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Fudge

The Reason For Boe Rate Cut In August 2005

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I have been thinking about the BoE 0.25% rate cut in August 2005 as it seemed an absolutely stupid thing to have

done now because if the housing market was allowed to correct at the time we would have have had a house price crash

and a recession but it would have been manageable. The rate cut gave the housing market stimulus that pushed prices

to even crazier levels and the subsequent crash and instability is threatening the whole economic system and could lead to a depression. Then it occurred to me why they did it, it seems so obvious but I haven't seen it mentioned on this site.

The big excuse Gordon Brown and the government are using for the credit crunch and all the trouble is that it

started in the USA and has affected us however if our market had crashed in 2005 the UK would have at least coincided

with the USA or even been slightly ahead and therefore could not have blamed the USA. So my theory is the BoE cut rates

in Aug 2005 to keep the show going and delay the crash until we got well behind the USA and therefore give the ability

for the BoE and Gov to be able to blame the USA for the whole thing.

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Guest DissipatedYouthIsValuable

Probably just wanted to keep the game of happy economy going until the election and then stiff the new lot?

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Probably just wanted to keep the game of happy economy going until the election and then stiff the new lot?

Election was in May.

Rate cut was in August.

Edited by ChumpusRex

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I have been thinking about the BoE 0.25% rate cut in August 2005 as it seemed an absolutely stupid thing to have

done now because if the housing market was allowed to correct at the time we would have have had a house price crash

and a recession but it would have been manageable. The rate cut gave the housing market stimulus that pushed prices

to even crazier levels and the subsequent crash and instability is threatening the whole economic system and could lead to a depression. Then it occurred to me why they did it, it seems so obvious but I haven't seen it mentioned on this site.

The big excuse Gordon Brown and the government are using for the credit crunch and all the trouble is that it

started in the USA and has affected us however if our market had crashed in 2005 the UK would have at least coincided

with the USA or even been slightly ahead and therefore could not have blamed the USA. So my theory is the BoE cut rates

in Aug 2005 to keep the show going and delay the crash until we got well behind the USA and therefore give the ability

for the BoE and Gov to be able to blame the USA for the whole thing.

i appreciate your thoughts, but you are going down the conspiritorial route. dont. the reason the cut the rates is because they are pratts and morons of the first order, who had little understanding of what they were doing,and the consequences thereof.

as has been quoted on here before ," do not asscribe to malice that which can be adequately explained by incompetence"

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I think you credit them with way too much intelligence.

They did it to kick start the housing market, pure and simple. And it worked.

What they didn't consider, the morons, was the impact it would have 2 years down the line.

I agree that a crash 3 years ago would have been far more manageable, but the insatiable greed for more short-term growth - when what we needed for long-term stability was a breather and a mild recession - has brought about the current crisis.

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it was to keep things ticking along so that gordenron could get the PM job and the MPC could keep raking the cash in and topping up their pensions. sod the long term consequences for the rest of us. rates were too low through early 2006 for this reason also.

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Guest sillybear2

I think you're giving them too much credit (ha ha), I believe mortgage approvals were in a nose dive and they just panicked, nobody wanted the party to end, they still don't.

It always ends this way, they finally run out of beer and the drunkards are kicked out of the bar, nobody decides in advance, all parties in involved do everything possible to put off the inevitable. Central banks now exist to spike the bunch bowl, unfortunately for them everyone died of an overdose.

Edited by sillybear2

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It goes back further than that:

http://www.belfasttelegraph.co.uk/business...m-13426232.html

The Bank of England deliberately stoked the consumer boom that has led to record house prices and personal debt in order to avert a recession, the former Bank Governor Eddie George admitted yesterday.

Lord George said he and his colleagues on the Monetary Policy Committee " did not have much of a choice" as they battled to prevent the UK being dragged into a worldwide economic slump by slashing interest rates. And he said his legacy to the current MPC was to "sort out" the problems he had caused.

Lord George, who headed the Bank for a decade from 1993, revealed to MPs on the Treasury Select Committee that he knew the approach was not sustainable. "In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining," he said. "We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom.

In a wide-ranging discussion on the first 10 years of the MPC, Lord George also rejected suggestions that the MPC should target specific concerns such as soaring house prices, arguing that it was vital to take the broader picture of the economy.

Meanwhile, Kate Barker, a current MPC member, said in a speech last night that interest rate changes might become more frequent as the committee tackles volatile energy prices, rising inflation expectations and increasing pricing power. "This is a different kind of uncertainty from worries about demand which have been more usual during my time on the MPC, and I suggest that this may prompt a change in observed behaviour towards more frequent interest rate changes," she told the CBI North East dinner.

As I keep saying the BoE is guilty of negligence, it's time to sue.

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Guest Shedfish
It always ends this way, they finally run out of beer and the drunkards are kicked out of the bar, nobody decides in advance, all parties in involved do everything possible to put off the inevitable. Central banks now exist to spike the bunch bowl, unfortunately for them everyone died of an overdose.

bullseye

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“William McChesney Martin Jr. vividly described the Fed's role as to "take away the punch bowl." In essence, the Fed was supposed to be the "adult chaperone" at an economic party that was likely to get out of hand. Thus, the Fed was supposed to allow, even induce, if necessary, the occasional recession to cleanse the excesses of the economy”

So the old school ideas behind central banking are at an end then?

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Guest KingCharles1st

I agree the decision was unfathomable. Basically, Tony didn't want his private party gatecrashed, Gordon was lapping up anything and everything that came his way, and I suppose we must now accept that his nascent bunker mentality was already formed by this point. I personally feel that regardless of what was said, at that point, Swerv would have been for the chop had he done anything much different then. I think he is actually now much better placed as the economy is tumbling, to take a good snipe at the blither twins and get away with it. In the Summer of 2005 HPC was full of argumentative tw@ts wearing red braces, and white van man formed a fiery arc across the sky- who would have dared mess with them ,and their ability to borrow money...

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  • 395 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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