Monday, August 17, 2009

Someday, we’ll have to raise rates.

The rise and rise of zombie households

Edmund Conway discusses how the "perverse interest rate environment we’re living in at the moment" is keeping household budgets in the black and why this cannot continue forever. Overall, this is a very bearish article.

Posted by quiet guy @ 10:08 AM (1843 views)
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16 thoughts on “Someday, we’ll have to raise rates.

  • mark wadsworth says:

    Edmund Conway continues to rock!

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  • I’m not sure anyone will be forced to raise interest rates anytime soon.

    You see, the spheres of private interest of the government, bank of england and homeowners can be aligned too easily.

    The government says that interest rates have to be kept low to ‘protect hardworking families’ (while conveniently stoking the housing boom to create more taxation opportunities and continuing the ‘keepy-uppy’ game with MPs’ second and third homes prices).

    The Bank of England says that interest rates have to be kept low because of the deflation phantom (while conveniently removing saver’s incomes and capital to bail out their banking chums).

    The homeowner says that interest rates have to be kept low because otherwise they’ll lose their home and ‘everything we’ve worked hard for us and our famblees’ (while conveniently stoking the housing boom so that they can enjoy rising property values to get themselves int even more debt).

    So unless the market comes along with a solution to end this charade, I just can’t see any counterbalance – where is the opposing force that will prevent all of the vested interests simply doing what they all want for themselves? The young are disenfranchised and unemployed, the very old (traded down) are poor and dependent.

    Who is going to come to the rescue of the prudent?

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  • mark wadsworth says:

    … apart from the fact that the article in question was written by Sandy Chen …

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  • Note that the numbers of repo’s spiked high in the early nineties, but then fell back down as fast as it had risen. Unless the current rate of repo falls substantially, it is likely that the eventual number will be much greater.

    I would like to see stats that distinguish between BTL repo and owner occupied repo, as the social consequences are very different.

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  • We have a Zombie government, Zombie banks, Zombie households and a Zombie economy, the government has lost control of the economy interest rates are now in the hands of our creditors not the government at some point our creditors will force higher interest rates on us.

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  • Paul said,

    “where is the opposing force that will prevent all of the vested interests simply doing what they all want for themselves?”

    The answer is that this is too big for the vested interests to control. They can delay the day of reckoning, possibly until after the election; but there is nothing they can do to stop it arriving eventually.

    To quote Macbeth:

    “We have scotch’d the snake, not kill’d it”

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  • Paul,

    In my view, the end game is a currency crisis.

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  • ‘Instead, what is more likely is that the pain, once again, has merely been deferred rather than actually avoided. Hundreds of thousands of households are clinging onto their properties by virtue of the perverse interest rate environment we’re living in at the moment, but the moment rates start to rise they will be smashed by the rise in their debt costs’

    Reading this a different way: After having deliberately created the housing boom with artificially low IRs we’re not going to let there be a massive wave of repossessions ontop of massive unemployment because that would risk social discontent and possible revolution. No what we’re actually going to do is to drag this one out and raise rates slowly over many years. That way we can head off any possible social unrest by diluting it over many years and yet in the long run still take hundreds of thousands of houses away from the people we conned into buying inflated property. We can then sell these later for our profit and bonuses.

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  • Jackas,

    I would agree, except that I think a currency crisis, causing higher inflation and interest rates, is likely to be the conduit to the end game, as far as house prices are concerned.

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  • contrails are not a conspiracy (formerly npnh) says:

    “In my view, the end game is a currency crisis.”

    I reckon all this is heading towards a new world currency.

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  • vacuouspolitician says:

    Uncle Tom @4

    …this is the main problem – ordinary people are starved of relevant information and indeed depth of information. We are just fed glib sound-bites by are “superiors” …

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  • vacuouspolitician says:

    contrails are not a conspiracy (formerly npnh) @9

    …the old order and establishment will prevent this from happening at all costs…

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  • The only way to rid the shoebox owners and Gobbo voters of their massive debts is to manufacture higher inflation and spin scare stories of the fear and evils of defaltion…. He’s doing a very good job of it so far for the good of Zombie Britain.

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  • I don’t think this low interest rate situation is sustainable, not for much longer.

    Sooner or later we will get another crisis which will force a return to higher interest rates…What would that be? Dunno, exactly, but…Debt crisis, banking crisis, local warfare, bond defaults, terrorism, currency calamity etc.,

    Then a lot of folk will be caught out. It doesn’t even have to be a big “black swan” event either IMHO.

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  • mark wadsworth says:

    Paul “the spheres of private interest of the government, bank of england and homeowners can be aligned too easily.”

    Those three are more or less the same thing – the homeowners choose (i.e. elect) the MPs (second homers all) and MPs choose the government and the government decides how the BoE will be run and what sort of tax system we have. Even more fundamentally, land ownership and the existence of a state are the same thing (you can’t have one without the other) and banks always have an interest in rising house prices as it’s easy money for them to earn. It’s then a prisoners’ dilemma and there is no counter-balancing force, none whatsoever, AFAICS this IS the end game.

    A falling currency does nothing to prevent a national government from keeping interest rates artificially low – in fact, if it leads to inflation, this gives the government, banks and homeowners a golden opportunity to inflate away debts and inflate the nominal value of housing.

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  • vacuouspolitician says:

    The remarkable fact that only 61.3% of the population voted at the last GE and New Labour got in with 37% of the vote sums up the situation. This situation is the real problem…and until this problem is addressed things will never change. Roll on more see-saw politics and support for people with vested interests. I wonder how many young people voted last time …and how many will vote this time round…?

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