UK Interest Rates - do they need to be tweaked up a little?

Discussion in 'Serious' started by Zak33, 14 Jul 2017.

  1. Mankz

    Mankz 5318008

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    The problem is, the government (which is always linked to the BoE, even though they aren't) will always be blamed when rates go up and people cannot afford their mortgages.

    Its the horrible moment when Fiscal & Monetary policy hit each other.

    In a purely fiscal way, under some of the projections i've seen, the best thing to do is to jump the rate, up to .75% or even 1%, and get all the people who would default, to do it as quickly as possible, so you can then organise the debt via proper instruments. This then makes it a lot easier to properly restructure payments etc, rather than having a drip feed of people defaulting on their debt over time.

    There has to be a point soon, where people learn how to spend within their means though, you cannot keep penalising savers, because other people have £10,000 on their credit cards, and can't afford their gas bills.
     
  2. Mankz

    Mankz 5318008

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    Yield curve convexity adjustment - dy/dx gradient

    Steeper gradient on the way up than on the way down
     
  3. Mankz

    Mankz 5318008

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    Always assume an 8 year rule with financial crisis... so we are 2 years over due
     
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  4. Corky42

    Corky42 What did walle eat for breakfast?

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    That's one of the consequences, yes.

    However without QE we would have most certainly seen negative interest rates and GDP growth resulting in a real recession and not just a big slowdown, instead of things going backwards QE kept things positive all be it by a small amount.

    I've posted this video before but as we're talking about interest rates and money it's probably more relevant hear.



    It should go without saying but I'll say it anyway as someone is probably going to claim that video leaves out many important factors: It talks about America but the principals are the same for the UK as we're also a currency issuer, it's a very, very simplified overview of how modern money should work and doesn't talk about the problems that can arise from getting balance between putting money in and taking money out of the economic system wrong.
     
    Last edited: 15 Jul 2017
  5. Archtronics

    Archtronics Well-Known Member

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    That videos ok unfortunatly it doesnt address that we have only used Fiat money for 40ish years so far which is to short time frame to say if it will work out. Every other time it has been used throughout history unbacked currency has failed.

    Trouble is as well, the govt bang on about "free market capitalism" yet they have propped up banks, buisnesses and people that should have failed and defaulted. All they have done is pushed the problem futher down the line instead of small bits of deflation and recession we end up with big crashes.

    Like with all things theses systems fail to take into account Human intervention.
     
    Last edited: 15 Jul 2017
  6. Corky42

    Corky42 What did walle eat for breakfast?

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    True but it's the system were currently in and I'd argue that there comes a time when an economy grows beyond commodity money, mainly because the commodity you've linked your currency to is liable to its own fluctuations in supply and demand that's beyond your control.

    Also true that they pushed the problem further down the line, that's the problem when you mix politics and people with economics IMO, people don't like admitting to mistakes.
     
  7. Mankz

    Mankz 5318008

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    Economics is a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services. Therefore people are always mixed in.
     
  8. Corky42

    Corky42 What did walle eat for breakfast?

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    Sorry i should have been more specific, when i say people i mean those making the decisions.
     
  9. Zak33

    Zak33 Staff Staff Administrator

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    yeah..those pesky people... like us ;)
     
  10. Anfield

    Anfield Well-Known Member

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    It is questionable if a brutal but short hit wouldn't be preferable to a slow but prolonged drain.
     
  11. Corky42

    Corky42 What did walle eat for breakfast?

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    To what slow but prolonged drain are you referring to?
     
  12. Anfield

    Anfield Well-Known Member

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    The by now nearly decade long shitshow the economy has been for normal people in Europe as opposed to Iceland, which has been allowed to crash, burn and heal.
     
  13. Corky42

    Corky42 What did walle eat for breakfast?

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    The decade long excrement show hasn't been caused by the financial crisis IMO, it's been caused because politicians, to a lesser or greater extent, think they can cut their way out of deficit and/or debt, because they thought the solution was austerity.

    And i wouldn't really consider Iceland to be the poster boy of crashing, burning, and healing, the way they handled the financial crisis certainly caused plenty of damage but they've recovered not because they handled the crisis differently but because the value of their currency was cut in half.
     
  14. Zak33

    Zak33 Staff Staff Administrator

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    Would a slight increase help the Brexit negotiations?

    i tried to mentally sort it in y head and couldn't balance it up
     
  15. Mankz

    Mankz 5318008

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    Not really, no. As im sure Nexxo will point out in a particular humour, thats a whole other turd sandwich.
     
  16. Nexxo

    Nexxo Bargaining chip

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    It would help in the same way that assuming the brace position would help in a plane crash. It gives you something to distract you from the feeling of utter helplessness as you plummet to your fiery doom*.

    * I'm not saying this because I think Brexit is a bad idea. I think that it is a bad idea, but the UK could manage quite well outside the EU if it had a decent Brexit plan underpinned by a sound industrial strategy. But it has neither. It is the mother of all clusterfucks, revealing the government in all its horrific, cataclysmic incompetence and ignorance. It is the turdiest turd sandwich of all turd sandwiches.
     
    Last edited: 17 Jul 2017
    Valo, Mankz, Zak33 and 1 other person like this.
  17. Zak33

    Zak33 Staff Staff Administrator

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    /\ made me actually lol
     
  18. Disequilibria

    Disequilibria Member

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    The bank of england target monetary policy targets 2% sustained inflation, meaning temporary effects like currency fluctuations and one offs are excluded. Whether interest rates should rise depends largely upon how much of current inflation is still caused by the currency devaluation working through to consumer prices. I think underlying pressures have picked up to around 1-1.5% and that it may be time to raise early 2018.

    We shouldn't necessarily use interest rates to control savings and loans, the BoE has extensive macro-prudential policy tools to control the loans side of this. Ideally what we'd like is interest rates to rise to a level that gives a good amount of room for the next recession. Moreover I think the 2% target is too low, 3% would be better and would give more room before we get to lowflation/deflation issues in the future. Higher target inflation will usually mean a higher nominal interest rate in normal times.
     

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