Saturday, October 4, 2008
House-hold Debt and Rate Cutting.
"It’s become even worse. The screw has turned tighter still. What’s more, the epicentre of this crisis has now headed closer to home". In recent weeks, we’ve seen an alarming rise in sterling Libor – the rate at which UK banks lend to one another. The gap between three-month Libor and the overnight indexed-swap rate is close to 2 per cent. In the year before August 2007, when “sub-prime” burst onto world markets, the same Libor-OIS spread averaged a mere 0.08 per cent."The UK’s fundamental problem is too much house-hold debt: we need house prices to cool and a higher savings rate, both of which argues against cutting rates. That’s the unpalatable truth".