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A Very Different World


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Look at this chart, one familiar to many of us:

Thu, 03 Aug 2006 4.75

Thu, 04 Aug 2005 4.50

Thu, 05 Aug 2004 4.75

Thu, 10 Jun 2004 4.50

Thu, 06 May 2004 4.25

Thu, 05 Feb 2004 4.00

Thu, 06 Nov 2003 3.75

Thu, 10 Jul 2003 3.50

Thu, 06 Feb 2003 3.75

Thu, 08 Nov 2001 4.00

Thu, 04 Oct 2001 4.50

Tue, 18 Sep 2001 4.75

Thu, 02 Aug 2001 5.00

Thu, 10 May 2001 5.25

Thu, 05 Apr 2001 5.50

Thu, 08 Feb 2001 5.75

Thu, 10 Feb 2000 6.00

Thu, 13 Jan 2000 5.75

Thu, 04 Nov 1999 5.50

Wed, 08 Sep 1999 5.25

Thu, 10 Jun 1999 5.00

Thu, 08 Apr 1999 5.25

Thu, 04 Feb 1999 5.50

Thu, 07 Jan 1999 6.00

Thu, 10 Dec 1998 6.25

Thu, 05 Nov 1998 6.75

Thu, 08 Oct 1998 7.25

Thu, 04 Jun 1998 7.50

Thu, 06 Nov 1997 7.25

Thu, 07 Aug 1997 7.00

Thu, 10 Jul 1997 6.75

Fri, 06 Jun 1997 6.50

Tue, 06 May 1997 6.25

Since Aug 2001, IRs have not been 5% or greater. Very soon, that is about to change.

Five years of low-IR fuelled boom. And where are we? As this chart shows, UK personal debt has rocketed. This has disproportionately affected the young, the generation who have to be super-productive to look after their parents.

Have people started to calm down, to take stock? No, some indices see HPI at over 9%. I see no reason to believe that this situation will end in anything but disaster. The UK populous has clearly not learnt from its past mistakes.

Am I some sort of nutter, who refuses to move with the time, or thinks that by clocking up 3000 posts on this site I will do something to bring on a crash? Maybe. But I am certainly no nuttier than those who think that house price inflation can go on forever and is a sound footing for an economy.

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Five years of low-IR fuelled boom. And where are we? As this chart shows, UK personal debt has rocketed. This has disproportionately affected the young, the generation who have to be super-productive to look after their parents.

Not to disaagree with your principle, as I assume you are talking about the effect on houseprices, but I have one thought. The lowering of interest rates has more of an effect on secured debt than unsecured debt. Surely the percentage change (not percentage poitn change) in unsecured debt rates, such as credit cards, has been much less (correct me if I'm wrong, this is speculation). Therefore I conclude that it is people with property, rather than without, who are more likely to over borrow due to lower rates. Of course, laxer lending cireteria for unsecured debt has been a big factor.

Also, to further what has been said on this board about credit tightening. As a gap year student earnign minimum wage, in 2004, I applied for a First Direct bank account and credit card (I needed multiple bank accounts so that I had redundancy in getting cash while abroad). To my surpise they gave me bank accoutn with a £500 (maybe interest free- not sure) overdraft and a credit card with a £1800, while I was taking home less than £700 a month. Anyways, they sent me a letter last week saying that my credit limit has been reduced to £500. Which I find suprising considering I have only ever once not payed it off in full.

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Not to disaagree with your principle, as I assume you are talking about the effect on houseprices, but I have one thought. The lowering of interest rates has more of an effect on secured debt than unsecured debt. Surely the percentage change (not percentage poitn change) in unsecured debt rates, such as credit cards, has been much less (correct me if I'm wrong, this is speculation). Therefore I conclude that it is people with property, rather than without, who are more likely to over borrow due to lower rates. Of course, laxer lending cireteria for unsecured debt has been a big factor.

Yes, but low IRs have a large indirect effect on unsecured lending as people with property feel more relaxed about all sorts of borrowing as they can always MEW to "deal with" their debts.

Your anecdote about your credit card is very interesting.

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Guest grumpy-old-man

Look at this chart, one familiar to many of us:

Thu, 03 Aug 2006 4.75

Thu, 04 Aug 2005 4.50

Thu, 05 Aug 2004 4.75

Thu, 10 Jun 2004 4.50

Thu, 06 May 2004 4.25

Thu, 05 Feb 2004 4.00

Thu, 06 Nov 2003 3.75

Thu, 10 Jul 2003 3.50

Thu, 06 Feb 2003 3.75

Thu, 08 Nov 2001 4.00

Thu, 04 Oct 2001 4.50

Tue, 18 Sep 2001 4.75

Thu, 02 Aug 2001 5.00

Thu, 10 May 2001 5.25

Thu, 05 Apr 2001 5.50

Thu, 08 Feb 2001 5.75

Thu, 10 Feb 2000 6.00

Thu, 13 Jan 2000 5.75

Thu, 04 Nov 1999 5.50

Wed, 08 Sep 1999 5.25

Thu, 10 Jun 1999 5.00

Thu, 08 Apr 1999 5.25

Thu, 04 Feb 1999 5.50

Thu, 07 Jan 1999 6.00

Thu, 10 Dec 1998 6.25

Thu, 05 Nov 1998 6.75

Thu, 08 Oct 1998 7.25

Thu, 04 Jun 1998 7.50

Thu, 06 Nov 1997 7.25

Thu, 07 Aug 1997 7.00

Thu, 10 Jul 1997 6.75

Fri, 06 Jun 1997 6.50

Tue, 06 May 1997 6.25

Since Aug 2001, IRs have not been 5% or greater. Very soon, that is about to change.

Five years of low-IR fuelled boom. And where are we? As this chart shows, UK personal debt has rocketed. This has disproportionately affected the young, the generation who have to be super-productive to look after their parents.

Have people started to calm down, to take stock? No, some indices see HPI at over 9%. I see no reason to believe that this situation will end in anything but disaster. The UK populous has clearly not learnt from its past mistakes.

Am I some sort of nutter, who refuses to move with the time, or thinks that by clocking up 3000 posts on this site I will do something to bring on a crash? Maybe. But I am certainly no nuttier than those who think that house price inflation can go on forever and is a sound footing for an economy.

RichM,

UK history shows us that we have short memories for most things, it's ingrained in our sh1tty culture now, greed, stupidity, false wealth, lazy etc etc......

I am amazed at some of the people on this board who "stick up" for the UK, but as soon as you ask them what is so great about the UK, they go off on various tangents avoiding the inevitable :lol:

someone else stated on another thread that we are the 4th largest economy yet we produce nothing but biscuits :ph34r:

I for one will sit back & enjoy the next few years of watching all these types squeling & struggling to meet their fabulous lifestyles funded with MEW & cheap credit.

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I can't see 5% being particularly dramatic. Moving the rate in tiny 0.25% increments has next to no psychological impact and affordability isn't much affected either, going from 4.75% to 5.0% is a 5.26% increase, and were they subsequently to go to 5.25% sometime next year that would only be a 5% rise.

Anyone who bought in the 2003 trough at 3.50% is likely to have had pay rises since then sufficient to cover the rise to 5%, ie, trough to current peak is a rise of 43% and if you assume mortgage payments are 40% of disposable income a culmulative pay rise from 2003 to 2006 of 17% over the three years would cover it.

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Yes, but low IRs have a large indirect effect on unsecured lending as people with property feel more relaxed about all sorts of borrowing as they can always MEW to "deal with" their debts.

Your anecdote about your credit card is very interesting.

congrats on your senior veteranship Rich :)

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Yes, but low IRs have a large indirect effect on unsecured lending as people with property feel more relaxed about all sorts of borrowing as they can always MEW to "deal with" their debts.

Your anecdote about your credit card is very interesting.

I had a similar thing a few years back - missed one card payment (I was drunk or something, I don't remember!) and there after had issues trying to obtain credit increases. I'd been a loyal and exceptionally good customer except for that one incident (and I think it was only a coupla hundred squid) - Banks! Eeesch!

With regard to the MEW scenario, does anyone have any stats? I keep hearing that it's going to create issues, but don't know anyone that has MEW'd or if there are that many people that have!

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RichM,

UK history shows us that we have short memories for most things, it's ingrained in our sh1tty culture now, greed, stupidity, false wealth, lazy etc etc......

I am amazed at some of the people on this board who "stick up" for the UK, but as soon as you ask them what is so great about the UK, they go off on various tangents avoiding the inevitable :lol:

someone else stated on another thread that we are the 4th largest economy yet we produce nothing but biscuits :ph34r:

I for one will sit back & enjoy the next few years of watching all these types squeling & struggling to meet their fabulous lifestyles funded with MEW & cheap credit.

No, its not the UK population, I belive 70% of any population has their head in the sand, relatives and friends in Australia are just as stupid, they dont think, they absolutly know that the increase in the value of their house is free money to be spent, not another loan, some of these people have MSC's . Another friend in mainland Europe is pi**ed off that we can get unlimited credit card finance whereas there it is very limited and very much tied to your outgoings and income, they are all better off there without it however they dont see it, they all belive borrowed money is real money. What all this means to me is that the vast majority of the population need to be told what they can and cant do and are no wiser than dogs being locked up in a cage with a years supply of food and eating it all in the first day.

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I can't see 5% being particularly dramatic. Moving the rate in tiny 0.25% increments has next to no psychological impact and affordability isn't much affected either, going from 4.75% to 5.0% is a 5.26% increase, and were they subsequently to go to 5.25% sometime next year that would only be a 5% rise.

Anyone who bought in the 2003 trough at 3.50% is likely to have had pay rises since then sufficient to cover the rise to 5%, ie, trough to current peak is a rise of 43% and if you assume mortgage payments are 40% of disposable income a culmulative pay rise from 2003 to 2006 of 17% over the three years would cover it.

In the first instance, youre forgetting to add in how much a person has actually borrowed. Adding 10% over a period of years to a £1000 pm mortgage would be a significant £100. (Nice round figures, for the sake of it). That then should be looked at as a percentage of their take home pay (after tax) - in that light, the increase is substantially higher.

Secondly, this or any increase, has to be paid from persons wages - this means that an amount has to be earned above that which actually paid. (A mortgage payment increase of £100 requires a wage increase of £140 to pay for it.)

Finally if you think that the average wage in the UK has increased by 17% in 3 years then let me tell you, in no uncertain terms, you are dreaming.

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What all this means to me is that the vast majority of the population need to be told what they can and cant do

No, they just need to be punished when they do something stupid. If bankrupts were sent to debtors' prisons rather than slapped on the wrists, and banks had to lend out real money rather than fiat money and went bust if they made bad loans, you'd soon see far less reckless credit.

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Look at this chart, one familiar to many of us:

Thu, 03 Aug 2006 4.75

Thu, 04 Aug 2005 4.50

Thu, 05 Aug 2004 4.75

Thu, 10 Jun 2004 4.50

Thu, 06 May 2004 4.25

Thu, 05 Feb 2004 4.00

Thu, 06 Nov 2003 3.75

Thu, 10 Jul 2003 3.50

Thu, 06 Feb 2003 3.75

Thu, 08 Nov 2001 4.00

Thu, 04 Oct 2001 4.50

Tue, 18 Sep 2001 4.75

Thu, 02 Aug 2001 5.00

Thu, 10 May 2001 5.25

Thu, 05 Apr 2001 5.50

Thu, 08 Feb 2001 5.75

Thu, 10 Feb 2000 6.00

Thu, 13 Jan 2000 5.75

Thu, 04 Nov 1999 5.50

Wed, 08 Sep 1999 5.25

Thu, 10 Jun 1999 5.00

Thu, 08 Apr 1999 5.25

Thu, 04 Feb 1999 5.50

Thu, 07 Jan 1999 6.00

Thu, 10 Dec 1998 6.25

Thu, 05 Nov 1998 6.75

Thu, 08 Oct 1998 7.25

Thu, 04 Jun 1998 7.50

Thu, 06 Nov 1997 7.25

Thu, 07 Aug 1997 7.00

Thu, 10 Jul 1997 6.75

Fri, 06 Jun 1997 6.50

Tue, 06 May 1997 6.25

Since Aug 2001, IRs have not been 5% or greater. Very soon, that is about to change.

Five years of low-IR fuelled boom. And where are we? As this chart shows, UK personal debt has rocketed. This has disproportionately affected the young, the generation who have to be super-productive to look after their parents.

Have people started to calm down, to take stock? No, some indices see HPI at over 9%. I see no reason to believe that this situation will end in anything but disaster. The UK populous has clearly not learnt from its past mistakes.

Am I some sort of nutter, who refuses to move with the time, or thinks that by clocking up 3000 posts on this site I will do something to bring on a crash? Maybe. But I am certainly no nuttier than those who think that house price inflation can go on forever and is a sound footing for an economy.

Good point 5% is unchartered territory as far as this boom goes.I see the period up to 9/11 as correction to the crash of 1989-1996.It was only the ultra-loose monetary policy thereafter that got the real show on the road.Like you ,I feel 5% could spoil the party.If not,the MPC must raise again if it wants to contain the current bout of inflation.

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I had a similar thing a few years back - missed one card payment (I was drunk or something, I don't remember!) and there after had issues trying to obtain credit increases. I'd been a loyal and exceptionally good customer except for that one incident (and I think it was only a coupla hundred squid) - Banks! Eeesch!

Same here, I once made a payment one day late (after previously always paying up fully and on time), and this particular late payment was for the card's whole balance which was the enormous sum of £15.72.

I promptly had my credit limit reduced to £500.

Suffice to say that card has not been used since. Stuff 'em, if they want to be like that. Although I still keep it in my wallet in case of emergency. ;)

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Same here, I once made a payment one day late (after previously always paying up fully and on time), and this particular late payment was for the card's whole balance which was the enormous sum of £15.72.

I promptly had my credit limit reduced to £500.

Suffice to say that card has not been used since. Stuff 'em, if they want to be like that. Although I still keep it in my wallet in case of emergency. ;)

Get a Halifax card. They allow you to have a DD which pays off the whole balance every month. And they give cash back points.

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£1.25 trillion of debt, @ 0.25% increase = £3bn or thereabouts.

i.e for every interest rate rise we lose £3bn extra in interest payments being sucked out fo the economy.

Juicy fruit these credit morons. "Of course this won't hurt, not a bit", said the surgeon sharpening the jugular drain. :lol:

And where does that £3bn of debt repayment eventually go?

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And where does that £3bn of debt repayment eventually go?

It literally makes it's way back to the central bank.

However if they expand broad money (M4) by 8.6% (see here according to parliament) thats £107.5 billion added in the same period.

Which is + £104.5 billion net.

Which is probably inflationary when added to an economy of £1,300 billion, said the man coyly.

The fact is the man on the street has never heard of M4 so will be totally unaware of decreased liquidity until long after it happens, I doubt it will be visible in IR figures.

Edited by ?...!
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doesnt a large chunk of it flee abroad to pay the nice folks who 'securitized' the debt?

Only central banks can 'mint' or 'unmint' currency, by upping the base rates they are asking for more money to be returned on that outstanding (their main debtor is the treasury who will have to find additional capital to service the outstanding debt). Money abroad is still in existance.

Edited by ?...!
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That's not the repayment, thats just the extra interest.....

Edit - snip out unnecesary.

In my opinion the extra interest flows via the credit intermediators to the credit provider.

The credit provision takes place through fractional reserve banking.

Re. "Only central banks can 'mint' or 'unmint' currency,"

Credit can be created not just at the central bank, but at credit institutions upping or lowering their propensity to take on risk, their reseve ratio. Since Basle II will allow Banks to self assess their required reserve ratio, their ability to lend will not be controlled in any meaningful way.

Since the public underwrites the banks in that they are perceived to be too important to fail, there is deffinitely an inherent moral hazardin in allowing the vampires to hollow out the real economy by loading it up with too much debt.

They have a heads they win, tails you lose situation...

To mis?quote "People are born free, but everywhere live as slaves." The illusion of freedom is just a point of view, propagated to keep the servile in docility.

Edited by Last Hun Standing
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In my opinion the extra interest flows via the credit intermediators to the credit provider. After the government has had its pound of meat, some bacon fat is left for the city to feast upon, and some grease gets spread around. I'll stop with the carcass processing analogy.

The point behind my original question, which was in response to a post that suggested that the extra debt interest was lost to the growth in the economy, is "does it actually work its way back into the economy" and if so, how?

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That's not the repayment, thats just the extra interest.....

I will make the assumption that you have a far better grasp than your comment suggests.

In my opinion the extra interest flows via the credit intermediators to the credit provider. After the government has had its pound of meat, some bacon fat is left for the city to feast upon, and some grease gets spread around. I'll stop with the carcass processing analogy.

To mis?quote "People are born free, but everywhere live as slaves." The illusion of freedom is just a point of view, propagated to keep the servile in docility.

I get what you're saying that every extra 0.25% rise takes £3 billion out of circulation, but in the last year credit was expanded by 8.6%. So the amount of liquidity actually increased by a large amount.

The government is still borrowing more and more from the BoE. Once the government spends this money (paying civil servants and the like) it finds it way into the economy and into commercial bank deposits. It is then leant out tenfold or so through the fractional reserve system.

It is highly inflationary and a 0.25% rate rise is very small in the face of the tide of cash this treasury is borrowing to spend. It is unsustainable.

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I get what you're saying that every extra 0.25% rise takes £3 billion out of circulation, but in the last year credit was expanded by 8.6%. So the amount of liquidity actually increased by a large amount.

Isn't an important distinction that the £3 billion out is in repayments, whilst the extra 8.6% in is broadly channelled through new lending? The first is the balance of hard cash of debt servicing, the second is just adding to the size of the debt (which is only important in real world terms in the portion of it that is debt servicing)

Is M4 really only channeled into the economy via government borrowing?

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I agree, the additional credit created all needs to be serviced. I think as a nation Britain has passed the credit horizon, we now take on extra debt to service debt.

Does the £3bn find its way back to the real economy? I don't think so. Barring the friction (their cost of servicing capital and their peons), it gets booked as profits and is recycled back to their capital base.

The increased capital base is then once again used to increase the amount they have available to lend.

The point is that the cycling of the capital has done nothing for the actually productive part of the economy, i.e that which provides goods and services to people. It has merely given one select group control over a larger part of the world than before.

Hence the missquote.

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The point is that the cycling of the capital has done nothing for the actually productive part of the economy, i.e that which provides goods and services to people. It has merely given one select group control over a larger part of the world than before.

Yea this is the bit that worries me. Output per capita. It hasn't really changed much.

Yet personal debt has exploded, in the future the workforce will need to be much more productive to enjoy the living standards of today since so much of their income goes towards servicing debts (accumulated from living standards today).

However demographics are stacked against this very possibility, retirees are about to spike as the baby boom generation is moved to the scrap heap. This will result in a sharp reduction in output per capita, we will need a larger workforce to fund the pension gap. Immigration anyone?

The effects of expanding debts on the economy is like a man trying to run on ever softening sand.

Will he tire and slow?

Will he battle on to exhaustion?

Will he change direction?

Will he trip and fall?

The truth be told Western economies are running at large imbalances, why?

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The truth be told Western economies are running at large imbalances, why?

simple: promises were made that cannot be kept.

from time immemorial, those who would rule have made promises to seduce people into supporting them. Once power is obtained, the promises are rarely honoured in full.

Pensions? A long, happy retirement? Good state support in times of need?Don't count on it.

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