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Fed Rate Gap With Bo E Highest In 22 Years

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http://business.timesonline.co.uk/article/...2241815,00.html

The Sunday Times

June 25, 2006

Fed rates gap at 22-year high

David Smith, Economics Editor

AMERICA’s interest rates will rise this week to their highest level relative to rates in Britain for 22 years. The Federal Reserve is set to push up the key Fed Funds rate from 5% to 5.25% on Thursday.
That will widen the premium for US rates over Britain’s base rate to 0.75 percentage points, the biggest it has been since 1984. Interest rates in Britain are only rarely below those in America, but the current situation of higher US rates could persist for some time.
Robert Barrie, an economist with Credit Suisse First Boston, said the last time the gap was this size sterling was trading at just $1.30. It was on its way to a fall that saw it drop to near parity against the American currency. Sterling was trading at $1.82 on Friday, having slipped from $1.90 in recent weeks.
We think the fact that the differential has become so stretched is a signal that rates are likely to rise in the UK in time,”
he said.

BUT...............with Gordon clamouring for ascendancy to No. 10 a IR hike by his bank may have to take a back seat until he takes over from TB. Or, will the markets force him to get off his backside and get inline with the rest of the world who admit inflation is rising and debt worsening making IR hikes both necessary and urgent.

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http://business.timesonline.co.uk/article/...2241815,00.html

The Sunday Times

June 25, 2006

Fed rates gap at 22-year high

David Smith, Economics Editor

AMERICA’s interest rates will rise this week to their highest level relative to rates in Britain for 22 years. The Federal Reserve is set to push up the key Fed Funds rate from 5% to 5.25% on Thursday.

That will widen the premium for US rates over Britain’s base rate to 0.75 percentage points, the biggest it has been since 1984. Interest rates in Britain are only rarely below those in America, but the current situation of higher US rates could persist for some time.

Robert Barrie, an economist with Credit Suisse First Boston, said the last time the gap was this size sterling was trading at just $1.30. It was on its way to a fall that saw it drop to near parity against the American currency. Sterling was trading at $1.82 on Friday, having slipped from $1.90 in recent weeks.

We think the fact that the differential has become so stretched is a signal that rates are likely to rise in the UK in time,”
he said.

BUT...............with Gordon clamouring for ascendancy to No. 10 a IR hike by his bank may have to take a back seat until he takes over from TB. Or, will the markets force him to get off his backside and get inline with the rest of the world who admit inflation is rising and debt worsening making IR hikes both necessary and urgent.

Now that's more like it RB: facts + balancing opinion.

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Now that's more like it RB: facts + balancing opinion.

Shouldn't you ask yourselves why the pound is at 1.82 now whereas it was at 1.30 last time this situation occurred (hint, other parameters are different)

Shouldn't you ask yourselves why, with US rates rising consistently and UK rates on hold - the pound has GONE UP against the dollar.

Maybe if you thought about these things - and came up with some answers - you might begin to realise that there is no magic influence at work that says our interest rates always have to be above the yanks. They are in much deeper economic doo-dah than us - maybe we're about to have ten years of UK rates above US rates.

Who knows? I don't and you don't. But you're making a rash assumption that things in the future will always return to how they were in the past. There used to 4 bucks to a pound.

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Shouldn't you ask yourselves why the pound is at 1.82 now whereas it was at 1.30 last time this situation occurred (hint, other parameters are different)

Shouldn't you ask yourselves why, with US rates rising consistently and UK rates on hold - the pound has GONE UP against the dollar.

Maybe if you thought about these things - and came up with some answers - you might begin to realise that there is no magic influence at work that says our interest rates always have to be above the yanks. They are in much deeper economic doo-dah than us - maybe we're about to have ten years of UK rates above US rates.

Who knows? I don't and you don't. But you're making a rash assumption that things in the future will always return to how they were in the past. There used to 4 bucks to a pound.

BUT...............with Gordon clamouring for ascendancy to No. 10 a IR hike by his bank may have to take a back seat until he takes over from TB. Or, will the markets force him to get off his backside and get inline with the rest of the world who admit inflation is rising and debt worsening making IR hikes both necessary and urgent
.

Assumptions or questions?

What makes you think this?

We have 1.2 trillion pounds of private debt debt. The US has something around 11 trillion $ of private debt. With a population of around 350m there is not a lot of difference. The US economy is far more diversified than the UK and history has proven they weather recessions far better. When the US sneezes..................

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BUT...............with Gordon clamouring for ascendancy to No. 10 a IR hike by his bank may have to take a back seat until he takes over from TB. Or, will the markets force him to get off his backside and get inline with the rest of the world who admit inflation is rising and debt worsening making IR hikes both necessary and urgent
.

Assumptions or questions?

We have 1.2 trillion pounds of private debt debt. The US has something around 11 trillion $ of private debt. With a population of around 350m there is not a lot of difference. The US economy is far more diversified than the UK and history has proven they weather recessions far better. When the US sneezes..................

To support your argument you are presenting as FACT that Gordon Brown directly controls interest rate setting.

You don't KNOW that but you make that assumption because it fits your belief that IRs are being held down for political reasons.

I repeat, you don't KNOW that but it doesn't stop you constantly presenting it as a given fact.

And if you don't agree with inflation figures well .... it's obvious isn't it? ... the inflation figures are clearly wrong.

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He is not saying Brown controls the IR rates, he is saying he has influence on them; given that he picks some of the members for the MPC this is clearly true.

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To support your argument you are presenting as FACT that Gordon Brown directly controls interest rate setting.

You don't KNOW that but you make that assumption because it fits your belief that IRs are being held down for political reasons.

I repeat, you don't KNOW that but it doesn't stop you constantly presenting it as a given fact.

And if you don't agree with inflation figures well .... it's obvious isn't it? ... the inflation figures are clearly wrong.

Gordon Brown has considerable influence over the MPC and is responsible for the appoinment of all external members with the "Treasury" being responsible for appointing the rest. Some take the view that political patronage can influence appointees decisions. But that is just opinion and my guess is that opinions are never facts?

http://www.publications.parliament.uk/pa/l...mon/96/9605.htm

http://www.telegraph.co.uk/money/main.jhtm.../18/ccboe18.xml

Under the system that has been in operation since 1997 - when the committee was created - four of the panel's members are selected directly by the chancellor. The Bank's governor and his two deputies are "Crown appointments", made by the Queen, but - crucially - picked from names proffered by the chancellor and the prime minister. So, arguably, the chancellor controls the appointment of seven members, not four.

In the past King has spoken with some frustration of the "statistical fog" emanating from the Office for National Statistics, the government number crunchers whose ultimate boss is Brown.

http://www.telegraph.co.uk/opinion/main.jh...6/23/do2302.xml

Chancellor is pulling the Bank's strings

By George Trefgarne

(Filed: 23/06/2006)

You could tell there are differences between Gordon Brown and Mervyn King, the Governor of the Bank of England, just by looking at them at the Mansion House on Wednesday night.

Mr Brown likes to trumpet "the independence" of the Bank, but in reality he still tries to control it through his power of patronage. Four of the nine members of the MPC are appointed directly by him. And another three - the Governor and the two deputy governors - are technically appointed by the Queen, on the advice of the Prime Minister (which, one assumes, means Mr Brown). And now Mr Walton is gone, there are not just one, but two, vacancies. For some reason, Mr Brown has dithered when it comes to finding the replacement for Richard Lambert, the Labour-supporting ex-editor of the Financial Times, who left the MPC three months ago.

It may be a little naive to think that the MPC is truly independent of Brown. Not all agree with you. But then its all opinion in the end and your opinion is just as invalid as the next persons. <_<

He is not saying Brown controls the IR rates, he is saying he has influence on them; given that he picks some of the members for the MPC this is clearly true.

Thank you Padders for helping Marina see what should be obvious to all but the most politically naive. The ongoing tension between Mervyn and Gordon is well documented and much has to do with the lack of independence the BoE has. With the leadership of the party within his grasp Gordon has no choice but to keep the good times rolling until he is PM and then he can do what is necessary and find someone else to blame. Very typical political-style maneouvering.

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Gordon Brown has considerable influence over the MPC ...

Some take the view that political patronage can influence appointees decisions.

1. Can you back up your assertion of 'influence' with some material evidence? Are there any examples of the MPC making rate decisions that go totally against market expectations? What examples can you give to show that the Chancellor has used any influence over the MPC?

2. 'Some take the view' - Are these 'some' people those whose opinions are unbiased and worthy of serious attention? Can you convince the rest of us that they, too, can bring forward hard evidence to back their claims? Quoting the Telegraph will convince no-one bearing in mind that, as the mouthpiece of Conservative Central Office, it's highly unlikely to show any favours to a Labour Chancellor of 9 years standing.

(Your own narrative would be much preferable to a further stream of 'cut and paste' contributions.)

p

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1. Can you back up your assertion of 'influence' with some material evidence? Are there any examples of the MPC making rate decisions that go totally against market expectations? What examples can you give to show that the Chancellor has used any influence over the MPC?

2. 'Some take the view' - Are these 'some' people those whose opinions are unbiased and worthy of serious attention? Can you convince the rest of us that they, too, can bring forward hard evidence to back their claims? Quoting the Telegraph will convince no-one bearing in mind that, as the mouthpiece of Conservative Central Office, it's highly unlikely to show any favours to a Labour Chancellor of 9 years standing.

(Your own narrative would be much preferable to a further stream of 'cut and paste' contributions.)

p

Can you offer any proof of the contrary position?

Examples that the Chancellor has "used" his influence? Do you have any evidence other than opinion that he has not?

Whe a man with Gordon's power appoints members of the MPC do you think he doesn't have influence? Have you ever heard of the term "political patronage?"

Have you ever wondered why Gordon manipulates the CPI? Could he be keeping IR down to keep his HPI-MEW economy going? Or, is the CPI accurate in your opinion and Gordon's inaction on IR is a reflection of this fact?

Are all newspaper artciles, Telegrah included, biased? Are all bulls and trolls on HPC.co.uk biased? How do you tell the difference between fact and opinion? What determines spun from unspun?

The Telegraph may convince molre than others that is what two sided arguments are all about. The proof will be seen in the pudding when all the poisons hatch out.

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Guest grumpy-old-man

1. Can you back up your assertion of 'influence' with some material evidence? Are there any examples of the MPC making rate decisions that go totally against market expectations? What examples can you give to show that the Chancellor has used any influence over the MPC?

2. 'Some take the view' - Are these 'some' people those whose opinions are unbiased and worthy of serious attention? Can you convince the rest of us that they, too, can bring forward hard evidence to back their claims? Quoting the Telegraph will convince no-one bearing in mind that, as the mouthpiece of Conservative Central Office, it's highly unlikely to show any favours to a Labour Chancellor of 9 years standing.

(Your own narrative would be much preferable to a further stream of 'cut and paste' contributions.)

p

It happens in management in "average" companies, new manager/director brings in his team who will promote his decisons whether they are right or wrong. I have seen this in every company I have worked in.

Magnify this to high government level why would you not think it happens here.

you would either have to be very young/inexperienced in business or very naive to think otherwise IMO

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1. Can you back up your assertion of 'influence' with some material evidence? Are there any examples of the MPC making rate decisions that go totally against market expectations? What examples can you give to show that the Chancellor has used any influence over the MPC?

2. 'Some take the view' - Are these 'some' people those whose opinions are unbiased and worthy of serious attention? Can you convince the rest of us that they, too, can bring forward hard evidence to back their claims? Quoting the Telegraph will convince no-one bearing in mind that, as the mouthpiece of Conservative Central Office, it's highly unlikely to show any favours to a Labour Chancellor of 9 years standing.

(Your own narrative would be much preferable to a further stream of 'cut and paste' contributions.)

p

http://news.bbc.co.uk/1/hi/business/2732645.stm

Tuesday, 18 February, 2003, 21:41 GMT

Surprise cut in UK interest rates

This is one of the biggest gambles any central banks has done - cutting rates when house price inflation is close to 30% and inflation is already above target," said John Butler, UK economist at HSBC.

"It is true to say [the Bank is] playing with fire."

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I should add that as of June that year total borrowing stood at £878 billion (£714 billion in mortgage debt and £164 billion in consumer credit).

It certainly was a gamble (followed by the further rate cut in July), one that turned a large proportion of the population into gamblers themselves. Debt has since risen to above £1.2 Trillion - a 37% increase in debt in THREE YEARS.

Productivity in that time has gone nowhere, 300,000 manufacturing jobs have gone and now the service sector is next on the list and the trade deficit has hit record levels of deficit month after month.

Edited by OnlyMe

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Can you offer any proof of the contrary position?

As you may or may not know, it's impossible to prove a negative.

But I'll try. If there was any undue influence, don't you think that there would have been one instance of the MPC making a decision that the market did not expect? Unless, of course, in your realms of fantasy, Gordon Brown has some undue influence on the thousands of people and organisations that make up the financial markets here and abroad.

In your mad dreams you seem to want to believe in some sort of conspiracy. Get real. It doesn't exist.

p

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Guest wrongmove

In your mad dreams you seem to want to believe in some sort of conspiracy. Get real. It doesn't exist.

If there is any conspiracy here (not my opinion), I would have thought that "big money" was probably controlling both politicians and MPC members.

RB, do you think they would leave politicians in control of anything that really mattered !!

:ph34r::o:P

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Guest wrongmove

post-210-1151265967.gif

Above is a graph of uk irs.

The tories, who directly set rates, called elections in 87, 92 and 97. Labour called elections in 01 and 05.

Note how when goverments set rates, elections were always receded by heavy rate cutting. Note also that labour have had to call elections after ir rises (05).

nb - this is not a con vs lab point, but a chancellor vs mpc point !!

Edited by wrongmove

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As you may or may not know, it's impossible to prove a negative.

But I'll try. If there was any undue influence, don't you think that there would have been one instance of the MPC making a decision that the market did not expect? Unless, of course, in your realms of fantasy, Gordon Brown has some undue influence on the thousands of people and organisations that make up the financial markets here and abroad.

In your mad dreams you seem to want to believe in some sort of conspiracy. Get real. It doesn't exist.

p

Its called politics of expediency. The markets are primed ahead of as to what to expect. MPC minutes for example are seen as hints as to where Gordon, er the MPC, are going. At the moment Gordon is going it alone by not raising rates despite inflation in the economy. The ECB, OZ, Canada, US, Sweden, China, India, Thailand, Korea have all hiked recently due to worldwide inflation caused, in part, by fuel prices and excessive liquidity in the markets. Gordon is alone by standing pat despite the exact same problems the rest of world has. Some, myself included, are suspicious that his political ambitions are a higher priority than financial prudence. Why else would CPI be manipulated? Or the deficit goal posts moved? A Chancellor who does these things is capable of anything to make his policies appear to be miraculous.

I am afraid I do not share your optimism as to politicians' honesty. Some are downright bliars where their political careers are at stake. For example a leader may say something like "I did not have sex with that woman" when the opposite is true. Or, "I am not a crook as these tapes will show." For Gordon to delay an IR hike until after he acended to higher office is not beyond the realm of a very real possibility. After all, his relationship with Mervyn has been stormy which suggests that the Governor would have made different decisions had the BoE been truly independent.

post-210-1151265967.gif

Above is a graph of uk irs.

The tories, who directly set rates, called elections in 87, 92 and 97. Labour called elections in 01 and 05.

Note how when goverments set rates, elections were always receded by heavy rate cutting. Note also that labour have had to call elections after ir rises (05).

nb - this is not a con vs lab point, but a chancellor vs mpc point !!

They may have to call an election in order to install Gordon in No. 10. A few rate cuts, or at least not raining them, may be part of the plan. I think I read recently that Jubba (The Deputy PM Prescott) had suggested to Tony that an election would have to be called if and when he resigns to allow Gordon a shot at No. 10. It would be a shrewd move on Tony's part as the blame for the lost election would then fall on Gordon as the heir apparent who had ruined the economy. If Tony's legacy is shot anyway he would at least have the satisfaction of bringing down his "friend" Gordon.

Edited by Realistbear

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Shouldn't you ask yourselves why the pound is at 1.82 now whereas it was at 1.30 last time this situation occurred (hint, other parameters are different)

Shouldn't you ask yourselves why, with US rates rising consistently and UK rates on hold - the pound has GONE UP against the dollar.

Maybe if you thought about these things - and came up with some answers - you might begin to realise that there is no magic influence at work that says our interest rates always have to be above the yanks. They are in much deeper economic doo-dah than us - maybe we're about to have ten years of UK rates above US rates.

Who knows? I don't and you don't. But you're making a rash assumption that things in the future will always return to how they were in the past. There used to 4 bucks to a pound.

We are a hydrocarbon society. Everthing is oil based. Fuel, transport, food packaging, plastic. What is oil priced in?????

Oh yeah, $$$$$$$$$$$. with a high $$$$$ we import inflation, when inflation increases, we put IR's up.

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If there is any conspiracy here (not my opinion), I would have thought that "big money" was probably controlling both politicians and MPC members.

RB, do you think they would leave politicians in control of anything that really mattered !!

:ph34r::o:P

Politicians have their day in the sun and then they slip away into the history books. With a government like Tony's who have been in power too long, IMO, they think they can get away with policies that are self-serving to maintain their grip on power regardless of the public good. Ultimately, the market controls the money and governments can simply delay the inevitable. Al Greenspan's policy of avoiding a recession through accomodative IR that triggered massive borrowing and HPI globally has reulted in a growing risk of a major recession as IR return to "neutral." IMO, we don't even need IR to be more than "neutral" to unleash the return to equilibrium. For the US that could be 6%. For the UK, maybe 7-8% as our inflation is worse.

Simlarly, Brown's "Miracle Economy" will implode as it lacks substance and is simply a copy of Greenspan's reflation through accomodative (and irresponsible) IR. The boom will be followed by a bust eventually and all Gordon can do is to stall the market forces to fit his political agenda. But the longer he tries to hold back the tide the bigger the wave that comes in. Market forces are too strong even for Gordon.

http://business.guardian.co.uk/story/0,,1806079,00.html

Delayed, but there is a day of reckoning
Knock-on effects of slower US growth will be felt in every corner of the globe
Larry Elliott, economics editor
Monday June 26, 2006
What is becoming clear is that the day of reckoning has been delayed, rather than avoided altogether.
A period of slower growth in the US is now inevitable.
Interest rates at their current level are more than sufficient to kill off the housing bubble;
indeed, the signs are that the property market is cooling rapidly. The Fed, though, is unlikely to stop raising rates yet, given that inflation is still rising.
Edited by Realistbear

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Relistbear you are completely wrong. Only the best get on board at the MPC.

Prof Blanchflower: a labour market expert whose research includes the link between sex and happiness.

We obviously have a country fall of economic morons so we import a professor from abroad. It is obvious that not living and breathing within our economic environment is an advantage. What's more, his controversial research will benefit all of us.

It is clear that we could outsource these parasites to Bangalore. What a ****ing easy way to make money. WTF.

Are there any other jobs that need outsourcing? Prime Minister perhaps?

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Prof Blanchflower: a labour market expert whose research includes the link between sex and happiness.

hmmm - looks like he is matey with former HPC hero Andrew Oswald :unsure:

the word "lightweight" springs to mind... <_<

Money, Sex and Happiness: An Empirical Study

David G Blanchflower, Andrew J Oswald. The Scandinavian Journal of Economics. Oxford: Sep 2004.Vol.106, Iss. 3; pg. 393

Happiness and the Human Development Index: The Paradox of Australia

David G Blanchflower, Andrew J Oswald. The Australian Economic Review. Parkville: Sep 2005.Vol.38, Iss. 3; pg. 307

Latent entrepreneurship across nations

David G Blanchflower, Andrew Oswald, Alois Stutzer. European Economic Review. Amsterdam: May 2001.Vol.45, Iss. 4-6; pg. 680

still - if he gets the push from the MPC, he could always get work as a bill gates lookalike :P :-

http://www.dartmouth.edu/~blnchflr/

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We are a hydrocarbon society. Everthing is oil based. Fuel, transport, food packaging, plastic. What is oil priced in?????

Oh yeah, $$$$$$$$$$$. with a high $$$$$ we import inflation, when inflation increases, we put IR's up.

Dear Lord - please help him to understand.

If you put our rates up the £ will go up against the dollar - imports become cheaper - inflation decreases - fair enough - we agree on that one.

But the yanks have been putting their rates up and, DESPITE THIS, the £ has gone UP instead of DOWN. So, given the £ rise against the dollar recently, we can conclude that the pressure on inflation is more negative so, despite the recent yank rate rises, we don't need to and, WE HAVEN'T

This is part of what is different this time.

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  • 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% +
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      • Even
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      • up 5%



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