisis? The stupid Clinton policies that started this housing bubble in the 90s? The stupid low rate period after 2001?

This is just another guy who earns money through telling people what to believe....even if it isn't true!

Share this post


Link to post
Share on other sites

I think that there is a possibility of failing to acknowledge that losing an arm is not as bad as losing your head.

Bean's claim is not that the system is resilient - it is that is more resilient that it was. As the comparator is the financial system just before its fragility became so pronounced that a few sh!tty American mortgages was enough to send us to the zero-rate bound then I guess the only appropriate comment is "Damned by faint praise", but that comment notwithstanding, the truth is that the system is more resilient than it was. OK - it's not resilient - but did Bean say that it was?

Pre-2008 there was no resolution regime for private banks. Crazy but true. If they one went down, then others went down like dominoes. They couldn't legally 'trade' from bankruptcy - who gets their cash back when everyone wants their cash back? Answer: nobody. What does a banking system look like if nobody can get their money out? Answer: "Answer came there none". The system faced a shock it couldn't handle. The path that we followed was to reduce interest rates to a point where the tip of the spear of the shock was blunted by the fact that everyone can service their debts at 0% interest and the question as to whether or not they can repay their debts can be deferred - and thus essentially forgotten/ignored.

The system is more resilient now because:

  • INTEREST RATES ARE LOWER!!!!!!!!!!
  • Legal powers exist to take banks into resolution (Banking Act 2009)
  • The 'funding gap' has been closed - i.e. the zombie banks have enough narrow money in their Bank of England reserve accounts to acknowledge the insolvency of their debtors (hence incurring accounting losses) without drawing down their account with the Bank of England to zero (hence being insolvent in the eventuality that the Bank of England refused to provide large enough loans...)
  • Continuing growth of BTL lending means that a large speculative position (10%-15% of all outstanding mortgages) has been transferred to people who have put down large deposits (25%), who have significant equity in a primary private residence, have some other income AND have a renter to do some of the heavy lifting. #btlbailout

Even if the plan is not to prepare the economy for a house price crash, these steps are disposing the economy to be more resilient in the face of a house prices crash. Not resilient, merely more resilient.

Indeed there have been some apparent changes since the crash but whether they turn out to be effective or even remain in place if the economy ever does pick up remains to be seen.

What the article quoted him as saying was: ... the economy was far more resilient than when he arrived at the central bank in 2000.

So he's referring to the UK economy not the UK financial sector.

They might have made the UK financial sector more resilient in that they have helped to dilute the risks, shift the risks and to some extent made the banking risks more accountable (banks into resolution) and so on - but that's not the same as making the UK economy more resilient (emphasis on the word economy). Mind you any sector that has an implied taxpayer bailout guarantee is going to be pretty much 100% resilient at any rate.

In fact with the massive and continuing increases in debt, the printing money QE, the Help to Buy etc etc etc, the lack of rebalancing the economy, not allowing the UK economy to reset all with the additional consequence of lagging behind the eventual real recoverys (emphasis on the word real) in other countries they've increased the risks to the UK economy (as well as to most UK people) and made it far more vulnerable and less resilient - even if it turns out that the financial/banking sector is a bit less at risk.

If one has to make medical comparisons then so far as the UK economy is concerned their policies have been like applying make up to a corpse.

Edited by billybong

Share this post


Link to post
Share on other sites

Indeed there have been some apparent changes since the crash but whether they turn out to be effective or even remain in place if the economy ever does pick up remains to be seen.

What the article quoted him as saying was: ... the economy was far more resilient than when he arrived at the central bank in 2000.

So he's referring to the UK economy not the UK financial sector.

They might have made the UK financial sector more resilient in that they have helped to dilute the risks, shift the risks and to some extent made the banking risks more accountable (banks into resolution) and so on - but that's not the same as making the UK economy more resilient (emphasis on the word economy). Mind you any sector that has an implied taxpayer bailout guarantee is going to be pretty much 100% resilient at any rate.

In fact with the massive and continuing increases in debt, the printing money QE, the Help to Buy etc etc etc, the lack of rebalancing the economy, not allowing the UK economy to reset all with the additional consequence of lagging behind the eventual real recoverys (emphasis on the word real) in other countries they've increased the risks to the UK economy (as well as to most UK people) and made it far more vulnerable and less resilient - even if it turns out that the financial/banking sector is a bit less at risk.

If one has to make medical comparisons then so far as the UK economy is concerned their policies have been like applying make up to a corpse.

Obviously I cannot read Charlie Bean's mind and extrapolating from a very short quote in a very short article to what Charlie Bean may have thought and therefore meant is a daft thing to propose to do. However I would argue that as the economy was derailed by a financial crisis we might suppose that what Bean may have meant is that as the economy was not resilient because the financial sector was not resilient, then making the financial sector more resilient may have made the economy more resilient.

However I'll also buy your suggestion that the measures which made the banks more resilient may have been sufficiently offset by the various mechanisms you indicate that the net result is that though the financial sector is more resilient the economy is not. Certainly, that is a possibility.

In point of fact I'd probably go with the idea that this to and fro has made me think that the crisis and post-crisis to date has demonstrated that the system is incredibly resilient. The massive redistributive measures enacted have given rise to almost no broadly voiced political resentment. Mervyn King repeatedly voiced his surprise that people weren't more angry. If we consider the system in the broadest terms and include the extraordinary measures which are possible with fiat money and which have been deployed giving rise to serious consequences in terms of wealth transfer as part of the system then it turns out that the system is resilient but providing decent jobs and affordable housing is not a part of what the system does..."Bloody instructions, which, being taught, return to plague the inventor"

Edited by ex nihilo de novo

Share this post


Link to post
Share on other sites

In point of fact I'd probably go with the idea that this to and fro has made me think that the crisis and post-crisis to date has demonstrated that the system is incredibly resilient. The massive redistributive measures enacted have given rise to almost no broadly voiced political resentment. Mervyn King repeatedly voiced his surprise that people weren't more angry.

We are the ones suffering - renters and non-owning savers. Same in parts of the US too. Everything given over to support VI, and those willing to pay crazy high prices. QE/0.5%/FLS/HTB and the authorities acting like it's perfectly normal, and telling the young they want to help them into debt.

£350,000 for a standard little house around here, that should be worth a fraction of that. We should be back to 1980s/90s prices without intervention.

Oh well, the alchemy of patience for me, that markets will turn, and the system can somehow cope with the correction, or hopefully preparing for correction so can do volume lending.

“A mighty flame follows a tiny spark.”
― Dante Alighieri

I've been at war with this market since before I was born - House Market Termination, No Salvation just Forever HPI. Others championing wage inflation to help, rather than allowing correction. No correction and the VI owners still competing against us for BTLs.

Share this post


Link to post
Share on other sites

We are the ones suffering - renters and non-owning savers. Same in parts of the US too. Everything given over to support VI, and those willing to pay crazy high prices. QE/0.5%/FLS/HTB and the authorities acting like it's perfectly normal, and telling the young they want to help them into debt.

£350,000 for a standard little house around here, that should be worth a fraction of that. We should be back to 1980s/90s prices without intervention.

Oh well, the alchemy of patience for me, that markets will turn, and the system can somehow cope with the correction, or hopefully preparing for correction so can do volume lending.

I've been at war with this market since before I was born - House Market Termination, No Salvation just Forever HPI. Others championing wage inflation to help, rather than allowing correction. No correction and the VI owners still competing against us for BTLs.

I'm not 'championing wage inflation to help'. I'm setting out the path which I believe the BoE is following.

Do I think it's preferable for real wages to increase rather than decrease? Err....yes of course! Don't you?! The alternative is that you want to be paid less in the future.

Are you quoting Dante because I referenced Dante in the wages thread earlier today?

If so I'm going to re-iterate that I've asked you to stop stalking me. I would far rather you put me on ignore that exhibit this frankly increasingly strange behaviour towards me.

I would very much like to discuss and debate the economic arguments around the housing (and other) markets. I do not wish to be the focus of your unwanted attention.

I trust I am making myself perfectly clear Venger? It stops now.

Share this post


Link to post
Share on other sites

I'm not 'championing wage inflation to help'. I'm setting out the path which I believe the BoE is following.

Do I think it's preferable for real wages to increase rather than decrease? Err....yes of course! Don't you?! The alternative is that you want to be paid less in the future.

Ermm… ya know… having the same nominal amount of cash when asset prices are lower means you can buy more right? Thats not so hard is it really?

Of course everyone knows you want wages to increase, thats why you are indeed 'championing wage inflation' at every given opportunity. This trying to dress it as some reasonable conclusion based on an unbiased academic study of the facts has gone way beyond wearing thin.

Confirmation bias.

Fact is, it aint happening, and I see no reason for it to happen.

And as has been pointed out to you already so what if there was this *predicted* 4% increase in wages over the next 3 years that you say the BOE is looking for before they raise rates? Raising the base 2% is still catastrophic for an over leveraged borrower and in that context a poxy 4% a year won't matter a damn.

Im still waiting for evidence of your claim that the BOE will first wait for wage inflation before they raise rates.

Seems to me, you want a particular outcome and you reach for data to support it. Im sure we all do to some extent to be honest, but this blindness in particular is most peculiar.

Share this post


Link to post
Share on other sites

Ermm… ya know… having the same nominal amount of cash when asset prices are lower means you can buy more right? Thats not so hard is it really?

Of course everyone knows you want wages to increase, thats why you are indeed 'championing wage inflation' at every given opportunity. This trying to dress it as some reasonable conclusion based on an unbiased academic study of the facts has gone way beyond wearing thin.

Confirmation bias.

Fact is, it aint happening, and I see no reason for it to happen.

And as has been pointed out to you already so what if there was this *predicted* 4% increase in wages over the next 3 years that you say the BOE is looking for before they raise rates? Raising the base 2% is still catastrophic for an over leveraged borrower and in that context a poxy 4% a year won't matter a damn.

Im still waiting for evidence of your claim that the BOE will first wait for wage inflation before they raise rates.

Seems to me, you want a particular outcome and you reach for data to support it. Im sure we all do to some extent to be honest, but this blindness in particular is most peculiar.

Ad hominem. Again.

All the data says you're wrong.

Share this post


Link to post
Share on other sites

Ad hominem. Again.

All the data says you're wrong.

Refusal to respond to any of the points, again.

Your behaviour is bizarre.

Ultimately it won't be opinions on this forum that affect anything so Ive no idea what you hope to achieve.

In any case, we will see.

Share this post


Link to post
Share on other sites

Refusal to respond to any of the points, again.

Your behaviour is bizarre.

Ultimately it won't be opinions on this forum that affect anything so Ive no idea what you hope to achieve.

In any case, we will see.

Ad hominem. Again.

I'm not spoon feeding you like a child. Google the data yourself ONS, Bank of England and MarkiT PMI surveys like everybody else has to.

Share this post


Link to post
Share on other sites

Probably stuckmojo is spot on.

#carneyge is talking about 2.5% the new norm.

yeah, tell that to the Japanese who have endured ZIRP for 2 decades...AND WE ARE MAKING EXACTLY THE SAME DECISIONS AS THEY DID IN THE 90S.

Are we? I didn't think that they did as much QE in the 1990s as we have recently ? (I am not saying you are wrong, just asking for clarification, I could be wrong).

Share this post


Link to post
Share on other sites

Ad hominem. Again.

I'm not spoon feeding you like a child. Google the data yourself ONS, Bank of England and MarkiT PMI surveys like everybody else has to.

Refusal to respond to the points. Again.

Share this post


Link to post
Share on other sites

Are we? I didn't than ink that they did as much QE in the 1990s as we have recently ? (I am not saying you are wrong, just asking for clarification, I could be wrong).

The Japanese undertook several interest rate cutting measures and stimulus actions in the 1990s. None of these served to clear up the private debt overhang from the bubble years and cumulatively they incurred a fearful cost for the govt. They started their first modest QE program in 2001 and ended it in 2006. This didn't work either, and then the GFC happened. The most recent, second QE program - Abenomics - is an act of desperation designed to save the country from total debt collapse and default. It's by far the biggest QE program in the world, adding something like 1% of GDP to the monetary base every month, twice the size of Bernanke's QE infinity. Far too early to say whether Abenomics has succeeded where everything else failed but there are tentative signs of stagflation at last (good news, paradoxically, since the alternatives are far worse).

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • The Prime Minister stated that there were three Brexit options available to the UK:   218 members have voted

    1. 1. Which of the Prime Minister's options would you choose?


      • Leave with the negotiated deal
      • Remain
      • Leave with no deal

    Please sign in or register to vote in this poll. View topic


×

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.