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Realistbear

Telegraph: Japanese Rate Rise Heralds A New Era

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http://www.telegraph.co.uk/money/main.jhtm.../15/ixcoms.html

Japanese rate rise heralds a new era

(Filed: 15/07/2006)

Small step for the banks threatens repercussions for global economy, writes Ambrose Evans-Pritchard
Japan has begun to close the last gusher of cheap and abundant global credit, ending its emergency six-year policy of zero interest rates.
The central bank lifted its key overnight rate to 0.25pc, trumpeting an end to the deflationary slump that has gripped the world's second- biggest economy and top creditor for much of the last 15 years.
While the move was telegraphed long ago, the policy shifts mark an epochal turning point.
For the first time since the early 1980s, the Bank of Japan, the US Federal Reserve and all the top European banks are raising rates in unison, draining the excess liquidity that has fuelled the current asset boom.
Japanese pension funds, insurers, and thrifty grannies together hold assets abroad of some $2,500bn, staggering wealth that almost matches the net overseas holdings of the rest of mankind.
If they repatriate part of this money to exploit rising returns at home, the world will feel the tremors.
...../
The Bank of Japan has already given global markets an ice-cold douche once this year, triggering a flight for risky assets after it announced plans in March to drain some 30 trillion yen in liquidity from the banking system.
Carry trade funds that had borrowed for nothing in Tokyo for re-lending at a fat premium in high-yielding markets scrambled for narrow exits en masse.
If not the sole cause, Japan was the key catalyst for the violent sell-off in riskier bonds, equities, currencies, and over-heated metals which reached fever pitch in the early summer.
When the first shoe dropped in Tokyo in March, it took a few weeks before investors woke up to the full consequences.
The second shoe dropped in eerie silence yesterday, with yawns in the currency and bond markets. The calm may prove short-lived.
...../

Higher IR and recession may be on the way. Things are going to get interesting from now on. :o

Edited by Realistbear

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Higher IR and recession may be on the way. Things are going to get interesting from now on. :o

RB,

I'd just like to say I've read alot of your posts recently and have just joined hpc. You're da man

Whilst I totally agree that the BoJ actions have global effects, I think it will take a couple more hikes for it to stand any chance of joining the list of possible triggers for future UK economic decline.

My reasoning for this is is that here in the UK, the economy is continuing to surge forward (in appearance atleast), on the back on some dangerous policital foundations but also being financed in a culture where people accept credit at 16% APR. Just the monthly interest rate on Billions is 40x the .4% Interbank rate that Japan now has.

Whilst this rate change will be included in various economic and bankers models and show its expected influence on them, I just feel that with the culture, politics and current debt financiing structure of the UK, the BoJ actions on this small scale are not going to show the impact that might logically be expected. Lets face it, our economy is not really exhibiting much logic!

Just my 2cents worth.

AFP

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RB,

I'd just like to say I've read alot of your posts recently and have just joined hpc. You're da man

Whilst I totally agree that the BoJ actions have global effects, I think it will take a couple more hikes for it to stand any chance of joining the list of possible triggers for future UK economic decline.

My reasoning for this is is that here in the UK, the economy is continuing to surge forward (in appearance atleast), on the back on some dangerous policital foundations but also being financed in a culture where people accept credit at 16% APR. Just the monthly interest rate on Billions is 40x the .4% Interbank rate that Japan now has.

Whilst this rate change will be included in various economic and bankers models and show its expected influence on them, I just feel that with the culture, politics and current debt financiing structure of the UK, the BoJ actions on this small scale are not going to show the impact that might logically be expected. Lets face it, our economy is not really exhibiting much logic!

Just my 2cents worth.

AFP

I tend to agree with you--the HPI-MEW culture fostered by Brown's policies of the last 10 years have caused people to live in an unreal financial world. Popularly known as a "Miracle Economy."

As there are no consequences to debt, up to now at least, the implications of being in debt do not register with the average sheeple. To them there is no day to day difference between an IR of 10% and 27% as the minimum payment is just the extra odd tenner here and there. Banks and credit card companies keep the bar sufficintly high to allow for ever increasing debtloads. How can they afford to do this? because they are borrowing the money from somewhere else at very low rates and can afford to extend credit into infinity--almost.

The problem with Miracle Economies is that, in the financial world, there is no such thing as a miracle because the reality of debt does not go away. The BoJ has effectivley drawn the era of cheap credit to a close (see Telegraph story posted). The credit limit bars will all start to lower and very soon the sheeple will hit the credit wall. They will be swimming in bills with no more credit to tap into. What do they do? They either try to sell their MEW depleted homes or they go bankrupt and if enough Sheeple are allowed to write off their loans in the bankruptcy courts the banks who loaned the money are going to find they are holding a loan with no way of collecting on it.

Merve "The Swerve" King warned the UK economy that there was a bumpy road ahead and that the level of debt may bankrupt the banking system if the economy goes into recession. "If" is a an optimistic word IMO. More like when.

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What do they do? They either try to sell their MEW depleted homes or they go bankrupt and if enough Sheeple are allowed to write off their loans in the bankruptcy courts the banks who loaned the money are going to find they are holding a loan with no way of collecting on it.

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The banks have risk assessment for the money they lend, if their average customer becomes a greater risk then lending rates will increase to cover the risk.

The banks are in a strong position, many more assets are secured against loans now than they were 5 years ago. Parents using there house as security for child's house / Ameteur BTLers using their family home as security.

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The banks have risk assessment for the money they lend, if their average customer becomes a greater risk then lending rates will increase to cover the risk.

The banks are in a strong position, many more assets are secured against loans now than they were 5 years ago. Parents using there house as security for child's house / Ameteur BTLers using their family home as security.

Thats a lot of family homes on the line about to be sucked down the great black hole left after the Miracle Economy implodes on itself. :o

Merv "The Swerve" King has suggested very recently that the banks are in serious difficulty if we go into recession as they do not have the necessary re-insurance against mass defaults.

http://www.telegraph.co.uk/money/main.jhtm.../ixcitytop.html

'
City faces meltdown if debt crisis hits'
By Edmund Conway, Economics Editor
(Filed: 12/07/2006)
The City could face a financial meltdown if the debt bubble bursts, with over a year's worth of bank profits - £40bn - potentially being wiped off balance sheets, the Bank of England warns today.
The Bank is issuing a stark warning about the potential damage a credit crunch and a collapse in asset prices could cause to the economy and financial system.
Edited by Realistbear

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Not quite sure what to make of this:

July 18, 2006

Interest Rates Shoot Up Beyond BOJ Target Level

TOKYO (Nikkei)--Interest rates on unsecured overnight call loans, a tool of the Bank of Japan's monetary policy, soared far above the central bank's target of 0.25% Tuesday, the first trading day since the BOJ ended its zero interest rate policy last Friday.

Some transactions even closed above 0.4%, the same rate as on the BOJ's Lombard-style overnight loans to private-sector financial institutions that serve as an effective upper limit on overnight interbank loan rates.

In an attempt to arrest the surge in short-term interest rates, the BOJ injected a total of 1 trillion yen into the money market in two stages in the morning and afternoon.

Large banks have sharply hiked their lending rates in response to the end of the zero rate policy and the rise in the target overnight call to 0.25%.

(The Nihon Keizai Shimbun Tuesday evening edition)

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Check out our very own

http://www.housepricecrash.co.uk/base-rates.php

and see that interest rates globally are up. Guess in which country the last movement was down.

Good old Gordon.

Gordon is trying to swim against the tide. In order to keep it up he will have to manipulate the CPI data as he has committed himself to fighting inflation, at least he said he is committed but his actions tend to suggest otherwise.

IMO, Gordon will not move IR until the BoJ rates filter through the system to the point that mortgage rates begin to increase along with other rates despite the BoE's inaction. There is no way the UK can stand alone in the world with low IR. Eventually, the pound will have to reflect the differentials in rates. With a lower pound imports will start to get expensive making it all the more difficult for the ONS to show we are inflation free or within the 2% target.

Something's gotta give.............and it will.

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Gordon is trying to swim against the tide. In order to keep it up he will have to manipulate the CPI data as he has committed himself to fighting inflation, at least he said he is committed but his actions tend to suggest otherwise.

IMO, Gordon will not move IR until the BoJ rates filter through the system to the point that mortgage rates begin to increase along with other rates despite the BoE's inaction. There is no way the UK can stand alone in the world with low IR. Eventually, the pound will have to reflect the differentials in rates. With a lower pound imports will start to get expensive making it all the more difficult for the ONS to show we are inflation free or within the 2% target.

Something's gotta give.............and it will.

Whilst I totally agree, I think its worth remembering that the UK, as part of the EU, already has HIGH IR compared to the ECB rate of 2.75%, so talking about the differential leads to a positive argument for the leaving IR's as they are rather than raising them.

I'm not sure why your make the statement when we are not standing along in the world with low IR?

AFP

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  • 339 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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