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UK Interest rates... where will it go within 12 months? I suspect 2-4%


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4 hours ago, Unmoderated said:

Explain how prices can continually rise without wage increases and where this has happened in the world?

That's too easy.  You increase the amount of debt - or, as experts call it: "the money supply".

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Well I may aswell stick an oar in. In Jan of this year the Monetary Policy Committee published a speech called and I quote 'lets talk about negative interest rates' and my first thought was.....oh here we go. But now it looks like rates may infact not come down but potentially go up. Oooo exciting stuff, who knew policy was a spectator sport. [ and really at 0.1% we were only one bad shave from negative rates anyway]

What I think 'could' happen as both the Fed and BOE have said the price rises are covid related and may spike, but will come down again to previous levels, is that rising interest rates now could kill the economy stone dead. So I dont think they want to. 'Want to'.

However like all good government or policy/committee bodies they are usually always slow to react or act post problem. Im specifically here thinking about 2008. Policy change after - horse and stable door spring to mind. FSA changed its name to FCA [which im sure helped too.....] Would have been funny if they changed it from FSA to FSB.

Anyway what I think could happen is instead of small incremental gradual rises in the base rate. I think the MPC will get caught out and have too much pressure to act and they will hit us with one 'large' rate rise. So it, if it does happen, will be big, overdue and likely too late - fantastic. Even by their own admission base rate rises take 24 months before you see any real effect, so who knows. 

But if rates stay low, consumer savings remain high [which they are] governments back mortgages and demand continues to outstrip supply [which was the finding in Aprils RICS report] we are set up for a H.P.B not a H.P.C

For ref, voting in complete unison since Mar 11th 2020. 

image.thumb.png.7370e93cd35420fcd65a1579a3a41ba4.png

Been a while since we had a rate rise, Jul 07 https://www.housepricecrash.co.uk/graphs-base-rate-uk/

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21 minutes ago, Data Dave said:

.

Anyway what I think could happen is instead of small incremental gradual rises in the base rate. I think the MPC will get caught out and have too much pressure to act and they will hit us with one 'large' rate rise. So it, if it does happen, will be big, overdue and likely too late - fantastic. Even by their own admission base rate rises take 24 months before you see any real effect, so who knows. 

 

I believe that that position is almost policy, that is the risks are asymmetric. They'd rather risk too much inflation than too much deflation, and a sudden rise in IRs doesn't bother them as a potential price worth paying to definitely avoid a full on liquidity trap.

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3 hours ago, Unmoderated said:

Pretty much a given in a services based economy.

Explain how prices can continually rise without wage increases and where this has happened in the world?

Are you joking? Wages have been stagnant for 25 years in the UK and yet house prices have tripled.

Lower interest rates and longer terms are the primary cause for this and means wages have become disconnected from house prices. Hence rental yields (which are strictly limited by wages) being the lower side of nothing.

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8 hours ago, Si1 said:

I believe that that position is almost policy, that is the risks are asymmetric. They'd rather risk too much inflation than too much deflation, and a sudden rise in IRs doesn't bother them as a potential price worth paying to definitely avoid a full on liquidity trap.

Artificial inflation causes the liquidity trap- that's why it's a "trap".

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6 hours ago, Locke said:

Wages have been stagnant for 25 years in the UK and yet house prices have tripled.

I do not think they have been stagnant  for skilled folk such as engineers doctors etc.

For those who work in the local council or costa yes but they are not housebuyers anyway

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18 hours ago, A.steve said:

That's too easy.  You increase the amount of debt - or, as experts call it: "the money supply".

Doesn't work. It's not sustainable at ever increasing levels without an increase in income. 

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8 hours ago, Locke said:

Are you joking? Wages have been stagnant for 25 years in the UK and yet house prices have tripled.

Lower interest rates and longer terms are the primary cause for this and means wages have become disconnected from house prices. Hence rental yields (which are strictly limited by wages) being the lower side of nothing.

They haven't lol!

I'm talking about CPI inflation anyway, not asset price inflation. CPI is what BoE targets with interest rates. 

Rental prices have increased though which sort of conflicts with your comment about no increase in wages. 

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My guess is rates will be < 1%. I think the BoE has a proven track record when it comes to what they're bothered about.

The markets have already shrugged off the "fears" of rate rises , barely took a day.

Edited by simon99
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9 hours ago, Locke said:

Are you joking? Wages have been stagnant for 25 years in the UK and yet house prices have tripled.

Lower interest rates and longer terms are the primary cause for this and means wages have become disconnected from house prices. Hence rental yields (which are strictly limited by wages) being the lower side of nothing.

Not stagnant at all

Just going down even further.

 

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21 hours ago, crescent said:

I do not think they have been stagnant  for skilled folk such as engineers doctors etc.

For those who work in the local council or costa yes but they are not housebuyers anyway

Hilarious

I work in hospitality and (pre covid) have an income in line with a dentist and I pay 3 staff over 35,000 (local average less than 27).  We may be peasants now but when allowed to open a lot of people make a good living in such places.

If you want a 9-5 job over 100k in Norwich its local council or hospital.

As posted many times first job Kitchen porter 16 years old head kitchen porter in large hotel .... owned a crappy terraced house circa 20k

in the 90s you worked full time you had a shot.

When i view a house at 400-600k the sellers are often older folk with normal jobs police, teachers and trades.  The folk whom outbid me.... the same plus housing equity in the main from the south.

It matters little your job that sweet housing equity does the trick.

I have not reached let them eat cake mode yet,  I still live in the past crap job - crap house, good job = good house etc etc  

Edited by Fromage Frais
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  I wrote: You increase the amount of debt - or, as experts call it: "the money supply". as explain how prices can rise arbitarily.

On 14/05/2021 at 16:49, Unmoderated said:

Doesn't work. It's not sustainable at ever increasing levels without an increase in income. 

Well - it depends what you mean by "Doesn't work" and "not sustainable".

It is "not sustainable" in the sense that it causes an ongoing change... one that heaps risk on financial institutions (and the governments that support them) to the advantage of economically inactive owners of substantial assets. On the other hand, it is "sustainable" in the sense that it minimises social mobility - it promotes a feudal-style system in which a tiny number of people control the bulk of the assets - while the vast majority are their serfs.  I'm reminded of the Old Testament biblical Exodus... Apparently, such a situation had emerged in Egypt... and it failed when the down-trodden stole everything they could find and left to form new communities elsewhere.  The bad news is, today, the vast expanses of ungoverned land don't exist... and it would be much more difficult for serfs to simply bake some unleavened bread and ride off into the sunset leaving the establishment in-the-lurch.

I would argue that it has been proven to work.  If one permits/encourages monetary expansion - then, assuming the government can maintain authority (which, itself, depends on mechanisms beyond the monetary system) the nominal value of any asset accepted as collateral can rise to an arbitrary level.  Where such policies are adopted, there might, or might not, be increases in wages.  Whatever drives wages higher, it is not an increased availability of credit.  Perhaps a 'revolution' (or a war or a pandemic) might result in substantially increased general wages - but, then, almost certainly, this would be financed by fresh government borrowing.  If you really think about it, all nominal increases correlate strongly with increased debt.  The only question that really matters is this:  Who gets to take responsibility for the debt - and who enjoys the monetary assets this creates?

P.S. I think "Sustainable Development" (actively promoted by trans-national organizations today) correlates with my dystopian interpretation of 'sustainable' - rather than your (probably) optimistic (but, I feel, somewhat misguided) hope that incomes must correlate with asset prices.

 

Edited by A.steve
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49 minutes ago, A.steve said:

  I wrote: You increase the amount of debt - or, as experts call it: "the money supply". as explain how prices can rise arbitarily.

Well - it depends what you mean by "Doesn't work" and "not sustainable".

It is "not sustainable" in the sense that it causes an ongoing change... one that heaps risk on financial institutions (and the governments that support them) to the advantage of economically inactive owners of substantial assets. On the other hand, it is "sustainable" in the sense that it minimises social mobility - it promotes a feudal-style system in which a tiny number of people control the bulk of the assets - while the vast majority are their serfs.  I'm reminded of the Old Testament biblical Exodus... Apparently, such a situation had emerged in Egypt... and it failed when the down-trodden stole everything they could find and left to form new communities elsewhere.  The bad news is, today, the vast expenses of ungoverned land don't exist... and it would be much more difficult for serfs to simply bake some unleavened bread and ride off into the sunset leaving the establishment in-the-lurch.

I would argue that it has been proven to work.  If one permits/encourages monetary expansion - then, assuming the government can maintain authority (which, itself, depends on mechanisms beyond the monetary system) the nominal value of any asset accepted as collateral can rise to an arbitrary level.  Where such policies are adopted, there might, or might not, be increases in wages.  Whatever drives wages higher, it is not an increased availability of credit.  Perhaps a 'revolution' (or a war or a pandemic) might result in substantially increased general wages - but, then, almost certainly, this would be financed by fresh government borrowing.  If you really think about it, all nominal increases correlate strongly with increased debt.  The only question that really matters is this:  Who gets to take responsibility for the debt - and who enjoys the monetary assets this creates?

P.S. I think "Sustainable Development" (actively promoted by trans-national organizations today) correlates with my dystopian interpretation of 'sustainable' - rather than your (probably) optimistic (but, I feel, somewhat misguided) hope that incomes must correlate with asset prices.

 

On "sustainable development" surely its root is not running out of natural resources catastrophically?

But in which case, yes, massive transfers of wealth to the rich away from the poor is one "stable" way to get there - if the poor get poorer they consume less, as the rich get richer they don't consume correspondingly more, they merely preserve their previous way of life. By controlling the assets they can stop the (shrinking) real wealth being shared equitably around an ever growing population.

The other possibility is what bears and Green optimists hope for - a crash, massive destruction of financial wealth, so that the general reduction in real prosperity (caused by running up against natural resource limits) is shared equally amongst all the population - we all get poorer together.

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49 minutes ago, erat_forte said:

On "sustainable development" surely its root is not running out of natural resources catastrophically?

But in which case, yes, massive transfers of wealth to the rich away from the poor is one "stable" way to get there - if the poor get poorer they consume less, as the rich get richer they don't consume correspondingly more, they merely preserve their previous way of life. By controlling the assets they can stop the (shrinking) real wealth being shared equitably around an ever growing population.

The other possibility is what bears and Green optimists hope for - a crash, massive destruction of financial wealth, so that the general reduction in real prosperity (caused by running up against natural resource limits) is shared equally amongst all the population - we all get poorer together.

How is a house price crash a destruction of wealth?

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43 minutes ago, Si1 said:

How is a house price crash a destruction of wealth?

I didn't say it was specifically I was meaning a crash, and massive destruction of financial wealth, were related things that could lead to... etc.

But actually I would have thought that a house price crash would be a destruction of financial wealth in its own terms, since people generally include housing equity in their calculations of how wealthy they are.

Maybe I used the wrong terms, I was trying to distinguish between real wealth (e.g. a house standing on a plot of land) and financial wealth (e.g. how much it is worth). I suppose this is massively simplistic from a financial point of view as there are a lot of very different kinds of financial wealth that behave differently from each other, and property equity is only one of those.

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3 hours ago, erat_forte said:

On "sustainable development" surely its root is not running out of natural resources catastrophically?

I find it impossible to believe that the kernel of the "sustainable development" ideas has any foundation, whatsoever, in concern about adequate access to natural resources.  Of course, if you can convince some gullible idiots that we're about to run out of just-about anything... you can use that to control them.

 

 

3 hours ago, erat_forte said:

The other possibility is what bears and Green optimists hope for - a crash, massive destruction of financial wealth, so that the general reduction in real prosperity (caused by running up against natural resource limits) is shared equally amongst all the population - we all get poorer together.

I don't believe, for one second, that "real prosperity" has much (at all) to do with the actual consumption of natural resources.  I do believe that real prosperity has everything to do with the ways in which one demographic can dominate another.  One (at least moderately) effective strategy, for the political class, is to convince everyone, who is not a member of their inner clique, that everyone must have exactly the same.  Of course, the only way to achieve this is to abuse anyone who has anything (tangible or intangible) they cherish... until they relinquish whatever it is that they consider valuable... probably for destruction.  Real wealth is not about 'cash in the bank', or real-estate titles, or ownership of artworks or the means of production.  No, to think of it that way is a huge error of judgement. Real wealth is about the balance between the extent to which you can compel other people to behave in ways you want towards you... against the extent to which other people can compel you to behave in ways you'd rather not.  Of course, such an interpretation might not be compatible with the concept of centralised control by an elite.  For this reason, I suspect, this interpretation of 'wealth' is avoided by schools and the media... and, I suspect, while most could appreciate why it has to be true... act as if they are oblivious to the idea.

 

Edited by A.steve
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1 hour ago, A.steve said:

 

...

I don't believe, for one second, that "real prosperity" has much (at all) to do with the actual consumption of natural resources.

...

 

 

I don't understand that. Sure, if you can control other people and command them to do what you want, you can increase your real prosperity, at the cost of a decrease in theirs. But it all comes down to resource use - at the very basic level you and they all need to eat.

Both on an individual and an aggregate level real wealth is pretty much equal to resource use. you're just talking about different resource allocation structures and different shaped distributions of the resources over the population.

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2 hours ago, erat_forte said:

 

I don't understand that. Sure, if you can control other people and command them to do what you want, you can increase your real prosperity, at the cost of a decrease in theirs. But it all comes down to resource use - at the very basic level you and they all need to eat.

Both on an individual and an aggregate level real wealth is pretty much equal to resource use. you're just talking about different resource allocation structures and different shaped distributions of the resources over the population.

We can agree that you didn't understand.  "It", definitely, does not come down to resource use. Resource use just happens to be one thing that, so far, has correlated reasonably well with what we perceive to be prosperity - i.e. conspicuous consumption.  It is not the consumption that defines prosperity.  Prosperity is innately human and is (almost exclusively) about the relationships between people - rather than between humans and the natural world.

Using a car story (does everyone secretly wish they were Clarkeson?) Consider Barry and Charles:  Barry is a mid-income wage-slave. He rents a penthouse apartment, he drives a brand new V8 Mercedes (a PCP deal - he replaces the car every 2 years with something 'better') his wardrobe only contains designer brands - he wears a Rolex; always has the flagship Apple product the day it is launched; he takes two exotic holidays every year to offset the drudgery of his tedious work life.  Charles, on the other hand is "old money". He dabbles with what he calls "work" if, and when, he feels like it.  He has an investment portfolio sufficient to found a dynasty... it's grown between 2% and 6% every year. He drives a 15 year old Subaru Legacy (on the rare occasion he wants to travel); he lives on the family estate - which he inherited... no-one really knows how to put a value on it because it hasn't been sold in 400 years... he enjoys (attempting to) cultivate vines.  Charles does whatever he wants whenever he wants - and has no reason to want to impress anyone else.  In my opinion, Charles is wealthy and has prosperity... I strongly suspect that Barry is not and does not... despite copious consumption.  No amount of consumption will make Barry prosperous - because his illusion of prosperity evaporates the day he quits (or loses) his job (which he hates).

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On 14/05/2021 at 16:49, Unmoderated said:

Doesn't work. It's not sustainable at ever increasing levels without an increase in income. 

When has any government ever cared about sustainability?

If I thought it were sustainable, I would not be posting on a forum called "House Price Crash" now, unless I were a troll, would I? 

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15 hours ago, A.steve said:

We can agree that you didn't understand.  "It", definitely, does not come down to resource use. Resource use just happens to be one thing that, so far, has correlated reasonably well with what we perceive to be prosperity - i.e. conspicuous consumption.  It is not the consumption that defines prosperity.  Prosperity is innately human and is (almost exclusively) about the relationships between people - rather than between humans and the natural world.

Using a car story (does everyone secretly wish they were Clarkeson?) Consider Barry and Charles:  Barry is a mid-income wage-slave. He rents a penthouse apartment, he drives a brand new V8 Mercedes (a PCP deal - he replaces the car every 2 years with something 'better') his wardrobe only contains designer brands - he wears a Rolex; always has the flagship Apple product the day it is launched; he takes two exotic holidays every year to offset the drudgery of his tedious work life.  Charles, on the other hand is "old money". He dabbles with what he calls "work" if, and when, he feels like it.  He has an investment portfolio sufficient to found a dynasty... it's grown between 2% and 6% every year. He drives a 15 year old Subaru Legacy (on the rare occasion he wants to travel); he lives on the family estate - which he inherited... no-one really knows how to put a value on it because it hasn't been sold in 400 years... he enjoys (attempting to) cultivate vines.  Charles does whatever he wants whenever he wants - and has no reason to want to impress anyone else.  In my opinion, Charles is wealthy and has prosperity... I strongly suspect that Barry is not and does not... despite copious consumption.  No amount of consumption will make Barry prosperous - because his illusion of prosperity evaporates the day he quits (or loses) his job (which he hates).

I think it’s a good and interesting post.  What I would add is that it is skewed by the class system view that is pervasive in England.  Charles is one example, and not a good one as Charles family are just lucky that they were on the right side of old wars, but you could say the same about any person who decides to stop buying the latest thing and start building wealth.  I have a twit brother in law that scoffs at my 12 year old motor, I smile and indulge him.  He’s going to be working into his 60s or 70s.  Anyone can start to work on being properly wealthy.  I started the day I started working, overypay your pension, control your spending, save money into a savings account, buy assets.  If every generation does it you become something like Charles but hopefully without the nob accent.  

Edited by satsuma
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On 16/05/2021 at 08:10, A.steve said:

  I wrote: You increase the amount of debt - or, as experts call it: "the money supply". as explain how prices can rise arbitarily.

Well - it depends what you mean by "Doesn't work" and "not sustainable".

It is "not sustainable" in the sense that it causes an ongoing change... one that heaps risk on financial institutions (and the governments that support them) to the advantage of economically inactive owners of substantial assets. On the other hand, it is "sustainable" in the sense that it minimises social mobility - it promotes a feudal-style system in which a tiny number of people control the bulk of the assets - while the vast majority are their serfs.  I'm reminded of the Old Testament biblical Exodus... Apparently, such a situation had emerged in Egypt... and it failed when the down-trodden stole everything they could find and left to form new communities elsewhere.  The bad news is, today, the vast expanses of ungoverned land don't exist... and it would be much more difficult for serfs to simply bake some unleavened bread and ride off into the sunset leaving the establishment in-the-lurch.

I would argue that it has been proven to work.  If one permits/encourages monetary expansion - then, assuming the government can maintain authority (which, itself, depends on mechanisms beyond the monetary system) the nominal value of any asset accepted as collateral can rise to an arbitrary level.  Where such policies are adopted, there might, or might not, be increases in wages.  Whatever drives wages higher, it is not an increased availability of credit.  Perhaps a 'revolution' (or a war or a pandemic) might result in substantially increased general wages - but, then, almost certainly, this would be financed by fresh government borrowing.  If you really think about it, all nominal increases correlate strongly with increased debt.  The only question that really matters is this:  Who gets to take responsibility for the debt - and who enjoys the monetary assets this creates?

P.S. I think "Sustainable Development" (actively promoted by trans-national organizations today) correlates with my dystopian interpretation of 'sustainable' - rather than your (probably) optimistic (but, I feel, somewhat misguided) hope that incomes must correlate with asset prices.

 

What I mean is you can't have continued feedback of inflation without a corresponding inflationary increase in wages. Sure, you can fire money at people with cheap debt but that's pushing on a string and you can only load debt up to the limit where lenders will lend so for continued high inflation I believe you do need a corresponding increase in wages. 

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9 hours ago, Unmoderated said:

What I mean is you can't have continued feedback of inflation without a corresponding inflationary increase in wages. Sure, you can fire money at people with cheap debt but that's pushing on a string and you can only load debt up to the limit where lenders will lend so for continued high inflation I believe you do need a corresponding increase in wages. 

I've highlighted the bit I think is wrong-headed.  If the lenders are underwritten by the state (which, effectively they are) and the state makes it clear that they want loans to be made - the loans can be made.  If there are no rational creditworthy borrowers - no problem... just allow people to create limited liability shell-companies and load them up with debt.  Sure, the debts they create will include substantial bad debts... but that fact only needs to be realised long after the 'loans' have been made and used to pay out big dividends.  The only thing that constrains reckless lending is political will.

There is nothing inherent in the system that means wages must track 'inflation'... for two reasons.  First, 'inflation' is a nebulous concept - and we can formalize a measurement of it so as to exaggerate or hide it.  Second, there is nothing in the system to prevent poor people getting poorer.  Wages can fall and the cost of living can rise - and people's standard of living falls.  Nothing precludes this possibility - beyond 'political will'.

The exact inverse, however, is probably the case.  Inflation (at least some measurements of it) will be greatly influenced by wages - especially wages to the lowest socio-economic groups.  The reason for this is that these groups have scant opportunity to invest their income and are readily exploited.  Think of it this way: if you knew your tenants had no other options - but had just been handed an extra £5,000 increase in disposable income... why wouldn't you want to put their rents up by (at least) £2,500?

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12 hours ago, satsuma said:

Anyone can start to work on being properly wealthy.

I strongly suspect that the relevance of "work" to wealth is mostly an illusion. ;o)

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