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spyguy

Countdown To Fed 0% Ir Exit Begins

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So 14 of 34 OECD countries in deflation and rising. We have ATL rates and many -ve.

Chance of US/UK raising rates? Minimal.

If raise they'll come straight back down.

World of debt CANNOT handle higher serving costs. Neither can 10s of TRILLIONS of derivatives.

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So 14 of 34 OECD countries in deflation and rising. We have ATL rates and many -ve.

Chance of US/UK raising rates? Minimal.

If raise they'll come straight back down.

World of debt CANNOT handle higher serving costs. Neither can 10s of TRILLIONS of derivatives.

They'll find a way

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Can someone explain to me why they would need to raise rates anyway? I always read that interest rate rises are now unaffordable because of the cost of debt repayment and therefore low interest rates are in the country's interests. So why would they raise rates? I would love them to raise rates by the way, I just don't understand why there seems to be this constant ping-pong where low rates are supposedly necessary temporary measure but they are always talking about raising rates? How would rising rates help a country like the US? What would their official reason for doing so be?

Edited by fru-gal

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of they raise rates we get hyperinflation. The bond markets crash(default) and all the money curently tied up in bond servicing and speculation comes flooding out into the general market and we stand knee deep in worthless paper money.

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of they raise rates we get hyperinflation. The bond markets crash(default) and all the money curently tied up in bond servicing and speculation comes flooding out into the general market and we stand knee deep in worthless paper money.

It cant be any more worthless than it currently is :lol::lol::lol:

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Can someone explain to me why they would need to raise rates anyway?

OK - I'll have a stab. When rates are low, this encourages people to borrow and thus spend more. This is fine for when the economy has been shrinking or is growing slowly. As the economy enters a higher rate of growth, allowing people to continue borrowing money at a cheap rate adds further fuel to a nicely burning fire. Under these circumstances, it won’t take long before the demand to buy products and services starts outstripping the ability of firms to supply them. When demand is greater than supply, this usually translates into inflation. One practical example of this in action in when an economy is growing to the extent that unemployment falls below 5%. At this point, firms wanting to expand to meet the extra demand they are experiencing cannot find sufficient skilled staff. To attract them from other companies, they offer higher salaries. To pay for the higher salaries, they up their prices to consumers (of which there are plenty). So, to avert inflation, interest rates are adjusted. It’s like taking your foot on or off the gas pedal depending on whether you are driving up or downhill.

Am sure someone else can provide a much better and more comprehensive explanation.

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Can someone explain to me why they would need to raise rates anyway? I always read that interest rate rises are now unaffordable because of the cost of debt repayment and therefore low interest rates are in the country's interests. So why would they raise rates? I would love them to raise rates by the way, I just don't understand why there seems to be this constant ping-pong where low rates are supposedly necessary temporary measure but they are always talking about raising rates? How would rising rates help a country like the US? What would their official reason for doing so be?

Because of low interest rates, money isn't being channelled into productive businesses, but instead speculated with on housing, art, or the stock market (with no clear strategy). This malinvestment isn't good for the domestic or global economy. Not that politicians have the country's interests at heart, they just want to maintain the value of their assets at all costs.

Edited by Eddie_George

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I bet 0.2 August.

I think they are behind the curve in the US.

I also bet that infaltion will go up when they raise IRs.

Guess it depends whether you believe:

A - the recovery in US (and Japan, UK) is gaining strength, GDP figures are true and indicate firms are investing, labour productivity increasing and all is rosy.

B - the recovery is ersatz, GDP stalling and growth only happened due to asset bubble ramping, demand is low and central banks more likely to cut rates/QE.

I'm a B man.

Edited by thehowler

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It does feel that low rates cause deflation.

What you pay is what it will stay at... also if your rich your rich but if not your stuck as nobody wants your capital.

Old Businesses and property stay expensive with owners who cannot afford to renovate and large companies can build lots of new facilities with the cheap money = excess capacity and lower prices.

New capital is not being generated from capital itself.

There is so much money in the world that after the initial sucking of liquidity out, you should get a massive boom as new credit is created and savings become larger as money creates money.

I can only imagine how many people will be off benefits (16k cash) and tax credits (over 45K income) in a 5%+ interest rate environment.

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OK - I'll have a stab. When rates are low, this encourages people to borrow and thus spend more. This is fine for when the economy has been shrinking or is growing slowly. As the economy enters a higher rate of growth, allowing people to continue borrowing money at a cheap rate adds further fuel to a nicely burning fire. Under these circumstances, it won’t take long before the demand to buy products and services starts outstripping the ability of firms to supply them. When demand is greater than supply, this usually translates into inflation. One practical example of this in action in when an economy is growing to the extent that unemployment falls below 5%. At this point, firms wanting to expand to meet the extra demand they are experiencing cannot find sufficient skilled staff. To attract them from other companies, they offer higher salaries. To pay for the higher salaries, they up their prices to consumers (of which there are plenty). So, to avert inflation, interest rates are adjusted. It’s like taking your foot on or off the gas pedal depending on whether you are driving up or downhill.

Am sure someone else can provide a much better and more comprehensive explanation.

That worked until credit replaced wage rises, then you hit a point where people can`t pay back the credit they borrowed because they don`t have enough wages, at that point you slash rates and hope for the best, but eventually debt has to be defaulted so that rates can creep up again? The US raising rates is about pretending to be "healthy" IMO.

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