Wednesday, June 26, 2013

New boe governor-get ready for higher interest rates

Get ready for higher interest rates

looks like the powers that be are preparing the public for rate rises...quite a few article recently about the same thing.People will look back and wonder how anyone was so stupid to believe they would be near zero forever

Posted by taffee @ 12:04 PM (4008 views)
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21 thoughts on “New boe governor-get ready for higher interest rates

  • mark wadsworth says:

    Yeah but no but.

    The Powers That Be have been saying this for years to trick people into locking into higher fixed rates, enabling the bankers to borrow at 1% and lend out at 5%, which is double their normal operating interest margin of 2%.

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  • happy mondays says:

    I won’t hold my breath !

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  • What are the chances of them doing so within the next 6 months?

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  • Probably there will be more QE, and even lower interest rates – which is exactly what BoE has been doing.

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  • I agree with all the statements and sentiments above. The fact that, even with IRs having been so low for so long, so many ‘ordinary working people’ (including those on pretty good salaries compared to the average) are only just clinging on (by cutting back on non-essential spending (holidays, ‘big ticket’ purchases, night’s out, etc*) rules this out until/unless the powers that be have ABSOLUTELY no choice.

    * And all the consequent damage this does to the economy.

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  • I agree with all the statements and sentiments above. The fact that, even with IRs having been so low for so long, so many ‘ordinary working people’ (including those on pretty good salaries compared to the average) are only just clinging on (by cutting back on non-essential spending (holidays, ‘big ticket’ purchases, night’s out, etc*) rules this out until/unless the powers that be have ABSOLUTELY no choice.

    Not just them, but governments too.

    Can you imagine that governments would allow raise interest rates to rise, making their own debt more expensive to service? I just can’t see it.

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  • “He said the baby-boom generation had benefited from a steady rise in house prices, but this had forced their children to borrow beyond their means to get on the property ladder.” forced / or coerced?

    “If there are changes around the world that lead interest rates to go up, then some of those households will have debt that won’t look so attractive given the new level of house prices.’ i see there is attractive debt and unattractive debt.. Make mine an Angelina Jolie please Merv … Cheers

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  • stillthinking says:

    Every single thing a central banker says is to steer expectations without actions. So the bank now hopes to scare people off lending rather than adjust the price through base rates. Also Mervyn almost joyously announcing the low interest rates are remaining, so plenty of time for governments to get their act “in order”. Ha. So which one is the truth? They can’t both be right. Mervyn doesn’t care what he says but Carney has to worry about egg on his face and he “warns” of their rise.

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  • cynicalsoothsayer says:

    Oh dear, the herd mentality is still going strong. The longer low IRs and QE go on, the more likely something is going happen.

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  • I think that I would be right in saying that the UK property market would be the biggest loser from interest rates rising. Most other countries property markets have been deleveraging to some degree.

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  • “Can you imagine that governments would allow (raise [sic]) interest rates to rise, making their own debt more expensive to service? I just can’t see it.”

    Its a fallacy that the CBs control IRs. I suppose the Greeks wanted to push up rates on their debts and the Spanish and the Portuguese and the Irish? If the markets lose faith that the governments will honour their debts rates will be pushed up.

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  • mark wadsworth says:

    Techie, yes, it is to some extent a fallacy that CB’s control interest rates, otherwise all debt interest on all govt debt would be practically zero.

    I once did a chart plotting debt-to-GDP ratio on the x axis and average interest rate paid on the y axis for all European countries, and rather unsurprisingly, the higher the debt-to-GDP ratiom, the higher the interest rate. The only surprising thing I found out was the the Dutch have got the smallest debt-to GDP ratio and hence the lowest interest rate – which raises the question, why does everybody use German interest rates as the gold standard risk free proxy? They should use the Dutch one.

    On the other hand, governments CAN borrow for low interest rates by simply “printing money” i.e. if a government official comes along and offers you a corporate bung of £1 million in return for a nice non-exe directorship, would you turn it down, even if you knew that the £1 million would be paid in the form of zero-interest bonds repayable in five years? Of course not. That’s still a large chunk of £1 million goodies for you.

    And as the MMTers explain, governments don’t borrow first and then spend, they just overspend and the apparent increase in borrowing happens all of its own accord.

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  • “Its a fallacy that the CBs control IRs”. OK, fair point.

    However, I think they are doing their best to influence, twist and fix low rates. This includes manipulation (or leveraging) of mainstream media. The DM article is spinning the line that rates could rise 3 or 4% soon. This is so, so unlikely in the minds of most folk I know with an understanding of IRs. Yes, we could be wrong….fortunately we are not stuck in the Euro with the Greeks, then we would be in trouble!

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  • otherwise all debt interest on all govt debt would be practically zero.

    Um, but they haven’t done a bad job for 5 years…..and all the indications are, that it will continue.

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  • The wheels are turning.

    It looks like the establishment has had enough time to ready itself for the sh1t storm sitting on the horizon and is about to allow the market to correct. We all know it has to happen. It was only ever a question of when.

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  • mark wadsworth says:

    HPW, nobody’s denying that the UK government hasn’t done a fantastic job of bailing out banks and subsidising landowners in London and the South East for the last 5 years, awesome stuff, I wouldn’t have thought it possible.

    But this is all very expensive, and sooner or later it starts costing votes, and sooner or later economy reality kicks in a bit.

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  • Reallyneedtoregister says:

    MW – I can’t see votes being lost, just as I can’t see IR’s rising. Continuation of the same is what the voter’s seem to want, and that’s exactly what the voters will get. Their houses will stay in high in ‘value’, their pensions and/or public sector salaries will continue to rise. Whoever (and whatever flavour) of political gangster is in ‘power’ will pander to the overriding social driver, Greed, second only to ‘Entitlement. The young can go to hell, pay the ever-increasing (if it happens) interest rates on loans for overpriced ‘assets’.

    I can smell the CS gas, and I’m sure the Thought Police are on their way, so I’d better go. Anyway, IR’s won’t rise. Inflation and sterling devaluation will negate the legacy of debt. The State will absorb any assets on which loans can’t be paid. Carnage is on his way to print, the establishment will continue.

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  • But this is all very expensive, and sooner or later it starts costing votes, and sooner or later economy reality kicks in a bit.

    I think it depends upon whether growth returns in any major way; I am just not sure I see it happening at the moment.

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  • In the short term its true to say that governments (with their own sovereign currency) can do what Merv et al – sorry i mean Central Banks of course – has done.

    Actually in the short term they can influence short term rates. But that can only be done with an accommodation from the markets (i.e. we have easier fish to fry first) which is why I say “in the short term” of course the short term is different things to different people, and admittedly people could take issue that we have had minimal rates for so long now that its a stretch to call this period the short term. But in reality markets have been (very) distracted.

    Long term rates are more heavily influenced by factors outside their control and although obviously the yield curve is unlikely to look parabolic, so there is a weighting towards lower long term rates if short term rates are cut, the long end is much more likely to be unwound first.

    Short term rates will then follow, but in reality who cares? Since Long term rates are those one which mortgages and – dare i say it annuities – are based.

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  • “I once did a chart plotting debt-to-GDP ratio on the x axis and average interest rate paid on the y axis for all European countries”
    Mrs. Wadsworth is one lucky lady…. lol

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  • It (QE) went on in Japan for 10 years, and at the end of all that, they did a lot more of it.

    Besides, the Fed didn’t even actually say they were stopping their QE; if things don’t improve they will do more of it.

    And today, the US growth for the start of this year was revised downwards. But we shall see…

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