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Why Are Swap Rates Falling ?

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I have been reading that SWAP rates are falling allowing lenders to cut rates. Is this because the city have twigged that the BOE haven't got the cajones to raise rates inspite of raging inflation ?

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I have been reading that SWAP rates are falling allowing lenders to cut rates. Is this because the city have twigged that the BOE haven't got the cajones to raise rates inspite of raging inflation ?

No it's because growth is slowing much more quickly than expected - the economic data is truly terrible - and it's happening more quickly than the the most bearish of us were predicting. At the same time, commodity prices have been falling in recent weeks (and now even oil is having a breather), meaning that central banks will be able to cut rates more quickly. Remember that all of this is ultimately deflationary - no matter what inflation does in the short term, so it is not a question of whether the ECB and MPC cut rates - it's a question of by how much and when (even if they are forced to raise them in the very short term...

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No it's because growth is slowing much more quickly than expected - the economic data is truly terrible - and it's happening more quickly than the the most bearish of us were predicting. At the same time, commodity prices have been falling in recent weeks (and now even oil is having a breather), meaning that central banks will be able to cut rates more quickly. Remember that all of this is ultimately deflationary - no matter what inflation does in the short term, so it is not a question of whether the ECB and MPC cut rates - it's a question of by how much and when (even if they are forced to raise them in the very short term...

Thanks for the speedy reply. Surely though the CBs have a duty to keep rates higher than the rate of inflation to protect the value of peoples savings and the currency ?

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Thanks for the speedy reply. Surely though the CBs have a duty to keep rates higher than the rate of inflation to protect the value of peoples savings and the currency ?

Central banks cause constant and ever scalating inflation. interest rates are always to low to soak up inflation and they wouldn't have it any other way. Anything that they say to the contrary is flat out lies.

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Now, I thought Bank lendind rates was supposed to reflect risk. Surely as CB rates fall, the risk of defaults is higher (as lower rates are to combat poor sales growth) so we might expect higher margins.

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No it's because growth is slowing much more quickly than expected - the economic data is truly terrible - and it's happening more quickly than the the most bearish of us were predicting. At the same time, commodity prices have been falling in recent weeks (and now even oil is having a breather), meaning that central banks will be able to cut rates more quickly. Remember that all of this is ultimately deflationary - no matter what inflation does in the short term, so it is not a question of whether the ECB and MPC cut rates - it's a question of by how much and when (even if they are forced to raise them in the very short term...

You say this will ultimately be deflationary. I thought it was more likely inflationary long term? If rates are kept low, money supply is by default increased isn't it. Admittedly it is likely to be deflationary for housing for a host of reasons, but with oil and food demand rising globally, I think the general future is one of inflation.

Perhaps you could expand?

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No it's because growth is slowing much more quickly than expected - the economic data is truly terrible - and it's happening more quickly than the the most bearish of us were predicting. At the same time, commodity prices have been falling in recent weeks (and now even oil is having a breather), meaning that central banks will be able to cut rates more quickly. Remember that all of this is ultimately deflationary - no matter what inflation does in the short term, so it is not a question of whether the ECB and MPC cut rates - it's a question of by how much and when (even if they are forced to raise them in the very short term...

A Question for you EDM:

With regard to your comment 'Remember that all of this is ultimately deflationary', how does this scenario fit in with all of the liquidity injections that the Fed is pumping into the US Banks, accoring to this article (posted by cgnao on gei):

'Banks' discount window borrowings averaged $14.30 billion per day in the week ended July 16, versus an average $13.01 billion per day the previous week.'

When I read things like that it is hard for me to comprehend how this will ultimately lead to deflation given the vasts sums involved, unless many of these banks will default and the debts are written off. However, given that (for this strategy to work) the Banks will ultimately have to pay back this debt and/or are maybe using the extra liquidity to invest in some other asset classes, how can this not be inflationary?

Genuine Question, as I certainly don't have all the answers but am trying to understand a plausible outcome of the above.

edit - sp.

Edited by prophet-profit

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You say this will ultimately be deflationary. I thought it was more likely inflationary long term? If rates are kept low, money supply is by default increased isn't it. Admittedly it is likely to be deflationary for housing for a host of reasons, but with oil and food demand rising globally, I think the general future is one of inflation.

Perhaps you could expand?

Same amount of money + fewer users of money = inflationary.

Rising amount of money + fewer users of money = inflationary as hell.

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The actions currently being taken in the US by the Fed etc. are all insanely inflationary. By this time next year, inflation will be 20%+.

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A Question for you EDM:

With regard to your comment 'Remember that all of this is ultimately deflationary', how does this scenario fit in with all of the liquidity injections that the Fed is pumping into the US Banks, accoring to this article (posted by cgnao on gei):

'Banks' discount window borrowings averaged $14.30 billion per day in the week ended July 16, versus an average $13.01 billion per day the previous week.'

When I read things like that it is hard for me to comprehend how this will ultimately lead to deflation given the vasts sums involved, unless many of these banks will default and the debts are written off. However, given that (for this strategy to work) that the Banks will ultimately have to pay back this debt and/or are maybe using the extra liquidity to invest in some other asset classes, how can this not be inflationary?

Genuine Question, as I cetainly don't have all the answers but am trying to understand a plausible outcome of the above.

I would have thought the answer is simple. Banks are bust, and they need "Numbers" in their accounts to keep them legal.

This money CANNOT be put into circulation.

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I would have thought the answer is simple. Banks are bust, and they need "Numbers" in their accounts to keep them legal.

This money CANNOT be put into circulation.

OK, if the money is being used to shore up balance sheets and nothing else it will still need to be paid back (with interest albeit at a low rate), and is it just going to 'sit' in the reserves and not be touched until the banks return to profit and can repay the debt? (or rather restore their balance shets themselves = same thing more or less).

Edited by prophet-profit

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OK, if the money is being used to shore up balance sheets and nothing else it will still need to be paid back (with interest albeit at a low rate), and is it just going to 'sit' in the reserves and not be touched until the banks return to profit and can repay the debt?

Well,thats a good question. I would guess the banks are still making money on many of their dealings, and it is my beleif that the rescues carried out, while costing them interest, are a measure to stretch the time frame of money loss, absorbtion, ie, the write downs, whilst severe, have effectively been spread over a period of years, thereby reducing the effect.

what Im trying to say, is that a write down of xbn today, is much harder to handle than a writedown of xbn over 10 years.

As Far as I could see, trading through the problem was the ONLY way they could proceed.

So in my view, we have destruction of money with all the defaults, we have destruction of money with all the write downs, and the reserves are to be used to prop up the system.

This, to me, points to less money around soon, and general deflation. along with a BUST of mega proportions.

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I have been reading that SWAP rates are falling allowing lenders to cut rates. Is this because the city have twigged that the BOE haven't got the cajones to raise rates inspite of raging inflation ?

Could you explain SWAP rates, for my benefit, please.

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No it's because growth is slowing much more quickly than expected - the economic data is truly terrible - and it's happening more quickly than the the most bearish of us were predicting. At the same time, commodity prices have been falling in recent weeks (and now even oil is having a breather), meaning that central banks will be able to cut rates more quickly. Remember that all of this is ultimately deflationary - no matter what inflation does in the short term, so it is not a question of whether the ECB and MPC cut rates - it's a question of by how much and when (even if they are forced to raise them in the very short term...

We both know that i can provide a good argument for hyper inflation but i also think we both know thats whats coming is not going to be good for anyone.

myself i think it far to early to argue that the comodity boom is over and it will only end when saving rates are above the real infaltion figure that IMHO is running well into double digits and is nothing near the 2-3% brown keeps going on about and so the smart money has already moved to comodities and it's jhoney come late to get into them now.

Things are bad and you would be a fool not to keep some spair food put by just incase we get a full scale meltdown lead by the fiat $USD.

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...Remember that all of this is ultimately deflationary - no matter what inflation does in the short term, so it is not a question of whether the ECB and MPC cut rates - it's a question of by how much and when (even if they are forced to raise them in the very short term...

Ahhh, takes me back....

but seriously, we have had the cut off of credit (credit crunch)

large numbers of repossessions

houses have dropped and aren't selling

mortgages are down by half, and many banks have already gone under

where are any signs of deflation in the numbers?

and really I mean the actual numbers for money destruction?

is there less money now?

is m0 down? m4?

Edited by Mr Nice

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Ahhh, takes me back....

but seriously, we have had the cut off of credit (credit crunch)

large numbers of repossessions

houses have dropped and aren't selling

mortgages are down by half, and many banks have already gone under

where are any signs of deflation in the numbers?

and really I mean the actual numbers for money destruction?

is there less money now?

is m0 down? m4?

Dont see how they can measure it, they didnt even UNDERSTAND off balance sheet stuff till fairly recently and NOBODY can understand the spaghetti that is derivatives.

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Well,thats a good question. I would guess the banks are still making money on many of their dealings, and it is my beleif that the rescues carried out, while costing them interest, are a measure to stretch the time frame of money loss, absorbtion, ie, the write downs, whilst severe, have effectively been spread over a period of years, thereby reducing the effect.

Now the amusing thing about this concept is that it's the prototypical "underpants gnomes" business model, most recently employed by the likes of Salon, TheStreet, and Boo.COM... Let's hope that there really is "profit" in phase three this time around eh (rather than just more debt piled on debt until interest costs are greater than cashflow) ?

Edited by ParticleMan

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Situation is potentially even more complicated than just inflation or deflation.

I think there is a very real chance that we will see inflation in developing countries, but deflation in western developing countries. Reason I think this, part fro the fact the many countries in the far east for example are already seeing rapidly rising rates of inflation, is that they are in a different part of the economic development cycle than the west.

This means that capital (investment) is currently flowing into these countries and has been for the last ten to twenty years. China especially has huge cash reserves and therefore has the potential to spend their way out of trouble. This would be inflationary. Where did all that money come from, us of course. So it is possible that we could yet see a deflationary recession, whilst China et al see an inflationary recession.

Interesting times. Makes me thoughtful as I have bought gold. If the deflationary effect is bigger than the inflationary effect I could get hurt, but if the opposite is true I could be sitting pretty.

I've made me choice and paid me money...

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China especially has huge cash reserves

Only in so far as they're debasing their currency - it's the ERM debacle all over again, inverted, and on a much grander scale.

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Situation is potentially even more complicated than just inflation or deflation.

I think there is a very real chance that we will see inflation in developing countries, but deflation in western developing countries. Reason I think this, part fro the fact the many countries in the far east for example are already seeing rapidly rising rates of inflation, is that they are in a different part of the economic development cycle than the west.

This means that capital (investment) is currently flowing into these countries and has been for the last ten to twenty years. China especially has huge cash reserves and therefore has the potential to spend their way out of trouble. This would be inflationary. Where did all that money come from, us of course. So it is possible that we could yet see a deflationary recession, whilst China et al see an inflationary recession.

Interesting times. Makes me thoughtful as I have bought gold. If the deflationary effect is bigger than the inflationary effect I could get hurt, but if the opposite is true I could be sitting pretty.

I've made me choice and paid me money...

I think you have that backwards.

inflation comes from borrowing (or printing in extreme cases) new money into existence.

since China already has a fair bit of money, and could in theory spend their way out, no new money is created, so no inflation.

the West, however, is likely to have to borrow vast sums of money to get out of any trouble since we are already in the hole.

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China already has a fair bit of money

China's bankrupt.

They've fully debased their currency to support a weak foreign exchange regime. As their currency rises, their national savings will be wiped out.

Leverage. Gotta love it when the fat bloke decides to step off his end of the see-saw.

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China's bankrupt.

They've fully debased their currency to support a weak foreign exchange regime. As their currency rises, their national savings will be wiped out.

Leverage. Gotta love it when the fat bloke decides to step off his end of the see-saw.

that's only if the KEEP supporting the dollar exclusively

they stopped doing that quite a while ago.

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Ahhh, takes me back....

but seriously, we have had the cut off of credit (credit crunch)

large numbers of repossessions

houses have dropped and aren't selling

mortgages are down by half, and many banks have already gone under

where are any signs of deflation in the numbers?

and really I mean the actual numbers for money destruction?

is there less money now?

is m0 down? m4?

m4oo7.jpg

LPMVQJW Monthly 12 month growth rate of M4 (monetary financial institutions' sterling M4 liabilities to private sector) (in percent) seasonally adjusted

might be the wrong one I'm plotting

Edited by Ash4781

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  • 396 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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