Wednesday, Sep 02, 2015

Another interesting article my Merryn Somerset Webb

Moneyweek: How super-low interest rates are ruining the economy

"If you can’t get a return on cash, says Capital Economics, you might as well rent out your old home or just keep it empty when you move"
This is an interesting idea. While the renting out part is not a disaster - it doesn't shrink the supply of housing, just reduces liquidity - the leaving empty is a big problem. If there's no fire lit under the landowner by interest rates in excess of house price inflation, if you have the cash flow, you can hold onto the house for a lot longer. My neighbour did this - house was on the market but empty for moire than 6 months before she extracted a crippling sum from the buyer. Over this period, the increase in price dwarfed any actual opportunity cost.

Posted by mombers @ 02:10 PM (5927 views)
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10 Comments

1. libertas said...

Frankly, this is nonsense. Interest rates have been in secular decline since 1991.

Low interest rates are a response to reversal in the 1970s inflationary trend, into the deflationary moves triggered by technology. This trend continues, could persist for a generation, and I expect negative rates to spread from places like Switzerland.

Wednesday, September 2, 2015 02:15PM Report Comment
 

2. libertas said...

Frankly, this is nonsense. Interest rates have been in secular decline since 1991.

Low interest rates are a response to reversal in the 1970s inflationary trend, into the deflationary moves triggered by technology. This trend continues, could persist for a generation, and I expect negative rates to spread from places like Switzerland.

Wednesday, September 2, 2015 02:15PM Report Comment
 

3. icarus said...

Say it often enough.........

Wednesday, September 2, 2015 02:38PM Report Comment
 

4. mister ed said...

Boring, Libby, boring.

I remember when you would have thought nothing of posting a 2000-word rant covering such diverse topics as Heathrow Airport being turned into a housing estate, negative interest rates in a minor Scandinavian bank, along with commuters using steam trains on tourist railways to travel into London, sparking a virtuous cycle of economic activity.

Those were the days.

Wednesday, September 2, 2015 02:47PM Report Comment
 

5. jack c said...

"The Fed is beginning to recognize that six years of zero-bound interest rates have negative influences on the real economy and the willingness to save money itself."

Source www.investmentweek.co.uk/investment-week/news/2424299/gross-warns-us-rate-rise-too-little-too-late

Wednesday, September 2, 2015 02:50PM Report Comment
 

6. mombers said...

Yes Libertas, interest rates below the rate of inflation are a good idea. Not going to lead to the misallocation of capital at all? Would love to hear your rebuttal of how artificially cheap credit didn't cause people to buy all of those junk bonds that oil companies issued and are now poised to default? Interest rates declining due to falling inflation is one thing but keeping interest rates below inflation indefinitely clearly isn't working for anyone but the asset rich. Falling interest rates clearly do not benefit renters as a secular decline in interest rates has not been met by any decline in rents.

Wednesday, September 2, 2015 02:54PM Report Comment
 

7. hpwatcher said...

I remember when you would have thought nothing of posting a 2000-word rant covering such diverse topics as Heathrow Airport being turned into a housing estate, negative interest rates in a minor Scandinavian bank, along with commuters using steam trains on tourist railways to travel into London, sparking a virtuous cycle of economic activity.

Remember the chap with the The Green Manalishi obsession? Now what on earth was that all about.

Wednesday, September 2, 2015 05:44PM Report Comment
 

8. quiet guy said...

@Libertas

"Low interest rates are a response to reversal in the 1970s inflationary trend, into the deflationary moves triggered

by technology. This trend continues, could persist for a generation"

Long range forecasting can be quite hazardous.

Let's play a game. Let's look at a really long time frame for interest rates.
http://www.ritholtz.com/blog/2012/01/222-years-of-long-term-interest-rates/


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So when was the last time interest rates dipped to near zero? World War II seems to be the answer. And what happened next? I'm not saying you're right or wrong or what the Fed/BoE will do next week but I'd suggest keeping a more open mind.

Wednesday, September 2, 2015 06:56PM Report Comment
 

9. mister ed said...

@8
" I'm not saying you're right or wrong or what the Fed/BoE will do next week but I'd suggest keeping a more open mind."

Hmmm... "Libertas" and "open mind".

And maybe "pigs" and "fly".

Wednesday, September 2, 2015 09:39PM Report Comment
 

10. phils said...

Leaving a house empty is easier said than done.
After a month you will not be insured and you still have to pay full council tax for example.
Also, after a while the house starts to appear stale and any buyer worth their salt would sense this and put a low offer in.

Tuesday, September 8, 2015 07:28AM Report Comment
 

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