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Mapatasy

Rates need to be at 5%

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The Bank of England is heading for 'a car crash' when the next financial crisis starts

http://uk.businessinsider.com/bank-of-england-car-crash-financial-crisis-interest-rates-2018-4

https://www.ippr.org/files/2018-04/cej-just-about-managing-demand-march2018.pdf

Quantitative easing has been the main policy experiment to find a solution to these structural weaknesses. But the effects of QE are unreliable and inherently uncertain. They have led to significant winners and losers, without any democratic or public accountability. By increasing asset prices, QE has benefited equity investors and owner-occupiers, who tend already to be better off, while hurting pensioners dependent on retirement income and young people seeking to get on the housing ladder.

The combination of these two structural weaknesses in the UK’s macroeconomic framework has almost certainly meant that incomes and living standards are significantly lower than they should otherwise have been. This has also meant that interest rates have been unable to rise, leaving policymakers even less well equipped to combat the next recession than they were in 2008. Given that the UK experiences an economic downturn on average once every 10 to 15 years, the next recession may not be far away.

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Thanks for sharing this, there are some really interesting points made by the IPPR around the creation of a new National Investment Bank instead of QE.

 

Quote
We propose that the Treasury considers revising the Bank of England monetary policy mandate. The Bank’s Monetary Policy Committee (MPC) should be asked to target one or both of unemployment and the level of nominal GDP, either alongside inflation or as intermediate guides to a primary inflation target. This would reduce the risk of monetary policy being over-tightened during a recession when inflation was the result of an external price shock.
 
We propose a significant institutional reform of the UK’s macroeconomic framework in order to provide an alternative means of delivering a spending stimulus when interest rates are very low. This would be superior to QE in terms of economic reliability and democratic accountability. We recommend the creation of an NIB, which under normal circumstances can help to provide countercyclical lending to support socially and economically productive investment in line with the priorities of the elected government.
 
In addition, and to reduce reliance on QE, we recommend that the Bank of England is given the power to ‘delegate’ an economic stimulus to the new NIB when interest rates are at the effective lower bound and government fiscal policy is believed to be overly restrictive.
 

 

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39 minutes ago, TonyJ said:

This is exactly why interest rates were in the hands of the Chancellor until a few years ago, and why it's probably going to be like that again before too long. Funny how things like this are just pendulums swinging back and forth.

The Term Funding Scheme is probably the closest this country's come to an extra-parliamentary insurrection since the Guy Fawkes plot.  The Bank of England should never be allowed to print up and distribute >£100bn without democratic oversight and accountability.

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I don't quite see how rates NEED to be at 5%, since clearly they are nowhere near this at the moment and any swift ramp up to this will send the economy into a massive tailspin.

What they WANT to do IMO is raise rates gradually, keeping them somewhere between the US and EU and flush out the zombies slowly but consistently over a sensible timescale that will not cause too much political upset. I think they are probably on the fence atm for raising in May but I think the ECB meeting will probably seal it one way or another.

 

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30 minutes ago, darkmarket said:

The IPPR used to be very influential in the Conservative party, any insight into whether that's still the case?

What’s the thinking? My reading is any major change would take 5 - 10 years, with 1 or more GE’s before then. It is probable we will see a Labour Government, with a different high Command giving the Orders.

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5 minutes ago, Gigantic Purple Slug said:

....consistently over a sensible timescale that will not cause too much political upset.

 

...or them to be voted out.  This is the Plan, but the next recession will wee all over it.

Edited by Freezer? Best place for it
Tablet dropped

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41 minutes ago, stuckinlimbo said:

Thanks for sharing this, there are some really interesting points made by the IPPR around the creation of a new National Investment Bank instead of QE.

 

 

' In addition, and to reduce reliance on QE, we recommend that the Bank of England is given the power to ‘delegate’ an economic stimulus to the new NIB when interest rates are at the effective lower bound and government fiscal policy is believed to be overly restrictive. '

Thats sounds good but the devil is in the detail.

How and what and who to?

 

 

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39 minutes ago, Gigantic Purple Slug said:

I don't quite see how rates NEED to be at 5%, since clearly they are nowhere near this at the moment and any swift ramp up to this will send the economy into a massive tailspin.

What they WANT to do IMO is raise rates gradually, keeping them somewhere between the US and EU and flush out the zombies slowly but consistently over a sensible timescale that will not cause too much political upset. I think they are probably on the fence atm for raising in May but I think the ECB meeting will probably seal it one way or another.

 

But the setters of interest rates ARE themselves the zombies.

??

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3 hours ago, Mapatasy said:

Given that the UK experiences an economic downturn on average once every 10 to 15 years, the next recession may not be far away.

Not another thread about the impeding doom - have heard this a gazillion times now 

 

3 hours ago, TonyJ said:

This is exactly why interest rates were in the hands of the Chancellor until a few years ago, and why it's probably going to be like that again before too long

No it is not the govt have expressly said they have no wish to take control of rates from the BOE 

2 hours ago, zugzwang said:

The Bank of England should never be allowed to print up and distribute >£100bn without democratic oversight and accountability.

They were voted in democratically - or do you want a referendum on every govt decision

1 hour ago, cnick said:

But the setters of interest rates ARE themselves the zombies.

??

I think not they are highly educated in economics not some worthless subject like sociology

 

Anyone who wants higher rates clearly has never run their own business and does not understand that rising interest rates impact on jibs in the private sector which is what creates wealth unlike council workers and teachers

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1 minute ago, happyguy said:

I think not they are highly educated in economics not some worthless subject like sociology 

 

Anyone who wants higher rates clearly has never run their own business and does not understand that rising interest rates impact on jibs in the private sector which is what creates wealth unlike council workers and teachers

Correct - they are highly educated in the rigid dogmatic economic theory that has transferred all the wealth from the commons into the pockets of corporate stockholders, whilst transferring risk in the opposite direction, delivering us massive third-world style wealth disparity and austerity. Highly educated in that - yes, agreed.

WRT your Taxpayers' Alliance type jibe at council workers and teachers - shameful TBH. Although it does betray your ignorance and your programming.

If you think that teachers don't add 'wealth' to a society then you need to think on.

 

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48 minutes ago, Doctor SickoPants said:

Similar sentiment in today's standard:

Rich nations are drowning in debt as rate rises loom

https://www.standard.co.uk/business/carl-mortished-rich-nations-are-drowning-in-debt-as-rate-rises-loom-a3823281.html

Great thread....I agree, 5% is not exactly a massive interest rate, that is where we should be ideally....it is the size of the debt that is the problem, nobody forces people to take on eye watering amounts of debt, that is the risk they take, if they don't want to pay it back that is up to them, many don't.

If the debts are to be repaid, we need growth to generate surpluses and tax revenues.

We need an expanding army of young workers, earning and spending their rising wages, but instead their numbers are shrinking.

Can't disagree with that....says it all really.;)

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2 hours ago, happyguy said:

I think not they are highly educated in economics not some worthless subject like sociology

These then were the same 'highly educated' guys who failed to avert the 'credit crunch' ?

 

......actually I think you have misunderstood the term zombies......it's not people, rather businesses kept alive artificially by government 'stimulus' ......

 

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I’m not convinced. I think it’s the spreads between mortgage rates  (and maybe some other forms of lending) and the base rate that needs to be higher. 

Mortgages (especially BTL mortgages) reflect neither the true risk of lending nor the wider social costs of a housing bubble. 

Edited by BuyToLeech

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4 hours ago, happyguy said:

Anyone who wants higher rates clearly has never run their own business and does not understand that rising interest rates impact on jibs in the private sector which is what creates wealth unlike council workers and teachers

Your buy to let punt is not a business you thick imbecile, now being as you have nothing to contribute to HPC or life in general as you're a parasitic soon to be bankrupt BTLer why don't you go elsewhere and offer your wonderful insights into business and how an economy should be run with zero percent interest rates.

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4 hours ago, happyguy said:

Not another thread about the impeding doom - have heard this a gazillion times now 

 

No it is not the govt have expressly said they have no wish to take control of rates from the BOE 

They were voted in democratically - or do you want a referendum on every govt decision

I think not they are highly educated in economics not some worthless subject like sociology

 

Anyone who wants higher rates clearly has never run their own business and does not understand that rising interest rates impact on jibs in the private sector which is what creates wealth unlike council workers and teachers

Economics is a sovial science

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23 minutes ago, TJHooker said:

Your buy to let punt is not a business you thick imbecile, now being as you have nothing to contribute to HPC or life in general as you're a parasitic soon to be bankrupt BTLer why don't you go elsewhere and offer your wonderful insights into business and how an economy should be run with zero percent interest rates.

Just ignore him...he likes to wind up. He never writes anything worth reading and consistently misses the point. 

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6 hours ago, zugzwang said:

The Term Funding Scheme is probably the closest this country's come to an extra-parliamentary insurrection since the Guy Fawkes plot.  The Bank of England should never be allowed to print up and distribute >£100bn without democratic oversight and accountability.

All that will do is allow a party to target its own voting demographic. No thanks, I prefer an independent function.

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4 hours ago, happyguy said:

Anyone who wants higher rates clearly has never run their own business and does not understand that rising interest rates impact on jibs in the private sector which is what creates wealth unlike council workers and teachers

Amazing that countries survived for decades on rates that were not 0.5%. How on earth did they manage and why didn't anyone think of the poor business owners?

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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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