Jump to content
House Price Crash Forum
Sign in to follow this  
nimmmm

Uk Interest Rates

Recommended Posts

I have been taking a closer look at the Bank of England's last inflation report: http://www.bankofengland.co.uk/publication...rt/ir06may1.pdf

What interested me most was the chart on page 5:

"Chart B

Estimates of excess broad money growth(a) and the

detrended official interest rate(B)"

Please take a look.

What the article seems to suggest is that when the government prints money providing enough for circulation above the equilibrium rate (which I take to mean, possibly incorrectly), the amount of liquidity the system needs to function normally, the rate of inflation increases and so does the bank base rate to counter it. The chart tracks both the excess broad money growth and the detrended official interest rate.

I am familiar with the concept that the more money that you print, the less value it has, and hence inflation. But what appears to be unerring, in spite of the warning in the text that it is not necessarily so, is the relationship between the growth rate of broad money and the official interest rate.

What is more, of late the excess broad money growth has shot up, but the interest rate has yet to follow.

Is this a reliable indicator that interest rates must be raied in the UK imminently? I would welcome comments....

Share this post


Link to post
Share on other sites

Broadly correct (pun intended), except that almost all new money is now created by borrowing rather than printing. For a recent comment from Mervyn King see 'Interest rates: They're heading up':

http://www.economist.com/displayStory.cfm?story_id=6932676

Looking further ahead, another concern is that broad money (M4) is growing at an annual rate of 12%, having accelerated sharply over the past two years. The Bank estimates that this rate of growth is over three percentage points higher than is sustainable over the long term. The excessive monetary growth is a worry. As Mr King said on May 10th, "in the long run, if you have rapid broad-money growth, you are going to get inflation."

Share this post


Link to post
Share on other sites

Broadly correct (pun intended), except that almost all new money is now created by borrowing rather than printing. For a recent comment from Mervyn King see 'Interest rates: They're heading up':

http://www.economist.com/displayStory.cfm?story_id=6932676

I think that this lack of a visual element helps to hide the situation from general perception. its not like people are rolling around with wheel barrows of cash for a loaf of bread like in Wiemark Germany. It all goes on the card, and the reciept stays the same size - hence no genuine visual/physical illustration to match the excess.

Share this post


Link to post
Share on other sites

Great article Jeff - thanks.

Forgive my inquisitiveness, but do you know of any statistics which show how money is generated by printing money, and how much by interest repayments?

Share this post


Link to post
Share on other sites

I have been taking a closer look at the Bank of England's last inflation report: http://www.bankofengland.co.uk/publication...rt/ir06may1.pdf

What interested me most was the chart on page 5:

"Chart B

Estimates of excess broad money growth(a) and the

detrended official interest rate(B)"

Please take a look.

What the article seems to suggest is that when the government prints money providing enough for circulation above the equilibrium rate (which I take to mean, possibly incorrectly), the amount of liquidity the system needs to function normally, the rate of inflation increases and so does the bank base rate to counter it. The chart tracks both the excess broad money growth and the detrended official interest rate.

I am familiar with the concept that the more money that you print, the less value it has, and hence inflation. But what appears to be unerring, in spite of the warning in the text that it is not necessarily so, is the relationship between the growth rate of broad money and the official interest rate.

What is more, of late the excess broad money growth has shot up, but the interest rate has yet to follow.

Is this a reliable indicator that interest rates must be raied in the UK imminently? I would welcome comments....

Basically it is all meaningless my friend. Anyone who says they have a handle on how it ticks, like it's a science, is bloody liar. Inflation is only inflation when the Ministry of truth says it is. All that influences the decisions on how this is dealt with is government and bank agenda.

This official quote from the FED epitomises the ethos of central banks IMO.

"the costs of collecting the underlying data and publishing M3 outweigh the benefits."

Share this post


Link to post
Share on other sites
Guest Charlie The Tramp

how money is generated by printing money, and how much by interest repayments?

The Lenders collected £63.585 billion in interest from loans and mortgages in 2004 but that was real money.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 302 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%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.