Monday, Oct 23, 2006

Higher rates in the States?

Bloomberg: Dollar Advances on Speculation Fed Will Highlight Inflation .

Money markets are gambling on further rate rises in the US, and you know what that means for us...

Posted by autopilotengage @ 05:17 PM (2864 views)
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1. harold said...

The dollar has jumped against all major currencies as a result. Anyone still betting against a rise in UK rates in November? When will Japan finally abandon its ruinous policy of near-zero rates? Theres no point only shoring up half a dam!

Keep an eye on gold/silver over the next few weeks if you are thinking of investing - the price may dip as low as $550 for gold.

Monday, October 23, 2006 08:03PM Report Comment

2. japanese uncle said...

Absolutely true!

BoJ should at least keep its OdR (official discount rate) above 5%. On the back of the current unrealistic stupid nominal rates of 0.25%, major banks in Tokyo are making record profits! Savers in Japan, wake up!

Tuesday, October 24, 2006 12:44AM Report Comment

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4. Nohpc said...

again you lot can't see the wood for the trees. The reason why Japans interest rates are so low is because they suffered from deflation for years. If they had interest rates higher then their deflation would become severe. No need to save when interest rates are 0% just borrow and invest then pay it back when rates go up.

Tuesday, October 24, 2006 05:02AM Report Comment

5. waitingfor hpc said...

mmmm.. i wish life was as easy as Nohpc says - wonder how he would feel about lending his money out at 0.25%?

Tuesday, October 24, 2006 08:35AM Report Comment

6. Nohpc said...

I wouldn't be lending at those rates I would be borrowing as much as is humanly possible which is what low interest rates are supposed to do in times of deflation so people have more money to spend. If Japan increases its interest rates too fast it will slip back into deflation and they have just managed to get out of that situation now. If inflation becomes a problem then they will increase rates as necessary they are not stupid.

Tuesday, October 24, 2006 09:08AM Report Comment

7. talking rot said...


Thank you for commenting - I appreciate you sometimes come in for some flak and I regret this. Sometimes Bloggers here forget in a proper debate both sides of the arguement must be considered and so you views, with Devil's Advocate, are important.

At the height of the Japanese property boom, the value of property in Japan was vast. My economics education is not sufficient to determine if the decline in property lead to deflation or if deflation lead to the decline in property but the two are clearly linked. Through the property asset bubble, people saved. Why bother borrowing money when, in a deflationary period, the value of your savings goes up. You can buy 10 widgets with 100 but if you wait 6 months, through deflation, the same 100 buys 12 widgets. So the Japanese population didn't buy enough to keep their domestic economy buzzing. As the domestic economy slowed, people didn't buy because they were worried for their jobs. A vicious circle occurred.

I would argue against your statement "No need to save when interest rates are 0% just borrow and invest then pay it back when rates go up." In a deflationary period there is every reason to save and none to borrow. The value of your savings increases at ZERO risk.

Out of interest, can anyone remember what happended to the value of the Yen during the period of deflation?

Tuesday, October 24, 2006 10:54AM Report Comment

8. talking rot said...

Oh sorry - I forgot to add to my last post:

In a deflationary period, the value of your borrowings (your debt) is not eroded, it is increased. Far worse, just by having debt, the value of the debt increases. I recall reading articles about Japanese mortgages: A young Japanese couple had paid more then the monthly amount they had agreed with their Bank each month. However, the deflation had increased the value fo their debt so despite paying more then required, they had ended up owing a greater sum to the Bank then when they had taken out their mortgage. Through deflation, their mortgage debt was increasing faster then they could pay it off.

Inflation erodes the value of debt and it makes sense to have debt during inflationary periods. Deflation adds to the value of debt and it makes sense to have savings during deflationary period. Any one who borrows during a deflationary period can best be described as a fool.

Tuesday, October 24, 2006 11:02AM Report Comment

9. miniftse said...

nohpc, at last a voice of reason on the forum. what good is a savings rate of 5% in Japan, if you don't have growth, if you don't have a job to earn money?

As a nation the japs naturally save more than anyone (the other extreme to the british public), the japanese need(ed) to start spending money to create jobs and growth, they didn't need incentives to save, that was the cause of their problems. what use is lots of money sitting in a bank? talking rot, borowing money makes alot of sense at nearly no cost, as at the time they wouldn't have had the benefit of hindsight. they could have borrowed a 100 yen, and a week later doubled it and made 200; or they could have done nothing (at zero risk) as you suggest and leave their future in the hands of the gods.

to suggest the japs should hike rates to 5%, kill their economy, their society, just to try and stimulate a hpc here is absurd!

Tuesday, October 24, 2006 12:08PM Report Comment

10. inbreda said...

Can someone answer me this (and apologies for my ignorance).....

If Japan was suffering from deflation, is that because they were buying their 'made in China DVD players' from a different China to the China Brits go to for DVD players?

My point is that the value of goods, given globalisation, is surely more to do with currency fluctuations? Unless of course the only thing that actually deflated was property values, in which case saving/spending is irrelevant - the doomsters are sated!

Tuesday, October 24, 2006 02:52PM Report Comment

11. Sam said...

Deflation, like infaltion I think can be caused by a number of factors, like inflation you don't know it's hit you till it's too late. and tweaking it with the rate of borrowing is like tuning a piano with a JCB.

The econmy broke, two bubbles burst at the same time (property and stockmarket), people and companies had massive loans on buildings which had gone down in value, ergo couldn't make the payments. Banks did not forclose on the loans to get the land back and sell at a knock down price. -instead they waited for prices to rise again and let people maintain the loans at a loss

But banks were not allowed to give more loans when they had given loans which were non profit making (i.e. loaning money they did not have). ergo, banks had to invest and save money, they did this in part by going overseas, but also by no loaning people money oh - and increase their charges people did not like this, so they bought gold, invested in the dollar, etc...

basically, the property and stock market crashed, there was no-where to put your money so money supply dried up for 10 years. -- will it happen here? well probably not. the banks would prefer to get back the property they own and kick people to the kerb. Also

the money supply may dry up as people will have to pay back all the credit card loans they've used to by all those cool LCD/Plasma TVs. And for that to happen, they either have to get a increase in wages to payback and continue spending, or just cut spending.

Deflation here may happen for other reasons, I guess one will be that intrest rates will be cut/kept low to maintain HPIs leading to the money supply drying up totally. I mean surley they're not stupid enough to loan us 1m to buy a flat then give us credit to buy food to live because 100% of our wages will have to go to paying the intrest on our home loans.

Tuesday, October 24, 2006 04:08PM Report Comment

12. Nohpc said...

Don't forget people. Money is meant to be spent. My philosophy is borrow the maximum you can get for a mortgage providing you can afford it. Buy the biggest, nicest house you can get your hands on. Or sit and wait for a houseprice crash and lose 10s of thousands of pounds every year. Oh wait. you lot have done that :)

Wednesday, October 25, 2006 05:51AM Report Comment

13. Sam said...

lol, funny nohpc.

that's not a philosophy, it's the economic policy of most third world countries.

Wednesday, October 25, 2006 12:05PM Report Comment

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