Wednesday, February 11, 2009

..So Why Did You Cut IRs Last Week?

Bank says UK 'in deep recession'

The governor of the Bank of England, Mervyn King, has warned that the UK is facing a deep recession in 2009 and said rate cuts may no longer work.

Posted by alan @ 02:22 PM (1628 views)
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21 thoughts on “..So Why Did You Cut IRs Last Week?

  • MW there are no missing letters… only missing words before i.e. “will be in a deep…..”

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  • I love how they are still trotting out the graphs suggesting that everything will be fine and that we’re nearly at the bottom of the downturn.

    Surely people are not so stupid as to believe this VI claptrap?

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  • happy mondays says:

    BBC: Bank says UK ‘in deep recession’
    No SH*T Sherlock

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  • Love the graph on that page. No explanation for how we get back to the previously enjoyed levels of growth, desite the fact that everyone now knows it was all based on a Financial Services Industry and House Price Inflation that we will never see again.

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  • Pound drops against euro and dollar following Kings warning that the MPC will continue to cut rates and infuse capital into the system (QE), and yet he is also quoted as saying rate cuts make little difference, so, as alan asks; ‘why cut rates’. Also did anyone catch the lates round of TSC interrogations of the bankers, RBS stated that they had returned to lending levels of 2007 and even exceeded them by 10% by the end of 2008, so why are we in a recession?????

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  • There is no other explanation for the miracle recovery in 2010 other than to conclude that the massive amounts of bailout money and flooding the economy with freshly printed notes will lead to massive inflationary growth. It will be another illusion that will probably end in total disaster.

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  • The ‘prediction’ part of this graph will go down in history as one of the most ridiculous graphs ever produced, along with those showing ever increasing house prices, and those predicting a ‘levelling off’ of house prices for 5-10 years. We are already over the edge of the precepice and there is no evidence whatsoever to suggest we are ever coming back up. The most accurate ‘prediction’ would be a continuation of the death-plunge line until further notice. But then that would scare people…..

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  • …maybe the image will work this time…

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  • D&G @ 7 – how do you do that – never works for me.

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  • Looks like the MPC should be renamed the LSD right about now!

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  • D&G you beat me too it, the graph is complete fantasy. Recovery based on what, the engine of growth, the only engine of growth was credit expansion and credit will contract as much as house prices fall – you can take your pick on that but 40% will be a soft landing

    As far as GSP is concerned closer would be negative growth proportionate to the credit related growth of the past 7 years – based on that a contraction of 20% over the next 3 years would be more realistic. It will be greater than that I fear.

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  • Am I the only one who gets the impression we are being softened up? Slowly, drip by drip, the news gets fed out, each time a little worse than the previous time. First there wasn’t going to be a slowdown, then yes, a slowdown, but no recession. Then, yes, we will have a recession but it won’t be too long or deep. Now we are getting the D word regularly, and comparisons with the 1930s are commonplace. Then we get told its a ‘100 year’ event. Are the politicians and central bankers really that stupid (contrary to popular opinion I say not) or are they just scared to tell us the truth? That we are up sh!t street, that all the ‘wealth’ that we have become accustomed to over the last 20-30 years was illusionary, and reality is heading our way like a speeding train?

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  • bellwether – The prediction is based on the forward rate curve, which in turn is implied by market traded instruments. It’s not what I would call complete fantasy, it’s just that a model on a model on a model with inputs from a market gripped by short-term fear, but with an enforced long term optimism (since no market participant has anything to gain by betting on total Armageddon with such instruments).

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  • oops. continued:
    …is not going to produce accurate results!

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  • goweresque – that would be the impression, but I think it’s just natural rather than some sort of power seeking conspiracy – I don’t think the politicians or bankers are stupid, but rather that they are just natural human beings with fear, greed, instincts and prejudices. I do hope I am right.

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  • Affordablehousing says:

    What they have done, is created a graph where part of it is UPSIDE DOWN!!.

    Rotate it from the point at ‘mid 2009’ towards you for 180 degrees and there you have the real UK economic future.

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  • The Royal Mint, (Government Dept.,) have just put their prices up again after just a few days – a 2009 brilliant uncirculated sovereign – (they call them bullion sovereigns), will now cost you a whopping £199. Don’t even look at the price of proof sovereigns !

    The pound is in free fall………………………Not many weeks ago the Mint price was £145 for the 2008 coin. That shows how much value the pound has lost in just a few weeks……………………Gold is fulfilling its historical role. I am not a gold bug, but I can see and work out what is happening.

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  • 51ck-6-51x – I’ve searched for further details on the BoE’s methodology, for calculating their forecasts, and can see no evidence of a prediction based on forward-rate curves.

    http://www.bankofengland.co.uk/publications/inflationreport/ir09febo.pdf (p7)

    The explanation below the graph here, states

    “If economic
    circumstances identical to today’s were to prevail on 100 occasions, the MPC’s best collective
    judgement is that the mature estimate of GDP growth would lie within the darkest central band
    on only 10 of those occasions. The fan chart is constructed so that outturns are also expected to
    lie within each pair of the lighter green areas on ten occasions. Consequently, GDP growth is
    expected to lie somewhere within the entire fan on 90 out of 100 occasions”

    I would draw attention to the excerpts, “if economic circumstances [are] identical to today…”, and also that the graph is the “MPC’s best collective judgement”. On that basis I agree with Belwether that the graph can best be described as ‘complete fantasy’.

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  • greytornado,

    This site has advocated the buying of gold for some time. The relative benefits of coins/bullion have been discussed lots of times. The UK and US governments are going to print money big time. People are getting prepared.

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  • They do acknowledge that, “The risks around the central projection are judged to be weighted heavily to the downside.”

    I would have thought that the best forecast would have ‘risks around the central projection weighted equally to the upside and the downside’. Maybe there is a tacit awareness that while the graph will be reproduced in the media, the commentary is unlikely to be.

    Quite a lot more data and reporting here. http://www.bankofengland.co.uk/publications/inflationreport/irlatest.htm

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