Cruel and unusual for savers
The CBI has predicted that base rates will start to go up in the spring, reaching 2.75% by the end of 2012. This has generally been greeted as bad news. But, as some will add, as an after-thought - it's good news for the hordes of people in the UK who live on the income from their savings, or are planning to do so in the next few years.
For them, 2010 has been a peculiarly terrible year. And it won't be so much better when base rates - Bank Rate - is back at 2.75%. Until this crisis, official interest rates had not been below 3% for generations.
Usually, there would be some comfort, for savers, in record-low interest rates - that at least inflation was not going to be eating into your cash. After all, don't interest rates go up, when inflation does? But not this year; that's what I mean by cruel and unusual. In a year in which savings accounts offer well below 3% interest, the TPI index of prices - which includes the impact of tax changes - has risen by nearly 5%.
One of the Bank of England's Deputy Governors, Charlie Bean, got into trouble a little while ago, when he suggested to savers that they ought to be "eating into" their cash reserves to get through this period. On that occasion, the reporter took the side of savers. What is striking, to me, is how rarely that happens.
In Japan, they say that one of the reasons that deflation could continue as long as it did was that there was a large, and political influential part of the population that benefited from falling prices. Most pensions were fixed in nominal terms, and the value of a given pot of savings goes up in real terms when prices fall, even if interest rates are zero. So for older people, deflation meant rising real incomes. Only when the law was changed, to allow index-linked pensions to go down in cash terms as well as up did the government start to come under real popular pressure to reflate.
As the baby boomers prepare for their retirement, you might have expected the same kind of shift in the centre of gravity to occur in the UK. As David Willets describes in his book Pinch, through their lives, the baby boomers have been good at imposing their priorities and interests on the population at large. But on this issue, it seems that the zeitgeist is a few steps behind.
The average baby boomer is a net saver, these days - and certainly the average voter is a saver, given the much greater chance of older people bothering to vote. Yet we still feel and sound like a nation of borrowers: low interest rates are good, higher interest rates are almost always bad. Then again, perhaps that's for the best. Even if the economy does recover as the CBI and the government expect, the Bank of England will be punishing savers - and rewarding borrowers - for quite a long time to come.
~RS~q~RS~~RS~z~RS~34~RS~)
I'm 
© MMXI
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The linked article says:
" It says that the Bank of England will need to increase rates to tackle inflation, which it says will remain high due to both higher energy bills and the VAT rise from 17.5% to 20%."
How on earth is raising base rates going to have any effect on real prices when energy prices are rising for completely different reasons?
So why would interest rates rise?
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Wasn't it the borrowers and lenders who got us into this mess?
Not the savers.
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politicians do not live in the real world.
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Don't be surprised if the Tory led government really want to raise interest rates and are "nudging" the B of E rate fixers in that direction. Savers are a cautious breed and will never spend recklessly just because interest rates are abysmally low. 2011 will test all the parameters of the draconian cut backs and the forthcoming V.A.T. increase may well be the tipping point in sending the U.K. economy into double dip recession. I hope that my instincts are wrong and that the retail sector can survive without too many casualties.
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" ... people in the UK who live on the income from their savings ... ".
Surely living on the income from the interest on your savings is never a good idea. Do I even have to say, "interest rates may go down as well as up"?
If people have enough savings to be able to live on the interest then they are probably not the people who are suffering the most in this climate.
Perhaps living on the income from a job is a better idea.
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I sometimes think it's because of the trendiness of plastic.. I remember a former businessman telling me how he missed his high flying job because of the 'Gold card' he used to have. I personally would have been more interested in the salary...
And how many people have even heard of a 'debit card'?
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While the 'average voter' may be a net saver, I'd have thought that those most at risk of personal bankruptcy are on average net borrowers. The 'net saver' stat may well also calculate owned property as an asset against a mortgage.
While I could be classed as a net saver due to the value of my house significantly exceeding the mortgage, changes in interest rates affect savings and mortgage rates most, and my mortgage is still much greater than my cash savings.
Inflation has the potential to redistribute wealth from the richest to the poorest in that the net assets of the wealthy are devalued somewhat while the debts of the poorest are also devalued. While this is not the complete story, it's easy to see why moderate inflation and low interest rates are not seen as too big an issue in the media, particular with discussion of 'inflating off' some of the national debt and/or budget deficit.
The flip side is that those who pushed to get a >100% mortgage (including myself) are reaping benefits from the current balance while those have been trying to build up a sensible-sized deposit before purchasing are suffering, and that's clearly much less fair.
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During the last few base rate reductions my mortgage rate stayed constant, akin to energy! But I’ll bet as soon as there is a rise in base rate my mortgage rate will follow?
At present the rate I get is c3.5% higher than base, whereas a couple of years ago it was c2%.
I can understand the need for a rise but the differentials need to be re-established. I cannot re-mortgage I am stuck for about another 2 years and knowing what I know now it’s not the best option.
So I am awaiting the excuses with a rye smile on my face.
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Of course if the state pension was at a proper level there would not be the do or die situation with savers. What we have seen is the whole scale clipping of pensions both state and private and not to forget the widespread cheating of savers by the banks and the financial sector generally. The current situation represents a massive transfer from creditors to debtors but with the state underwriting the losses of the poorer savers through the benefits system. Not all 'boomers' will be all right jack and jill.
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One thing Stephanie chooses to forget, is that we don't all selfishly think only of ourselves. She finds it curious that we still think as a nation of net borrowers. That's because many of us (including baby boomers like me) are thinking more of our children and even grandchildren,who are/will be more financially vulnerable than we are. If we are poorer in old age, at least we'll have something. That is not by any means guaranteed for today's teenagers and their offspring.
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..and Ms Flanders, why your constant obsession with a generation - the so-called 'baby-boomers'?
I'd suggest that the real culprits behind the depression are much younger, your generation even, and work for banks.
Envy says one thing, the truth says another.
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I’ve been both borrower and saver in that now that I’m mortgage-free and I continue to save. The saving part currently seems a pointless exercise as this is what traditionally provided lenders with the means to provide mortgages. As the housing market is almost dead, lenders are getting cheap deposits from savers to lend against....what? Clearly, lenders are doing very well indeed as seen yet again by their huge bonuses and this is where interest rates to savers are being absorbed. Time to buy a Chubb safe and become a hoarder, for this is the only service that banks are only providing.
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#1 It's not about reducing the price of energy but matching interest rates with inflation.
With inflation at ~4%, you need 4% interest on your savings or a 4% salary increase just to stand still.
0% was always going to be temporary anyway - it's more a return to normality.
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As a saver, the interest rate is a minor concern, what worries me is inflation.
The big issue for me is how can they possibly say inflation is 3%, when everything has gone up 20% or more. My car insurance renewal went up 100% this year (no change in risk, low risk small car, I'm 37 years old with a clean driving record and 12 years no claims bonus), and after extensive phoning around I still had to pay 40% more than last year.
Petrol of course has jumped from 90p a litre to 120p a litre. Electric and gas also risen heavily and probably now accounts for a third of my expenditure and of course looks set to go up even more thanks to government that cares more about recycling plastic bottles than it does about conditions people are living under.
Recreation wise, the council run ice rink I use has been putting up it's prices way above inflation for years. Price of ice hockey equipment has also risen from 50 pound to 80 pound in the last 2 years.
At a guess the price of building materials has also risen, along with anything related to commodity prices.
I think the 3% figure is totally crazy. It's meaningless. Are we sleep-walking into a crisis?
Even on interest rates, previously trustable building society's such as the Nationwide have used the credit crunch to silently drop interest rates of existing accounts costing the typical saver about a thousand pound assuming it took them about a year to notice and go into the branch to move the money into a new account or bond. That may be classed as an interest rate issue, but really it's just another company using the economic crisis as an excuse to fleece its customers and ramp up profit margins - which is basically what price inflation is.
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As I understood it, when the interest rate was raised it was to control an excess amount of money that was in the economy. The prices rises we are experiencing at the moment have nothing to do with an excess of money but tax increases, world commodity prices and the economic crisis in general. Can raising interest rates be justified when it would burden mortgage holders and cripple the housing market even further
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Re post number 5 'Andrew'
Would you prefer me to spend all my savings and claim benefits instead?
Income wise, I'd be better off that way.
Not everyone can cope with a 40 hour week, and if you can you're entitled to boast about great you are verses the pathetic people who can't, but lets just be clear about it.
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13) To get a 4% increase on your net salary you will need a higher than 4% increase on your gross salary if you are earning, with your increase, more than your personal allowance.
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The Confederation of British Industry (CBI) expects business investment to grow by around 7% in 2011.
Since the backdrop is sluggish, this uplift in business investment seems peculiar...unless you consider the source: i.e. the investment banks too big to fail will be investing in business, but not in the consumer - not in the small-potato consumer, not in little mom & pop shops.
The CBI also predicted business investment would continue to grow by more than 8% in 2012.
CBI: “As the recovery continues and uncertainty about the strength of demand fades, firms are likely to reinstate a sizeable proportion of the investment plans that had been shelved during the past couple of years, and there will also be the need for replacement investment.”
Investment, investment, investment...
Are you investing?
The economy as a whole - forget CBI investment, is expected to increase by only 0.2% in the first three months of 2011. With a little more momentum in 2012, it might hit 2%.
Ian McCafferty, CBI chief economic adviser is concerned about commodity prices and inflation: “The persistent strength of energy and commodity prices is a growing concern, as it is likely to mean that inflation does not fall back quite as sharply as many hope...This makes it more likely that the Bank of England will need to start pulling back from record low interest rates earlier, rather than later, next year.”
The CBI has predicted that interest rates will start to go up in the spring, reaching 2.75% by the end of 2012. This has generally been greeted as bad news. But, as some will add, as an after-thought - it's good news for the hordes of people in the UK who live on the income from their savings...well, no. Savers have already "eaten" so much of their savings that 2.75% on what remains does not get me terribly excited.
I would take more comfort in record low interest rates; at least, inflation wasn't going to eat my savings.
Interest rates go up; inflation goes up.
I don't much care who says otherwise: the proof will be at the market place, and I don't mean the stock market.
Don't forget that CBI also talked about: job cuts and higher bills restricting consumer spending - the VAT rise from 4 January and higher energy bills.
What is most striking about anything CBI said was that: how little growth acceleration is seen for 2012. Typically, by the third year of a recovery, growth would be more robust than CBI is projecting.
Regarding interest rates, the CBI said that these will start from the spring and will rise "gently" from the current record low of 0.5%, increasing until mid-2012.
It says that the Bank of England will need to increase rates TO TACKLE INFLATION, which it says will remain high due to both higher energy bills and the VAT rise from 17.5% to 20%.
Interest rates go up; inflation goes up.
I don't much care who says otherwise: the proof will be at the market place, and I don't mean the stock market.
The CBI says CPI (consumer prices index) inflation will "significantly exceed" the Bank's 2% target for a second year in 2011, before returning to about 2% in 2012. Personally, I can't see a return. I believe this is wishful thinking.
The most recent official figures showed that CPI inflation rose to 3.3% in November, a six-month high.
It's cruel and unusual, and beyond that it doesn't make much sense.
Do these CBI folk really know what they're talking about because personally it makes little sense to me.
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" 2. At 1:08pm on 20 Dec 2010, inacasino wrote:
Wasn't it the borrowers and lenders who got us into this mess?
Not the savers. "
Savers expect to earn interest when they lend their money to a bank
So maybe they, the savers, forced the banks into lending to borrowers who wanted to borrow so they could have what the savers had… so maybe it's the savers fault for wanting something for nothing in the first place.
I think we are all a bit too interconnected to believe it’s as simple as One group good, other group bad
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Are other people as tired as I am by the way David Willetts supposedly incisive book 'demonstrates' that the baby boomers are the cause of most of this country's economic ills ? His level of analysis is facile. In any snapshot of intergenerational wealth those aged 45-60 will be have most per capita wealth because they are at their peak earning powers and haven't drawn on their savings to fund retirementor give to their children. The expensive years of raising children and funding education are, or until recently, were behind them giving them more wealth to accumulate savings for retirement. Without these savings being invested where would the country get its supply of capital from ? Or would that be another 'pinch'? It really is time this book was regarded as the grubby 'politician's-with-an-axe-to-grind' pot boiler that it is rather than a work of serious economic analysis.
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"I'd suggest that the real culprits behind the depression are much younger, your generation even, and work for banks"
Inacasino, if you were part of the "younger generation" right now, do you think you would be that different to the rest of us? No of course not, you would probably have a mortgage like the rest of us and heaven forbid, you might even be working for a bank, trying to keep your family clothed and fed.
I don't think your ageist comments are very contructive.
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My impression is that inflation is much higher than the headline figure. arny5000 (above) is quite right. Bills often rise by 10 - 20 % a year. (Gas, electricity, paint ....)
This government (and the last) is using inflation to hide the chaos of debt that the public is swimming in. The alternative would be to let banks, businesses and people face the reality of their poor investment and borrowing, but the time to do that was ten years ago before the debt ran out of control. I think Labour let it happen either because they enjoyed the feel-good factor or more likely because they can't do arithmetic.
As for economists, ten years ago when returns on investments were high, I don't remember any of them warning that high returns mean high risks.
Politicians are rubbish at arithmetic. Except Ken.
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I remember a manufacturer bemoaning the lack of inflation. Inflation was always the excuse for hiking prices and getting away with it. Looks as though the anecdotal evidence on this blog would bear that out.
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this proposed increase in base rates WILL create a double dip. The reason being that mortages will increase and so starve the wider economy of "spare" money.
Sadly, this will always be the case until the UK, like every other developed country has fixed rate, fixed term mortgages. The UK Bankers hat ethis idea because it would end the money making associated with the UK mortgage business.
The Government is so in hock to the banks it declines to force banks to fund mortages, long term debts, with long term funding bonds. As a result mortgages remain short term funding instruments which, due to variation, act to stiffle demand, pensions and other savings vehicles.
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Stephanie,
could you please cite the source of your assertion "- certainly the average voter is a saver."
Thanks
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I read this article and thought it has some interesting insights in to savings.
http://www.mindfulmoney.co.uk/2779/investing-strategy-/why-its-not-possible-to-save-what-you-can-do-about-it.html
It talks about how if you saving were to go in to an account automatically you wouldn't miss the money you were putting away - but if you have to do it yourself every month people make excuses not to put them in.
The approach it talks about is called "choice architecture," a means to encourage people to make choices that are in their own interest. They suggest employees be offered the opportunity to sign up for automatic savings when they get raises. That way, it appears to cost them nothing, as it comes out of income they never had before. Nothing lost, something gained.
One problem with this though, which most people can proabably relate to is if you don't get raise, where is the money going to come from...
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Oblivion wrote: "How on earth is raising base rates going to have any effect on real prices when energy prices are rising for completely different reasons?
So why would interest rates rise?"
Erm. High inflation and low abse rates = weak currency.
Weak currency = high price of wholesale oil and gas prices
Weak currency = high cost of all the imported food we consume
Weak currency = high price of imported commodities, raw materials and consumer electronics/cars etc
All of these things have risen in price over the last 3 years because of a weak currency primarily.
Now they are rising because whilst our currency is not weakening against teh Dolalr, the traditional comparison, the BRIC country currencies are rising against ours and we import a hell of a lot from them.
You want a lid on energy prices the easy way? or even a reversal? Raise interest rates back to recapture inward sterling investment and reinflate the pound (or should that be deflate???)
Bottom line, Petrol is £1.25 a litre because Sterling ahs had a hammering since the crunch, and that is largely because of the rock bottom interest rates.
The world is engaging in competitive devaluation and inflation. Except germany who are not actively devaluing, the PIIGS have doen that task for them. And they really do hate inflation.
Funny how Germany is robustly placed macroeconomically to coem out of the stinking pile of manueaure that is the present day world downtuen looking pretty good!
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If saving is to be seen as 'a good thing' and being in debt 'a bad thing', then there needs to be an incentive for people to save, and a disincentive to being in debt.
Currently we live in Alice in Wonderland times, where what is desirable is punished, and where what is undesirable is rewarded.
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#20 NONFSA,
Well said. I too am sick and tired of this constant reference to a very poor piece of analysis which totally ignores all of the major economic issues that pertained theoughout the period 1950-2010. Where is the analyisi of the market system and its consequences? Where is the analysis of the social impact in the UK of Thatcherite economic thought? Where is the analysis of globalisation? Where is the analysis of the cost effects of the Cold War?
#18 BluesBerry,
Surely you don't believe that the CBI could be wrong do you? :)
I'm afraid that their projections and forecasts are about as far removed from reality than both the BoE and politicians are when they talk about inflation!
The true pain, in terms of jobs and incomes, will not be truly felt until 2/3Q 2011. Perhaps by then we can truly see that we are not going to have a double-dip as real growth never happened in the first place. Perhaps then we start making the politicians see that we have to plan for a long scale depression. The dramatics at the 'start' of the Great Depression were not usual and cloud our judgement. The real seeds of the depression were sown many years before. Denial is such a miserable thing!
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14. arny5000:
"The big issue for me is how can they possibly say inflation is 3%, when everything has gone up 20% or more"
You are right, the effective rate is very much higher. Here's how it's done:
- "Imputations" - including in the calculation things that don't really exist (yes, really - look it up)
- "Hedonics" - adjusting prices to capture supposed improvements in quality
- "Substitution" - if the price of X rises more than Y, they assume that the consumer switches to Y (and back to X next year if the price differential reverses)
- "Geometric (rather than arithmetic) weighting" - automatically reduces basket weighting of anything of which the price is rising rapidly.
In the US, real CPI is about 6.5% above the reported number. In the UK, the gap is probably smaller, it's hard to know for sure, but still significant. I estimate real UK inflation in the 5-6% range.
Fudged inflation serves governments in many ways:
- Lower welfare spending, when rises are linked to understated inflation measures (hits pensioners very hard)
- Smaller rises in public sector wages (private sector does the same, of course)
- Higher tax take (allowances fail to keep up with real inflation)
- Higher reported growth, when the GDP deflator is similarly distorted.
So basically, yes, inflation is very understated, and this serves all governments well.
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stillpuzzled #25 - totally agree with the sentiment but I think the technical definition of a saver is someone with a bank account with one pound in it. ie we need to get this term defined before we start talking about numbers.
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#1 Oblivion, while I don't pretend to be an expert, I think you'll find that the international value of a currency depends to a large extent on the interest rates paid in that currency, and since GBP is not used to price commodities then all your raw materials will increase in price. Hence inflation will increase.
# 5. I totally agree but try getting a job post 60.
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Most of my 70 years I have saved - but now there seems little point - I have decided to spend my savings on travel , charity,the family, paintings , books, anything to take the money away from the banks and to provide enjoyment for myself and others - I get much more pleasure from giving it away than I ever did from hoarding it - I suppose it all started because my family , during the war, like most families , had very little spare - now I have so much that it overwhelms me
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Please don't quote Willetts at me, there's more holes in his argument than a string vest, and he doesn't need you to plug his book for him. And yes, I have read it, I borrowed it from the library, and my conclusion, since he doesn't provide one, is that he is writing about himself. He feels guilty, and so he should. As a Thatcherite he and his part of the baby boomer generation did extraordinarily well out of it, unlike some people who didn't.
Regards, etc.
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Interest rates should never have been reduced to the idiotically low levels that they are at and have been at for nearly two years.
For three reasons:
- the first is that money is so cheap that all other economic policy fails to be effective,
- the second is penalising savers is absolutely opposite to that which is required,
- the third - the cause of the crash is the bubble caused itself by too low interest rates so all that lower still rates can possibly do is to perpetuate the bubble and makes things worse still.
Fire Mervyn King NOW!
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fourth reason (see #35)
The whole pension system will collapse unless rate are got up quite soon.
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# 1. At 1:04pm on 20 Dec 2010, Oblivion wrote:
The linked article says:
" It says that the Bank of England will need to increase rates to tackle inflation, which it says will remain high due to both higher energy bills and the VAT rise from 17.5% to 20%."
How on earth is raising base rates going to have any effect on real prices when energy prices are rising for completely different reasons?
So why would interest rates rise?
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Higher interest rates = stronger sterling
As the UK is a large consumer goods importer (utilities included) it would make things cheaper and inflation drops, providing of course prices reflected this and weren't kept high to increase profit. It also reduces money supply as it is absorbed by higher interest charges further reducing inflation so it would have an effect, albiet it is arguable how much, irrespective of VAT.
The other edge to the double edged sword would be higher export prices, higher debt costs and therefore UK factory gate inflation. Add to this insolvency, bankruptcy factory closures and the fabled private sector driven recovery is dead. I'll wager the CBI are wrong and rates remain low, very low, for a very long time because debt is the key not inflation unless they can get banks lending again, which they won't.
Anyway whatever happens, we're doomed Captain, doomed.
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If base rates are at 2.75% by this time next year, then I'm a dutchman. Doesn't this show what a lot of numpties the CBI are?
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The GBP is perhaps 30% down on quite similar economies, perhaps there is something wrong with interest rate differentials.
The base rate is lower than inflation (and the inflation target) - something wrong with rates.
Hardup pensioners who have saved are suffering whilst bubble borrowers celebrate - something wrong with rates.
No mutuality in the saver-borrower relationship => no mutuality in society, there is something wrong with rates.
Talk of a quarter point a quarter plan is considered a move - there is something wrong with interest rates.
I have more interest in a Ms Flanders column than I get for my savings ... there is something wrong with interest?
The MPC/BoE can do micro-rates but only macro-econ ...there is something very wrong.
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They should see a savings and investments advisor, and if they rely on savings yet haven't bothered to seek advice, they have themselves to blame.
Leaving your money in a bank has been a historically poor way of investing your savings.
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31. At 3:44pm on 20 Dec 2010, Ben wrote:
stillpuzzled #25 - totally agree with the sentiment but I think the technical definition of a saver is someone with a bank account with one pound in it. ie we need to get this term defined before we start talking about numbers.
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Pretty daft definition, but I get the point.
My definition would be someone with the sum of their bank-accounts coloured black rather than red.
A bit simplistic, but easy to work out.
e.g. mortgage of £100,000, Credit cards £15,000, ISA £10,000
Total £105,000 in debt. That, to me, is not a saver.
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stillpuzzled - yes, I would be conservative too. I think it wouldn't be fair to say a mortgage is all debt, rather some kind of mark-to-market vs outstanding loan. Even then I guess it's subjective. At the moment that would mean many are in negative equity and so would still produce few "savers".
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Got to love governemnts. They want us to save for our own retirements and when we do save we get stitched up with low interest rates.
Perhaps the answer is to turn all existing floating rate mortgages into fixed rate mortgages at whatever rate currently applies, then allow rates to rise. That way existing mortgage holders won't get crucified by all the pain that is needed to get out of this mess, and new borrowers will have to work within more realistic limits. Yes, it means the price of housing will fall, but that can only be a good thing given just how silly the prices are at the moment.
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arny5000 @16
I've made the point before that people like you exist, ie. low income but disqualified from benefits due to savings. After the savings limit is exceeded then a notional income from savings is calculated with an unrealistically high interest rate and that is added to real income to take the amount over both the income and savings limit, meaning that the person does not get benefit. This is the reason that a lot of pensioners live on less than the level of state benefit.
re. pension funding generally
I've mentioned before that funded pensions (both public and private sector) have had funds removed during the boom periods when they were considered to be over funded. What I've read recently is that there is a 5% rule that effectively forces employers to take money out of pension funds if they are over 105% funded. If there's anyone on these blogs that works in pensions then it would be interesting to hear the detail about this. The underfunding of private sector, public sector (funded schemes) and even the BBC pension fund has probably been affected by this issue in the past.
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43. At 5:07pm on 20 Dec 2010, ThoughtCrime wrote:
"Perhaps the answer is to turn all existing floating rate mortgages into fixed rate mortgages at whatever rate currently applies, then allow rates to rise. That way existing mortgage holders won't get crucified by all the pain that is needed to get out of this mess, and new borrowers will have to work within more realistic limits. Yes, it means the price of housing will fall, but that can only be a good thing given just how silly the prices are at the moment."
This is actually a REALLy good idea.
One problem: banks would tie up the courts and tajke HMG to the cleaners. It would require soem pretty heavy handed primary legislation to make it happen.
Then force EVERYONE with an existing mortgage onto a 5, 7 or 10 year fix depending on their marked to market LTV (100-85%, 85-60%, 60% and below)
Downside: most people on variable rates could NOT afford a fair value fixed rate. No right minded bank would give out a fix on say 85% TLV for less than 5% return! most people on even SVR rates are payign less than that now, convincing the sheeple would be impossible.
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The UK (and most similar societies) are dominated by borrowers, not lenders, hence the predominant political pressure is for low interest rates.
Starting with mortgages, the total outstanding is £1.2 trillion, owed by 11.4 million customers. Consumer credit outstanding is about £300bn. On top of that, of course, is corporate debt, government debt and 'off-balance-sheet debt' (such as unfunded public sector pensions).
Much of this debt is owed to foreigners, as the borrowing binge sucked in huge sums from abroad. UK external debt is huge.
So, in an environment of higher rates, mortgage payers, businesses and government all suffer, as does UK plc generally in terms of interest paid to overseas lenders.
It is therefore a sad fact of life that the savers get a raw deal because the 'big battalions', numerically, have a vested interest in low rates.
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42. Ben:
"I think it wouldn't be fair to say a mortgage is all debt"
True. But, nationally speaking, people derived false comfort from housing values during the bubble years. Whilst the individual can sell the property, turning theoretical equity into real money, it is not practicable for more than a tiny proportion of the national housing stock to be monetised in this way. Therefore, at any given time, the value of the housing stock is theoretical - and capable of falling - whereas mortgages are 'real' liabilities.
The FSA recently proposed tight lending criteria to prevent a repeat bubble, and that is good in principle. But we have to consider how to unwind the bubble that we already have. Inflation is probably the only way of doing this, as it erodes the real value of debts.
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Friendlycard - trust me - I'm not one for the house price fantasy.
Inflation is probably the only way to do it gradually. As a young saver I probably won't be waiting with my family for 15 years until I can buy a house whilst my savings are implicitly taxed and I grow old paying for today's pensioners knowing full well I won't get one. What a mess.
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You can only take money from people who have it which is part of the game right now. Hence savers will in real terms suffer because currently spending is wanted not savers. When the bubble collapses it takes imaginary and real money with it because the preception of wealth is both real and imaginary. Both losses damage.
Since you would save none of me, I bury some of you.
John Donne
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'The CBI has predicted that base rates will start to go up in the spring, reaching 2.75% by the end of 2012.'
The chances of the economy being strong enough to withstand these kind of rises in the base rate are between slim and none. Once the public sector cuts start to bite, that will be more than deflationary enough. I would personally bet more money on another bout of funny QE money being required. I may well be proved wrong however.
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#19
quote/" 2. At 1:08pm on 20 Dec 2010, inacasino wrote:
Wasn't it the borrowers and lenders who got us into this mess?
Not the savers. "
Savers expect to earn interest when they lend their money to a bank
So maybe they, the savers, forced the banks into lending to borrowers who wanted to borrow so they could have what the savers had… so maybe it's the savers fault for wanting something for nothing in the first place.
I think we are all a bit too interconnected to believe it’s as simple as One group good, other group bad
/unquote
I don't remember forcing anyone to lend when they took my savings. No doubt my wanting the best interest rate I could get (ignoring 'too good to be true' offers) encouraged competition, but then I did stick almost entirely to building societies believing them to have integrity. When some of them became ex-building societies they abandoned integrity it would seem.
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If the BoE wants to commit economic suicide, raising interest rates is just about the quickest way to do it.
Higher mortgage costs will not be absorbed by household budgets already stretched to breaking point - there will be a tidalwave of people defaulting on their payments and the UK will undergo the same social disembowelling that has happened in the USA, with large numbers of middle class families being effectively wiped out.
How would we cope with a 40-50% fall in house prices and the whole market going into deep freeze for several years? This is a VERY fragile market - people's budgets have become used to low interest rates and the gearing effect of a small percentage increase is very high indeed from such a low base.
The case for raising rates is to squeeze inflation out of the system, but I'd argue that most of the inflationary effects in the economy are not coming from overheating and wage/margin increases - indeed the very opposite is true - they come from the impact on import prices due to the devaluation of the pound and from tax increases. All that raising interest rates will do is to add to the pent up head of steam already in the system for higher wages and to raise prices, if the market weren't so tight - those that can demand wage & price rises will get them - the rest of us will simply saee our living standards fall.
Raising rates now at the same time as massive deflationary impact from government spending cuts is a receipe for recession and probably depression - the belief that QE is delivering fiscal easing is not born out by the figures - so IMHO we are looking at a huge deflationary vaccum that will suck the heart out of the economy.
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'UK science funding bodies have learned that they will have to absorb cuts of 41% to their capital expenditure.
This capital expenditure is money spent on building, maintainance or equipment.
These cuts are on top of the 10% real terms cut announced by the Chancellor George Osborne during the spending review in October.'
http://www.bbc.co.uk/news/science-environment-12021483
Equipment, something you do something with, you know, development, progress and strange ideas like that. Buildings, something you have equipment in, unless all is to be outdoors.
The Art of the State is obviously to reduce the State of the Art.
Good basis for moving forward, not.
Economically inactive savers need to worry about just what sort of economy they will be relying on to provide support like welfare, you know, the NHS and so on.
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"At 1:21pm on 20 Dec 2010, Jon wrote:
I remember a former businessman telling me how he missed his high flying job because of the 'Gold card' he used to have. I personally would have been more interested in the salary..."
That's quite funny really. Gold cards became debased currency years ago. BAsic requirement for Gold was to be earning over about £15k.
Platinum and Black were the new gold even 5 years ago.
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Who runs the UK economy?
And why is the information so dissimilar?
The Confederation of British Industry said:
The Bank of England will start raising interest rates within 6 months to curb inflation.
CBI said: The Monetary Policy Committee (MPC) will increase its interest rate by a 1/4-point every three months from the second quarter of 2011 until mid-2012. It will then step up the pace of increases to end that year with a rate of 2.75% (still rather small).
CBI Chief Economic Adviser Ian McCafferty: “The persistent strength of energy and commodity prices is a growing concern, as it is likely to mean that inflation DOES NOT FALL BACK quite as sharply as many hope. Growth at the start of 2011 is likely to be very sluggish, although we do expect the recovery itself to stay on track.”
In other words, The Bank of England's raising interest rates will not necessarily curb inflation; in fact, are NOT likely to curb inflation.
Bank of England policy makers REMAIN DEVIDED over the need to curb inflation or increase bond purchases to counteract the effect on the economy of the government’s deficit reduction schemes.
Inflation is already excellerating to 3.3% in November, surpassing the government’s 3 percent limit for a ninth month. So, initially the Government erred in its estimate.
Inflation will end 2012 at 2.4 percent%. I can't believe this when it's excellerating now at 3.3% AND INTEREST RATES ARE GOING UP! I estimate inflation by the end of 2012 at (minimum) double the 3.3 figure. That's a big difference.
The CBI said the economy will grow 0.6 percent in the current quarter before slowing to 0.2 percent in the first three months of 2011. Growth will average 2 percent in 2011, it said, and accelerate to 2.4 percent in 2012. I don't know where this growth will come from. Is production expected to go up? Manufacturing? Exports?
It also forecasts house prices will fall about 4% next year and remain unchanged in 2012. Gross mortgage lending fell 5% to 11.1 billion pounds ($17.2 billion) in November. A separate report based on data from six mortgage lenders showed that banks granted 45,000 loans to buy homes last month, compared with 44,000 in October - less than half the peak of the property boom in 2007. This sector is not on the rise either; in fact, seems fairly stagnant to me.
The Bank of England left its emergency bond-purchase plan unchanged at 200 billion pounds this month and kept the rate at a record low 0.5%.
MPC member Adam Posen has called for the bank to increase stimulus. He also said that policy makers shouldn’t “overreact” to inflation, as it may slow below 1% in two years.
His colleague Andrew Sentance, by contrast, has voted to increase interest rates since June.
Does it seem to you, as it seems to me, that no one has his/her finger on the pulse of UK economics.
What's going on?
Who really runs the UK economy?
Is it possible...I mean is it really possible that the investment banks too big to fail... run the UK economy and get subsidized for doing so?
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Thank you Friendlycard. Many contributions to these discussions are very good but I have printed off a hard copy of your analysis of why government figures of inflation rates are so low in the face of the obvious evidence. Your reasons why governments do this make a lot of sense.
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I for one am not convinced that there is much point in saving, I have now reached a point where I am mortgage free and since clearing it, I have been determined to build up some savings (for the first time in my life) so by very frugal living and prudence, I have saved about two years salary....but whats the point?....I live very modestly, but TBH, why dont I just spend the cash?....inflation may well erode it, I have things I would like to spend it on, intrest rates/inflation ratio mean that the real value is falling. Some home improvements and a family holiday or two are looking very likely, so long as I stay just in credit, why have savings ?
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The economic crisis has some surprising twists.In a speech reminiscent of the one made by Stalin in 1941, when the Red Army marched straight from Red Square to defend Moscow with Germans already in the suburbs,Boris has urged the citizens of London to march to Healthrow with their shovels to clear runways and redeem the British economy.I have it from reliable sources,Boris will lead the march and Mr.Blobby is going with him.
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".......After all, don't interest rates go up, when inflation does? But not this year..... "
Why not this year Stephanie?
Perhaps in a future blog you could explain why the MPC, through the Bank Rate and QE, is acting as though they are gripped by the fear of deflation.
Do the MPC really fear deflation 'looking 2 years out' if so someone should remind them how bad they are at:
1. Forecasting inflation
2. Keeping inflation at the target level
And @52 RB. But the MPC is not charged with managing the economy. That's the Government's job, so the BoE cannot commit economic suicide they can only commit monetary suicide.
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Thats some very optimistic growth forecasts. 2% next yr followed by 2.4%? We're laughing if thats the case. But it isnt.
I think people are wildly optimistic. I think Osbourne has had the benefit of the last govt's stimulus so far.
He will halve growth next year and reduce it further after that on his spending plans.
The CBI is wildly out I fear, as disposable incomes are shredded by real RPI rates and as Unemployment rises,
Rates will be kept low.
Seems to be the way of the world, negative real interest rates leading to bubbles first in housing, now in bonds and emerging markets, metals, and anything else of value.
All those business leaders who jumped on the austerity bandwagon at election time to save a bit of N.I. are now going to ask for more subsidy (tax cuts) as their customers disappear under austerity and inflation. They won't suffer but their workers will. Hateful.
The subsidy to mortgage holders is an outrage. They borrowed too much, the banks lent too much, but they are being subsidised. It is a crime.
Finally with the 2015 election in sight, Osbourne will throw in the towel on debt and reflate (he's desperate for inflation to remove as much debt value as possible until then).
Ken Clarke did this for the 97 election (and failed).
His spending was runaway after unemployment and for the election, leaving Labour with 7%+ bonds for borrowing costs. As a result, labour couldnt do any investment for 3 years.
In fact its one reason why gold was sold, to reduce borrowing needs - that and the fact that it had lost value for 25 years and looking forward there was a low inflation mantra with borrowing strictly held at 40%gdp.
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Let me have a quick, but necessary, pop at inflation rates and how they misled or rather were designed to mislead the regulators so as to deliberately cause an asset bubble and the inevitable crash.
I recall a written correspondence with (the late) Eddie George, then (Governor of the Bank) about the corruption of the domestic inflation figures caused by imported Chinese deflation. He basically couldn't give a damn - the number was the number generated by the NSO and it wasn't his job. I also had a go at the head of the NSO at the time over dinner about the same subject and his attitude was that he just measured changes in prices on the high street.
No one was responsible for anything - except the people coordinating the system - Her Majesty's Treasury under the command of the now Head of the Civil Service G0D (Gus O'Donnell). No evidence of one iota of integrity between the lot of them!
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51 inacasino
'I don't remember forcing anyone to lend when they took my savings. No doubt my wanting the best interest rate I could get (ignoring 'too good to be true' offers) encouraged competition, but then I did stick almost entirely to building societies believing them to have integrity. When some of them became ex-building societies they abandoned integrity it would seem.'
Some societies wanted to become banks. A few fought a rearguard action but it was forced on them by members (savers) via a vote. In every case the move was supported by savers who wanted the shares.
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Interest usually reflect a variety of factors including anxieties about future profitability and asset vales.
Both of which would suggest that BoE repo rates will remain low for sometime.
Back in 1997-98, when UK debts were much, much worse than now (we paid 5.2% on national income on servicing the Tory debt mountain vs. 3% nowadays), the gentle measures applied then led to a severe shortage of Government Bonds as the new government paid down its inherited debt and got inflation down. Tories complained then about ever lower interest rates as inflation fell.
Truth is, there really is no such thing as 'savings' in any physical sense. What we accumulate are legal claims upom the future incomes of borrowers. If borrowers don't have as much income as we both expected, then our claims can't be met in full. Which is where we are now.
We really ought to pay out in real terms for the privilege of being able to make such claims upon other people's future income. Imagine being able to store our own resources at someone else's expense for years and years, and then expect to be paid for that service provided?
Both savers and borrowers should be pleased that we have such sophisticated financial institutions that we are able to save safely at all! And then get paid for that as well.
Time for us all to be pleased that we don't face anything like the severe financial crisis of 1997-98, and that we do have some places we can store our future claims upon other people's future incomes.
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Given that there is practically no demand for money in the form of new mortgage applications, it beggars belief why savers should be paid any interest at all...... savers are actually just parasites living off the labour of the indebted.
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#61 John_from_Hendon I agree and commend your action at the time. I only wish more people held sway with your opinion. Low inflation in the late 90s and the past decade was entirely due to manufacturing and production :
a) being transferred to China, which was competing on its low labour rates, generated by its two tier internal apartheid between country and city dewllers, not only the now constantly mentioned undervalued Yuan. But also,
b) manufacturing and production scaling up to a global scale while costs were also being driven down by automation and robotics. Unfortunately not much of this highly efficient global manufacturing was located in Britain, and when it was, it was by foreign owned car companies, such as Nissan in Sunderland.
Unfortunately nobody else at the time seemed to see terrifying risks, particularly the economists. They worshipped the inflation figures produced by any statistical body, so long as it appeared that everybody was living in a world of plenty. It was so obvious to intelligent people born before 1965 (and therefore got to see Britain's and other national economies before 1990)that the world was skewed: food was so cheap that Britain's DEFRA asked the question, "Why should Britain bother to grow food if we have so many crises like BSE, Foot and Mouth, and Blue Tongue disease etc."
Now Mervyn King is still in the job he took over from Eddie George, but he didn't see the problems coming either. They (I heard Charles Goodhart saying it) explain their blindness by saying that they believed prior to 2007 that monetary stability was entirely manageable by price stability and that financial stability was ensured by global risk reducing financial products.
Economists get it wrong all the time, even when its' happening before their eyes. You have to wonder! No, they don't bother looking at the real world, that's why they get it wrong! If they had been going to the tips and dumps all over the country they would have been seeing where all the magical GDP was going - beautiful new furniture, electrical appliances, kitchens etc going to the dump because they weren't good enough, according to the Interior Decorators (even on the BBC) who ruled fashion at the time.. Drug consumption focussing entirely on cocaine, which was expensive, and foregoing cheaper alternatives like alcohol.
Now Stephanie is giving the naive an explanation of savings and interest rates and inflation rates for the minor adjustments that will be made next year. Just what they need to be fed. Never mind the fact that Japan and Britain differ for a host of other reasons - including the fact that the Japanese have so much technology in their industries that they could create deflation by exporting their way to it. The Japanese exported, the Yen went higher, their imports became cheaper. Britain would take about 10 years to reach that stage, because quite apart from the lack of already world-beating industries, there is a pre-ponderance of an uncompetitive unproductive workforce that can only increase its productivity by letting Sterling sink. What else could you expect after 13 years of that excuse for a Government, where the Chancellor of the Exchequer and the Prime Minister were running two separate governments? By comparison, today's coalition is a far more unitary and purposeful government than the previous one that caused damage to its Party for years to come.
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Don`t blame the previous generation for the mess we are in know.
I am a so called "baby bummer" who left school at 15, started my first endowment (our generations rip off??) and pension at 18.Working 60/70/80 hours a week in a manual job. Married and first mortgage at 21 (after saving for 12 months with a building society). Family followed as did 14% motgage interest rates. Continued saving a little and working o/t so this could happen. Empty nested - a little more into pension pot. Now 62 and retired, not rich but comfortable because of the way my wife and I have organised our lives without 100% mortgages and without taking equity out of our home. But it has been hard work.
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@55 asked -Does it seem to you, as it seems to me, that no one has his/her finger on the pulse of UK economics.
That's exactly as it seems to me. Divided opinions within the MPC indicate they are totally lost. That's far more worrying than the differing forecasts for growth and inflation
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In #63 "Truth is, there really is no such thing as 'savings' in any physical sense. What we accumulate are legal claims upom the future incomes of borrowers." IS NOT TRUE, because savings represent the use of money as a store of wealth, where it can be exchanged for real assets (such as land or already-built houses and factories with road systems and gas and water and electricity distribution systems on that land) or other sotres of wealth (such as gold, food and grain stores, and intellectual property).
This is why running interest rates below inflation rates for over a year could cause a collapse in the monetary system. If you think a collapse in the financial system is bad, then go to Zimbabwe or, back to World War 2 to see how bad a collapse in monetary systems can be.
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64. At 8:14pm on 20 Dec 2010, onward-ho wrote:
Given that there is practically no demand for money in the form of new mortgage applications, it beggars belief why savers should be paid any interest at all...... savers are actually just parasites living off the labour of the indebted.
============================================================
Shame on me for being a saver!
How could I be so selfish - not squandering my cash on junk. Did I not listen to all that marketing nonsense?
Just a small point ... if the indebted spent less, they could become savers.
Stop bpassing the buck!
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In your first paragraph you started a sentence with the word 'But'. When I was at school over 50 years ago we were told never to start a sentence with the words AND,THEN,SO,BUT. I guess times are a changing.
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Data from mortgage lenders shows mortgage lending is at its lowest for the last 10 years. Banks are not lending to individuals or small businesses, that is another fact. With unemployment expected to increase further and too many families struggling to make ends meet, I fail to understand what can a base rate increase possibly do for us? Soaking additional extra money from already hard pressing families can only increase repossessions and related loan default trouble that banks would prefer to avoid. This medicine of rate increase feels like medieval medicine, i.e. drain the patients blood to get read of the disease. It is effective medicine: it keels the patient.
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Those who converted their pounds into gold are much, much happier with their rate of return.
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Re number 63.
That sounds all very well and good but what about the moral hazard issue. People taking on big mortgages in 1999 saw their investment triple. Remember a few years ago when the yearly rise in the value of people's property was more than their yearly salary? Now that the market is moving in the other direction, the government steps in, because presumably a fall of prices of say just 50% would presumably cause the entire banking system and economy to go under (even though a fall of 50% would be entirely reasonable after a tripling of prices). It seems like house buyers can't lose, all they need to do is make sure they're in a big enough majority and their investment can only go up, or at least only go down by a slight amount.
Meanwhile other investments like shares can plummet, and savings in the bank could be devalued by 30% inflation like in the 1970s.
Paradoxically, the reality of the situation is bad for home buyers too. People just can't seem to see that paying a bigger and bigger percentage of your income towards housing costs is a bad thing.
If anyone is thinking my description sounds similar to the banking crisis, my suggestion is that's because it _is_ the banking crisis. It's also the welfare spending crisis too, even drug addicts, the mentally ill, and the clinically lazy have to live somewhere.
That's how I understand it anyway, enlighten me if I'm wrong.
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70. At 8:50pm on 20 Dec 2010, loxanna wrote:
In your first paragraph you started a sentence with the word 'But'. When I was at school over 50 years ago we were told never to start a sentence with the words AND,THEN,SO,BUT. I guess times are a changing.
===================================================
... I guess times are a changing ....
'Guess' is acceptable, but 'a' is redundant.
One can't be sloppy on these matters!
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Too many guesses for my taste.
“this has generally been greeted as bad news”
“the average baby boomer is a net saver”
“the average voter is a saver”
“we still feel and sound like a nation of borrowers”
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#62
quote/51 inacasino
'I don't remember forcing anyone to lend when they took my savings. No doubt my wanting the best interest rate I could get (ignoring 'too good to be true' offers) encouraged competition, but then I did stick almost entirely to building societies believing them to have integrity. When some of them became ex-building societies they abandoned integrity it would seem.'
Some societies wanted to become banks. A few fought a rearguard action but it was forced on them by members (savers) via a vote. In every case the move was supported by savers who wanted the shares.
/unquote
Sure, but how many savers would have known what they would have got up to, freed from the morality of mutuality?
No, let's not start a witch-hunt against savers, baby-boomers and those who took it upon themselves to provide for their declining years. Let's tackle the real causes and culprits of our misfortune, greedy bankers.
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Re number 71.
Phil, long term what good does a low base rate do for you? All it does is enable people to pay more and more for houses, pushing up house prices, making people more indebted and hard pressed.
Presumably at 0.5%, money is basically being given out for free, and all you pay on mortgage interest covers some kind of insurance against you defaulting, plus the lender's admin costs? Surely this is not the basis of a sensible economic system. Do you really want to have a mortgage that's 20 times bigger than a basic minimum wage salary.
As a saver it's to my disadvantage if money is basically worthless, but I think it hurts home buyers too.
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The-itinerant-ex-pat
why not this year.
I'm not really to good with economics but the way I see it at this current point all the money that has been lent to the banks has been to repair the initial deposits and make sure that you have money at the hole in the wall and your wallet only a very small percentage of money is actually real.
So for a few years ALL lending must be kept low in order to restart the inflationary bubbles via interest payments on the capital within the banking system.
Once the real money starts to create imaginary money then banks can start bringing savings and secure loans back online. This will then kick of higher interest higher risk loans via smaller personal loans.
Didn't Einstein say something like "compound interest is the most powerful force in the world"
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"Cruel and unusual for savers" is the title of Stephanie Flander's blog.
As I've posted before - the usual Conservative fiscal policy is no surprise.
Increase unemployment; CUT services and still increase direct and indirect taxation which further increases inflation. Conservative usual solution to inflation - increase interest rates to contain inflation caused by most of the above.
Ah, yes, such a familiar dark story in the UK under the Tories.
However, we are ALL so much wiser and poorer now, and haven't forgotten that Tory policy.
HOWEVER, what has totally and fundamentally changed YOU might ask?
Importantly and crucially, is that BANKS in America, in the UK, across Europe and the rest of the World are in hoc to the tax-payers!
A UNIQUE and unprecidented situation in modern history - that needs to be the FOCUS of us all, globally, and reiterated by ALL ethical financial and political journalists - that banks owe us all.
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@66 baydog
+1
except I'm a year older.
The only time I borrowed money, apart from my mortgage, was to buy my first car.
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People need to see that money is actually worth borrowing.
For young people the idea is that their future earnings will increase as they do well in their careers.
For house purchasers there needs to be a feeling that buying now will save them money if house prices are rising.
But with the coalition telling half the electorate that they should have a wage freeze or a pay cut or a loss of their jobs..... what is the point in getting into more debt deliberately?
What happened under the sado-monetarist regime of Thatcher was that people got into debt not out of choice but because of a nutty denial by those in power of common sense and Keyesian logic.There was a persistence and determination to crush worker power and a dogged and self-defeating rise in interest rates.Savers never had it so good, but it resulted in negative equity, repossessions, endowment failures and The Equitable Life Crash as those interest rates were based on bleeding the mortgaged and the overspent dry,and were unsustainable.
As a friend's dad used to say , not only did they look a gift horse in the mouth, they took its teeth out.
So why should savers get a real rate of return on their money if the people they are lending it too are unsure that the asset they are purchasing will increase in value or not.
Who would you rather be, a saver moaning about only getting a percent in intest, or a flat owner looking at a forty percent decline in value since 2008?
If we bide our time , things will pick up faster and we can forget this boring crunch era.
The only thing that will bring savers back decent rates of interest is a booming economy and a thriving housing market and a big increase in the uptake of loans.
The only way out of a bust is a boom.
Trying to crunch out of a recession is like treating hypothermia by opening the windows in a snowstorm.
We actually need an independent body to stop the Bank of England and The Government emasculating our successful financial services sector.
We need to think creatively.
Savers need a break , but there is no point pretending that borrowers have wads of extra cash to pay them more.
Banks need deposits.To get more deposits they need to offer more interest, but if interest rates go up the housing market will crash.
So we need to bring back TESSAs ,Covenants for students,tax reductions on pension contributions, and maybe look at reducing the tax on savings.
Maybe we need to spend QE money on a tax credit for savers!
Or even a QE funded MIRAS scheme could arise Phoenix-like from the Ashes.
We need to buck up and move onwards!
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52. At 6:42pm on 20 Dec 2010, richard bunning wrote:
If the BoE wants to commit economic suicide, raising interest rates is just about the quickest way to do it.
----------------------------------------------------------------------
Tend to slightly agree with you on this one but the longer we leave it, the worse it could get. It should have been done very gently very gradually in 2007 and early 2008 when it might have had the added advantage of drawing funds into our banks.
The Government was in love with the housing boom, for a variety of reasons {all of which we now know} and did not want to collapse it. I'm sure they already had half an eye on June 2010 and being associated with the Thatcher/Lawson fiasco and the subsequent property disaster under John Major was the last thing they wanted.
Pensions were already in a mess, anyway, so they chose to try to protect the housing market at the expense of pensions, savers and inflation. I'm sure many in Government had an eye on the stock market as well. Had that gone south then pensions really would have been finished.
But the current near zero rates are not really benefitting anyone at present, except the really massively cash/capital rich. They either self-fund investment, or use their clout to borrow even more and chase greater appreciating assets, perhaps outside the UK.
Stat on the radio today suggested 1 in 7 mortgagees is in arrears with up to six monthly payments.
It may be time to bite the bullet and go for gentle increases. It could be that quite a few people are starting to hold back spending now and will do so even more in the New Yaer and might just be able to handle a return to more normal rates.
Dear old Beeb have been quite quiet on reporting repossessions, so perhaps they are running at 'normal' levels.
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@onward-ho
'Given that there is practically no demand for money in the form of new mortgage applications, it beggars belief why savers should be paid any interest at all...... savers are actually just parasites living off the labour of the indebted.'
Tut-tut naughty Onward-ho. Obviously you're well aware of the fact that when money is deposited into a bank account that money is actually 'lent' to the bank, they don't keep it nice and warm and cosy in a big bank vault, they promise to pay it back upon demand, hence the annoying (for you) interest aspect. Then the naughty banks create a magical new pool of money based on savers/investors deposits, which they then lend to the government at a high rate of interest in the form of buying gilts. QED by your logic the banks are parasites living off the labour of normal working people?
There's no demand for new mortgages because the banks are furiously trying to repair their balance sheets, as they are, for all intent and purposed, insolvent. They have no money to lend, hidden under the guise of new strict borrowing rules. That may possibly have something to do with it?
Weren't you saying six months ago that by January 2011, that the economy would have picked up, the housing market would be booming again and that you'd be laughing at all the doom mongers on here?
Welcome to the real world, how was it with your head in that sand?
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There is a huge swelling dam of unfulfilled dreams and plans.Dashed hopes.
And like the worst household, we blame it on the servants, in this case the civil servants.We have to get rid of them.Really?
We blame it on the last government, we blame it on the banks, we blame it on the Chinese, we blame it on the rich, we blame it on the poor.we blame immigrants, we blame speculators, bondtraders, Europeans, Americans, Scots even, Icelanders, Greeks, Portuguese, Spanish, Italians, Greeks and now the Irish.
Blame blame blame blame blame.
In the last government we used to have dreams, but now we think it was a mirage.
Where we are now reflects our low national self-esteem.Not being nationalistic here, I think that petty nationalism is part of low self-esteem. And self-overesteem. Look at North Korea, Russia, or Iran or Afghanistan or Serbia.
And that World Cup bid hasn't helped UK either.What were the BBC thinking of, broadcasting about judge corruption before the bid?
America is looking Hellish after Wikileaks, and Britain is looking like a toady to America for stalling and giving the Americans time to extradite Assange.
Remember we used to think of that Place in the Sun,or Relocate Relocate.
With the crunch the young have had to put their hopes of buying their first home on hold, middle-lifers are trapped and unable to move into a bigger family home , or sell and divorce and buy two smaller homes, the elderly find downsizing not worth the effort.
Enterprising people cannot buy land or do a mini-development or open a shop.
Students are being discourged from learning .
Hope is being abandoned.
And it is no coincidence that the Coalition are in power.
They cannot even manage a snowplough.
They are the prophets of blame.
And yes, Labour let us down by getting us into these stupid wars on the back of an alliance with a fading and then-crazy superpower that has outlived its usefulness.For that they deserve blame.
And our economy was bubbling and zinging a bit like China is now.
And for that they deserve blame but they deserve credit too.
Labour were right about so many things but the crunch was a massive global event we did not see coming before it was too late.
It hit us hard because we were doing so well.
Brown was brought in because of his determination and perceived lack of Spin, but his lack of being anything other than pathetic at spin was deadly. I loved him , but he was not liked by the electorate and even less so by his own party.
He was The Incredible Sulk, King Kong on telly ,so very, very right about the response to the world crunch,but so very, very wrong about how to appeal to voters.
His Cabinet and the old codgers and the young plotters were disloyal and mealymouthed just when he needed them.
The electorate didn't buy into the blame brigade either though, hence the hung parliament.
But the rest of Labour failed in May to do a deal , putting their own egos above the imperative to save the country from a Tory disaster.
We need to appraise the severity of the crunch as a sign of the dynamism of our economny.
Big hitters get big punches.
And boy were we punched.
The gloom of the coalition is infectious , but we need to shield ourselves from it, we need to look the other way, we need to break free from the consensus of shrinkage and despair.
We need to remember what our dreams are, and we need to put them into action.
The lack of reward for savers is reflected in the lack of willingness to let people activate their dreams.
SAVERS ARE PEOPLE WHO SUSPEND THEIR DREAMS SO THAT OTHERS CAN LIVE THEIRS.
I said they were parasites, and yes that is true.
But it is not all pejorative.We need parasites,they are essential for the wellbeing of every organism.And borrowers are parasites too as are banks.We all need each other.
But there is no point raising interest rates until the property market has boomed,and that won't happen until lending is freed up again.
Otherwise there will be no way of selling the properties to pay off the debts.Which will bring back revenue in stamp duty and capital gains tax.
Do not shoot the chicken because of a few bad eggs.
The best way of helping banks is to denationalise those we do have, and to re-establish the mutual sector which we lost in the manic de-mutualisation which proved so disastrous by helping them to restart from scratch.
The best way of avoiding the persistence of the crunch is to have another boom , but to control lending on specuative development we do not need such as for new buy-to-lets, and to help those already committed to finish their projects.
We need the merry-go-round but not quite as merry or as fast.
And savers were let down by lenders and borrowers.
It has been a strange time .....savers got battered, lenders were battered or saved and cossetted, banks were battered then cossetted.
But paralysis is evident .
WE ARE ASLEEP BUT WITHOUT OUR DREAMS.
QE PROBABLY NEEDS TO BE USED TO SET UP SOME BRAND NEW BUILDING SOCIETIES.
AND EVEN TO RESTART STUDENT GRANTS.
AND TO FUND ENTERPRISE AND INVENTION..
What about a British rival to Google, a London eqivalent of Facebook, and ditto Twitter and Amazon?
LET THEM BE TAX-FREE IF THEY ARE IN UK.
And watch out for Tesco ......big things are about to happen with mortgages and financial products.
Maybe it is not going to be so gloomy for savers and borrowers after all.
When we start to dream again we will wake up and a new day will arrive.
Imagine what that will do for our economy.
ZING ZING ZING!
And maybe just maybe the coalition will cheer themselves and us up. Especially if they claim the credit for our dreams!
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Morning Stephanie,
Mr Peston writes about banks and bonuses, you write about the faults of the baby-boomers. Are you both a double act?
You both write these headlines to get a response on your blog. I'm not sure how much you believe of your own economics spin.
My view is that interest rates will rise when and if the USA put up their rates because our currencies are inter-connected.
We know that the toxic debt that the banks took on has an average maturity of about 7 and a half years from 2007 so no real recovery of bank debt will take place before 2014-2015.
I'm puzzled by the fact that only the BOE can set base rates (although I accept there can be political pressure for them to do so) and that they have kept them extra-ordinarily low for two years. The BOE is supposedly responsible for keeping headline inflation rate below 2% and they have FAILED for the last 8 months. The only "sanction" from the Government is for the BOE to write a billet-doux to the Chancellor!
This is not grown up government and it fools no one.
Make no mistake, Stephanie, we have not begun to de-leverage our debt (public or private it's still debt), the austerity cuts have not started yet and inflation of commodities is rampant (see China).
The USA haven't admitted that they have a debt problem yet -they are in denial and when they do try and do something about their indebitedness to 90 countries around the world, the dollar will collapse and it will take the pound with it.
I predict that in 2011 at least one major high-street bank will collapse and will have to be wound-up.
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83 I DID PREDICT THE ECONOMIC GROWTH OF 2010 WHICH NOBODY AGREED WITH, AND THE HOUSING MARKET RECOVERY OF 2009-10.
Yes it has stalled in the past few months in England but not in Scotland.
Unlike other bloggers I do predict a big housing market and UK economic recovery in 2011.
When UK awakes from its slumber it will be strong.
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#81. At 10:22pm on 20 Dec 2010, onward-ho wrote:
'People need to see that money is actually worth borrowing.
For young people the idea is that their future earnings will increase as they do well in their careers.'
I am one of the old guard - brought up in council ( social ) house - never really thinking of buying one . Why should I ? paid the rent - got the place repaired , never any thought of 'inheritance' just somewhere to live . Got married and looked at the possibility of buying . Had to put a deposit down and could't afford more than 2 1/2 times salary . Here's the rub - couldn't afford to buy in town where I worked , had to buy 15 miles away and travel. So a car was de rigueur - extra cost .
However the mortgage was my only debt ( bought old bangers that lasted a year each then got rid of them) .
Now my lads are in debt to the state for their education ( mine came free ) and they have become inured to debt - just another fact of life . We have created a debt mentality - when borrowing ( even if you may have to pay back one day ) as you start out on your independent life is seen as acceptable.
Is this borrowing really worth it ?. For the boys - not really . The place is awash with graduates ( especially with 2.5 million out of work )so there's no real advantage there . For me - payed off the house and put what little extra in savings - being eroded by greater than official inflation, having spent thousands ( far more than the equity on my property at the moment )on just paying the interest off ( and home improvements ) let alone the capital - not at all . The boys will have a half share in a property the value of which will not really help them greatly .
All the money I handed over to the financial institutions would have been better spent on providing a higher standard of living for the family - not filling their coffers , remember a house is not a cash cow but somewhere to live . Thatcher and her ilk duped the people into believing that houses were cash and led us all like lambs to be fleeced by her cronies in the city .
If all that wealth had gone into creating real jobs then perhaps that wouldn't have been too bad - but no - she then sold off our utilities so her city friends could make a killing , so we were fleeced twice over . So having followed her principles until the wheel came off they have come to fleece us for a third time .
The point is ( at last I hear you cry ) what sort of system have we left for our young - desperate in my view - and perhaps with the realization of the iniquities inherent in our legacy they are beginning to say no - we want a fairer deal - look at the recent protests against a debt which could have been reduced if the city had paid all its taxes and given a little back to those of us who have filled their pockets for so long .
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2011 will be the year of the Chinese crunch, scary but temporary.
2011 will be the year of the gold crash,
2011 will be the year of a German banking scare.
2011 will be the year of Irish recovery.
2011 will be the year of Sterling appreciation.
2011 will be the year of stock market boom then crash.
2011 will be the year of oil price boom then crash.
2011 will be the year of American recovery then wobble.
2011 UK public finances sharp improvement.
2011 UK property boom.
2011 UK interest rates start to rise.
2011 major UK coalition wobble.
2011 coalition policy U turns.
2011 cabinet reshuffle.
2011 Miliband leadership in doubt,David hovering.
2011 end year, bank denationalisation plans.
2011 UK GDP GROWTH EXCEEDING 3%.
2011 Iraq war nearing End.
2011 Pakistani coup attempt.
2011 Further Korean wobbles.
2011 Japanese crisis.
2011 Major negotiations with Taliban , also anti-Taliban demos in Kabul.
2011 Chinese democracy demos.
2011 Aussie dollar fall.
2011 US dollar appreciation.
2011 Euro fall.
2011 Greek recovery.
2011 Spanish wobble, but ok.
2011 Italian wobble, but ok.
2011 Portuguese wobble, but ok.
2011 A big natural disaster ? an earthquake in California?
Anyone else got their predictions done?
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@78 John,
I'd just like someone (at the BBC) to say that the men in grey suits don't care about savers, or borrowers, or inflation or even the economy.
The only thing they really care about is saving the bacon of other men in grey suits who have managed to screw things up beyond all recognition. They very nearly broke the whole monetary transmission system. For all we know it might still be mortally wounded.
If you think that's pushing it a bit then just wait 'till Wikileaks gets going. Never before will we have seen so much egg on so few faces. (Sorry about the mixed metaphors)
J f H @35 lists 3 good reasons why Bank Rate should not have been reduced to 0.5% nearly 2 years ago.
I can think of only one reason why Bank Rate has been so low for so long - to help the banks rebuild their fortunes.
The men in grey suits think that if they keep going on about the bonuses paid to the other men in grey suits it will distract us from what's really going on. Bonus payments will pale into an insignificant annoyance when the true scale of this disaster here in the UK, in Europe and in the USA, becomes known.
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57 Mangizmo:
You're right -- it's assets you need (assets which will retain their relative value), not cash (which is being devalued to deflate the debt).
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88. At 01:44am on 21 Dec 2010, onward-ho wrote: Anyone else got their predictions done?
Yup sure have.
Brokenshire will implement his policies the drugs industry will get even richer and everyone's insurance premiums will sky rocket.
Oh and it will snow realy hard next year!! just to warn the airways. :)
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90. At 01:53am on 21 Dec 2010, 4Fox She wrote:
57 Mangizmo:
You're right -- it's assets you need (assets which will retain their relative value), not cash (which is being devalued to deflate the debt).
This is why the student loans set at 6-9k will not work and the moneys they are drawn from will only have a very limited life there is no collateral against billions in predicted unpaid fees, which in turn will see the banks stop lending to first time buyers with 45k debt.
We Are seeing very bad financial action by this government already.
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48. Ben:
"Inflation is probably the only way to do it gradually. As a young saver I probably won't be waiting with my family for 15 years until I can buy a house whilst my savings are implicitly taxed and I grow old paying for today's pensioners knowing full well I won't get one. What a mess."
True, it IS a mess. Actually,it is "generational theft", and the natural outcome of untrammeled greed.
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56. Cyril Ord:
"Thank you Friendlycard. Many contributions to these discussions are very good but I have printed off a hard copy of your analysis of why government figures of inflation rates are so low in the face of the obvious evidence. Your reasons why governments do this make a lot of sense."
Thanks. Kevin Phillips wrote a great article on this in Harpers, 1st May 2008. Shadowstats.com produces "clean" figures for the US, giving real numbers for inflation, GDP, debt, the deficit and unemployment. I'm trying to construct something similar for the UK.
One implication of inflation being much higher than reported (in the US, the UK etc) is that real interest rates have been NEGATIVE for more than a decade. It's no surprise, given this, that debt escalated and savings ratios collapsed.
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Willets' book is a classic bit of political smoke and mirrors. In it he seeks to shift the focus away from the mess created by the banking industry and politicians, and the power they now have over all our lives, choosing instead to try and divert public protest and anger onto the old.
The baby boomers lived through housing booms and busts in the 80s and 90s and are still around to tell the tale. I can't recall any baby boomer disquiet over the last few years about the chance of their houses dropping in value, they'll take it in their stride just like they did before. Most people I know in their mid thirties are sitting on masses of equity and they are not baby boomers. The truth is it is the banks that won't stand for a drop in house prices, and it is politicians like Willets that will bend over backwards to accommodate bankers every whim.
Do you see baby boomers, or anyone for that matter, taking to the streets to demand higher interest rates for their savings? What good would it do if they did? Just how much say have any of us in the decisions taken in our name by governments past or present?
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More savers than borrowers?
It's difficult to get up to date figures but - According to HMRC, about 18 million people pay tax on bank and building society deposits of approx. 900 Billion. (Jan 2009, I think, but I've lost the link)
Friendlycard said -Starting with mortgages, the total outstanding is £1.2 trillion, owed by 11.4 million
customers.
Of course there's a lot of "savings" tied up in tax-free National Savings certificates and ISAs.
With interest rates at a 300-year low a good deal of cash has been moved from Banks and Building Societies in search of better rates of return.
And take a look at this from the BBC when Bank Rate hit 0.5% in early 2009.
http://news.bbc.co.uk/2/hi/business/7925730.stm
Looks to me that Stephanie has it right. There are more savers than borrowers.
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I have calculated using figures supplied by the Office of National Statistics that with interest rates this low the amount of spending removed by pensioners from the economy is about 200 million per week. Are spenders borrowing this amount or more to make up for this? Or are they trying to pay off their debts?
A number of bloggers here seem to think that the decision to hold interest rates low is solely in the hands of the UK government. Circumstances may become irresistible: other nations start raising their rates; inflation driven by low interest rates starts a flight from sterling. Probably lots more imaginable situations. In fact I'm surprised that the rates suggested by the CBI are so low for so long. If you are in debt now is the time to redouble your efforts to pay them off.
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96. The-itinerant-ex-pat:
"Looks to me that Stephanie has it right. There are more savers than borrowers."
Yes, true in terms of numbers of people. But the leverage effect is far greater on the borrowers.
The average outstanding mortgage is about £105,000, so a 1% rise in base rates hits the average mortgage payer by about £87 per month, and there is no "damping down" effect from tax because mortgage interest is non-deductible.
Conversely, the average sum owned by savers is far smaller, so the monthly benefit of a 1% rise in rates is much smaller. Furthermore, this is damped down, because interest "income" is taxed.
Incidentally, the best savings vehicle for a mortgage payer could well be an offset mortgage. Say someone has a mortgage of £100,000 but savings of £25,000, he pays interest on the difference, i.e. £75,000. He receives no interest on his savings, and hence pays no tax on this, but every £1 added to his savings effectively earns the mortgage rate, and is tax free. This gets him a better return than most savings options. It's pretty much the same as using savings to pay down the mortgage, but with the potentially-critical difference that the savings remain available for a rainy day.
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VERANO and TONY H, well said.
Interest rates are the finger in the dam holding back the torrent of a housing bubble collapse. Inflation is inevitable and beyond the control of UK interest rates for the next decade or so because it is primarily caused and will continue to be caused by the rising price of imported commodities such as food and energy raw materials (oil).
Unless the BoE want the economy to completely collapse they will have to continue to keep the finger in the dam and hold interest rates at these unprecedented levels. They will also continue to flirt with printing more money (QE) which as before will be sucked into the bubble by providing a false and temporary floor or even small uplift to property prices.
QE would be much better spent on direct investment by the government in much needed energy infra-structure and development. Our future energy supply problems will dominate and dwarf our economic fortunes from now on. The sooner we roll up our sleeves and tackle it the better. It's long overdue and the economic denial of reality caused by the temporary apparent prosperity of cheap goods from globalisation and a property bubble mean that we will have unprecedented hardships to face for decades to come.
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97. thatmcgrath:
"A number of bloggers here seem to think that the decision to hold interest rates low is solely in the hands of the UK government. Circumstances may become irresistible: other nations start raising their rates; inflation driven by low interest rates starts a flight from sterling. Probably lots more imaginable situations. In fact I'm surprised that the rates suggested by the CBI are so low for so long. If you are in debt now is the time to redouble your efforts to pay them off."
Absolutely right. Interest rates could rise if the bond markets became spooked about the fiscal deficit or UK aggregate indebtedness. This is what happened to Iceland, Greece, Ireland and, to a lesser extent, Spain. Your advice is very wise, because any market-propelled (rather than policy) move in rates would NOT be gradual, but very big and very quick.
The CBI is guessing (which, in fairness, is about all one can do on future rates).
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Interest rates, of course, have actually risen - Britain has to pay quite a bit more than 0.5% to borrow money on the international markets (bond yields are about 3%). The bank rate is only a domestic factor - even variable rate mortgages pay scant attention to it at about 4% to 5%. Savings accounts at 2.5% re still widely available.
So, perhaps, the machinations of the Monetary Policy Committee are purely symbolic. How embarrassing it would be if they, after great and ponderous delibaration, raised the bank rate by 25 basis points to 0.75% and nothing happened! After all if variable rate mortgages and savings accounts for the great unwashed did not change it would become clear that the bank rate was simply giving the high street banks the ability to borrow cheaply from the Bank of England and lend at comparitively high rates to the hoi polloi. Usury?
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@98 Friendlycard said - "But the leverage effect is far greater on the borrowers. ....."
That may be true but I've suffered mortgage rates of 14% and savings rates of less than 1% and I can tell you which had the greater impact on my disposable income.
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14. At 1:41pm on 20 Dec 2010, arny5000 wrote:
'As a saver, the interest rate is a minor concern, what worries me is Are we sleep-walking into a crisis?'
No Arny500, we're sleep walking into poverty.
Retail price index (all items) RP02:
Jan 2009 210.1
Oct 2010 225.8
Price inflation = + 7.5%
For the average working Joe or Jane:
Jan 2009 Average weekly earnings = £444
Oct 2010 Average weekly earnings = £442
Increase = – 0.005%
So if you didn’t know the price of bailing out the banking system; now you do.
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I have heard that the government is considering a new inflation measure that would be called a 'Literal Inflation Estimate'. At present it is about 2% but would change if the target rate changed - if the target changed to 1% then the new index would soon fall to that value. It would have the advantage of not being affected by the bank rate and so interest rates could be increased back to a sensible 5% so that savers and mortgages would be at about 6% to 7%. The only downside is that prices would still rise...
Oh! Sorry, they've already tried it but decided to call it 'Consumer Prices Index'.
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5. At 1:20pm on 20 Dec 2010, Andrew wrote:
Perhaps living on the income from a job is a better idea.
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You bet and I am off to tell my 98 year old gran to get out there and get a paper round!!!!!!!
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103. At 09:19am on 21 Dec 2010, Dempster wrote:
14. At 1:41pm on 20 Dec 2010, arny5000 wrote:
'As a saver, the interest rate is a minor concern, what worries me is Are we sleep-walking into a crisis?'
No Arny500, we're sleep walking into poverty.
Retail price index (all items) RP02:
Jan 2009 210.1
Oct 2010 225.8
Price inflation = + 7.5%
For the average working Joe or Jane:
Jan 2009 Average weekly earnings = £444
Oct 2010 Average weekly earnings = £442
Increase = – 0.005%
So if you didn’t know the price of bailing out the banking system; now you do.
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How many times can these figures be rehashed.......
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6. At 1:21pm on 20 Dec 2010, Jon wrote:
I sometimes think it's because of the trendiness of plastic..
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Spot on, a study was conducted in Germany and the findings were, that you are more likely to spend on plastic than if you have cash. Some 38% more in fact and that at the end of the year those who had used cash were left with a positive balance and those who had used plastic were more likely to have over spent and were left with a deficit.
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7. At 1:24pm on 20 Dec 2010, David Burton wrote:
The flip side is that those who pushed to get a >100% mortgage (including myself) are reaping benefits from the current balance
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Pray do tell me who held a gun to your head, had your arm up your back. You should really get in touch with the police and the FSA for I don't think they realise that the finacail institutions were acting so....
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104. Chris:
"I have heard that the government is considering a new inflation measure that would be called a 'Literal Inflation Estimate'."
Nice one!
And banks are to be overseen by the 'Mortgage And Financial Investment Authority'.
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#58 another one that wants the state to do everything for us.
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Paul Krugman blog 25 september 2010: "A naive view says that what we need is a return to virtue: everyone needs to save more, pay down debt, and restore healthy balance sheets. The problem with this view is the fallacy of composition: when everyone tries to pay down debt at the same time, the result is a depressed economy and falling inflation, which cause the ratio of debt to income to rise if anything. That is, we’re living in a world in which the twin paradoxes of thrift and deleveraging hold, and hence in which individual virtue ends up being collective vice. So what will happen? In the end, I’d argue, what must happen is an effective default on a significant part of debt, one way or another. The default could be implicit, via a period of moderate inflation that reduces the real burden of debt; that’s how World War II cured the depression. Or, if not, we could see a gradual, painful process of individual defaults and bankruptcies, which ends up reducing overall debt. And that’s what is happening now: as this story in today’s Times points out, the main force behind the gratifying decline in consumer debt appears to be default rather than thrift. So basically, we can do this cleanly or we can do this ugly. And ugly is the way we’re going."
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111. ntp3:
Paul Krugman's view on default is probably right. But it makes his (and other neo-Keynesians') policy solutions look a bit unworkable.
What it amounts to is (a) default on past debts, but (b) expect people to lend to us now and in the future so we can boost/sustain output via deficit stimulus. Aren't the people doing the lending under (b) going to notice the defaults under (a)?
His logic seems to amount to borrowing our way out of a debt problem. This doesn't seem plausible, somehow. The very least that we could expect would be dramatic rises in interest rates.
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Abolish the BOE and let the market determine rates.
Save in physical gold and silver, not paper.
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#113. truths33k3r wrote:
"
Abolish the BOE and let the market determine rates. Save in physical gold and silver, not paper.
"
You know very well that your recipe is for near total economic collapse and social mayhem.
As much as I despise the sheer incompetence of the 'Fools of Threadneedle Street' I do not want to abolish it, just sack the present senior staff. If they had been doing their job during the last decade the bubble economy would not have happened and we would not have had the crash and further we would not now be looking 'forward' to a Long Depression.
I believe I have previously set out a framework to manage monetary policy in some detail and the steps necessary to re-build a fairer society in this country (which process is a necessary step for a stable recovery). The present bunch of badly educated economic idiots took no notice of me and other similarly minded people who warned of the inevitable consequences of policy in the past and they show no signs of recognising their continuing folly now. They must go.
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I see UK government borrowing reached new highs and the annual target amount is likely to be exceeded.
So much for austerity, it is like a person who has £150k on credit cards announcing that they are cancelling the morning paper.
More inflation and money printing to follow.
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15. At 1:56pm on 20 Dec 2010, Isitmeoristheworldmad wrote:
Can raising interest rates be justified when it would burden mortgage holders and cripple the housing market even further
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Yes......
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"Even if the economy does recover as the CBI and the government expect,"
It is most unlikely that the economy will recover in 2011. The coalition's austerity measures will begin to have an effect and make an early recovery unlikely and a double dip recession still a possibility.
Savers should be hoping for a reversal of government policy, so that the economy will be able to grow and support better real interest rates.
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52. At 6:42pm on 20 Dec 2010, richard bunning wrote:
How would we cope with a 40-50% fall in house prices and the whole market going into deep freeze for several years? This is a VERY fragile market - people's budgets have become used to low interest rates and the gearing effect of a small percentage increase is very high indeed from such a low base.
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So what you are saying is that people have got used to cheap money and have been spending what they have saved else where and how could they now cope if rates go up. Well the truth is that house prices will continue to decline until they get back into kilter with earnings and that could be as much as 15% to 20%, some economists are even quoting larger drops. Will it kill the housing market, no. It may slow it down but kill it no.
You appear to perpetuating the myth that property is our saviour and a return to house price inflation is a good thing. Also that cheap money will continue ad finitum.
Two points, you should only borrow what you can afford and house ownership is not the be all just look at Germany where they have not got into the property trap as we have. You only buy a property when you are in a position to afford it and for some that may be never, and guess what there os no sigma.
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Inflation is the bain of all even China and India. India is on a knife edge with regards food supplies and it only takes a small wobble for them to have to take action;
" India's government has banned the export of onions after the vegetable doubled in price in the past week."
You will see more of this in the weeks and months to come.
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Fair comment Chris London
I reckon the Government’s caught in a bit of trap.
It can’t borrow its way out of this recession, because it’s already too deep in debt.
And it doesn’t want to default, because it would cause a banking and pension fund collapse.
It may hope for some glorious economic recovery, but the level of recovery needed in manufacturing, farming etc. is far above and beyond that which is realistically achievable.
So that just leaves printing money and ‘austerity’ measures (cuts to public services).
And when it comes to printing your way out, the price is inflation.
And finally the reason why I mention the inflation figures and average earnings, is to remind people what the true price of bailing out the banks really is.
Let’s face it, 7.5% of everything you earn (and that’s up to press) is quite a high price, particularly if you’re like me and have a family in tow.
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88. At 01:44am on 21 Dec 2010, onward-ho wrote:
2011 will be the year of the Chinese crunch, scary but temporary.
Very possible but may well be longer lasting if it comes.
2011 will be the year of the gold crash,
No
2011 will be the year of a German banking scare.
Probable
2011 will be the year of Irish recovery.
No chance, export market OK but the home market will be in the doldrums for some time to come
2011 will be the year of Sterling appreciation.
If interest rates go up
2011 will be the year of stock market boom then crash.
Slow growth with a tailing off towards the end of the year
2011 will be the year of oil price boom then crash.
Prices will be determined by demand and that will depend on China
2011 will be the year of American recovery then wobble.
Slow if any improvement at all in the US economy
2011 UK public finances sharp improvement.
Slight improvement but not significant
2011 UK property boom.
I pray not
2011 UK interest rates start to rise.
Yes
2011 major UK coalition wobble.
Possible
2011 coalition policy U turns.
No
2011 cabinet reshuffle.
Possible
2011 Miliband leadership in doubt,David hovering.
Yes to the first no to the second
2011 end year, bank denationalisation plans.
Yes
2011 UK GDP GROWTH EXCEEDING 3%.
I don't think so but it will be in excess of 2%
2011 Iraq war nearing End.
??????? I fear the troubles in Iraq will be with them for many years to come
2011 Pakistani coup attempt.
Most probable
2011 Further Korean wobbles.
Definitely
2011 Japanese crisis.
A safe bet if you mean continues
2011 Major negotiations with Taliban , also anti-Taliban demos in Kabul.
Already underway, not sure about demos
2011 Chinese democracy demos.
Possible if there is a wobble in their economy, they have resent history when the crash started
2011 Aussie dollar fall.
Flat at worst unless China goes into free fall
2011 US dollar appreciation.
Yes as the Euro is going to fail
2011 Euro fall.
Collapse more like
2011 Greek recovery.
No
2011 Spanish wobble, but ok.
Bail out
2011 Italian wobble, but ok.
Possible but only if Berlusconi stays - I hate to say it but he is the best they have at present
2011 Portuguese wobble, but ok.
Bail out
2011 A big natural disaster ? an earthquake in California?
You must have a direct line to him upstairs!
Merry Christmas and have a happy if not prosperous new year.
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120. At 11:20am on 21 Dec 2010, Dempster wrote:
I have sympathy with you as I work in London but live in Ireland, the worst of both worlds.
Life in both villages is now tuff, but the Westminster Village is by far the worst.
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Britain needs to learn its economic lessons from successful nations such as China and Germany, not from indebted wasters like the USA. To be fair the UK government is trying to rebalance the economy, and exporters and manufacturers are now doing reasonably well. After all, you can't run an economy on a property Ponzi Scheme indefinately.
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97 thatmcgrath:
'I have calculated using figures supplied by the Office of National Statistics that with interest rates this low the amount of spending removed by pensioners from the economy is about 200 million per week. Are spenders borrowing this amount or more to make up for this? Or are they trying to pay off their debts?
A number of bloggers here seem to think that the decision to hold interest rates low is solely in the hands of the UK government. Circumstances may become irresistible: other nations start raising their rates; inflation driven by low interest rates starts a flight from sterling. Probably lots more imaginable situations. In fact I'm surprised that the rates suggested by the CBI are so low for so long. If you are in debt now is the time to redouble your efforts to pay them off.'
The difference between borrowing interest rates and deposit interest rates has never been higher. It is probable that some of the difference is remaining with the banks to butter their bottomm line. Some of the difference is going to cover defaulters. There are probably a big chunk of 1 million households with negative equity in hand or looming. It looks as thought the only thing holding interest rates as low as they are is the weakness elsewhere. All economies which have had a banking crisis are struggling. All economies which have not had a banking crisis are recovering normally by recessionary characteristics. The UK problem therefore broadly remains the banking cris compounded by the outcomes of a overheated property market. You would have to be suspicious the main problem is the banking crisis.
The central issue is how much can be done or has been done to move forward without subsidy occuring. Its a difficult call at the point of intervention but obvious downstream.
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122 Chris London:
'Life in both villages is now tuff, but the Westminster Village is by far the worst.'
Must be toff.
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120 Dempster:
'And finally the reason why I mention the inflation figures and average earnings, is to remind people what the true price of bailing out the banks really is.'
I agree people are being screwed on their wages in terms of a rise or lack of it, or a drop. Its better to have a drop than to be out of work and that is why it has happened. There are something in the order of 2.5 million have downgraded income significantly one way or the other.
However the inflation figure has to include the outcome of a currency drop when so much is imported. As the pound cannot expect to be at 2 dollars to the pound it was inevitable that inflation showed. The pound was unsustainably high bon the back of funny money.
As the emerging and developing countries wish to eat and consume fuel and wear clothes it is also inevitable that costs also rise. This has nothing to do with the banking crisis.
This is also why the inflation you refer to cannot be dealt with via higher interest rates. There is no real mechanism to deal with it other than to reduce consumption. Which is what is happening as prices rise.
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'9. At 1:25pm on 20 Dec 2010, watriler wrote:
Of course if the state pension was at a proper level there would not be the do or die situation with savers....'
Utter garbage. I am a saver and have paid off my morgage. I also work, as I'm 41 not 65+. When I retire i will also be living off savings, as I plan to retire early (if possible) and stopped paying into personal pensions a few years back, as the Pension compoanies were taking the p**s.
The BoE need to put interest rates up to encourage savers, if nothing else!
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120. At 11:20am on 21 Dec 2010, Dempster wrote:
Fair comment Chris London
I reckon the Government’s caught in a bit of trap.
It can’t borrow its way out of this recession, because it’s already too deep in debt.
And it doesn’t want to default, because it would cause a banking and pension fund collapse.
...........
I think its going to collapse no matter what Dempster. The Euro governments through the EU bailout fund are simply creating another pile of debt to allow government's to pay exiting debt repayment. That is simply not sustainable. At some the whole process will simply not be creditable any longer (no pun intended). At this point you will get a real default, and then a few banks will go down. Depending on how much debt they have it could bring down even more, until we hit an end point. A few banks will survive, but how many is anyones guess. The bottom line, as you know, is the debt can never be repaid, because it is too great for the economies to service, and in fact debt repayment is taking so much money out the euro economy that it could keep it in recession for decades. The public will not swallow the need for austerity to repay the debt for too long, and there are signs in Greece that this point is being reached.
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HtH
the change in pensions 'contribution holidays' or 'surplus removal exercises' is to remove the ER's ability to take funding out of the Scheme if a surplus arises.
It's more complex than profiteering off a scheme - the ER has to pick up the tab when there's a substantial deficit under sizeable recovery plan payments.
The change does allow Schemes to amend their deed to allow for the removal of surplus practice to continue so long as the change is made before April next year (I think), so, what's the point of making the change in regulation?
Well, that's DB pensions anyway.
If you're in a DC scheme, your fund manager thanks you dearly for his new yacht. You'll however have a very poor retirement; unless you can pay in 30+% of salary from 30 onwards and get very lucky with equity markets before you retire.
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Increasing interest rates will only serve to snuff out the small amount of demand in the economy - and make our exports less competitive. Inflation is caused by external factors beyond our control. We used to use interest rates to control inflation when it was driven by wages. Other than the bankers I don't see much wage inflation going on ...
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Keep Interest rates low and encourage investment in food production to keep food inflation low. The UK population will not riot on the streets if the price of a 3DTV is £3K, but they will if a loaf of bread if £5!
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128. At 12:51pm on 21 Dec 2010, Averagejoe wrote:
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Interesting theory but you forget one important point any nation that defaults is on its own. For no market will support then in the short or medium term. So if the populous think austerity is bad then they should see what defaulting would bring. This is the only thing which has stopped the PIIGS from going bankrupt for morally they would not think twice of doing so. As far as the Euro economy being in recession for decades the answer to that one is yes but only in part. There is already a layered economy throughout the Union and not just a north south split as many would have it. This is why I fear that the Euro is doomed as the Nations at the top will not be prepared to keep on supporting those at the bottom. Germany has already stated as much and the moves from within the ECB support that fact. The weakness is that they are relying those who are in need of support to provide that support.
As far as the Greeks are concerned they were lied to rite up to the end and most thought that they were on the top of the pile. The same goes for the Irish, now people will demonstrate but will they cut their own throat. No politicans in his rite mind would take his country down that path for it would take many many decades to turn things around if they were to default.
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130. At 1:09pm on 21 Dec 2010, njs wrote:
"Increasing interest rates will only serve to snuff out the small amount of demand in the economy - and make our exports less competitive. Inflation is caused by external factors beyond our control. We used to use interest rates to control inflation when it was driven by wages. Other than the bankers I don't see much wage inflation going on ..."
Unlikely to be a single factor.Import prices add to inflation,an increase in interest rates would raise the value of the pound and make imports cheaper.
QE could also be inflationary,it is unable to reduce interest rates further because they are already negative in relation to inflation.An increase in the quantity of money will raise prices if banks don`t use their improved balances to lend to businesses and consumers, thus increasing demand.
The last government used a combination of fiscal and monetary measures.Growth resumed in the last quarter of 2009,accelerating for two quarters before reducing in the third.The present government is relying on monetary measures alone.Will it work? The jury`s out,so will be the government if they fail.
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Just saw Stephanie's sister (Laura) on RT talking about US peoples perception of the current economic situation.
Is it all economics at the family Christmas dinner?
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132. At 1:17pm on 21 Dec 2010, Chris London wrote:
128. At 12:51pm on 21 Dec 2010, Averagejoe wrote:
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Interesting theory but you forget one important point any nation that defaults is on its own. For no market will support then in the short or medium term. So if the populous think austerity is bad then they should see what defaulting would bring. This is the only thing which has stopped the PIIGS from going bankrupt for morally they would not think twice of doing so. As far as the Euro economy being in recession for decades the answer to that one is yes but only in part. There is already a layered economy throughout the Union and not just a north south split as many would have it. This is why I fear that the Euro is doomed as the Nations at the top will not be prepared to keep on supporting those at the bottom. Germany has already stated as much and the moves from within the ECB support that fact. The weakness is that they are relying those who are in need of support to provide that support.
As far as the Greeks are concerned they were lied to rite up to the end and most thought that they were on the top of the pile. The same goes for the Irish, now people will demonstrate but will they cut their own throat. No politicans in his rite mind would take his country down that path for it would take many many decades to turn things around if they were to default.
............
There a few other things to consider Chris. Firstly, the interest on the debt is compounding, interest on top of debt to repay existing debt and interest. This means the debt is growing exponentially (see Steve Keens web site). This means that ultimately it will simply not be possibile to repay the debt and therefore default is inevitable. The situation is no different to 1930s Germany. To get out of their hole, the Government issued treasury certificates (state issued money) to pay people to rebuild the countries infrastructure debt (interest) free. In 4 years the country had been turned around, and there was no government debt. Monetary reform is the only credible solution. Its been tried before and has been successful. Our medium of exchange needs to be created not as a debt but free, in order to prevent the endless compounding of interest, see Positive Money web site for more details. Banks would still loan money but only money that had already been created interest free. At present 97% of our money supply was created as a debt on which interest is due. We dont need to issue government bonds, if we could issue treasury money.
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http://www.webofdebt.com/articles/bankrupt-germany.php
For those interest in how 1930s Germany saved itself from economic chaos.
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Inflation is reducing the value of government debt which is a good thing.But this is dead money if improved balances are notr recycled to improve demand in the economy.
In a static economy like the UK,inflation is also destroying purchasing power without workers being able to increase wages to compensate.This sucks demand from the economy as do raised import prices where surpluses go to the producing nations like Saudi Arabia.
A loss of demand inhibits investment,firms wait for better times before committing,unemployment further weakens purchasing power.
This lethal combination of government cuts,falling employment and inflation will strangle growth and limit the benefit the government derives from falling debt as tax revenue falls.This is the background to the argument among economist`s as whether interest rates should be raised? The government may succeed in shrinking the size of the state,but not before they have shrunk everything else first.
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136. At 1:51pm on 21 Dec 2010, Averagejoe wrote:
http://www.webofdebt.com/articles/bankrupt-germany.php
"For those interest in how 1930s Germany saved itself from economic chaos."
Huge state invement:-Protectionism,autobahns,a kriegswirtschaft and WW2.
But alone among the capitalist powers,Germany had relatively full employment by 1936 and economic growth.
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Basically - hold onto your assets if you can. It could be your own home or jewellery. Either way, there are too many sharks in the water - and you must ask yourself, why?
Whatever, you decide - always hold on to your home. The rest of financial jargon means nothing and moves with the tide and the usual waste left on the beach.
Keep your own front door and a decent roof over your head and don't be conned or misled.
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I think that the CBI is somewhat behind the times as I remember notayesmanseconomics calling for an interest-rate rise back this time last year to deal with prospective inflation. As both the economy and the inflation rate have been strong since then it looks like he was right.It is interesting to see that he feels the picture may be more mixed in 2011.
"I feel that in the UK we will be subject to both inflationary and deflationary trends in 2011. The inflationary trends mostly follow what has been happening in 2010 but places such as Ireland and other strugggling parts of Europe will impact on us. For example of the Irish bad bank NAMA some 27% of the assets put in it were in the UK."
An interesting thesis and from someone who was right about inflation in 2010 rather than some economists who claimed it did not exist.
http://notayesmanseconomics.wordpress.com
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138. At 2:04pm on 21 Dec 2010, bryhers wrote:
136. At 1:51pm on 21 Dec 2010, Averagejoe wrote:
http://www.webofdebt.com/articles/bankrupt-germany.php
"For those interest in how 1930s Germany saved itself from economic chaos."
Huge state invement:-Protectionism,autobahns,a kriegswirtschaft and WW2.
But alone among the capitalist powers,Germany had relatively full employment by 1936 and economic growth.
............
What I find interesting about the German scenario is it shows that there are other options available, that have been tried before and worked, but it requires thinking outside the 'norm'. A trait that most politicians lack. Public spending cutbacks will not bring growth, the Germans realised this and found another way forward. We should avoid their mistakes though, i.e. electing a dictator to get the job done after the failure of the previous neo-liberal parties as a result of the 1920s economic disaster.
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#82. At 11:04pm on 20 Dec 2010, Up2snuff wrote:
Stat on the radio today suggested 1 in 7 mortgagees is in arrears with up to six monthly payments.
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Wow! If that is the case, then the CBI can forget any prospect of 2.75% by 2012. A 2.25% increase in the mortgage rate equates to around £300/month for an average house. That in turn is not much less than an entire week's take home pay for the average employee. If 1 in 7 mortgages are already in arrears at the current 'benign' rates, then it's likely to be 1 in 4, or even 1 in 3 if the CBI 'prediction' is correct. That is unsustainable economically, since the subsequent fall in property values would leave serious holes in the bank's balance sheets; and it's unsustainable politically, since no government could survive the prospect of literally millions of families being kicked out onto the streets.
Bottom line? IMHO, far from seeing rate rises any time soon we'll continue to see them stagnate ... in the face of rising inflation. Why? Because the disparity between interest rates and inflation helps to erode debt ... private and public. Sadly, it is, and will continue to be a bad time to be a saver. Economics has a funny way of balancing things out ... and only when the savers have paid off (in real terms) enough of the borrowers excess debt, will we see things return to a more normal level.
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"Neither a borrower nor lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man."
Will said it all!
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#142. LeoPanthera wrote:
"Sadly, it is, and will continue to be a bad time to be a saver. Economics has a funny way of balancing things out ... and only when the savers have paid off (in real terms) enough of the borrowers excess debt, will we see things return to a more normal level."
Absolute drivel!
If anything the borrowers will be far more certainly crippled - that is how economic really works. It is highly likely that interest rates will rise as a result of the collapse of the UK's AAA rating forcing the Bank to Raise rates - which in turn will make things worse for borrowers. Vicious cycles dominate in economics!
If one had to advise a borrower who can still sell his/her home for more than the outstanding loan - do so ASAP as if you don't you will be saddled with so much negative equity (that you can't escape in the UK) that the rest of your life will be blighted and the lives of your children. Anyone taking your advice will be doomed!
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142. At 2:43pm on 21 Dec 2010, LeoPanthera wrote:
Economics has a funny way of balancing things out ... and only when the savers have paid off (in real terms) enough of the borrowers excess debt, will we see things return to a more normal level.
...........
With private debt about £1.4 trillion, what happens if there is insufficent savings to pay off the debt?
The problem is that debt, both private and public, has reached a level that simply can no longer be paid. Nations are borrowing money to pay debt! Thats simply not sustainable. Their plan is that economic growth will come from the sky to give better tax revenue to keep the wheels turning, but thats not going to happen in an age of austerity. Instead the wheels are simply going to fall off, and the car will crash. It is inevitable.
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#142. LeoPanthera wrote:
#82. Up2snuff wrote:
Stat on the radio today suggested 1 in 7 mortgagees is in arrears with up to six monthly payments.
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Wow! If that is the case, then the CBI can forget any prospect of 2.75% by 2012. A 2.25% increase in the mortgage rate equates to around £300/month for an average house.
I agree that a "UK only" decision would continue to keep the BofE rate extremely low. The problem is our global interconnectivity and that we are no longer in control of our destiny, as so much of our borrowing is from foreign sources. What 2010 has shown is how "the markets" can turn very suddenly and render BofE plans redundant.
Anyone in debt who understands what is happening should be imposing austerity on their personal spending, in every effort to reduce debt. Then in the worse case, they are providing a buffer that may save them from disaster if we have a downturn combined with imposed higher rates (needed to save the pound).
Anyone who agrees with people like onward-ho need to check into rehab, get detoxed and learn to cope with the real world.
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#82. Up2snuff wrote:
Stat on the radio today suggested 1 in 7 mortgagees is in arrears with up to six monthly payments.
========================
The magic words 'up to' again, which of course includes one. It may well have been 'up to 1 in 7 mortgages', and it was only a suggestion.
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135. At 1:47pm on 21 Dec 2010, Averagejoe wrote:
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Unless you are calling for us to set up and infrastructure who's ultimate goal is to start WW3 and invade ???? Germany's economy in the 1930's has nothing to do with us. For if you look at the historical economics of that nation you will see that it was gearing up for war which aided in its turn around however if war had not come forth Germany would have collapsed economically. Their model was unsustainable rather than being the blue print for our modern day delamer.
I agree that you can not continue with the current indebtedness globally but that just goes back to my earlier point and that is you need to re-balance our economy, IE live within our means. That unfortunately means a period of austerity. Some will find this unpalatable but the alternative is unthinkable.
Debt in itself is not a bad thing, taking out a mortgage is acceptable as long as you can afford the repayments and you should factor in an interest rate rise. However many from governments down have mortgaged themselves up to the hilt and so now find themselves in dire straits. Above I read with interest that 1 in 7 mortgages are in arrears. This to me is somewhat concerning in as much as interest rates have not yet gone up so what we are really saying is that 1 in 7 homeowners can't and probably couldn't afford the home they bought. This goes back to those who foolishly took out mortgages that were more than three times their income or 2 1/2 times their joint income. I have a civil servant working along side myself currentley who has a mortgage the size of the national debt of a small country. When I asked how he managed to raise such a mortgage on his income he told me that they had got one based on their future earnings at a ratio of 7 times their joint income. And we wounder why they are now in trouble. The same can be said unfortunately for the last administration who broke all their own and treasury rules in borrowing. Which in itself has not put us in our current position but it was played a significant part in doing so.
And to conclude I have as I have stated worked around the world and for a while in Argentina. If that was anything to by you would not want to default for an ex-colleague who is still out there says that there are parts which have yet to recover......
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@81. onward-ho:
So, boiling all that down, what we need is more of the same thing that got us into the mess we're in?
We need another (bigger?) asset price bubble. We need an economy based even more on property-price inflation. We need more debt. We need more imports from China. The banks ought to inflate credit again, only more so, and the sooner the better. We need greedier bankers, dreaming-up crappier derivatives to earn even bigger bonuses. We need more consumption, of ever more needless luxury goods...
There's nothing wrong with the present system, only wimps think so. Just let it rip and all will be well.
Tomorrow has been abolished.
You remind me of what someone said about the Bourbons: learned nothing and forgotten nothing.
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144. At 3:01pm on 21 Dec 2010, John_from_Hendon wrote:
"Absolute drivel!"
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Err ... on point 1 ... You may say drivel; but this is EXACTLY what is happening right now. The point of my post, admittedly based on heresay evidence, is that government and the BoE have very little wiggle room. If the private sector is in such a debt ridden mess that 15% of borrowers are now technically defaulting with the base rate at only 0.5%, then there is not much that anyone can do with interest rates. If they increase rates too much, then we're back into recession again, and recessions (due to negative growth and higher costs) INCREASE debt levels.
Point 2, your 'advice' for all mortgage holders to 'sell ... sell ... sell' is dangerous. It would create a self fulfilling prophecy of falling asset prices that would kill the sellers, the banks and the economy.
On point 3, 'My Advice' ... I did not give any advice. I merely stated an observation ... that inflation generally benefits borrowers, and hurts savers. Do you disagree? That is not a recommendation to go out and borrow ... far from it. But it does not get away from the fact that the current inflationiary picture is eroding debt (and savings) at around 3% a year. Don't get me wrong here ... I'm a net saver and dislike the situation as much as you obviously do ... I just don't see what else there is to do about it.
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#145. At 3:09pm on 21 Dec 2010, Averagejoe wrote:
"The problem is that debt, both private and public, has reached a level that simply can no longer be paid."
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Agreed. Fractional Reserve Banking and it's multiplicative effect on deposits means that for every £100 lent to banks, they 're-lend' £357 (if you assume a reserve ratio of 20%). This is the edifice on which our economy has been built. Emperor's clothes here ... it works until someone realises it doesn't; and then the whole lot can quite easily come tumbling down. Money is meant to reflect work; labour ... creation of 'wealth'. FRB and debt means that it is now a promise of money. John_From_Hendon (and me) may not like it; but the nature of inflation is to 'use' the work of the saver to pay the debts of the borrower. If the situation goes beyond even the means of the saver, we are either left with working for nothing for a long time ... or default.
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146. At 3:23pm on 21 Dec 2010, jonearle wrote:
"Anyone in debt who understands what is happening should be imposing austerity on their personal spending"
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Agreed ... I'd add though that there is a presumption of responsibility here. The trouble with the 1 in 7 defaulting statistic that Up2Snuff quoted is that much of the debt that we are facing now was created irresponsibly; and that many of those now in debt lack sufficient means to repay ... even at historically low rates.
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One of the Bank of England's Deputy Governors, Charlie Bean, got into trouble a little while ago, when he suggested to savers that they ought to be "eating into" their cash reserves to get through this period. On that occasion, the reporter took the side of savers. What is striking, to me, is how rarely that happens.
I'm more of a saver than consumer and that remark solidified my intent to spend absolutely nothing more than absolutely necessary, even if the value of cash savings decreases by about 3% per year. (Thankfully I stashed a fair bit into emerging markets funds and they're doing very well thank you.)
The kids will get money for Christmas which they can spend as they will.
But I will not support these barmy bankers and child politicians by simply going out to buy gash stuff that I don't want, simply to support this 'so-called' recovery.
What kind of economy is it when people have to go out and buy stuff they neither need nor want, or sell houses to each other to keep it going?
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Bottom line is that banks and governments got is into this mess by repealing the Glass Steagall act, moving away froma sensible position of only lending out what you have on deposit and leveraging in an insane way.
This created pie in the sky asset price inflation and a perceieved feeling of the home owner generation and the stock market spiverati thinkign they were getting rich. When in reality all they were doing was stoking asset price inflation and did not materially increase their wealth.
When the musical chairs stopped, someone was left holding the bomb.
that happened to be in this case feckless borrowers who new the price of everything and the value of nothing. Their default in turn registers as a write down (to real market value) of the loan against the inflated asset. This pie in the sky made up wealth is properly evaporated and so we begin the painful journey out of the bubble.
Until the bubble actually deflates, our economy remains at risk of collapse. (and believe me we are no where near that stage yet)
Ask yourself, if all the leveraged made up money the banks created can be backed up with actual created wealth via work, manufacturing, digging things up and growing them. The answer is no. it is IMPOSSIBLE to create wealth by restructuring loans into complex securities into derivatives. no value is being added yet they rise in price, it makes zero sense.
We have a long LONG way to go till the bubble is deflated (or the rest of the universe the bubble exists in is inflated - effectively what HMG and BOE are doing now)
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I suspect the CBI's prediction will be wrong on both counts. The BOE will be very reluctant to increase interest rates while unemployment is rising and growth is very low, prefering to promise falling inflation in the mid term as they have for more than 2 years already.
No doubt they will produce their usual Nobel Prize winning gobbledygook, complete with g Whizz graphs and spare capacity models and a few quotes from big cheeses. By the way they use the same maths as the global warming models. (Check out the MET Office CET records. Turns out a few cold winters play havock with the predictions and all the melted ice at the poles refreeze) Whoops where are the snow plows.
They are more likely to print new money with a religous zeal until the limited inflation that they actually want gets out of control as it always does. Afterall the government have bet all of their credibility on not driving the UK back into recession with their cuts. They only have one lever left(QE)and will be using it very soon. Government bond prices will fall which means government debt will cost more. This is the fuel the next spurt in inflation will require to power it. The rising VAT should get things moving a bit further as well.
Once inflation begins to truely spiral then we will see rapid large rises in interest rates. Its all part of the boom bust cycle and follows a policy informed by the strategy of doing everything possible to escape the debt without paying it back.
I would be investing in inflation linked bonds, gold, emerging market debt, art, stamps. Anything really except cash at the bank or property. Afterall this is essentially covert redistribution of wealth. We have already seen the start of it with commodities doubling in value in a year.
Trouble is the poor and those on low incomes are the first to suffer from higher food prices and living costs long before the surplus capital of 'savers' is sufficiently eroded and the debt devalued to bring some kind of equilibrium.
Of Course I might be wrong.
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#27 Anand
That's not a real price, that's a nominal price.
What I mean is that raising base rates is not going to make more funds available. Savers will save more and borrowers will spend less. The result? Further reductions in aggregate demand.
With debt levels at about 550% of GDP, base rate rises means a manifold reduction in wealth.
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I just read #155 and I agree: while unemployment and debt is high, the base rates will not rise.
What is more likely is a base rate rise in an attempt to prevent short selling of the GBP in response to creation of Eurobonds or some such stabilisation mechanism. Once it is seen that markets have no or little impact on sovereign stability through speculation, the Euro will rise like a helium balloon.
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154. ANAND I agree with you. If we are to tackle our unprecedented difficulties we need to get the government much more involved in investment in our infra-structure of new energy sources. To do this they have to pull the plug on the banks and nationalise them when they go bust. They can do this free of TUPE which means no more contactual bonuses to wealth parasites which is the current prop them up before they go bust ownership model.
Whilst the government has to throw ever more compounding debt at trying to hold back the dam of over inflated property we are only making the situation worse and decreasing our ability to fix our energy problems.
Everyone is overlooking the elephant in the room of energy and associated commodity shortages and high prices and we are not preparing ourselves for the coming perfect storm.
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Economic sector accountancy, as used by Martin Wolf in a recent FT article (26/09/2010), may be relevant here. To paraphrase somewhat, the algebraic sum of financial balances across all sectors is said to be zero. Debtor households have an obvious reason to save and pay down debt but for creditor households, whose income has been cut by negative real interest rates and inflation, there is also a motive to save more and invest for income restoration.
So I think the BoE needs to raise interest rates soon to protect the purchasing power of the currency.
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149. At 4:36pm on 21 Dec 2010, torpare wrote:
@81. onward-ho:
"So, boiling all that down, what we need is more of the same thing that got us into the mess we're in?".
We need to keep the good bits and look at what went wrong with the bad bits.
What we seem to be doing is regarding economic growth, property development,area improvement, bulding refurbishment, ease of sale,prospects of advancement, social and geographic mobility etc as undesirable when in fact they are the very key to future prosperity.
So if having future prosperity means having more of what we had in our recent days of prosperity then yes, let's have more of it.
And crunches are unsustainable too.
Just because the cycle goes round it does not mean that it is pointless.
Wheels turn and social orders change.That is how life is.
It may be that endlessly pottering about with centrally dictated interest rates is past its sellby date and does more harm than good.That is actually what has happened in Britain as new mortgages and loans on offer bare little relation to prevailing base rates.
The amount of employment and tax generated by what is the stuff of life in every country on the planet ......land, houses, construction of infrastructure ........ far exceeds any amount of cash we would make by selling cars to Germans or making better widgets.
A service-based economy does produce more and adds value more than an assembly line.
The German manufacturing-based economy looks dynamic in contrast to ours because our service industry and our construction has been in the doldrums.Their service economy was small in comparison to ours.
Our banks are paralysed at the moment,like frightened rabbits in the headlights of Basel 11, not because people want to stay where they are forever.
And there is a a valuation crisis as much as a funding freeze.
Wrongheaded thinking is squeezing our banks and depressing the construction sector which is the engine of our economy.
We have aspirations and are prepared to work hard for them.
Moving up , buying a home, improving it, selling it and buying another one ......this is what people want to do nowadays.It is the story of the British people.
Rent a house in Germany and the kitchen will have been ripped out by the scrooges who lived there before, taking it to their new house.
In Britain people put new kitchens in to sell a house and then
buy another house in which the first thing that gets done is that the "old" kitchen which itself might be brand new, also gets ripped out and another new kitchen gets put in, as most women see other people's old or low spec kitchens as being like a dreary death sentence .
Maybe it's mindless but it keeps people busy , and there is no shortage of husbands forced out to work extra hours to pay for these whims.
So .........Bring back Bling!
Because apart from their overpriced cars and their great tools and machines, what is the current German impact on the world?
With their balance of payments surplus and Merkel says Nein! appraoach, what they are doing in Germany is rubbing every other country's nose in their superiority. People have memories.
Ireland is falling out of love with Euroland.
So is Greece and so is Portugal and so is Spain.
Tight control of money supply creates endlessly more misery than economic growth ever did.
Milton friedman is dead , so why are we reliving an old scratched record from 70s Thatcheriana?
Vital financial and construction sectors are the babies and the banking slump was the bathwater.
Let's realise this and move onward.
Let's
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Sorry .....bear little not bare!
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@160. onward-ho:
Sorry to say it but I think you're living in a world that no longer exists.
You're evidently hooked on "growth" as a cure-all. Hasn't the news yet reached you that the fossil fuels on which our growth has hitherto depended are finite?
We have to find a better way. And soon.
Far from the banks in their present form, and the debt-fuelled consumption they live by, being the solution as you seem to believe, they are in fact the main source of the problem.
Fundamental reform of the banking and monetary system is a precondition for any meaningful long-term recovery. Nothing short of a revolution in our present ways of thinking is required.
That's my twopenn'orth anyway.
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148. At 4:18pm on 21 Dec 2010, Chris London wrote:
135. At 1:47pm on 21 Dec 2010, Averagejoe wrote:
=========================================================================
"Unless you are calling for us to set up and infrastructure who's ultimate goal is to start WW3 and invade ???? Germany's economy in the 1930's has nothing to do with us. For if you look at the historical economics of that nation you will see that it was gearing up for war which aided in its turn around however if war had not come forth Germany would have collapsed economically. Their model was unsustainable rather than being the blue print for our modern day delamer."
With mass unemployment in the 1930s,Keynes urged to government to spend money employing people to dig holes in the road,thus generating income which would increase consumption and demand.Germany in the thirties is a parallel,it didn`t matter of the weapons were simply made for the Germans to admire,or were used to invade Russia,they created investment and employment so the German economy recovered and began to expand.
Nor is it true to say that a war economy is followed by an inevitable collapse.German aggression eventually produced a military collapse,but high wartime spending by the USA and Britain not only doubled capital equipment in their war economies, but a continuation of the policy of using government spending for economic stability and growth continued successfully post-war.
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One problem is "savers" in this country do not save properly. I'm not surprised they are moaning on.
If you are going to save money, then INVEST it - and watch it grow.
Just look at how investment funds in e.g. emerging economies grow year after year. Put your money into China, Brazil, Russia, India...(do you not listen to the news - it is these country's economies taking off - not ours!!!!) and watch what happens.
Most funds grow over 20-30% PER YEAR. Your holdings can easily be bought and also easily sold in a moment if you need the cash back.
Why on earth anyone would put all their spare cash in a UK high street bank savings account "earning", what, 1% a year is totally and utterly beyond me. It's actually quite foolish, and yes, the value of your savings is just being eroded away by inflation.
People need to wake up.
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Re 164:
There are two groups of savers - those who are 'younger' and won't need to live on the savings for some time and those who are 'older' and need to draw income now. Conventional wisdom is that the former should indeed be invested in growing equities whereas the latter must take a 'shorter term' view and protect themselves from currency risk and market crashes and invest a significant proportion in cash and gilts.
Investing most of your savings in 'emerging markets' whilst drawing down income is a bit high risk...
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30. At 3:43pm on 20 Dec 2010, Friendlycard wrote:
14. arny5000:
"The big issue for me is how can they possibly say inflation is 3%, when everything has gone up 20% or more"
You are right, the effective rate is very much higher. Here's how it's done:
- "Imputations" - including in the calculation things that don't really exist (yes, really - look it up)
- "Hedonics" - adjusting prices to capture supposed improvements in quality
- "Substitution" - if the price of X rises more than Y, they assume that the consumer switches to Y (and back to X next year if the price differential reverses)
- "Geometric (rather than arithmetic) weighting" - automatically reduces basket weighting of anything of which the price is rising rapidly.
In the US, real CPI is about 6.5% above the reported number. In the UK, the gap is probably smaller, it's hard to know for sure, but still significant. I estimate real UK inflation in the 5-6% range.
Fudged inflation serves governments in many ways:
- Lower welfare spending, when rises are linked to understated inflation measures (hits pensioners very hard)
- Smaller rises in public sector wages (private sector does the same, of course)
- Higher tax take (allowances fail to keep up with real inflation)
- Higher reported growth, when the GDP deflator is similarly distorted.
So basically, yes, inflation is very understated, and this serves all governments well
.........................................................................
Great post, There seems to be dark forces out there constantly trying to part us of our 'hard earned'. To quote an old saying 'At least Dick Turpin had the decency to wear a masked while he robbed us '
Sadly the reality is also, most of us only have a certain amount of money to spend, if they take it all, everything fails.. Merry Christmas !
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Why don't the British public just buy UK gilts?
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163. At 8:47pm on 21 Dec 2010, bryhers wrote:
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Strange thing is we will never know if what Keynes was putting forward would have ever worked in the medium to long term. The reason for this was the second world war. This changed the whole global economy it allowed the industry to step up to fill a gap that was created by the wanton destruction caused in WW2. The digging of ditches made little impact the improvement of infrastructures did but could this have been sustained in the long term. The other outcome many forget is that the USA economy was set for a boom period just before the war and after due to their supply of items to the war effort. Something they did not do out of the goodness of their hearts but for "Money".
Keynes theory has yet in fact to be put to the test in a major depression. Countries have been able the weather the storm through minor blimps by spending their way out but never in a major downturn.
Yes as economists we need to look back but more importantly we need to look forward and put forward theories that are fit for purpose rather than force fit was has been perceived to have worked in the past. Now I am not saying we should not use elements of what others have thought up that would be like trying to reinvent the wheel. But not thinking and comming up with options shows a moral bankruptcy and a lack of intellectual capacity.
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The obvious answer is to join the Eurozone.
That way our money will be managed by a 'proper bank'.
[should flush out the Little Englanders]
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167. At 06:58am on 22 Dec 2010, Oblivion wrote:
Why don't the British public just buy UK gilts?
=========================================================================
Why not just buy British, it would have a greater impact and turn our economy around much faster.
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170. At 09:23am on 22 Dec 2010, Chris London wrote:
167. At 06:58am on 22 Dec 2010, Oblivion wrote:
Why don't the British public just buy UK gilts?
=========================================================================
Why not just buy British, it would have a greater impact and turn our economy around much faster.
****************************************************************
What for example?
In the market for a car next April, 2-3 years old, budget c£30k
big cat? a lot better than they were but reliability ?
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From the start of the 'credit crunch' all the official help and concern has been aimed at the people who caused the problems - the banks and those that have borrowed too much and are over stretched.
The prudent and the savers have been disregarded and punished.
An absolute disgrace.
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172. At 09:57am on 22 Dec 2010, Jon_H wrote:
From the start of the 'credit crunch' all the official help and concern has been aimed at the people who caused the problems - the banks and those that have borrowed too much and are over stretched.
The prudent and the savers have been disregarded and punished.
An absolute disgrace.
**************************
Of course it is.
No thought was given to the ramifications of the BAILOUT
It has led to
increased arrogance (if that was possible)
driving a coach and horses through the concept of moral hazard
Not too big to fail? Let the market finish the job.
Too big to fail?
Answer nationalise the entire sector without compensation to ordinary shareholders
Against the law to do this? Change the law.
I am utterly livid about this and it will effect what I include on my next tax return.
'Tax harvest' depends only a small degree on the letter of the law, it depends a great deal on a covenant (i.e. most people who believe in a civilised society see tax as necessary and comply)
The covenant is in pieces.
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171. At 09:39am on 22 Dec 2010, TheComingStorm wrote:
What for example?
In the market for a car next April, 2-3 years old, budget c£30k
big cat? a lot better than they were but reliability ?
=========================================================================
What about a Land Rover Discovery - very appropriate at the present, just looked up on the net and found more tan 18 less than a year old.
The point is if you start to buy British then they will build, grow and invent what you want. Money talks....
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174. At 10:40am on 22 Dec 2010, Chris London wrote:
171. At 09:39am on 22 Dec 2010, TheComingStorm wrote:
What for example?
In the market for a car next April, 2-3 years old, budget c£30k
big cat? a lot better than they were but reliability ?
=========================================================================
What about a Land Rover Discovery - very appropriate at the present, just looked up on the net and found more tan 18 less than a year old.
The point is if you start to buy British then they will build, grow and invent what you want. Money talks....
************************
Nah, can't wait that long.
Gonna buy a Merc as per Janis Joplin
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175. At 10:54am on 22 Dec 2010, TheComingStorm wrote:
What more can be said.....
Just go to France and Germany and see what they are driving....
Wie möchten Sie das bezahlen, Sir DM wird schön! Vielen Dank für die Unterstützung der deutschen Republik.
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171. At 09:39am on 22 Dec 2010, TheComingStorm wrote:
big cat? a lot better than they were but reliability ?
===================================
In 2001 I changed my BMW for a big cat and have not regretted it once. Nine years and 90,000 miles later it is still going strong with only wearing parts replaced. I should like to replace it with an XF which is almost always rated by car mags as better than MBW and Merc as is the XJ.
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177. At 11:35am on 22 Dec 2010, AnotherEngineer wrote:
171. At 09:39am on 22 Dec 2010, TheComingStorm wrote:
big cat? a lot better than they were but reliability ?
===================================
In 2001 I changed my BMW for a big cat and have not regretted it once. Nine years and 90,000 miles later it is still going strong with only wearing parts replaced. I should like to replace it with an XF which is almost always rated by car mags as better than MBW and Merc as is the XJ.
***************
Thanks
Will bear this in mind
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#24 >>The Government is so in hock to the banks it declines to force banks to fund mortages, long term debts, with long term funding bonds. As a result mortgages remain short term funding instruments which, due to variation, act to stiffle demand, pensions and other savings vehicles.
Strange statement in face of so-called banks (Fanny Mae and Freddie Mac) funding long term debts with long term borrowings (CDOs) was a major cause of the worldwide crash !!
Perhaps, a more detailed explaination might be needed !!
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Dear "Savers",
Further to my post at #164, please read:
http://www.bbc.co.uk/news/business-12056250
Getting the gist?
Good. Well done.
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#36 >>The whole pension system will collapse unless rate are got up quite soon.
JfH, the whole thing will collapse regardless !! What the pension funds had previously had been looted by Our Glorious (former) Leader !! What is left will not fund the pensions to come, despite those pensioners paying into them !!
Thank God, I wouldn't be bothered by any of that !!
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Bank accounting practices need fully investigating
Interest rates are, for customers, insultingly very low on most accounts but lending rates are much higher.
Time for the bank corporate accounts to be investigated to see what is going on ... savers and csutomers are being duped ... except where do you think the bonuses come from ... that's the difference between waht you get and waht you should be getting on our bank deposit savings.
It is commonly called ... theft, fraud, conspiracy, embezzlement ...?
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Got to hand it to President Putin ... 25% import tax on foreign cars in Russia ... protecting Russian jobs ... that is what I call Leadership ... is anyone going to argue with him!
Its a pity our UK political class are a like a 'bunch of frightened rabbits' in comparison.
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183. At 12:42pm on 22 Dec 2010, nautonier wrote:
Got to hand it to President Putin ... 25% import tax on foreign cars in Russia ... protecting Russian jobs ... that is what I call Leadership ... is anyone going to argue with him!
Its a pity our UK political class are a like a 'bunch of frightened rabbits' in comparison.
***********************
WRONG
Russia is not an exporting powerhouse like Germany is and the UK could be.
Russia is protecting a huge internal market.
Slightly different.
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184. At 12:52pm on 22 Dec 2010, TheComingStorm wrote:
183. At 12:42pm on 22 Dec 2010, nautonier wrote:
Got to hand it to President Putin ... 25% import tax on foreign cars in Russia ... protecting Russian jobs ... that is what I call Leadership ... is anyone going to argue with him!
Its a pity our UK political class are a like a 'bunch of frightened rabbits' in comparison.
***********************
WRONG
Russia is not an exporting powerhouse like Germany is and the UK could be.
Russia is protecting a huge internal market.
Slightly different.
..................
Nah ... you're wrong ... but very good at stating the obvious ... of course Russia is protecting its own domestic and vital strategic manufacturing/employment interests ... but if you think that Russia is not a strong exporter ... e.g. some of the gas now keeping you warm probably came from Russia.
The UK could be a lot of things but it is what it is ... Russia will overtake Germany in the next 10-20 years on most/all economic performance indicators ... that is my prediction.
Perhaps you should get yourself checked out ... the 'frightened rabbit syndrome' bug is contagious!
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Chris London
Strange thing is we will never know if what Keynes was putting forward would have ever worked in the medium to long term. The reason for this was the second world war. This changed the whole global economy it allowed the industry to step up to fill a gap that was created by the wanton destruction caused in WW2. The digging of ditches made little impact the improvement of infrastructures did but could this have been sustained in the long term. The other outcome many forget is that the USA economy was set for a boom period just before the war and after due to their supply of items to the war effort. Something they did not do out of the goodness of their hearts but for "Money
What evidence do you have that the USA "Was set for a boom period?" Despite the New Deal,the economy had slumped again in 1937-38, and in the last year of peace the US had 10 million unemployed ftom a much smaller workforce than now.Nor was the expansion in employment limited to "ditch digging." I thought I had made clear that America doubled its productive capacity in four years of war.The surge in the UK was almost as great.
Post-war reconstruction clearly played a bigger role in Britain than the USA which was not a war zone.However both countries intepreted "Freedom from want" which was part of the UN charter as a commitment to "Full employment in a free society." Largely based on Keynes` policy of deficit financing.
A final point:-The technologies which have underpinned the post war economies,that is electronics,(Radar),Jet Propulsion,(fighters),nuclear technology,(Hiroshima and Nagasaki),and antibiotics,(Penicillin) Wered all developed by the state in time of war.
You twist and turn in the wind and have nothing to say,nothing you write has any historical resonance or intellectual challenge.The only reason I respond to your pathetic posts is in case someone believes them.
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Re Loftgroov at number 164 and 180
I'm not sure you understand the concept that the value of investments can go up as well as down. Or the concept of future prospects already being priced into the price by the market.
Sure the value of a ishare Chinese tracker might be 3 times what it was a few years ago, and if it continues like that you'd make a handsome profit. But if the bubble bursts and the price returns to what it was a few years ago, you lose 70% of your money. Remember Ireland, the Celtic tiger. Or come to think of it the far-eastern tiger economies that then ran into difficulty. As for optimism, that's always present in abundance at the height of bubbles, so not really a great indicator.
If you had a chunk of money and had to decide where to put it you might realise it's very difficult to know what to do with it. I favour the stock market at the moment except that if something bad happens, the stock market is very responsive in the downward direction whereas other investments (e.g. houses) don't seem to swing as much aa fast.
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185. At 1:12pm on 22 Dec 2010, nautonier wrote:
Nah ... you're wrong
************************************
Which bit of 'Russia is protecting a huge internal market.' did you not get.
Policy is chosen on the basis that it will work if chosen correctly. Countries that depend on export are punished by reciprocal action if they apply tariffs. It would be very bad policy for the little UK.
Germany is an interesting case. If it were bigger it would also have a huge internal market and be less dependent on exports. So Germany get bigger..oh it already has... the EU. Job done.
'Perhaps you should get yourself checked out ... the 'frightened rabbit syndrome' bug is contagious!'
Is it like swine flu - might have the symptons. :)
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172 From the start of the crunch the emphasis was on protecting the savers money, if it had not been and the banks allowed to fail then the savers would have no savings at all.
173 Generally if you have shares in an insolvent company you lose everything, its called risk and if you had shares in banks then maybe you should have moved your money earlier.
Re reckless borrowers, in this country unless you have a council house, commercial rents are priced a little bit higher than mortgage payments so when interest rates move so do rents, is it really reckless then for 20 and 30 somethings who are at the stage of live of starting a family to want to purchase a home? They can only pay the going market rate and the banks facilitated this by lending multiples to allow it to happen. It is a bit rich for those that bought family houses with mortgages of 50k in the 80's and 90's that are now worth tenfold to moan at the younger generation for wanting the basic of a family house of their own.
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189. At 2:42pm on 22 Dec 2010, Baz Rutter wrote:
173 Generally if you have shares in an insolvent company you lose everything, its called risk and if you had shares in banks then maybe you should have moved your money earlier.
********************
Obviously, but what has this do with my post (#173).
I was railing at the bailout. The banks, not all, were technically insolvent but had 'risk' magicked away by Brown / Darling.
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dear loftgroov - 164 & 180
does the concept of "valuation" mean nothing to you?
you can't put a link to an article about china's ever expanding economy, suggest that we should invest there, without commenting on current valuations?
care to comment on P/E, price to book, yield etc of the asian markets?? (or any other method you care to use, because they all look a bit expensie to me)
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188. At 2:30pm on 22 Dec 2010, TheComingStorm wrote:
185. At 1:12pm on 22 Dec 2010, nautonier wrote:
Nah ... you're wrong
************************************
Which bit of 'Russia is protecting a huge internal market.' did you not get.
....................
A) ? stating the obvious
....................
Policy is chosen on the basis that it will work if chosen correctly.
....................
A) Really ... Wow ... what a revelation
....................
Countries that depend on export are punished by reciprocal action if they apply tariffs. It would be very bad policy for the little UK.
....................
A) Show us the evidence for this punishment ... it must surely depend on how it is done as nearly every country in the world operates some form of trade protectionism, apart from the UK ... this leaves us dangerously exposed to every kind of exploitation
....................
Germany is an interesting case. If it were bigger it would also have a huge internal market and be less dependent on exports. So Germany get bigger..oh it already has... the EU. Job done.
....................
A) Germany has a massive internal market and is massively protectionsist
- so what is your point?
....................
'Perhaps you should get yourself checked out ... the 'frightened rabbit syndrome' bug is contagious!'
Is it like swine flu - might have the symptons. :)
....................
A) The first signs of frightened rabbit syndrome are of criticizing the opinions of others without providing any substance, evidence or any logical reasoned comments to back it up ... other than one's own fears and prejudices.
.........
There is no evidence past or present (particularly from you) that if Britain carefully rebalances its economy and protects its own vital domestic economy that there will be any retaliation from any of its past, existing or future trading partners ... if it done on the basis of fair trade as reflecting the needs/necessary protection of vital UK strategic economic interests - obviously some trading relationships would/will change and choice in the shops and showrooms would change.
It comes down to this ... is it worth making full UK employment and reasonable overall living standards the highest govt priority or is having 25% of the UK adult population economically inactive - socially and morally acceptable as a political/social/economic and moral issue.
Britain remains on the decline until this protection/rebalancing happens ... in my opinion.
I see that you have zero solutions for Britain going forward. There isn't another credit bubble on the horizon for the UK which means that either;
(1)we have to make things happen, or
(2)face a very different economic climate to the false debt growth that we have become experiencing in decade or so leading up to last year.
Its rebalancing/protectionsism or the 'storm is coming'. There is no choice ... we cannot force growth other than by borrowing/printing money and so our only alternative is to re-organise and protect in the basence of a strong global recovery dragging us along.
Our global competitors have already reorganised and there is very little coming our way to make the difference needed. We sit and stagnate or we take positive action.
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192. At 4:16pm on 22 Dec 2010, nautonier wrote:
A) The first signs of frightened rabbit syndrome are of criticizing the opinions of others without providing any substance, evidence or any logical reasoned comments to back it up ... other than one's own fears and prejudices.
****************************
So if our politicians are frightened as you say. What off? Protectionist policies are usually a politicians best friend given the numerous simplistic numpties out there who would vote for it.
The evidence in favour of free (or as free as possible) trade is overwhelming.
Germany is not 'massively protectionsist'. There is no evidence for it.
UK needs to manufacture goods that people want, like Germany.
It aint going to happen.
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192. At 4:16pm on 22 Dec 2010, nautonier wrote:
A) The first signs of frightened rabbit syndrome are of criticizing the opinions of others without providing any substance, evidence or any logical reasoned comments to back it up ... other than one's own fears and prejudices.
***************************
It is actually very difficult mounting a logical rational defence against stupidity and irrationality.
So I repeat the question why don't our politicians introduce protectionism. Perhaps they are in the pay of evil foreign goverments (Russia, Germany) who do.
Taking the car issue. If we slapped 25% tariff on Mercs and BMW what would we buy instead.
Or if not cars something.
Keep it coming Nautonier you are amusing me.
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We need to 'trade' our way out of this crisis; and unfortunately, inflation won't help us to do that.
Whilst inflation could help by partly eroding the mountain of our National debt, there are considerable downsides and on balance, using it would be best avoided.
My view is, we need to get competitive. Allowing inflation to sweep over us is not an option.
Instead we should keep wages from rising, reduce the pay-scale inequality, get fixed costs like housing to become affordable and stay at levels that working people can afford. That way, the workforce could be mobile and wages could go further on the family expenditure.
As a housing specialist, I hope I may be able to help by explaining how we can easily achieve this latter issue: -
The problem:
Until recently, people have been tempted to place over-optimistic asking prices on the houses they wish to sell in the hope that some might just sell at these levels.
In fact this is the worst thing anyone hoping to sell can possibly do and it is even likely to put some buyers off viewing a property at all.
Instead, it is far better to price competitively, using the actual evidence of recent sale completions. Those who do this will attract more interest, more viewings, and more offers - as buyers will see that to property is truly 'in the market' right now.
I'm afraid, part of the problem is the desperate need to re-educate estate agents to give advice that accords far more closely with actual house valuations instead of the whimsical market appraisals that freely give to potential new clients. What a juvenile way this is, for any group of individuals to try and run their businesses, especially in difficult times, as now. Estate agents ought to be ashamed of themselves for not 'clocking' this a long time ago.
If, instead of market appraisals, quality house price valuations were provided by them, then all agents could provide a quality service and stop competing with each other over who dares to exaggerate the current price the most!
Quality house price valuations are a simple improvement that would quickly restore confidence and balance into the housing market. Anyone should be able to see that.
Unfortunately, the estate agents' professional bodies appear to be reluctant to discuss such a change currently. Since estate agents have been so slow at reacting to market trends, we, at Property Match, have developed and fully tested a web site, devised specifically for those wishing to sell houses all by themselves, whilst saving sales commission into the bargain.
If the changes I am speaking of are not brought in soon, the housing market will be forced to continue staggering on, from one severe crisis to the next; from crash, to another boom, and back and nobody will be any the better-off for it at the end of the day.
The problem is. neither will the country have benefited as it will not have an efficient housing market that tracks real market prices in property and allows people to move from house to house swiftly.
Those who may like to read more can find this on the property match web site.
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Here`s one for onward-not and all the other delusional status-quo-ists:
If you accept that there are 62 Million people in the UK (refer to Government web site ONS) only 36.6 Million are of a working age.
7.7 million of these are economically inactive
7.2 Million work part time
6.65 million work in the public sector
That leaves 16.7 million in full time employment in the private sector (struggling to create real value).
Then you have to subtract the low-wage,low tax(even subsidised)"Macjobs" from that 16.7 million.
Most people are 1 paycheck/benefit payment from utter destitution,the situation only gets worse decade after decade,yet we`re supposed to believe in some mythical "recovery" that will make all that better?
This country is headed for a fall of biblical proportions.
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193. At 4:34pm on 22 Dec 2010, TheComingStorm wrote:
192. At 4:16pm on 22 Dec 2010, nautonier wrote:
A) The first signs of frightened rabbit syndrome are of criticizing the opinions of others without providing any substance, evidence or any logical reasoned comments to back it up ... other than one's own fears and prejudices.
****************************
So if our politicians are frightened as you say. What off? Protectionist policies are usually a politicians best friend given the numerous simplistic numpties out there who would vote for it.
The evidence in favour of free (or as free as possible) trade is overwhelming.
................
A) Politicians are very frightened of taking action themselves ... over-whelming evidence ... banks and bonuses, Rover, Cadbury's, British Steel, airports, utilities etc etc ... the list is endless
.................
Germany is not 'massively protectionsist'. There is no evidence for it.
................
A) Read back through previous posts ... massive evidence for the German covert protectionism ... the clever stuff ... Can you ever foresee e.g. BMW being owned outside of Germany ... have you ever worked or done business in germany ... eventually 'you find the wall' and its got nothing to do with 'Berlin'
Russia?
China ... Do you think the Chinese authorities allow a free market in Chinese companies?
USA ... alowwed Stagecoach plc to run non strategic buses in the US ... and now finding it difficult ... foreign companies are prevented from buying strategic US assets
Japan ... let's not go there ... I'll be permanently banned from posting on here
British trade and foreign policy is characterised by its crass naivety and generosity regarding UK strategic assets ... if we have any left to sell.
For many British politicians - hiding behind free market rhetoric has been and still is a cover for their sheer sell out blatant cowardice.
Get real ... your comments are naive towards what is facing the UK ... continually waiting to see what we get is not helping us - I'm as much in favour of free trade as anyone else ... but Britain has to get real and protect and grow basic strategic assets and explain this as and where necessary
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194. At 4:49pm on 22 Dec 2010, TheComingStorm wrote:
192. At 4:16pm on 22 Dec 2010, nautonier wrote:
A) The first signs of frightened rabbit syndrome are of criticizing the opinions of others without providing any substance, evidence or any logical reasoned comments to back it up ... other than one's own fears and prejudices.
***************************
It is actually very difficult mounting a logical rational defence against stupidity and irrationality.
So I repeat the question why don't our politicians introduce protectionism. Perhaps they are in the pay of evil foreign goverments (Russia, Germany) who do.
Taking the car issue. If we slapped 25% tariff on Mercs and BMW what would we buy instead.
Or if not cars something.
Keep it coming Nautonier you are amusing me.
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Ask our politicians? ... They are so terrified of the subject and constrained by their party whips and otherwise lack the economic knowledge/understanding to even discuss it - and so not one dare speak out against the excesses and negative elements of the global economy.
Introducing a carefully worked programme of tariffs in the UK, would mean helping all/ordinary Brits when in fact ... most British politicians see 10 million inactive British people as a long term issue that will/might go away when the 'recovery arrives' ... and basically, could not care less about them anyway.
Large numbers on tariffs not required in the UK - '25% Putin tariff' is a lot but an average/variable 1%-10% tariff on stuff we should be avoiding and/or buying/growing/adding process value ourselves and at the same time avoid the VAT increase as inflationery on nearly everthing ... that way, UK inflation is lower and consumers can avoid tariffs if they wish and buy something else ... tariffs can help reduce inflation.
I always astounded at the lack of economic knowldge of most as not understanding the importance of analysing import and export tariffs as many UK imports include an export tariff element also from the exporter.
Tariffs are very easily worth £20 - £30 billion pa to HM Treasury and are far more effective than VAT and less inflationery and they actually change behaviour in production and not just in consumption.
Otherwise, I am afraid that like most - you've got nothing in effect to say - classic frightened rabbit syndrome symptoms ... no evidence at all to back up your sterotype rhetoric - nothing to back up your fears and prejudices ... more than happy to watch British people struggle with their econonomic survival. You have nothing to say or contribute only disagreement and sarcasm ... zero anything economic.
Therefore, I do think that you illustrate a further and widespread important point ... real ignorance of what now faces the UK.
Cheers
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stopsupportingcriminals:
"Most people are 1 paycheck/benefit payment from utter destitution,the situation only gets worse decade after decade,yet we`re supposed to believe in some mythical "recovery" that will make all that better?
This country is headed for a fall of biblical proportions."
Some may think thats closer to the truth stopsupportingcriminals the death of babylon and her wealth revilations 18.
http://www.awitness.org/biblehtm/re/re18.htm
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198. At 5:42pm on 22 Dec 2010, nautonier wrote:
I always astounded at the lack of economic knowldge of most as not understanding the importance of analysing import and export tariffs as many UK imports include an export tariff element also from the exporter.
Everyone except you of course. You have been banging on about this for months.
It is certainly a complicated area. However, prevailing wisdom errs on the side of free(ish) trade. It works.
The problem with the uk is that we don't seem to be able to produce enough quality goods that others want and what exports we do achieve would be put in peril by retaliatory action.
We could always give up which is the real message I get from you. Create a fortress island ban all imports make all our own stuff. Tariffs will have to be massive to inhibit UK consumers chasing down UK made goods as they are a bit thin on the ground. All you will achieve is pushing up inflation. Think.
Is this too hard to grasp. As for others not being able to penetrate the German market this is not backed up by evidence. There were'nt any 'barriers' in place to prevent a French utility group winning a 12 year deal to run the Bavaria railway system. French and German companies run stuff over here, we don't over there because we are not good enough.
ComingStorm is spot on.
But you are funny. A veritable xmas turkey.
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People have to understand that money of any description - pounds, dollars or euros, are 'a means of exchange' only and not a 'store of value'
As long as governments keep printing money and impose low interest rates below inflation, then it is clear that governments cannot hope to encourage savings. Charlie Bean the deputy dog at the Treasury did indeed let the cat out of the bag when he suggested that savers should 'eat into their capital' in times like these. Great if you are retired and someone has given you a firm date as to when you are about to leave this planet - (perhaps that could be arranged.)
Pensions are also under attack because of the various scandals and non performance of funds over the long term.
Even insurance premiums have rocketed this last year because of poor investment performance of the premiums.
That last stalwart - residential housing is obviously on a long term decline, also making people feel poorer. There is now an unhealthy 'asset bubble' in all sorts of commodities and bonds, just waiting to burst. Beware.
The effects of this crisis is going to have long term lasting effects on people's attitude to savings and pensions and the wealth of the nation.
In ten years time we will be living in a very different Britain. I am not hopeful that it will be an improvement.
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200. At 8:16pm on 22 Dec 2010, Richard Dingle wrote:
Herr Dingle
Your own 'Erschrockenen Hasesyndrom' intervention is very timely - and a French utility group running a few trains in Bavaria - so what?
Can you see if your GCSE Economics handbook stretches as far as explaining the differences between VAT and an 'import tariff'? If so, you would see what I am getting at as clearly the perceived relationship problem between import duties viz-a-viz VAT is not understood ... also by yourself.
Still someone who's admitted main economic solution is getting rid of the British monarchy before boarding the last Lufthansa flight to Bavaria could hardly be expected to come up with anything better?
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No, sorry, I didn't get an answer to my question.
If the British saver is so concerned with the state of his returns and the state of the nation, why is he not buying 10 year UK gilts at 4% return?
Secondly, once your tiny balls of grey matter have got adjusted to that question, follow on quickly with my original: what use would it be then to raise base rates (given that total debt and mostly private debt is at 550% of GDP)?
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#200 Richard Dingle
In actual fact, the UK produces an amazing amount of quality goods that could easily revolutionalise the entire world, but those goods are not pushed by the government or by the large corporates.
Nanotech WOW fats? Nanotech tumour killers? Flexible solar film? Foil bearings?
All game changing stuff, but the people who run the game don't want it changed, don't know how to change it, don't know what to do with a changed game, and are terrified of a game they don't understand.
Not to disagree with you in general, not at all! But I just want to emphasise that technologies are building up behind the barrier, but the obstacles are somewhere else.
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204. At 9:50pm on 22 Dec 2010, Oblivion wrote:
#200 Richard Dingle
All game changing stuff, but the people who run the game don't want it changed, don't know how to change it, don't know what to do with a changed game, and are terrified of a game they don't understand.
Can't disagree with much of that.
Meanwhile the world moves on.
Still could always take a leaf out of Nautoniers book and double the price of imports by slapping on tariffs.
That should cheer people up :)
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#201 - DemoDave
It's all details and so is this blog.
The steamtrain, exquisitely anticipated, and inexorable, continues despite the general chitchat onboard.
Our entire world ended with World War 2, and since then we've been struggling to dampen the imbalances.
Pendulums, under certain circumstances, may try to swing ever wider arcs, or even smash the clock.
We've enjoyed digressions in the automotive and then the communication arenas, but since then nothing productive has come to replace them.
It is time for a new world order, but we are still waiting for consensus to form.
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Richard Dingle / Nautonier
I have a better proposition. Let's organise a system of import subsidies. We'll make Afghan pomegranates tax free. It gives our people antioxidants, stops opium production, and saves us from spending money on dead soldiers' families.
We'll remove all taxes on anything to do with solar power. We'll remove all import duties on any energy, material, product or copyright on anything to do with turning British waves into heat and happiness.
In effect, we're subsidising by avoiding taxation.
The exporters will be ecstatic, but the end result will be self-sufficiency.
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(you will note, you could subsitute the word British for any nation you like, and the same call to arms applies - this is not a zero sum game)
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Perhaps another approach to forecasting when rates will change is to note that Dr Posen is in positon until Septemebr 2012.
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Sept 2012? By then we'll be using quids as toilet paper.
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Just a bit of scare mongering to try and get consumers rushing out to buy things by saying interest rates are going to go up because of inflation.
What they mean to say is retailers are hiking prices up and so are commodity brokers to maintain there margins. Sales are falling so increase margins but this will stall everything again.
People are not dumb they know everything is very slow on the high street, banks having falling mortgages, loans, credit card sales so they will look at raising fees to compensate. Its all hot air.
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Western economies are so messed up now its going to either take years to sort it out or you force a crash make some of the banks go under and the people that own huge asset portfolios like shares, houses for rent, etc.
Ordinary people can now see that there is no chance of a quick fix, the banks have messed everything up.
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#52 >>If the BoE wants to commit economic suicide, raising interest rates is just about the quickest way to do it.
The alternative is to go the way of the PIIGS !! Borrow at ever higher interest rate until the country is totally bankrupt !! Already Portugal is extending the begging bowl to Brazil and China - http://www.bbc.co.uk/news/business-11987147
Keeping the interest rates low simply to satisfy those who borrowed beyond their means will hurt EVERYONE in the country !! Is that fair ?? Why should prudent people have to pay for the sins of the reckless ??
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#57 >>I live very modestly, but TBH, why dont I just spend the cash?....inflation may well erode it,
The common fallacy is that savings should be either in the bank or under the mattress !! There are many other ways to save that are quite inflation proof !! One very obvious means is to buy gold, and I mean REAL 99.9999% gold; not the stuff you get from your local jewellers which is, at best, 60% gold !! One way of buying the REAL stuff is to buy Sovs, Half-sovs or Kuggerrands !! Another is to buy ingots which start from 5 grammes up to 1 kg !!
Hope this helps !!
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#61 >>No evidence of one iota of integrity between the lot of them!
Integrity ?? Responsibility ?? From them ?? What a shocking idea !! :-)
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#74 >>
... I guess times are a changing ....
'Guess' is acceptable, but 'a' is redundant.
One can't be sloppy on these matters!
I believe that his problem here is that he forgot to put a hyphen between the "a" and "changing", as in "the times, they are a-changing", which is acceptable and happens to be a line in Bob Dylan's song !! :-)
Ishkandar, a pedantic old fart
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#84 >>And our economy was bubbling and zinging a bit like China is now.
Can you explain how this is so, in words of one syllable, please ??
While Britain was playing silly fools with the financial sector(s) and the housing bubble, China was exporting like crazy !!
While Britain borrowed like there's no tomorrow in order to finance the "bubbling" economy, China was piling up reserves in the hundreds of billions !!
How can the two be compared ??
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#91 >>Oh and it will snow realy hard next year!! just to warn the airways. :)
Oh, but will they ever listen ?? :-)
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#107 >>Some 38% more in fact and that at the end of the year those who had used cash were left with a positive balance and those who had used plastic were more likely to have over spent and were left with a deficit.
Could that be why so many countries in the East are still cash societies despite widespread and "forceful" advertising of credit cards' availability ??
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#112 >>Aren't the people doing the lending under (b) going to notice the defaults under (a)?
Oh, but we have such pretty faces that everyone is just dying to lend us their hard-earned !! :-)
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#132 >>This is why I fear that the Euro is doomed as the Nations at the top will not be prepared to keep on supporting those at the bottom. Germany has already stated as much and the moves from within the ECB support that fact. The weakness is that they are relying those who are in need of support to provide that support.
There is another way; stop being Fascist about technology !! The EU has already started down this road -
http://www.chinadaily.com.cn/business/2010-12/22/content_11737414.htm
This could even the trade balance somewhat for those Eorozone countries with technology that is desirable - e.g. Germany, France, Sweden and Belgium; yes, Belgium with its FN (Fabrique Nationale) weapons factories !! Possibly the Czechs but their weapons manufacturing have been quite superceded !!
Meanwhile, Prince Vlad and the Russians are busily selling 5th generation stealth fighter technology to the Indians !!
http://www.bbc.co.uk/news/world-south-asia-12054370
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Ahh,Ishkander,if you`re still about,can you tell us what the deal is with these Chinese "ghost cities"?:
http://www.businessinsider.com/pictures-chinese-ghost-cities-2010-12?slop=1
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#170 >>167. At 06:58am on 22 Dec 2010, Oblivion wrote:
Why don't the British public just buy UK gilts?
=========================================================================
Why not just buy British, it would have a greater impact and turn our economy around much faster.
If Britain ever produce a flat screen plasma TV for a reasonable price, I might buy that !! Or a nice PC or laptop for a reasonable price, for that matter. Alas, this is not so !!
So, off we go and buy Chinese made stuff because that is all there is available in the market !!
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#171 >>big cat?
FYI, Big cats are Indian now !!
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#174 >>What about a Land Rover Discovery - very appropriate at the present, just looked up on the net and found more tan 18 less than a year old.
The point is if you start to buy British then they will build, grow and invent what you want. Money talks....
FYI, Jaguar Land Rover is now Indian, so buying British is limited to the Bristol, Aston Martin and a few niche market cars !!
I prefer buying Japanese (Honda); at least they are made in Britain !!
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#182 >>Bank accounting practices need fully investigating
They are !! - http://www.bbc.co.uk/news/business-12057170
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#183 >>Got to hand it to President Putin ... 25% import tax on foreign cars in Russia ... protecting Russian jobs ... that is what I call Leadership ... is anyone going to argue with him!
Prince Vlad talks softly and carries a big stick (called oil and gas) !! Our bunch talks loudly and carries...... ???
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#196 >> This country is headed for a fall of biblical proportions.
Oi, stop nicking my drum. I'm the one who's supposed to thump out biblical doom and gloom, unless Armageddontimes is on board !! :-)
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#203 >>If the British saver is so concerned with the state of his returns and the state of the nation, why is he not buying 10 year UK gilts at 4% return?
It is not a question of "return" so much as a matter of "residual value" !! At the end of 10 years for a 10 year UK Gilt, will the buyer get the equivalent value as his(/her/its) investment PLUS the interest or will he(/she/it) get devalued quids in exchange that is worth less than the quids he(/she/it) invested ??
The quid has fallen around 22% in the last year or so and 4% return in the devalued quids is not worth as much as the original investment.
For an extreme example, you could try buying Zimbabwean bonds !!
Stick to gold. Why do you think there has been a sudden prolifration of shops/stores offering to buy your gold jewelry recently ??
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#204 >>Nanotech WOW fats? Nanotech tumour killers? Flexible solar film? Foil bearings?
Anything you can't sell is, effectively, worthless. There has, not only to be an inventor, but also a businessman to turn those inventions into salable products. Currently, Britain is sadly lacking in this kind of businessmen (with due apologies to Dyson, Branson, et al), "siralan", oops, sorry, I mean Lord Sugar's show, notwithstanding !!
This has been a "British disease" for a long while. Watson and Crick (of Cambridge University, if I'm not mistaken) discovered DNA and now Monsanto and gang are patenting everything in sight !!
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#207 >>I have a better proposition. Let's organise a system of import subsidies. We'll make Afghan pomegranates tax free. It gives our people antioxidants, stops opium production, and saves us from spending money on dead soldiers' families.
We'll remove all taxes on anything to do with solar power. We'll remove all import duties on any energy, material, product or copyright on anything to do with turning British waves into heat and happiness.
In effect, we're subsidising by avoiding taxation.
The exporters will be ecstatic, but the end result will be self-sufficiency.
Sorry to be such a Cassandra but, (1) if we give subsidies to Afghan pomegranates, they'll just grom the poppies in between the pomegranate trees !! No solution there !!
(2) If Britain depends on solar power, we'll have to reduce our electric usage by a huge %; considering the unreliability of sunshine in Blighty !! Wind would be a better bet !! Gas from fermenting animal "by-products" (known, during WW2, as pig-fart) are also reasonable bets !! However, watch out for NIMBYs !!
And no need to be protectionism about imports !!
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#222 >>Ahh,Ishkander,if you`re still about,can you tell us what the deal is with these Chinese "ghost cities"?:
The same deal as the Irish "ghost estates" !! When sense goes out the window, people will try to "force" prosperity into existence, regardless of the facts. WHen their "deal" blows up in their faces, there'll be a lot of wailing and gnashing of teeth. One difference is that Chinese businessmen will NOT be bailed out by public funds !!
One other diffrence is that there is a truly spectacular lack of investment opportunities in China for its own people, since they are not allowed to invest abroad. THey also have/had very low interest rates (Britain be warned !!). So the people buy property as a form of savings, whether to let or for later sale at a higher price. Therefore, there are instances where whole estates are sold but few or no one is living there !! This is different from the Irish housing estates which stand forlorn and unsold !!
Then again, this is just my feeble understanding of the situation !!
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So Selfish Idealogies here /
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214" The common fallacy is that savings should be either in the bank or under the mattress !! There are many other ways to save that are quite inflation proof !!"
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Thanks for your suggestion, I will check it out, Leaving any large(ish) sums of cash in the bank will just see it dissapear slowly due to inflation and low intrest rates (or suddenly even if the bank goes bust the judging by recent events)
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Sir.
The low interest rates in the u.k. are affecting ex.British pensioners very badly.The non indexed pensions which we receive are now almost halved because of the low interest rates.I know of many elderly ex.pats who are in dire straits.The australian government who thank god are more generous to their pensioners than the u.k. are making up some of the defecit in our monthly income. The cost of living here is also rapidly increasing making things worse.
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The case for starting to raise interest rates soon::
As a Nation we need to 'trade' our way out of this crisis; and unfortunately, inflation won't help us to do that.
Whilst inflation could, in theory, help by partly eroding the mountain of our National debt, there are considerable downsides and on balance, using it would be best avoided.
My view is, we need to get 'competitive'. Allowing inflation to sweep over and erode our overspend is simply not an option for the following reasons.
If we don't keep measured control over wages rises, reduce the pay-scale inequality, make fixed costs like housing; affordable, and keep them at levels that working people can afford, we'll loose control of our economy. If we succeed in keeping control, the workforce will stay mobile and wages will go further when covering the family expenditure.
As a housing specialist, I hope I may be able to help by explaining how we can quite easily achieve getting the housing market moving again: -
The problem:
Until recently, people have been tempted to place over-optimistic asking prices on the houses they wish to sell, in the hope that that some might just sell at such levels.
In fact this is the worst thing anyone hoping to sell a property could possibly do. It is even likely to put some buyers off viewing a property at all.
Instead of this, it is far better to price 'competitively', using the actual evidence of recent sale completions. Those who do this will attract more interest, more viewings, and more offers. Buyers will see that such a property is truly 'in the market' right now. Similarly buying the next property may be accomplished using the same method and therefore, no financial loss should result. Buyers are, in fact, likely to make higher offers this way, by bidding against each other. This does not happen if you set the asking price too high in the beginning.
Unfortunately, part of the problem is the urgent need to re-educate estate agents, so that they give advice that accords, closely, with actual house valuations. The whimsical market appraisals that are currently and freely given to potential new clients won't do any more. Giving those is an extremely juvenile way for any group or organisation to behave when running a business, especially in difficult times, as now. Estate agents ought to be ashamed of themselves for not realising this a long time ago.
If, instead of market appraisals, quality house price valuations were provided by them, then all agents could provide a satisfactory service to their clients instead of competing with each other over who dares to exaggerate the current price the most, as happens now!
Quality house price valuations are the simple improvement that would quickly restore confidence and balance to the housing market. Anyone should be able to see that.
At the risk of offending those at the top of the industry, but assuming this is a 'free' society, I suggest that estate agents' professional bodies should be less reluctant to discuss such changes.
Since estate agents have been so slow to react to the obvious market trends, we, at Property Match, have developed and fully tested a web site, devised specifically to help those wishing to sell their houses, all by themselves.
If the changes I am speaking of are not brought in soon, it is highly likely that our housing market will be forced to stagger on, from one severe crisis to the next (i.e. from crash, to another boom, and back) and nobody will be any the better-off for it, at the end of the day.
The problem is, neither will the National economy benefit, as it will not have an efficient housing market that tracks real market prices in the property market and thus allows people to move from house to house swiftly.
Those who may like to read more about these ground-breaking proposals can do so, on the property match web site.
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" 229. At 04:47am on 23 Dec 2010, ishkandar wrote:
The quid has fallen around 22% in the last year or so and 4% return in the devalued quids is not worth as much as the original investment."
And the pound continues it falls with the apparent MPC continual indication that nothing will be done to increase base rates and that inflation is a good thing (even ignoring CPI and looking at the gdp deflator, it is levelling but it isn't doing it that quickly).
On the plus side the forever weakening pound might prevent people from emmigrating so net immigration may go up, increasing the population and diluting the debt over more people - apart from that there is no good reason (pride?) to keep base rates at absurd levels.
BTW does anyone know how the cost of capital for UK based business is looking c.f. other country bases - is there any advantage being seen here?
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And since the ongoing high inflation is now expected by more people we may see more industrial actions for higher wage demands - is the Heinz case in Wigan an early indicator?
It is easier to take action against your employer than to take action against the MPC/BoE (for which there is no route).
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#207 >>I have a better proposition. Let's organise a system of import subsidies. We'll make Afghan pomegranates tax free. It gives our people antioxidants, stops opium production, and saves us from spending money on dead soldiers' families.
Sorry but asking opium growers to grow pomegranates like asking bankers to use monopoly money.
Drugs is the one industry that stands on its own in the world of finance. Until controlled and regulated properly we may as well call home all troops. Not to mention the golden triangle has increased production by 75% year on year for the last 4 years. This is to compensate for our very poor efforts in afghanistan.
8.9% of world trade and economy belongs to the illicit drugs industry. Is as powerfull as any goverment and any banking system.
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2. At 1:08pm on 20 Dec 2010, inacasino wrote:
"Wasn't it the borrowers and lenders who got us into this mess?
Not the savers."
19. At 2:06pm on 20 Dec 2010, ThisWorld wrote:
"so maybe it's the savers fault for wanting something for nothing in the first place."
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Surely one man's credit interest is another man's debit interest and the difference bewteen them (because borrowers are charged more than investors are paid) is the bank's profit. It has often occurred to me that everybody - and I mean everbody - basically wants something for nothing, or at least as much as possible for as little as possible. Borrowing represents consumption (bad) and investment profit (good) but an investor, however small and in whatever form, is also a lender and therefore helps fund the consumption. The saver who deposits some of their earnings in a bank may not see it that way, but the interest they expect on their money, even if it only covers inflation, doesn't come out of thin air (or maybe it does, but that's another argument).
This contribution may be simplistic and I am well aware that excessive debt-fuelled consumption is what caused the financial crisis, but I do get a little irritated by the high moral tone of some savers.
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What about peer 2 peer lending? Check out Zopa and Funding Circle. One way to side step the banks and obtain better rates
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BoE interest rate won't rise until we see wage inflation
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This period simply illustrates that the value of currency is not safe in the hands of governments who have (and I suppose this is not new) systematically debased the currency for political ends.
I think the idea of using currency deposits as a saving mechanism is shot to pieces and you have to buy real assets - stocks mainly, although commodities and in other circumstances, property. So this also means retirement annuities are on their way out.
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It is inevitible that interest rates will rise as they are presently at record lows. The question is over what period and rate of change will those rises take place.
Currently the banks are making lots of money because they are not paying much out to savers and the average interest charged on variable rate mortgages is still >2% above the BOE base rate.
Just to be slightly cynical here, what are the consequences if the "independent" media is told to warn the public of impending interest rate rises?
I believe most financially astute people would go and take out a fixed rate or capped mortgage ASAP. Obviously these mortgages are significantly higher than present standard variable rate mortgages.
If subsequently the BOE interest rate does not rise significantly then the banks are now quids in, they have more money from people on higher rate mortgages and will still pay peanuts to savers.
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I think between countries competition to grow economy that is why interest rate issue raise and there is a war of economy. Perhaps some countries are to ahead.
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207. At 10:13pm on 22 Dec 2010, Oblivion wrote:
Richard Dingle / Nautonier
I have a better proposition. Let's organise a system of import subsidies. We'll make Afghan pomegranates tax free. It gives our people antioxidants, stops opium production, and saves us from spending money on dead soldiers' families.
We'll remove all taxes on anything to do with solar power. We'll remove all import duties on any energy, material, product or copyright on anything to do with turning British waves into heat and happiness.
In effect, we're subsidising by avoiding taxation.
..................
Oblivion
See my post 202 - the UK alreday has what is effectively a hefty blanket import duty called VAT and the UK economy cannot handle VAT at the current level and moving to 20% and possibly more will be a very bad mover for the UK.
'The exporters will be ecstatic, but the end result will be self-sufficiency.'
I'm sorry but I don't see this happening as things stand
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Can someome please explain why we save and the most ridiculous rates whilst the banks etc lend our money at exhorbatant rates ? if you sponge , don`t work and genereally become a nuisance you get no end of help for free !! to conclude if you look after yourself financially your no better thought of !!
When we got moved in 1976 the mortage rate was something like 16% we eat beans on toast as long as the children were fed ok now the poor souls cannort afford today`s rates ; get real if you cant afford it dont buy it simples
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Economics is NOT predictive.
A country (England or U.S.) is NOT its economy, it is its people.
The biggest watershed event was the election of Ronald Reagan (and your Maggie Thatcher), the adoption of "Trickle Down" theory, deregulation of business, and "the government is your real enemy" rhetoric.
The period 1930 to 1980 saw the greatest rise in 'median life quality', the quality of life for the median worker, in both the U.S. and England (as well as the rest of Europe). Taxes were high compared to today, particularly on the most wealthy due to (in the U.S.) a steeply graduated income tax. Tariffs protected each countries native production, if it was not made WITHIN that country it was taxed. There was a high degree of Unionization and strong collective bargaining. And we all prospered, all boats rose, and Keynesian Economics ruled. No one was left behind, we all shared in the prosperity as well as the hardships.
Privatization and removal of controls on business over the last 30 years have brought us to this point. We concentrated more on making money than making things. We let our very wealthy keep more and more of what they took from everyone else, and let them write the few laws and regulations that were purported to keep them under control. It was called 'Business Friendly'. The trouble was that it was not very "People Friendly".
The crash came, as many actually foresaw it would, and who got hurt? The workers. Now, governments are populated with 'Business' advocates, and their targets for funding their version of 'recovery' are the poor and median income within their economies. "Civil Servants are making too much." "Benefits for workers are out of line with good business principles." "We can no longer afford to take care of the poor the way we were." "Educating everyone is too expensive, so is universal health care and social security." But now, only 3 years after the fall, the Wall Street and FTSE strong men are once again getting their billion dollar bonuses and the big (and growing bigger) banks are in record profit territory.
When a country like the U.S. produces little other than 'financial services' what will rebuild their economy when 95% of their populations have become 'economic noncombatants'.
The genius of the period 1930 to 1980 was the understanding that taking care of people was good for the future of the country as a whole. The U.S. and England accomplished many long lasting things in that period because the government could go to the people and get their support because the government could prove that it was taking care of them. Reagan/Thatcher ushered in the "I've got mine, screw you" attitude, and covered their sell out of the people by furiously pointing at some group, mostly the poor and the unions and the government workers, and crying excitedly "Look, THEY are trying to steal your money." This fostered the people blaming each other for any problems.
Every time there has been economic trouble it has been because of unregulated greed at the top of the economic food chain, not because of any miss deeds of the 95% who are working for a living.
The strength of a country is NOT it's economy, unless that is the only way you have of looking at things. If financial tools are all you have in your tool box, then everything comes to be viewed in monetary terms. Happy, healthy, educated workers built us up to 1980, then Vampire Capitalism sucked off the profits and left us with the empty shell. If you doubt this look at the single worker median income from 1946 to present (in adjusted for inflation currency) and compare that to the same statistics for the top 5% and for CEO's pay. The median single worker has lost (26% in the U.S.) while the top 5% has gained 340%, and CEO pay has risen over 1400%. Most of their gains have coe since 1980, as has most of the average worker's losses. There is a human message here.
The proper investment in our future, proven over history, is recreating a happy, healthy, well educated populace who are protected against the greed of Capitalism. Those are the people who rebuilt us after 1929, and those are the people we are abandoning now. History also shows that when 25% of a population has (or think they have) nothing left to lose, they are very easy to rouse to open revolt. Revolt is not a bad thing, but it is very risky.
Let's return to highly graduated income taxes (where high incomes are heavily taxed), protective tariffs (for what little we still actually make), improved public health and universal medical care, and full support for educating our students (so they will produce better). Strong Unionization is a mixed blessing, but some form of strong protection for workers is necessary. Encourage people to retire at 60, letting younger workers fill those jobs, and create a pool of volunteers from those retired workers for Civil and Social uses.
In the end, it is the people who will stand behind a country, not the businesses (who tend to go where the profits are best). It was teh people who rebuilt the world after WWII. It was the people (harnessed by Kennedy) who put us into space. Now the people are viewed as a drag on business except where they spend their money. Maximizing profit has led to minimizing human beings to just their economic value. Ask yourself this, why is efficiency increasing while companies shed workers? Did those left behind suddenly discover new and better ways to do things? I think it is far more likely that management has forced workers to 'slave harder or else, there are a thousand others out there who will do your job for less'.
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