Friday, June 27, 2014

BOE’s Carney Says Rates Won’t Rise to Levels Previously Considered Normal

BOE's Carney Says Rates Won't Rise to Levels Previously Considered Normal

as the title says.....

Posted by piotr @ 01:44 PM (5594 views)
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18 thoughts on “BOE’s Carney Says Rates Won’t Rise to Levels Previously Considered Normal

  • Khards says don’t count on a return on your pension. Or the mystic 7% fund ‘growth’.

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  • Turning Japanese?

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  • I bashed out some numbers earlier looking at real income since 2001. You don;t need me to telly you that’s its been declinging and the average worker has become poorer.
    Lower interest rates are required because than prior to 2001 because real earnings have been in decline. If interest rates were not lowered the peoples disposable income would be taken up with interest payments.

    I think that’s the simple truth.

    Interest rates will not be going anywhere until workers wages start rising in real terms. That doesn’t necessarily mean that assets at their current prices are good or bad value – that’s just how it is. Workers wages are not increasing enough to create price inflation on basic goods and services.
    Whilst goods and services are getting more expensive, that is maily due to external forces such as high energy prices, increasing prosperity in other nations and increased population.
    The biggest concern that I have and I am sure the BOE share is that when there is another downturn, which there will suerly be – they won;t be able to lower interest rates rates to give workers/ mortgagees more disposable income.

    Essentially monetary policy as far as the average family go is backed into a corner.

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  • Well, I finally capitulated. We purchased a 3 bed place with a 110ft garden in a cheap part of north London. I decided that inflation will not rise in the short run because technology is continuing to reduce costs at a pace, as is free flow of labour and capital.

    It is also clear that with ECB dabbling with negative interest rates and places in Europe starting to put taxes on deposit, that the capital flow into London will become a flood in very short time, and Britain will not have flexibility to put up capital controls quick enough to halt the deluge. Also, BOE is concerned that if there is another downturn that ECB will drop rates into seriously negative territory. Look for minus 2.5 or even 5%. They will do this to stimulate demand, but it will have the effect of creating a carry trade with Britain principally, but also Swizerland, Norway, USA and the rest of the world (but not Japan, unless it reverses its easing). This will cause capital to leave Europe rather than stimulate spending, but they will persist regardless because they are fools and do not understand that the economy needs flexibility, not integration and low taxes, not socialism to thrive.

    BOE’s attempts at controlling domestic mortgages mean nothing if all of Europe can invest Euros borrowed at negative rates to invest in limited companies that own buy to let properties in London. Plus, as economic growth picks up here due to corporation tax plummeting towards 20%, grabbing trade from Europe, USA and all around the world, more and more people will flood in to take work from Europe. In London, we are also building massive infrastructure projects that will boost productivity massively.

    My advice, buy in cheap places along the track of Crossrail and Crossrail 2, the latter has been bought forward four years by the Mayor and will begin to affect values in around five years because it is due to commence work in around 2020.

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  • We purchased a 3 bed place with a 110ft garden in a cheap part of north London

    Blimey, I’m not sure there are any cheap parts of N. London, it all looks massively overpriced to me, but good luck with your purchase.
    I think I can hold out a while longer yet.

    It is also clear that with ECB dabbling with negative interest rates and places in Europe starting to put taxes on deposit, that the capital flow into London will become a flood in very short time, and Britain will not have flexibility to put up capital controls quick enough to halt the deluge.

    I don’t really see this happening, as the UK recovery will dissolve after the election, BoE may even move to follow suit and cut IR’s. Carney is talking tough, but won’t do anything maybe a token gesture – the UK economy is very very weak and simply can’t stand it. Look around yourself….

    In London, we are also building massive infrastructure projects that will boost productivity massively.

    These aren’t really significant in the big scheme of things; but they appear to be so, due to government advertisement.

    The true state of UK will become clear after the election. The US has shown how the most convincing of recoveries can easily evaporate.

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  • @Libertas – I doubt there are many ‘canny’ residential property investors left at current yields. the only place there is yields is with troubled tenants in white ghetto areas.

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  • Khards. Actually, we have been looking at places around Edmonton, Tottenham, where prices have only just poked up above the national average. Yet looking forward, we have Crossrail 2 planned for there, plus London Overground upgrading existing rail links and long term plans to develop the Lee Valley, which is the biggest brownfield site in Europe and about 10x larger than the London Dockland’s.

    Rents there range from £1000 to £1500 a month on properties that sell for much less than those with similar rental in the shires. As people from Hackney and Barnet jump over to these areas to seek lower prices, house prices there will slowly rise to fill the gap between price and rental. There is also a massive shortage of houses there because everything is being snapped up by BTL investors who cannot afford other areas.

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  • There is also a massive shortage of houses there because everything is being snapped up by BTL investors who cannot afford other areas

    That’s another of the effects of interest rates that are too low.

    I remember one self anointed idiot on here – regarded as an expert, by some of the other posters – telling me there was no yield in BTL…..clearly not true.

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  • The best bit of advice I got (which I ignored) was back in about 2006 from a house price bull calling himself ‘Owl’ on an FT forum about property prices. The advice was ‘get hold of as much money as you possibly can (ie borrowed) before they stop lending it.

    Assuming it’s not a good idea to be up to your eyes in debt with a recession approaching I ignored this advice. Whether Owl was just a BTLer or was someone with inside financial knowledge, I don’t know.

    But I really didn’t expect it to be good advice at the time.

    Having watched the bailout it’s pretty clear houses aren’t likely to get any cheaper and if there is a future problem they’ll simply drop rates to nothing again and import more people to keep things going IMO.

    Fortunately for me I bought 3 years ago and got near on recession dip price. Without trying to sound like a smug ‘pwoperdy’ owner, the difference between what I’d have paid in rent and what I’ve paid off a mortgage plus HP gain is well in excess of £100k !
    BTW HP increases don’t make me feel any better as I (unlike most) can see a bigger house moving away from me price wise.

    With low interest rates here to stay for a while you’ll actually be clearing down your mortgage in the early years at a faster rate than you would of in the past in a higher interest rate environment.

    Even without HP gains the difference between renting and owning soon adds up and the years soon go by -as we all know by now !

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  • The best bit of advice I got (which I ignored) was back in about 2006 from a house price bull calling himself ‘Owl’ on an FT forum about property prices. The advice was ‘get hold of as much money as you possibly can (ie borrowed) before they stop lending it.

    To be honest, I think that appears to be good advice now due to the rising prices, but it would not have been good advice two years ago, when house prices were still falling. What’s changed? Well, 42 billions of FLS that’s what has had the biggest impact. The fact is that house prices have risen, is entirely due to the availability of cheap credit and no-one can deny that.
    It certainly isn’t the economy doing any better and wages are going no-where. And the increases in GDP directly relate to additional borrowing by UK government – you could say they borrowed a recovery. All, because we are in a pre-election year. After the election, things will start to look very different…..but many people will still have massive mortgages to pay, in the context of a falling / stagnant market.

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  • stillthinking says:

    I am looking at places outside London, I guess if we the saddo s who have spent so long on this site are all sizing up where to buy, then it must be off to the races.

    More positive people must be drooling at the mouth!!

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  • I guess some key question are:

    a. Can money printing last for ever in this new world? Eurozone look like they are sizing it up now?
    b. Can worldwide interest rates remain low for ever?
    c. Can the easy money which is making asset prices go up and up and the top echelons of society filthy rich go on for ever and ever?
    d. If there is a black swan event can governments across the globe club together, print money and fudge their way out of it? Has Lehmans taught them to be ready to fake, rather than to change?

    If the answer to all of these is yes, then property is probably a one way bet.
    This would truly be a new paradym and I can look forward to my 11 year old daughter leaving uni in 10 years time when the average house in London is over a million and maybe the average starting salaries for a graduate is £25,000 ( Bear in mind graduate starting salaries dropped 11% from 2007 to 2012 and its only a short time when their uni education was free and now is costing £9,000 odd a year).

    London certainly isn’t a place where a young person can look forward to a career, buying a house, starting a family and long term security any more unless they have family money or are brilliant! sobering times for many of our youth who are soon to be prices out of rentals in Edmonton and Tottenham.

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  • @britishblue – Essentially you are saying London is finished because it will be deserted by young working people. London like pop music has gone through it’s own cycles of being in and out of fashion, perhaps this is ‘the last days of disco’.

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  • Hi [email protected] unless you have family money or are brilliant I don’t think London is the place for young people now to progress their life. Even in top banks it is harder to get up the remuneration pay scale than it was 10 years ago. The money is being kept at the top. So the number of graduates that shoot into the 150k salary range after a few years is diminishing. That of course wouldn’t buy an ex council house now where I live on the outskirts of London.
    There probably isn’t a better place than London for pubs, bars, restaurants, nightlife etc, but when it boils down to buying your first house, marriage, family, etc, I can’t see it. Yes London is much better than Eurozone ( at the moment), but nothing remains the same for ever. But I don’t see this madness going on for ever, but I have no idea whether that is for a year or 15 years. . My worry is that London housing is now so linked to the economy that the next generation could be doomed both ways. They could be doomed if prices continue to rise, but also doomed if prices fall substantially and the UK is dragged into a spiralling decline.

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  • I thought Carney was Goldman Sachs?

    Doh!

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  • British Blue, great point about European Easing. They haven’t even started printing money. Most like, the end of US QE will cause Europe to commence QE. This will massively affect Britain because there are no capital flow restrictions and our rates are higher with our QE effectively on pause.

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  • British Blue, great point about European Easing. They haven’t even started printing money. Most like, the end of US QE will cause Europe to commence QE. This will massively affect Britain because there are no capital flow restrictions and our rates are higher with our QE effectively on pause.

    So in the world of libertas, that means that house prices are going rise faster and forever. How convenient 😉

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  • hpwatcher, what it does to house prices, frankly, is irrelevant. How long Britain can remain in the EU without capital controls in this situation is the larger question. Presently, the trend to watch is, subsequent to globalist attempts to eliminate differences and create amalgams trading blocks, that these are unravelling and like the submerged beach ball, we see separation and choice, i.e. different economies responding to their local conditions, as they should.

    The bigger issue even to that is how the globalists will respond to economic divergence. I suspect that they will trigger a major war to distract us and use the crisis to bring in central planning that will only prolong the situation.

    Meanwhile, technology ensures that even the underground economy is by-passing big corporations and also the nation state and indeed intransigent regulations coming down from the UN, EU and USA. We are seeing the death of globalism and the slow birth of participative economics and democracy. The birthing process could be bloody and not without its ups and downs.

    House prices will not rise forever. Expect pull-back mid-cycle, and Martin Armstrong pens a collapse in the private sector in about 2030, which could entail unravelling of private debt including mortgages. I hope to almost own my house outright by then.

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