Monday, January 12, 2015

A hint, this will look expensive soon.

Worried about rates going up? Then fix your mortgage for 10 YEARS for as low as 2.99%

With oil hitting the $46 handle today, 2yr bonds falling below 0.4% the stars are aligning now for negative interest rates creating government surpluses, combined with weak growth (due to low investment), leading to the next big trend. TAX CUTS. Like, 75% of fuel costs are now tax. With stimulus opportunities disappearing by the minute this will become the new trendy way to boost the economy, because the fundamental reason for weakness is higher taxes and regulations. We may also finally see a backlash against regulations as corporations discover that subsidies, bailouts, etc. just are not working any more.

Posted by libertas @ 04:32 PM (5048 views)
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15 thoughts on “A hint, this will look expensive soon.

  • Thecountofnowhere says:

    “because the fundamental reason for weakness is higher taxes and regulations.”

    because the fundamental reason for weakness is THE COST OF HOUSING.

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  • Perhaps a more helpful hint would be not to hold much stock by predictions made by people who know as little about finance as you have made it clear over the last few weeks that you do.

    http://housepricecrash.co.uk/newsblog/2014/12/blog-zzzzzzzzzz-60246.php

    Unfortunately, the other thread where loads of guest posters felt the need to challenge your claims about your mortgage repayments has been deleted. Nevertheless, it was obvious by the end of the exchange that you can’t so much as multiply £230,000 by an APR and then divide that number by 12 to get your monthly IO payment.

    Having made it clear that you don’t understand that much, the very least you could do is to stop posting your pie-in-the-sky prognostications as if you’re some sort of economic sage.

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  • Libby, I understand some of your logic but not why you would want to buy a house at any mortgage rate when the price of residential property is about to go down by at least 25% to 35%over the next couple of years.

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  • And funnily enough, there will not be tax cuts any time soon because we have a massive deficit and no one outside of Fox News takes Laffer curves seriously at current taxation levels. A far more likely possibility, you’ll probably be gutted to learn, would be a Keynesian spending splurge. Not that it is very likely. It is simply much more likely because the fiscal multiplier is widely accepted to be much larger than the multiplier on changes in taxation levels.

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  • @3 If that was an attempt to dispel rumours that you are Libertas, you appear to have given the game away with your use of the word ‘logic’.

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  • My interest only payments are just over £300 a month and our monthly overall payments are just under £950 a month. Rental for a house like this is often £1400. Go figure.

    wdbeast, what I think will happen is that house prices could fall, but nowhere near your predictions, because they are most likely based upon an interest rate rise, which I believe will be an interest rate cut.

    Reticent, I know it seems highly unlikely that we have a surplus, but Germany, with negative rates now, has a surplus, and Britain, once negative rates come here, will too have a surplus. I am anticipating that it the extra will be spent on a mixture of tax cuts and infrastructure investment, all sorely needed.

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  • From Wikipedia:

    “Each household in Britain pays an average of around £2,000 per year in taxes to finance the interest.[6]”
    – Negative rates thus allow a massive cut in taxes.

    Plus, people forget that QE in Britain effectively retired a massive portion of the debt also.

    We are heading towards a surplus and a lack of bonds to purchase was the real reason USA is halting its QE.

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  • The 30 year trend towards government indebtedness is coming to an end. The tax cuts coming will signal a boom in corporate lending, just at the point where lending to small businesses in the UK has reached historic lows.

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  • [email protected], Crikey!

    I have been around the site since 2006, but I have never posted anything other than sensible, informative articles.

    I most certainly am not a nutter!

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  • @9 For the record, I didn’t make the claim myself, someone else seemed to on the other article you posted (the interesting thinkpiece from Jeremy Warner that has been pulled from here, presumably because it wasn’t related enough to house prices – pity as it was both sensible and informative).

    I myself made no such connection, but you did just refer to a load of nonsense (Libertarian predicts taxes to fall because people are going to start paying governments to borrow their money) as logic that could be followed, so I thought I’d bring it up.

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  • Reticent, people are ALREADY paying the German and Swiss government debt!!

    They already have negative rates, and Germany is already running a surplus.

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  • That folk like you don’t believe it to be true, says to me that the vast majority have bought into the idea of higher rates. Everybody is in, which is a major reason why the next move is down, because that is the only place that the movement can go towards, lower rates. Also because with this much market conviction for higher rates and higher rates cannot be achieved despite all the betting that they will go up.

    The only way is down, and the above is why you will almost always be wrong when you go along with the consensus when everybody agrees in one the same direction.

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  • The only way is down, and the above is why you will almost always be wrong when you go along with the consensus when everybody agrees in one the same direction.

    I don’t mind broken records so much as a fanatic who just posts the same old stuff day in and day out.

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  • QUOTE FROM POST 3: “I understand some of your logic but not why you would want to buy a house at any mortgage rate when the price of residential property is about to go down by at least 25% to 35%over the next couple of years”

    How many times over the last 7 years has someone on this site said this? It’s like an broken record, which is trolling out utter garbage.

    There is no chance that prices will fall by anything like this margin. It’s been proven time and time again that people, other than a a tiny minority who must sell, will sit tight rather than sell for a massive reduction. Banks and government will sustain the market through subsidies.

    The long-term doom-mongers on this site have lost out big time by not buying. They trot out the same nonsense predictions over and over again, only to be continually proved wrong, and only to be priced further and further out of the market.

    Anyone who listens to the tripe that these people speak is on a way way road to loss.

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  • Here’s a good article on some of the implications of negative rates in the EU:

    http://www.pieria.co.uk/articles/the_strange_world_of_negative_interest_rates

    Negative rates on bond auctions (the sort we have seen so far) are not the same as negative base rates. Negative base rates are still not the same as negative rates on borrowers and savers in the retail banking world.

    The conclusion drawn by the non-crackpot author of the article I’ve posted is that negative policy or reserve rates will cause banks to raise rates on borrowers, unless both policy and reserve rates are negative, which she concludes would be tantamount to nationalisation of the banking system without any of the control over lending practices.

    As for the idea that negative rates will allow a spending splurge:

    -It’s not £2k/year, it’s around £800 (£52bn / 64m ). (The deficit was almost £2k/year a couple of years ago. Perhaps that’s what you read. You’ve made it pretty clear lately that you’re not very good with numbers.)
    -It’s paid out on bonds of various different maturities. It would take 10 years of negative rates for the govt. to pocket that entire £800.
    -Interest payments are only a little more than half the deficit (£52bn / £95-100bn approx), so it’s not as if the govt.’s problems all evaporate just because they manage to flog some zero-coupon bonds for more than the face value.
    -Any govt. that splurges on something as difficult to reverse as tax cuts because of something as ephemeral as NEGATIVE INTEREST RATES will find themselves in a world of trouble when rates go back up

    …which would probably be pretty quickly, as negative rates pretty much foreshadow the collapse of govt. (and the banking system), as the author of the article I posted contends.

    Of course, being a Libertarian with a habit of predicting that things he wants to happen are definitely about to happen, you will probably conclude from this that negative interest rates are now all the more likely to happen, simply because it might mean the collapse of government which you’d presumably welcome even more than negative mortgage interest rates.

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