Daily Telegraph - More Radical Than Anything On Here Recently

[smokinjoe]

Should raise rates to 3%.

I can only guess that the journalist has kids that are still at home - comments below artice are very hpc.

http://www.telegraph.co.uk/finance/property/house-prices/11660347/If-we-want-to-make-property-affordable-to-the-young-its-time-to-bite-the-bullet-and-raise-interest-rates.html

[Exiled Canadian]

That's an interesting view. I've been pondering for a while whether ultra low interest rates are actually helping.

It strikes me that the average boomer is in turtle mode preparing for retirement. It is the boomers who (I suspect) hold most of the UK's savings. Assuming that they are saving with a target level of income in mind then low interest rates will lead them to increase savings and defer consumption. An increase in interest rates should enable them to consume some savings now on the assumption that they can achieve their target retirement income with less capital.

The slew of BTL property that would hit the market if base rates went up 600% would hopefully bring prices down to a level where FTB's could buy. A fall in house prices would lead to increased spending on white goods, DIY products etc.

[Killer Bunny]

There will be QE b4 any rate rise. #turningjapanese

[thecrashingisles]

The expected date for the Fed's rise has come in a couple of months to this autumn. Once that happens all bets are off.

[wherebee]

That's an interesting view. I've been pondering for a while whether ultra low interest rates are actually helping.

It strikes me that the average boomer is in turtle mode preparing for retirement. It is the boomers who (I suspect) hold most of the UK's savings. Assuming that they are saving with a target level of income in mind then low interest rates will lead them to increase savings and defer consumption. An increase in interest rates should enable them to consume some savings now on the assumption that they can achieve their target retirement income with less capital.

The slew of BTL property that would hit the market if base rates went up 600% would hopefully bring prices down to a level where FTB's could buy. A fall in house prices would lead to increased spending on white goods, DIY products etc.

This is very true - but don't forget the difficulty of timing for whoever is in power. They need to bring on the crash almost immediately they get voted in, so that the crash (2 years+) can get out the way and the subsequent boom from white goods, etc, shows up in the figures in years 3-4-5.

And unfortunately, no party will prepare that plan of action in case they get accused of wanting a crash. Which means then instead they are into years 1-2 by the time they could do it, which would mean a crash in years 3-4, which would mean getting voted out and the next lot getting the credit for the boom (see Majors actions, and the following boom which labour inherited).

So - it ain't gonna happen until they are forced by world events.

[maffo in oxford]

You should include something like "raise rates to 3%" in the thread title, as it's rather vague and easy to miss both the main point in the article and the subsequent discussion (which is very interesting btw).

[winkie]

Banks can raise lending and savings rates as and when they want to.....

[interestrateripoff]

The expected date for the Fed's rise has come in a couple of months to this autumn. Once that happens all bets are off.

My view is that when rates increase it will trigger another debt crisis and rates will come back down again. I can't see rates going up whilst the US deficit is $400bn + as it's going to add to the US govt interest charge.

[interestrateripoff]

That's an interesting view. I've been pondering for a while whether ultra low interest rates are actually helping.

It strikes me that the average boomer is in turtle mode preparing for retirement. It is the boomers who (I suspect) hold most of the UK's savings. Assuming that they are saving with a target level of income in mind then low interest rates will lead them to increase savings and defer consumption. An increase in interest rates should enable them to consume some savings now on the assumption that they can achieve their target retirement income with less capital.

The slew of BTL property that would hit the market if base rates went up 600% would hopefully bring prices down to a level where FTB's could buy. A fall in house prices would lead to increased spending on white goods, DIY products etc.

Low rates are increasing instability as people seek higher returns they are pushed like a herd into riskier and riskier investments and since the 1974 banking crisis everyone has learned that as soon as there's trouble nanny Fed comes to bail everyone out.

[Nationalist]

The headline says,: "If we want to make property affordable to the young, it's time to bite the bullet and raise interest rates"

The big new thing here is the suggestion that raising rates improves affordability. Previously affordability was achieved by lowering rates. Obviously the only way raising rates helps is by collapsing prices.

I can't see the government raising rates until they are forced to - and only world "events" can force their hand. A sterling crisis would do it, but sterling is proving to be massively strong, unlike in the 1970s say.

[TheCountOfNowhere]

Should raise rates to 3%.

I can only guess that the journalist has kids that are still at home - comments below artice are very hpc.

http://www.telegraph.co.uk/finance/property/house-prices/11660347/If-we-want-to-make-property-affordable-to-the-young-its-time-to-bite-the-bullet-and-raise-interest-rates.html

Own up, who got a job at the telegraph ?

[TheCountOfNowhere]

The headline SHOULD says,: "If we want to make property affordable to the young, it's time to bite the bullet and CRASH PRICES"

The difference between now and 2007, people in general want lower prices and the media is telling them it's coming.

Have you been stitched up, think you should be compensated, then call..01-800-F*CK-OFF

[mattyboy1973]

It seems to me, in very simplistic terms, that low interest rates simply aren't achieving what they "want" to achieve any more - higher inflation and increased borrowing by consumers. I guess the first is nullified by over capacity and globalisation, and the second because consumers are simply maxed out on debt. The consequences are a terrible misallocation of capital resulting in bubbles everywhere as people chase yield.

The biggest scam in my mind is that the single biggest cost for many people is not included in the inflation indices used when setting interest rates (the cost of houses).

[Habeas Domus]

Theres a good discussion of this over on the register

So why the hell didn't quantitative easing produce HUGE inflation?

Re: Tons of inflation

"Housing prices were rising long before QE and have been for years - so you can't blame QE for this."

Doctor Syntax

I think the causality runs the other way round:

1. Elimination of housing costs from inflation measures used to determine interest rates.

2. Off-shoring a lot of production of items in the inflation indexes leading to very low values for those indexes.

3. Maintained low interest rates in view of the low apparent inflation.

4. Low interest mortgages lead to bigger and bigger price rises for housing as all the cheap money goes there.

5. LOTS of financial shenanigans to tap off as much of that home loan business as possible including selling loans to people who can't possibly afford them.

6. BIG liquidity crisis as soon as the people who couldn't afford the loans start to default.

7. QE to fix the liquidity crisis.

8. Low interest rates due to QE fixing the liquidity crisis ultimately caused by too long a period of low interest rates in the first place.

If long continued overly low interest rates were the original problem it's difficult to see how continuing unduly low interest rates for a long time is going to solve it.

[TheCountOfNowhere]

It seems to me, in very simplistic terms, that low interest rates simply aren't achieving what they "want" to achieve any more - higher inflation and increased borrowing by consumers. I guess the first is nullified by over capacity and globalisation, and the second because consumers are simply maxed out on debt. The consequences are a terrible misallocation of capital resulting in bubbles everywhere as people chase yield.

The biggest scam in my mind is that the single biggest cost for many people is not included in the inflation indices used when setting interest rates (the cost of houses).

Low rates achieved exactly what they wanted....the rich got bailed out and I expect have off loaded a lot of their property. The banks might be in a position to withstand a 30% nominal crash now so watch out below...it's coming.

[thecrashingisles]

My view is that when rates increase it will trigger another debt crisis and rates will come back down again. I can't see rates going up whilst the US deficit is $400bn + as it's going to add to the US govt interest charge.

The question is where. If Wall Street isn't in peril the Fed will let foreign banks blow up.

[spyguy]

The question is where. If Wall Street isn't in peril the Fed will let foreign banks blow up.

Yes.

[acharmlessman]

You could argue that we've already had our massive bout of inflation over the last 20 years or so, despite what the ONS would have us believe. Through ever increasing mortgages, the newly created money has funnelled its way into the housing market. If and when house prices take a tumble then that cash will manifest itself somewhere else. However, if house prices stay where they are or continue rising in real terms, then we may have to accept that this is the new normal.

As you all know, the real winners are those who already own property and who sell or have recently sold for cash. Could that show up in an ever widening trade deficit (causing GBP to weaken) as the benefactors of HPI show off their new found wealth by splashing out on luxury imported goods. Somehow I don't think many of them will invest their capital in any kind of productive enterprise, they would rather enjoy their retirement!