Friday, Feb 13, 2015

Carney reveals interest rate cut plans

Telegraph: Mark Carney: enjoy low prices while you can

Mark Carney said inflation was “more likely than not” to turn negative in the coming months. "The Governor warned that if inflation turned negative the Bank of England may have to 'temporarily' CUT INTEREST RATES" -- BUT "he warned: “This is temporary. It’s an important point, two thirds of this...has been from falls in food and energy prices. Enjoy it while it lasts" -- BUT Mr Carney suggested that lower petrol prices ARE HERE TO STAY. (He doesn't mention that all commodities and transportation costs have plummeted in concert, not just energy). (Does he even know what he is talking about? Can a "man" contradict himself any more times in a speech? Some say that it is doublethink, others may say he is hedging his bets, some may call it a Jedi mind trick).

Posted by libertas @ 09:59 AM (7763 views)
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35 Comments

1. libertas said...

I may have to revise my prediction. A cut to 0.25% could be not enough if we get deflation (aka. negative inflation), would that make inflation negative deflation? Could we see a panicked cut to 0%?

What follows is a significant government surplus as investors start to pay HM Govt to park cash in her coffers in exchange for retaining capital in a robust, appreciating Sterling currency. To be invested in a peg legged economy is a boon in a world of paraplegic economies. To invest in a one eyed economy is a boon if the alternative is decapitated.

Tax cuts to replace monetary stimulus. The economy will finally start booming again. London's population will soar above 10 million before 2020, not 2030. Crossrail 2, Bakerloo Line extension, new Thames crossings and HS2 plus a new runway will be bought forward with countless investors tripping over themselves to lend money to HM Govt to invest in said infrastructure at low to negative rates.

Frankly, I do not see that happening until May or June at the earliest because GILT yields are holding up relatively well. It all hangs on what goes on in Europe regarding Greece and Denmark. Should they stay or should they go? If they stay there will be trouble, if they go there will be double.

Friday, February 13, 2015 10:06AM Report Comment
 

2. This comment has been removed as it was found to be in breach of our Blog Policies.

 

3. libertas said...

In another la-la land situation, Sweden cuts rates below zero:
http://www.telegraph.co.uk/finance/economics/11408950/Sweden-cuts-rates-below-zero-as-global-currency-wars-spread.html

Are you starting to see the trend? Can you see how renting is a pile of £$&%@ in this new parallel financial "reality", when foreigners will pay to lend you cash to get off their sinking ship and maintain some capital value?

And the point is, that this is a long grind down. The Euro will take decades to sink fully and there is a whole load of capital waiting to flee, drip feeding into Sterling, Dollar and all the other independent European currencies like Denmark, Swissie, Sweden, etc.

WHAT WE ARE ABOUT TO SEE is Germany doing well, the rest of the Eurozone doing awfully (Save for Ireland due to low taxation), but a new economy emerging amongst booming countries outside the Eurozone. One by one, the lemmings will dump the Euro and move back to beautiful, fluctuating, self-regulating exchange rates.

Friday, February 13, 2015 10:15AM Report Comment
 

4. Thecountofnowhere said...

Enjoy your liberty, while you have it.

Friday, February 13, 2015 10:19AM Report Comment
 

5. debtserf said...

You still flogging this dead horse?

Instead of this little fantasy you have going on about savers paying your mortgage, why dont you try and actually analyse the real effects of NIRP - that might be more enlightening for us ignorant serfs than being routinely spattered by these tedious masturbatory monetary monologues?

To clarify:

NIRP a symptom of a broken financial system

NIRP causes outright financial destruction.

It just doesn’t work. Institutional investors like pension plans and life insurance companies cannot earn enough spread to function properly.

Negative rates also punish the individual investor. If NIRP is so great then why has Osbrown launched these pensioner bonds to great public fanfare?

Friday, February 13, 2015 11:03AM Report Comment
 

6. libertas said...

I never said it was great. I am merely pointing out that it is inevitable and am positioning myself to benefit either way. I have enough equity to fix if rates start to rise, but am on a fantastic flex that allows me to benefit from lower or negative rates if they occur.

What is the point in me moralising about the system when I have zero control over it. Should I also have zero hedge?

Friday, February 13, 2015 11:05AM Report Comment
 

7. libertas said...

And I disagree about NIRP causing destruction. NIRP is a market mechanism to help resolve high prices and government over-indebtedness and I hope, to reduce taxation. You speak about its negative effects with a level of certainty unjustified by the lack of experience given that it has not happened before.

I have one theory, you have another. You had best adjust your portfolio for it nonetheless.

Friday, February 13, 2015 11:07AM Report Comment
 

8. libertas said...

Isn't the bigger issue that Carney has been LYING and misleading the public, sending countless wonderful people into unjustified expensive fixed rate mortgages?

NATIONAL MORTGAGE MIS-SELLING, courtesy of BOE.

Friday, February 13, 2015 11:08AM Report Comment
 

9. libertas said...

Frankly, Carneys statements I paraphrased demonstrate what I've been saying all along. He heads a reactive institution that acts in the interests of bankers and government and there is no rudder on this ship. All we can do is put down anchors until they are ripped from the seabed, aka Black Wednesday or Swiss/Dane Exit.

Friday, February 13, 2015 11:11AM Report Comment
 

10. debtserf said...

I get the part about government indebtedness, but:

"NIRP is a market mechanism to help resolve high prices".

High prices of what exactly? Houses?

Friday, February 13, 2015 11:19AM Report Comment
 

11. libertas said...

Rather than a bunch of drivel, can somebody here suggest what may happen to house prices when Carney cuts rates again with mortgage rates already at historic lows?! How will those on 5 or 10yr fixed rates feel at this stage?

Friday, February 13, 2015 11:22AM Report Comment
 

12. debtserf said...

And how many borrowers have 10 year fixes?

A far bigger problem right now is the millions who are on interest-only mortgages, and who have NIRP chance of getting any returns on investment/savings, to enable them to pay off their principal.

Friday, February 13, 2015 11:39AM Report Comment
 

13. libertas said...

debtserf. Those on interest only mortgages are in a SUPER position. They can make over-payments and the interest portion is tiny. Most who have had interest only for five years or so now have sufficient equity to go for a re-payment mortgage.

My friends who got interest only mortgages ten years ago and over-payed when they could are SIGNIFICANTLY better off than those who rented.

Friday, February 13, 2015 12:22PM Report Comment
 

14. reticent said...

NIRP chance. Good one.

For those interested in why NIRP spells financial armageddon...

http://en.wikipedia.org/wiki/Liquidity_trap

Last I heard, people on IO mortgages were so screwed, they're having to overhaul the pension system to bail them out.

Newsflash Libby: people on IO mortgages tend not to overpay. They take out IO mortgages precisely to avoid repayment, let alone overpayment.

Friday, February 13, 2015 01:34PM Report Comment
 

15. libertas said...

Reticent. Had I bought a house 10yrs ago on interest only, it would be up now at least 30%. Say I "bought" a house interest only for £200,000 back then, with all equal I would now have £60k equity vs ZERO equity had I rented.

That £60k could allow me to take out a 70% LTV repayment mortgage with Nationwide at 1.3% interest rate.

Had I overpaid I would be in a far better situation.

Yes, many do not overpay, but those who have are doing sweetly.

Once again, you do not factor in the opportunity cost of buying vs renting.

Friday, February 13, 2015 02:12PM Report Comment
 

16. libertas said...

Regarding "financial armageddon" interest rates merely transfer wealth between individuals and between the present and future. They are simply a market mechanism for transferring cash between borrowers and investors / savers.

Negative rates may be in response to failed policies, but if led by the market, they simply work to resolve imbalances and if allowed to do their job, will go faster than if banks attempt to manipulate them away.

Where negative rates are the result of an inappropriate peg, say, to the Euro, in Denmark's case, they can only cause havoc to the bank's strategy, but given that the strategy is bad, the havoc caused cannot be ultimately considered bad.

Friday, February 13, 2015 02:16PM Report Comment
 

17. Janch said...

But what if you had bought a house 10 years ago and instead of going up 30% it had fallen by this amount or what if interest rates had risen instead of falling who would be better off then? You as a home "owner" or your LL if renting? This could just as easily happened as the scenario you outlined above. It really is no more than luck as to which scenario occurs so best to think of your house as somewhere to live than something to speculate on.

Friday, February 13, 2015 03:24PM Report Comment
 

18. khards said...

@libby, if you had bought a house here in Somerset 10 years ago it would be worth the same today plus you would have had the joy of maintenance in-between.
It's different for people across the UK, people living cities have gained capital outside of that theres little effect.

All this negative interest rates stuff will stimulate debtors, but then (as per other thread) within a short period of time we end up back in the same situation. What do you think will happen then? Cut rates to minus 10%?
Without reforming the current version of capitalism it will collapse, it's inevitable. The trouble is it's not in human nature to reform capitalism and that's why it will collapse.

All common sense really.

In the short term you may win with house prices, but in the longer term look forward to Bulgarian style living conditions in old age. Only a selfish C**T would cheer this on.

Friday, February 13, 2015 04:02PM Report Comment
 

19. libertas said...

khards. Naysayers have been saying capitalism would collapse for a few thousand years now. Given that Capitalism is simply interactions between people, only the collapse of humanity will destroy capital completely. Now, Socialism could collapse, but not capitalism.

I am not selfish, I do not moralise. I simply observe and take action. I never said this was good or bad, simply said that if you listen to Carney, you will end up in loss and that if you rent, you will do even worse. I do not attempt to determine whether negative rates are good or bad, since I have NO CONTROL over interest rates and neither does Carney. It is all about past human action and present capital flows.

Your moralise as if I had any control over anybody's action but my own. I do not tell Carney what to do. I do not control interest rates, I am not the reason you are broke.

Friday, February 13, 2015 05:25PM Report Comment
 

20. reticent said...

"Once again..."

There's a difference between failing to consider something and it not being remotely relevant to the discussion at hand.

Since you're so keen on NIRP, overpaying, opportunity costs and dispensing financial advice, it's surprising (not remotely surprising) that you haven't considered the opportunity cost of overpaying in a falling interest rate environment. Your hypothetical friends on IO mortgages who overpaid would have been better off locking their money away into regular saver and 5 year fixed rate ISAs. This is especially true now that you are less than a year away from having someone pay you to borrow hundreds of £1000s of pounds. The more debt you have, the more you will benefit from NIRP.

Overpaying is essentially a form of tax-free saving, not that dissimilar from an ISA. Strange that you would want to do that since you have so much enmity towards savers.

Friday, February 13, 2015 05:36PM Report Comment
 

21. libertas said...

I am not keen on NIRP. I just feel that over-taxation and excess government debt have made it inevitable. All these wars, all this over the top Socialism that barely even invests in infrastructure.

I do not have enmity towards savers!! I simply acknowledge that saving is not so profitable when so much hot money from abroad is competing to have cash parked in Britain and other "safe haven" countries. I have no particular feeling either way because saving and borrowing are just normal activities.

You are right that interest only is bad if values fall, but for anybody in the South East, it has been a boon relative to the indignity of renting so long as said people have the wisdom to over-pay and swap to re-payment soon as they can.

Friday, February 13, 2015 05:45PM Report Comment
 

22. britishblue said...

Libertas @ multiple posts. One of the pleasures of reading a blog is gaining different peoples opinions and broadening ones perspective. I cant be the only one to be dismayed to find post after post by the same person, often before anyone else has had a chance to make a comment. Had you ever thought about spending more time articulating your views on one post rather than doing a QE of postings.

Friday, February 13, 2015 06:02PM Report Comment
 

23. britishblue said...

Libertas @ multiple posts. One of the pleasures of reading a blog is gaining different peoples opinions and broadening ones perspective. I cant be the only one to be dismayed to find post after post by the same person, often before anyone else has had a chance to make a comment. Had you ever thought about spending more time articulating your views on one post rather than doing a QE of postings.

Friday, February 13, 2015 06:02PM Report Comment
 

24. mister ed said...

@19
"All these wars, all this over the top Socialism that barely even invests in infrastructure."

Ah but the government pays your wages and you're salivating in the hope those government-backed transport links will increase the price of your house. Libertarianism in action.

Friday, February 13, 2015 06:07PM Report Comment
 

25. libertas said...

mister ed. I would much rather be able to purchase shares in the local railway that will boost the value of my home. However, private industry BUILT ALL of the UK's railways in a time when taxation was 10% of GDP. There is no longer enough capital in the private sector to build infrastructure. NIRP may help resolve that.

DOES ANYBODY have an opinion about Carney lying, week in, week out, about raising rates, when he has just made it clear now, with a forked tongue, that rates are falling?

Rather than MORALISE about the rights or wrongs of deflation and NIRP, is ANYBODY capable of a rational conversation about what this will mean and how we should organise our lives in response?

Friday, February 13, 2015 06:41PM Report Comment
 

26. libertas said...

mister ed. I would much rather be able to purchase shares in the local railway that will boost the value of my home. However, private industry BUILT ALL of the UK's railways in a time when taxation was 10% of GDP. There is no longer enough capital in the private sector to build infrastructure. NIRP may help resolve that.

DOES ANYBODY have an opinion about Carney lying, week in, week out, about raising rates, when he has just made it clear now, with a forked tongue, that rates are falling?

Rather than MORALISE about the rights or wrongs of deflation and NIRP, is ANYBODY capable of a rational conversation about what this will mean and how we should organise our lives in response?

Friday, February 13, 2015 06:41PM Report Comment
 

27. wdbeast said...

Crikey! A post from Libby where the first three posts are from him and a total of 15 posts are from him out of 24.

Libby, you are talking to yourself mate!

Friday, February 13, 2015 08:59PM Report Comment
 

28. khards said...

DOES ANYBODY have an opinion about Carney?

Lying is his job, he is good at it and well paid for it.
Merv was a better lier and much more believable than Carney.
What else is Carney going to say? Well it looks like things are going tits up and need to rob more wealth from you in order to keep Westminster's lights on.

Why do you give a crap what Carney is saying anyway, surely you know it's all lies for the Sheeple. TBH i'm surprised he's not on Eastenders payroll.

Friday, February 13, 2015 09:21PM Report Comment
 

29. khards said...

No attempt to derail Libby's thread, but if interest rates are negative does this mean that Gold is yielding positive?

Friday, February 13, 2015 09:24PM Report Comment
 

30. libertas said...

Thank you Khards. For once, a sensible response. But the sheople have been listening to him unfortunately and lots of very lovely people I know are now servicing horridly expensive 5yr fixed rate mortgages at 4 to 5%, taken out last Christmas or slightly later, when they should now be paying less than 3% and falling.

He was responsible for the 2014 boom, because all these people jumped into housing to snap up the good deals before interest rates went up, on the basis that the Bank of England was promising that rates were about to rise..

This disgusting behaviour is mortgage mis-selling on a national scale that has set back the lives of hundreds of thousands of weak minded but sweet people who are incapable of thinking for themselves. No doubt because the National Curriculum leaves them woefully prepared to analyse economic trends and cycles.

Saturday, February 14, 2015 11:09AM Report Comment
 

31. libertas said...

khards. You are correct in saying that gold effectively pays an interest rate when rates are negative, to the tune of the difference between between 0% and the bank interest rate. Yet we were all told that gold is there to protect us from inflation. Some, like Martin Armstrong state that gold is not a hedge against inflation or deflation, but a hedge against government. Thus, gold tends to go up when confidence in government (and thus their currency) is low, whereas gold tends to fall when confidence in government is rising. Hence the counter-intuitive thing of gold falling after Quantitative Easing. Goldbugs (I used to be one) thought that QE would mechanistically increase gold price by inflating fiat currency. Rather, it provided confidence in government and currency, that they were willing to do something about the economic problems, that they were capable. By comparison, not much confidence in Ukrainian government, where gold prices are soaring!!

I do feel that the gold bear market has a way to run.

Question is, we have never lived through deflation. How should we organise our lives to protect our wealth and hopefully grow it? How do we stop the banksters stealing everything?!

Again, thank God, somebody actually discussing the issues at hand.

Saturday, February 14, 2015 11:15AM Report Comment
 

32. Jethro said...

Re post 28. I was one who got a 5 year fix, but I was remortgaging to buy a new house and rent out the old using equity it had built up over the years. In a weird way you could say I got stitched taking a fixed deal, but both properties have now gone up so have more equity and LTV bargaining power when they expire. Fortunately my btl mortgage was only a 2 year tracker, but still has an early exit fee. Mind you by December I can get a new rate with an even lower LTV. Perhaps I should get a variable rate mortgage or tracker with no introductory 2 year tie in when the time comes so if things go as you seem to be thinking I could switch again at a later date if deals and rates got even more competitive?

Saturday, February 14, 2015 11:52PM Report Comment
 

33. Londonisfallingdown said...

I thought that I remembered something on here from the past which predicted that the Bank of England was likely to head towards an interest-rate cut. I found it back on the 22nd of October. Here it is.

A dismal analysis for savers and renters

NotAyesManEconomics Blog: Why I think a Base Rate cut in the UK is as likely as a rise going forwards
I have previously posted some blogging by Shaun Richards at the "Mindful Money" site which he seems to have stopped using. Though no fan of house price pumping, he makes a case that we are stuck in a (Japanese?) economic rut and our central bank is turning against the interest rates they have warned of for some years. At one point, he quotes a speech by Andy Haldane at BoE that particularly struck me: "In the UK, real interest rates are now expected to remain negative for at least the next 40 years."
Posted by quiet guy @ 09:31 AM 1 Comments

Sunday, February 15, 2015 11:03AM Report Comment
 

34. This comment has been removed as it was found to be in breach of our Blog Policies.

 

35. khards said...

I see that there are several posters here without accounts, if you want a blog account email webmaster@housepricecrash.co.uk.

It get's a bit boring just talking to libby :-)

Could urgently do with some new blog posters.

Tuesday, February 17, 2015 07:19PM Report Comment
 

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