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Bank Of England Raises Base Rate To 10 Percent!

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...one hundred years ago!

As recently as Wednesday last week (29th July 1914) the base rate was 3 percent. On Thursday it was raised to 4% then on Friday 8% as retailers stopped taking bank notes as payment and demanded gold (which was in general circulation). By "today" the base rate was 10% and there were long queues outside the BoE of people wanting to change their notes into gold. (Wise people, they would have lost loads if they hadn't.)

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Interest rates must be inversely proportional to the amount of debt in the economy. When there is a relatively small amount of debt to new income (like the 90's) you need a large base rate swing to make an effect. Inversely when the debt is much higher like today, a tiny change in the base rate like 1% of using propaganda to make people believe it will change by that amount has the same effect as upping rates by a few percentage points used to have.

Now there's too much debt to be able to increase interest rates by a large amount. Increasing interest rates by 0.50% today would make a large change to debt repayments on a typical mortgage, back in the 90's it you would have needed a few percent rise.

Then again, I am reminded by posters here that it's markets that set interest rates and not central banks printing and rigging markets.

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Then again, I am reminded by posters here that it's markets that set interest rates and not central banks printing and rigging markets.

Mkts set longer term rates.

The only rate C Bank sets is Repo Rate (Base Rate) ie short term rate.

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Then again, I am reminded by posters here that it's markets that set interest rates and not central banks printing and rigging markets.

The economy is still face down in the gutter, sustained largely by govt borrowing and printing. Why would rates rise in such circumstances? They haven't in Japan.

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On Fivelive's Wake Up To Money this morning they had a financial historian on talking about what happened during WW1 - believe it or not we are still paying off some of the debt of WW1.

We were apparently stilling paying for WW1 by the time that WW2 started.

There were 120 stock markets globally before the war broke out and within a few days 114 of them had closed or gone bust.

From about 1 minute in and also at 39 minutes 40 seconds.

http://www.bbc.co.uk/programmes/b04c9rz3

Edited by The Masked Tulip

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On Fivelive's Wake Up To Money this morning they had a financial historian on talking about what happened during WW1 - believe it or not we are still paying off some of the debt of WW1.

We were apparently stilling paying for WW1 by the time that WW2 started.

There were 120 stock markets globally before the war broke out and within a few days 114 of them had closed or gone bust.

From about 1 minute in and also at 39 minutes 40 seconds.

http://www.bbc.co.uk/programmes/b04c9rz3

http://www.bloombergview.com/articles/2013-02-04/the-world-war-i-debts-that-wouldn-t-go-away-

Late in January 1933, President-elect Franklin D. Roosevelt met separately with his predecessor, Herbert Hoover, and Britain’s ambassador, Ronald Lindsay. Each session focused on one issue: How would the new chief executive handle the nagging problem of war debts?

During the war, the U.S. had advanced European countries about $10 billion in goods and credit. Following the July 1932 expiration of Hoover’s yearlong moratorium of payments, international readjustment discussions were scheduled for March 1933. European representatives hoped the new U.S. government would then articulate fresh policies. Many nations sought a sizable writedown of principal and interest because further postponement of due dates had proved politically impossible in the U.S.

The Economist explained Britain’s position:

"The War Debts have been a major influence in bringing about the crisis; and even under the most favourable conditions their payment reduces the ability of the debtors to buy American goods."

Europeans couldn’t spend the same pounds and francs twice, once for debts and again for goods and services. Furthermore, if the debt payments were resumed, they would "make matters worse, and put another obstacle in the way of reconstruction plans.”

The Economist also argued that the U.S. had to realize that each of its chief debtors was also a creditor. These countries’ ability to pay back the U.S. was affected by what their debtors were able to pay them.

Those who owed the U.S. the most -- the U.K. and France -- found collecting their third-party debts, as well as German war reparations, almost impossible. A conference in Lausanne, Switzerland, in the summer of 1932 had reduced and rescheduled Germany’s obligations, basing future transfers on revenue from newly issued long-term bonds. But the bonds didn’t sell, and without that cash flow, Germany couldn't meet even the revised terms.

In mid-December 1932, Britain made a war-debt payment of $95.5 million by earmarking gold in its vaults to that value, but not shipping the bullion westward. As historian Barry Eichengreen explained, "The veiled threat was that if the United States attempted to repatriate that gold, the Bank of England would liquidate its dollar balances." This would have deepened the financial crisis. The gold stayed in Britain.

Five smaller nations sent about $3 million to the U.S., reducing their accounts, but five more countries, including France, Belgium and Poland, defaulted on notes totaling $25 million. The international debt system was edging toward a breakdown.

...

The whole situation was fecked. In 1939 when it all kicked off again none of the European nations had the money for a protracted war. The European economy hadn't recovered from the fall out of WW1 which then triggered the global depression of the 20's and 30's.

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But...but...but... war saved the economy from the Great Depression. And stuff.

Just like the upcoming nuclear war with Russia will save us from this one. Because nothing says 'Stock Market Boom!' more than major cities vanishing in giant mushroom clouds.

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Just like the upcoming nuclear war with Russia will save us from this one. Because nothing says 'Stock Market Boom!' more than major cities vanishing in giant mushroom clouds.

It's joined up government. The MOD is committed to helping remove objections to the construction of garden cities.

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