This Is Getting Heavy - Bank Rates Soaring

[crash2006]

Best thing just take your money out of your current account keep it with you just incase .

[crash2006]

Nooooo, we don't have enough money in their vaults, even at higher rates to promote savings it would have such a detramental affect on the economy with lay offs etc. You can't save if you,re not earning.

The way to pump money is to drop rates, unfortunately there is not enough room in the system to do this (again) as inflation even hyperinflation would be the result.

So basically raise rates get a recession/depression

Drop rates risk inflation (the most evil of all monsters)

Do nothing and see what happens.. safest bet.

Unfortunately with inflation still a problem raise rates is what should be happening but the pain that would cause is too much to bear, CB's will sit on their hands and try and manipulate just like the US has been doing for the past 14 months or so. This cannot last much longer as the markets are stronger than any government, it's gonna be an interesting ride these next 12 months, buckle up and try to find as much impartial reports you can to find the next bubble - IMO we are looking at precious metals and energy.

Thats what the fed have been doing for months they had no choice and it seems like the boe have taken the same path.

[crash2006]

The unusually high deposit rates that have just come out eg Nationwide's 6.74% 1 year fixed rate 'e bond' is a direct result of the unusually high (relative to BoE base rate) LIBOR. They can get it in from depositors and lend it out in the money markets.

Indeed, many of their mortgage lending rates are below this deposit rate - and I don't think they do sub prime.

Bond will be available to all existing customers until 31 October 2007

The AER calculation also removes the affect of any promotional offer that disappear after a few months - a popular trick used by banks and other institutions to boost their savings products

Edited September 3, 2007 by crash2006

[the_austrian]

in lay man's terms:

it's costing banks more to borrow money right?

won't these banks pressure Mervyn and his gang to raise interest rates? if IR rates increase then folks would have an incentive to save which would give the banks more money- i guess the amount people would save wouldnt be enough to help the banks, they need serious money- ie billions to avert a credit crunch.

let me know if i'm wrong

yes but with higher rates you get much more defaults on loans.

[crash2006]

yes but with higher rates you get much more defaults on loans.

This is a miracle economy, defaults oh no we are more wealthy than ever before.

[South Lorne]

However, as I understand it, the LIBOR rate up to 3 months should basically be the base rate.

.....agreed ...that's the way it used to be 20 years ago when there were problems in the markets...3 month LIBOR was looked upon as the true guide to 'base' rate ......

Edited September 4, 2007 by South Lorne

[Wad]

For about the last year or so many HPC members including me have been saying that the BoE should raise base rates to about 6.5% to be running neutral monetary policy and a little higher than that to add some tightening bias.

Now the wholesale markets seem to have joined in and are effectively taking away the BoE policy tool. Even if the BoE does lower the base rate by say 0.5% it is very doubtful that the wholesale market would take any notice. In other words monetary policy would be being dictated by the wholesale market.

This is a very worrying development and in fact the nightmare scenario that Bernanke and other said caused the Great Depression. Instead of lowering rates sharply the very inexperienced Fed kept rates high after the 19299 crash and allowed the impact of the stock market losses to seep into the real economy.

Now aht we are seeing is the wholesale market keeping rates high even if central banks woudl privately like to see it lower. If the stock market or housing market does crash and wholesale money market rates stay high then the slump will inevitable seep into the real economy and central bankers will be powerless. All that will save the economy then will be a massive fiscal stimulus in the form of massive welfare payments or make-work-jobs.

Edited September 4, 2007 by Wad

[Guest grumpy-old-man]

yes but with higher rates you get much more defaults on loans.

hilarious isn't it.

really big rock & a really, really hard place.

[Guest grumpy-old-man]

yes but with higher rates you get much more defaults on loans.

hilarious isn't it.

really big rock & a really, really hard place.

[Guest tbatst2000]

I'm probably not the oracle you take me for. However, as I understand it, the LIBOR rate up to 3 months should basically be the base rate. There's absolutely no problem with it rising above this rate for overnight, 1 month borrowing and so on. The BoE doesn't defend the base rate or LIBOR as such, but as mentioned, it can change the penalty rate for lending. This will have the effect of removing the pressure from interbank loans and LIBOR will drop (they can get the money from the BoE). By putting in a high bid, Barclays have an effect on LIBOR, pulling it higher (its the average of a number of bids from a number of banks).

The FED actually does directly compete to maintain their "funds rate" that we all know as currently being 5.25%. The Fed makes the pool of reserves from all banks part of the Federal Reserve System available for lending out, if required. If banks decide to participate at a higher interest rate, the Fed steps in and makes money available itself so banks can borrow at the 5.25% rate without problems. This prevents a "credit crunch" (in theory at least). The discount window (the Fed discount rate) is something else (direct borrowing from the Fed) and not everyone has access to it. The discount window is analogous to the penalty borrowing rate offered by the BoE. Because this is the only tool the BoE have available, they may be convinced to lower the penalty rate to maintain LIBOR at the base rate.

Spot on and well worth noting. In the UK it's quite possible for interest rates in the real world even for big banks to vary quite substantially from the BoE base rate, in the US, the Fed does its best to make sure that doesn't happen. By some calculations I've seen, there's been the equivalent of a base rate rise of around 0.5% in the UK over the last month despite the actual base rate being left as it is - good news for housing bears of course.

[Goldfinger]

All that will save the economy then will be a massive fiscal stimulus in the form of massive welfare payments or make-work-jobs.

Deficit spending. That's what !...?, the ape with the bat, fears could cause hyperinflation.

Edited September 4, 2007 by Goldfinger

[TortoiseYid]

Just to keep you guys up to date with what is happening behind the scenes:

A certain huge commercial UK bank has a FULL balance sheet - almost all commercial lending has now stopped. Things are becoming increasingly tense.

Approaches to borrow money a being rebuffed at all levels, including requests from large-cap multinationals who you would not consider a significant risk. Companies are offering assets as collateral on loans, but these are not being accepted (they would have been 6 months ago).

Let me emphasise that the bank itself is still in decent shape, plenty of money available - just not prepared to lend it. The risk is seen as too high now.

Also, there are at least two hedge fund groups on the edge right now - not huge companies, but still very significant. How long they can hold out until it goes public is uncertain. It may well be the case that they get picked up by predatory institutions, but both are fairly-well leveraged and it seems unlikely.

At the moment, things are quiet, and business appears relatively normal (very edgy though), but I think it may start to play out fairly quickly over the next couple of months.

[EmpiricalBear]

Just to keep you guys up to date with what is happening behind the scenes:

Thanks for this.

What I find amazing about this current situation is the way we can watch it like a motorway multiple pile up, but in super-slow motion. An unavoidable process thats taking a number of months.

And we can see it while the rest of the normal world just wander around unaware of what is going on.

Its quite odd. After several years of being 'the only one out of step in the army' the people around us will at some point realise they are the ones out of step.

[Goldfinger]

A certain huge commercial UK bank has a FULL balance sheet - almost all commercial lending has now stopped. Things are becoming increasingly tense.

...

Let me emphasise that the bank itself is still in decent shape, plenty of money available - just not prepared to lend it. The risk is seen as too high now.

So, what will give first? Will we see a large company (like a pirate equity victim) just implode? Burgerking just not opening the doors next Monday?

What I find amazing about this current situation is the way we can watch it like a motorway multiple pile up, but in super-slow motion. An unavoidable process thats taking a number of months.

And we can see it while the rest of the normal world just wander around unaware of what is going on.

This is why I spend by far too much time here: I most likely witness the biggest economic crash during my lifetime. How could I miss that? Sort of a morbid fascination. In super-slomo you see this huge brown turd (already on flames) hoovering towards this huge stainless steel fan, and then ...

Edited September 4, 2007 by Goldfinger

[stuckmojo]

Just to keep you guys up to date with what is happening behind the scenes:

A certain huge commercial UK bank has a FULL balance sheet - almost all commercial lending has now stopped. Things are becoming increasingly tense.

Approaches to borrow money a being rebuffed at all levels, including requests from large-cap multinationals who you would not consider a significant risk. Companies are offering assets as collateral on loans, but these are not being accepted (they would have been 6 months ago).

Let me emphasise that the bank itself is still in decent shape, plenty of money available - just not prepared to lend it. The risk is seen as too high now.

Also, there are at least two hedge fund groups on the edge right now - not huge companies, but still very significant. How long they can hold out until it goes public is uncertain. It may well be the case that they get picked up by predatory institutions, but both are fairly-well leveraged and it seems unlikely.

At the moment, things are quiet, and business appears relatively normal (very edgy though), but I think it may start to play out fairly quickly over the next couple of months.

Oh yes, even the EU is warning the central banks about that. Mr Almunia said just yesterday that he expects the growth in the EU to fall. If you read between the lines you can tell he's scared shitless.

[crashmonitor]

These rates are not there for nothing.There is a liquidity crisis and there is a wall of secrecy.I didn't want to mention this until my own problem s are resolved ,but what the heck.Northern Rock have defaulted on my bond maturity despite paying the £35 CHAPS fee for guaranteed delivery yesterday.

[Senor Miguel]

These rates are not there for nothing.There is a liquidity crisis and there is a wall of secrecy.I didn't want to mention this until my own problem s are resolved ,but what the heck.Northern Rock have defaulted on my bond maturity despite paying the £35 CHAPS fee for guaranteed delivery yesterday.

doesn't sound good, have you been on the phone to chase them up?

[crashmonitor]

doesn't sound good, have you been on the phone to chase them up?

When I went to the branch to ask why the money had n ot been forthcoming the branch had already been forewarned that I might be paying them a visit,some inter-departmental c*ck up apparently the money will be with me by Wednesday(maturity was 1Sept).I thought CHAPS was just a matter of pressing a button.Perhaps they are short on the Libor.

They have had my maturity instructions since mid August.

Edited September 4, 2007 by crashmonitor

[Goldfinger]

These rates are not there for nothing.There is a liquidity crisis and there is a wall of secrecy.I didn't want to mention this until my own problem s are resolved ,but what the heck.Northern Rock have defaulted on my bond maturity despite paying the £35 CHAPS fee for guaranteed delivery yesterday.

You mean you tried to avoid a run on Southern T@rd before you have gotten your money out?

[Guest grumpy-old-man]

yes but with higher rates you get much more defaults on loans.

hilarious isn't it.

really big rock & a really, really hard place.

[eightiesgirly]

hilarious isn't it.

really big rock & a really, really hard place.

Squish???

[apom]

Nooooo, we don't have enough money in their vaults, even at higher rates to promote savings it would have such a detramental affect on the economy with lay offs etc. You can't save if you,re not earning.

The way to pump money is to drop rates, unfortunately there is not enough room in the system to do this (again) as inflation even hyperinflation would be the result.

So basically raise rates get a recession/depression

Drop rates risk inflation (the most evil of all monsters)

Do nothing and see what happens.. safest bet.

Unfortunately with inflation still a problem raise rates is what should be happening but the pain that would cause is too much to bear, CB's will sit on their hands and try and manipulate just like the US has been doing for the past 14 months or so. This cannot last much longer as the markets are stronger than any government, it's gonna be an interesting ride these next 12 months, buckle up and try to find as much impartial reports you can to find the next bubble - IMO we are looking at precious metals and energy.

so...

so what you are saying is that the Governments economic Policy of getting everyone to borrow lots of money and pump it into the economy whilst pretending there was a housing shortage and then assuring us all that the many hundreds of billions of pounds that appeared basically from Gordon Browns imagination was in no way inflationary....

Your saying that this might not have been thought through extensivly in the long term...

Imagine if Tony had handed power over when he had first promissed... back in 2004...

Gordons plan would have worked...

There would have been some pain, but it could have been managed...

The question is:

We know what he did and we know why he did it... But in his desire to become prominister did he keep it going for so long that the economic disaster that is unfolding became innevitable...

Did Gordon Brown sacrifice the economy and the financial future of significant portions of the UK's population through deciet, manipulation and lies just so that he could become Prime Minister...?

If you think the answer is yes...

Would this not be treason?

[davidg]

When I went to the branch to ask why the money had n ot been forthcoming the branch had already been forewarned that I might be paying them a visit,some inter-departmental c*ck up apparently the money will be with me by Wednesday(maturity was 1Sept).

funny, a friend of mine who has just borrowed 120K to buy a house didn't get his mortgage money - according to the bank it had got lost in the system - it took a week extra to arrive.

[IDN]

Nooooo, we don't have enough money in their vaults, even at higher rates to promote savings it would have such a detramental affect on the economy with lay offs etc. You can't save if you,re not earning.

The way to pump money is to drop rates, unfortunately there is not enough room in the system to do this (again) as inflation even hyperinflation would be the result.

So basically raise rates get a recession/depression

Drop rates risk inflation (the most evil of all monsters)

Do nothing and see what happens.. safest bet.

Unfortunately with inflation still a problem raise rates is what should be happening but the pain that would cause is too much to bear, CB's will sit on their hands and try and manipulate just like the US has been doing for the past 14 months or so. This cannot last much longer as the markets are stronger than any government, it's gonna be an interesting ride these next 12 months, buckle up and try to find as much impartial reports you can to find the next bubble - IMO we are looking at precious metals and energy.

sorry to copy the entire post folks- but i think impartial explains things very well here- many thanks

[tahoma]

The knock on effects of this are very worrying.

Edited September 4, 2007 by tahoma