Thursday, Dec 24, 2009

Even the "experts" are catching on

Mail online: Labour's borrowing 'to drive up loan rates' say experts

Massive Government borrowing will push interest rates up next year, say experts.
Average mortgage payments could increase by more than £200 a month, it is feared.
Analysts at Credit Suisse, which has been hired to advise the Treasury on the financial crisis, have warned that interest rates on government debt will start to rise early next year.
The bank's experts expect the difference between interest rates on gilts - bonds issued by Britain to finance its debts - and those on German debt, regarded as a benchmark, to rise dramatically

Posted by waitingtobuy @ 11:09 AM (1726 views)
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1. paul said...

So the base-rates game is finally over for the Bank of England, and rightly so. They have abused it for too long now.

Thursday, December 24, 2009 12:19PM Report Comment

2. crunchy said...

1. paul Do you think that this abuse that you speak of will find the next path of least resistance?

It just goes on.

Thursday, December 24, 2009 01:06PM Report Comment

3. paul said...

Hmm. I think the paths of least resistance are pretty close to being used up. We are a debtor nation - we don't set the rules although we can bend them. 'Quantitative Easing' was one such bent rule. Any economic strategy that includes a plan item 'print more money' is not really a strategy at all - its a contingency measure.

So the path of least resistance is not obvious. Inflation will not improve our outlook at all - if rates are raised to combat it (unlikely) homeowners (the elusive 'hard working famblees') will suffer. If inflation keeps going up, rates are not raised and QE continues the government will get a downgrade for sure and the government's annual debt servicing costs will spiral, bond sales will collapse and there will be no money to pay the public sector.

If I were a betting man, I'd say that if the stark choices have to be made, an MP/politician/treasury official will opt to drop homeowners in it rather than not have any money to pay themselves a wage.

To some extent, this process has already started of course as the article says. It looks like the general election will be something of a showdown for the current situation.

Thursday, December 24, 2009 01:59PM Report Comment

4. Vn said...

In most cases,Homeowners are not hard working families, but banks (who hold the mortgage). If there is a HPC, guess what happens to their balance sheets.

Thursday, December 24, 2009 04:25PM Report Comment

5. crunchy said...

3. paul

How about this one. We have rampant inflation due to BOE inaction and a dollar collapse which will have us all screaming for the dubious

panacea of a new currency. Don't take me too seriously, it's just another scenario.

Thursday, December 24, 2009 04:42PM Report Comment

6. alan said...

New currencies take a very long time to start up.

Witness the issues the Saudis etc are having trying to create a "petro-currency". I think the current situation will hasten the Saudis hands. However, its not as easy as "just" creating a currency, you need economic and labour deals to be done between member nations for that to happen and the process will take the Saudis etc a while to put into place.

In the meantime the UK muddles along. Gordon is determined to leave the incumbents with an enormous mess to clear up - its a political gambit. Two comments:

1. I don't understand why Mandelson and the cabinet are letting him get away with it.

2. A sovereign debt problem could burst before the election. Things move faster in the currency markets....

Thursday, December 24, 2009 10:25PM Report Comment

7. Jborg said... i the only person slightly concerned about an investment bank advising the treasury about the financial crisis?....

Saturday, December 26, 2009 06:21AM Report Comment

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