Thursday, November 25, 2010

Are we intending to control inflation?

Bank must raise rates

"Mr Sentance last night repeated his call for a quarter point rise in interest rates to 0.75%. As an external member of the Bank of England's Monetary Policy Committee, Mr Sentence has been a lone voice in calling for interest rate rises. He has voted for a rise at each of last six MPC rate-setting meetings". (maybe the other MPC members are nobbled by VIs)

Posted by alan @ 10:00 AM (1890 views)
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19 thoughts on “Are we intending to control inflation?

  • Raising interest rates will be disastrous.
    Doing this on top of the ConDems vicious cuts would send us into a double dip.

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  • phils, for a lot of people low interest rates are disastrous. The bit that’s hard to stomach is that it’s the prudent that are being punished with low rates whilst those that over-stretched themselves are being bailed out.

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  • @phils. Those nasty ConDems are only proposing to cut us 2006 levels. However, the IFS think that we have to cut back even further, to 1998 levels!

    I suggest you blame the party which have been overspending since 1998!

    Besides, lets not forget that there are good as well as bad sides to recessions, and that an ever increasing GDP is not necessarily a good thing.

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  • timmy, true but alas that is the new order of things. Stuart Laws and all the other VIs were right, there won’t be a house price crash because those with interests in high house prices are too numerous and powerful.

    I used to think it was just get-rich-quick BTLers and naive youngsters overstretching themselves who were responsible for the house price boom but it wasn’t, it was (of course) the entire European banking system and by extension the governments of Europe. What makes you think they’re going to give up what they created in the name of fairness and prudence?

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  • We are entering waters where those nasty bond vigilantes (like … ohhh pension funds) are going to wonder if they’ll get their money back or be expected to take a haircut on their capital after receiving negligible interest.

    [email protected]: “Raising interest rates will be disastrous.”
    They are the lowest they have been in 400 years … just how long should any rational person have assumed they would stay there?

    [email protected]: “Doing this on top of the ConDems vicious cuts would send us into a double dip.”
    So after these cuts spread out over five years, the nation will STILL have added another £400 billion of deficit spending added to the national debt. How many working people are there to shoulder this? One of the absolute knowns of economics is that heavy national debts lead to slow growth. Those “simple truths” of Gordon Browns policies are nothing of sort!

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  • 1. phils said…’Raising interest rates will be disastrous.
    Doing this on top of the ConDems vicious cuts would send us into a double dip.’

    ..And not raising them would make things worse now.

    As i said yesterday, first notch up coming soon. I will stick my neck out and say Feb.

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  • More QE anyone?

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  • general congreve says:

    I’m with [email protected], don’t raise interest rates and certainly don’t raise them above 2% in real terms. It would be disastrous, in the short term at least, but ultimately OK I suppose when the currency implodes due to the unserviceable debt load.

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  • GC – what disastrous for anyone holding gold?

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  • Sorry, that post was very mischievous of me!

    More seriously, the problem remains that when house prices do drop the desired amount no one will be able to get a mortgage even if they want to buy.

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  • general congreve says:

    @9 – Yep, I’m being facetious of course. But it’s been shown that in the last 30 years (by a recent moneyweek article) real interest rates of 2% are needed before gold starts to decline in any 12 month period. Of course with RPI at 4.6%, we’ll need 6.6% interest rates to start to suppress gold prices. Do do see that happening? What’ll happen to the lovely house prices with interest rates at 6.6%!?!?!?! Or the cost of servicing all that government debt?!?!?! Or the banks?!?!?!

    Of course that’s not to say it won’t happen, but if it does, the economy will be crippled by debt and end up truly toasted, as will the govt. and the banks, thereby toasting the currency. Only seems one safe place to be to me. Anyone care to tell me what is wrong with my thinking on this? Saying I’m a ramper doesn’t count, a logical refutation of the point made above is what I’m after.

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  • “But it’s been shown that in the last 30 years (by a recent moneyweek article) real interest rates of 2% are needed before gold starts to decline in any 12 month period.”

    Eh? What calendar year or any 12 months period? Would like to see that GC – cause it makes little sense to me. In fact without seeing it how can anyone judge a premise based on it to be sensible?

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  • general congreve says:

    @12 – Quite right you are too Techieman. My apologies for being lazy and not posting it @11. Here’s the article in question to back up my post:

    http://www.moneyweek.com/investments/precious-metals-and-gems/investing-in-gold-keep-buying-or-start-selling-50930.aspx?utm_source=newsletter&utm_medium=email&utm_campaign=Money%2BMorning

    The second chart in the article is the one I refer to (under the heading ‘When will the gold rally end’), but it is explained in the article which isn’t too long and worth a read. I recommend at least reading the section relating to the chart. As you will see from the chart there are a few ‘outliers’, but typically interest rates need to get to 2% in real terms and absolutely near enough 0% in real terms for there to be any remote chance of gold going down at all.

    BTW, each point on the graph relates to a rolling 12 month period.

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  • Thanks GC – will try to look at it later in a bit of depth….. looks interesting though on first blush. Thanks.

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  • @ general Congreve.
    I get it.
    You’re not the only one out there.
    We invested a small fortune in gold and silver and also a sizable piece of prime pasture land a while back and we are now getting good night’s sleep.
    I didn’t intend on becoming a bit of farmer. Funny how things work out.
    Commodities will be king in a few years. Perhaps sooner.

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  • general congreve says:

    @15 – Nice move. I’m noticing a bit of a change of attitude recently amongst posters, those that understand the situation, or are now starting to get it, seem to be proliferating. The bottom line is HPC will not, cannot, be allowed to happen. QE and ZIRP to currency destruction ahoy.

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  • @ 16 general congreve
    Yup.
    QE and ZIRP to infinity.
    Once started, very hard to stop. There could be no end until the destruction of the currency.
    Of course countless people’s lives destroyed in the process. But one can rest easy, safe in the knowledge that one’s 2 bed terrace is worth £89.795 million. You see. It didn’t lose value!
    Sadly, there may not be any food in the fridge or fresh water running from the tap.
    We can’t say it hasn’t happened before. But most will say ‘no way will it happen to us’ – ‘those countries were insidiously corrupt and badly run’
    Wouldn’t it be ironic if we were forced to say the same?

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  • By the way. Physical Gold and Silver! None of that paper ETF for me thanks.

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  • No one seems to want to discuss the problem that however much house prices drop, no mortgage = no purchase!!

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