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  • FIRST POST
    • MatthewAinsworth
    • By MatthewAinsworth 13th Oct 16, 10:16 AM
    • 2,243Posts
    • 908Thanks
    MatthewAinsworth
    Hooray for savings rates cuts
    • #1
    • 13th Oct 16, 10:16 AM
    Hooray for savings rates cuts 13th Oct 16 at 10:16 AM
    I figure you wouldn't need to hold many shares in a bank to benefit more than you lose from any cuts they make to current account rewards and savings interest

    Question is how much would you need invested?

    How much would the banks dividends improve for these rate cuts?

    Some of you probably would be net beneficiaries
Page 3
    • bowlhead99
    • By bowlhead99 15th Oct 16, 1:56 PM
    • 5,145 Posts
    • 9,076 Thanks
    bowlhead99
    I hope my mortgage will inflate away a little, cost push could do that I suppose, all depends on rates too
    Originally posted by MatthewAinsworth
    Do you know what the concepts even mean?

    If people in the UK start wanting and buying and being able to afford greater quantities of goods and services, then the prices of start to rise because of an excess of demand over supply. That's demand-pull inflation as the prices of goods and services are pulled up. When we all have more money and all the things we're buying cost more money, the £100k mortgage liability seems like less and less of a worry.

    However, cost push inflation is the result of supply-side factors like the cost of production and the cost of imported goods or materials being higher. The cost pushes up because the suppliers have less desire to give you the goods at a cheap price even though you still only want to buy the same amount of things. Price is a function of supply and demand but you could say that this sort of inflation is a 'supply falling short of demand' problem, rather than a 'demand exceeding supply' problem.

    The problem with that sort of inflation rather than demand-pull inflation, is that you don't have any more money in your pocket, that's not why prices are rising. They are rising because of supply cost issues.

    As such, the pound in your pocket buys fewer and fewer of the items in the basket of goods that you wanted to buy (everything from bananas to petrol to TVs and cars), AND you still owe the £100k on your mortgage. So, let us know how you expect cost push inflation to make your mortgage easier to service in that scenario. Actually it is harder. Plus, you said earlier you hoped or expected that interest rates would rise in the face of this inflation, and that will not make your mortgage easier to pay off, will it.

    When I say, "let us know", it is rhetorical - let the others know if you like, but I'm done with this thread.
    • veryintrigued
    • By veryintrigued 15th Oct 16, 7:05 PM
    • 1,706 Posts
    • 913 Thanks
    veryintrigued
    And then what.....
    Originally posted by veryintrigued
    Gone very quiet.

    Maybe you'll then revert to my previous post eh JJ?
    • MatthewAinsworth
    • By MatthewAinsworth 15th Oct 16, 8:27 PM
    • 2,243 Posts
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    MatthewAinsworth
    Bowl - supposing you were able to evade some of the inflation through different shopping habits than most people, by changing lifestyle
    Or supposing inflation then later came down afterwards, leaving a relatively smaller mortgage afterwards
    Or supposing the economy improves on time to create pull inflation

    Interest rate rise would harm me personally but it'd help a lot of young people trying to buy property
    • talexuser
    • By talexuser 15th Oct 16, 10:46 PM
    • 2,095 Posts
    • 1,559 Thanks
    talexuser
    Interest rate rise would harm me personally but it'd help a lot of young people trying to buy property
    Originally posted by MatthewAinsworth
    Excellent... weak currency, high inflation and now high interest and mortgage rates, the solution is so simple and all those high falutin' experts can't think of it.
    • bowlhead99
    • By bowlhead99 16th Oct 16, 12:13 AM
    • 5,145 Posts
    • 9,076 Thanks
    bowlhead99
    Bowl - supposing you were able to evade some of the inflation through different shopping habits than most people, by changing lifestyle
    Or supposing inflation then later came down afterwards, leaving a relatively smaller mortgage afterwards
    Originally posted by MatthewAinsworth
    So you don't experience the inflation because you somehow avoid buying the goods and services that have gone up in price. And then the inflation rate comes down again so the goods and services are still at their inflated prices but are no longer inflating further. And you are not buying them anyway because you changed your lifestyle to avoid them.

    Interesting fantasy, but if you have not experienced any inflation, i can't see in what sense you believe your mortgage has been "inflated away"? You do appreciate it only actually goes away when you pay it off, right?

    And if that isn't enough, you still like the idea of putting interest rates up to make it more difficult to invest in assets and pay off mortgages?

    It must give you a great sense of freedom to occupy a world bounded only by your own imagination rather than reason and logic. I'm really quite jealous.
    • MatthewAinsworth
    • By MatthewAinsworth 16th Oct 16, 5:58 AM
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    MatthewAinsworth
    Talex - the boss of shelter said that low rates were a problem, causing prices to rise. I believe that what you would've previously paid in interest is now all getting added to the price, so under low rates it becomes expense that you cannot avoid (under high rates paying it down was more of an option to make a saving)

    Bowl - I'd like to see a bit of wage inflation, I'm hoping that everyone else's spending will help there

    I wouldn't pay off early under low rates but if they were to rise substantially it could be worth selling off funds

    I could actually still benefit from the higher rates if they harm whatever property I'd upsize to more than they harm me, or if they let me buy equities at a cheaper price due to worse initial outlook
    • bigadaj
    • By bigadaj 16th Oct 16, 8:06 AM
    • 7,861 Posts
    • 4,796 Thanks
    bigadaj
    Excellent... weak currency, high inflation and now high interest and mortgage rates, the solution is so simple and all those high falutin' experts can't think of it.
    Originally posted by talexuser
    Well the experts seem to have run out of ideas.

    Inflation has been under target for years now, and the intention of governments is always to inflate away the debt.

    An increase in interest rates would obviously increase the strength of the currency, it's a natural consequence.

    I think most people have settled into a dogmatic rather than a pragmatic response, keep cutting interest rates, but when these start to get negative then it gets a little harder to do. Raising interest rates to say 2% will have very little impact on business lending, many businesses are paying huge amounts for borrowing now with interest rate at a near zero, analogous to credit cards for example, and the interesting enough example of tying them to base rates when they become near zero.

    One of the main reasons for not raising rates was that it would strengthen sterling and so make the uk less competitive, surely there's a little more wiggle room on that front now?
    • Pincher
    • By Pincher 16th Oct 16, 9:27 AM
    • 5,861 Posts
    • 2,145 Thanks
    Pincher
    Endowment Mark II.

    Remember the fantasy that was the endowment mortgage in the 1980s. High inflation was supposed to be the balm that cures all ills. Your £50k interest only mortgage will be pocket money because the 13% return on your endowment policy will more that outmatch it. Your wage rises will make £50k seem like buying a car. All thanks to high inflation.

    If the credit crunch had not happened, the whole debt fuelled western economy would probably collapse in one inflationary inferno soon after any way.

    It does present an opportunity to lock in a high annuity rate.
    The only problem is, hyperinflation will make the annuity worthless after a few years. Worse, there is no guarantee that annuity providers can survive to pay it any way. So, if I buy £100k worth at 15% annuity in 2018, i.e. £15k a year forever, it will be worth one bunch of bananas by 2030, but the annuity provider had folded by 2025.

    I need to start building my Killbot army as soon as possible, to defend myself against the ravening disenfranchised horde. What form of energy to run them on, though? No National Grid to charge them up with in an anarchy. Shale gas?
    Last edited by Pincher; 16-10-2016 at 9:30 AM.
    What happens if you push this button?
    • MatthewAinsworth
    • By MatthewAinsworth 16th Oct 16, 10:52 AM
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    • 908 Thanks
    MatthewAinsworth
    Why ever buy an annuity when you can buy income funds?
    • badger09
    • By badger09 16th Oct 16, 11:42 AM
    • 4,266 Posts
    • 3,480 Thanks
    badger09
    So you don't experience the inflation because you somehow avoid buying the goods and services that have gone up in price. And then the inflation rate comes down again so the goods and services are still at their inflated prices but are no longer inflating further. And you are not buying them anyway because you changed your lifestyle to avoid them.

    Interesting fantasy, but if you have not experienced any inflation, i can't see in what sense you believe your mortgage has been "inflated away"? You do appreciate it only actually goes away when you pay it off, right?

    And if that isn't enough, you still like the idea of putting interest rates up to make it more difficult to invest in assets and pay off mortgages?

    It must give you a great sense of freedom to occupy a world bounded only by your own imagination rather than reason and logic. I'm really quite jealous.
    Originally posted by bowlhead99
    .
    .............................

    When I say, "let us know", it is rhetorical - let the others know if you like, but I'm done with this thread.
    Originally posted by bowlhead99
    I knew you wouldn't be able to resist
    • talexuser
    • By talexuser 16th Oct 16, 11:59 AM
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    • 1,559 Thanks
    talexuser
    Well the experts seem to have run out of ideas. An increase in interest rates would obviously increase the strength of the currency, it's a natural consequence.
    Originally posted by bigadaj
    To be serious for a moment, why didn't Japan just increase rates these past 20 years as a solution? BOE reckons even a smallish increaase in rates would push mortgage payers into trouble, obviously spending would reduce and our debt fuelled recovery would be in trouble. The £ collapse is seen as a saviour at the moment for exporters and dollar earners, I doubt the brexiteers in government would be keen to see the £ strengthen and the FTSE turn around?
    • Thrugelmir
    • By Thrugelmir 16th Oct 16, 12:09 PM
    • 51,336 Posts
    • 43,184 Thanks
    Thrugelmir
    Why ever buy an annuity when you can buy income funds?
    Originally posted by MatthewAinsworth
    Is the income guaranteed? Plenty of companies have already cut/cancelled dividends. More will follow.
    “A man is rich who lives upon what he has. A man is poor who lives upon what is coming. A prudent man lives within his income, and saves against ‘a rainy day’.”
    • MatthewAinsworth
    • By MatthewAinsworth 16th Oct 16, 1:12 PM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    I suppose annuities cover you for an economic downturn abbey and income funds protect you from inflation
    • coyrls
    • By coyrls 16th Oct 16, 1:31 PM
    • 598 Posts
    • 550 Thanks
    coyrls
    Bowl - I'd like to see a bit of wage inflation, I'm hoping that everyone else's spending will help there
    Originally posted by MatthewAinsworth
    What should matter to you specifically is rises in your own wages in real terms. Wage inflation may make your situation better or worse depending on whether your wages rise by more or less than inflation. Even if by some miracle you could somehow shield yourself from inflation, that wouldn’t matter a jot if your wages didn’t go up. If you want to earn more, don’t wait around for inflation to somehow push your wages up, negotiate a pay increase or get a better paying job.
    • bigadaj
    • By bigadaj 16th Oct 16, 2:56 PM
    • 7,861 Posts
    • 4,796 Thanks
    bigadaj
    To be serious for a moment, why didn't Japan just increase rates these past 20 years as a solution? BOE reckons even a smallish increaase in rates would push mortgage payers into trouble, obviously spending would reduce and our debt fuelled recovery would be in trouble. The £ collapse is seen as a saviour at the moment for exporters and dollar earners, I doubt the brexiteers in government would be keen to see the £ strengthen and the FTSE turn around?
    Originally posted by talexuser
    I am perfectly serious.

    You seem to be saving that the only solution to an asset price bubble is to lower the cost of money continually, to ensure there is no collapse, which simply pushes asset prices higher still?

    We've had a decade of running away from the fact that the debts accrued prior to gfc aren't going to be repaid, but people are still treating them as if they are.

    So what is your ultimate solution, are we heading for -10% base rates in the future?
    • talexuser
    • By talexuser 16th Oct 16, 3:23 PM
    • 2,095 Posts
    • 1,559 Thanks
    talexuser
    I am perfectly serious.
    Originally posted by bigadaj
    Missed my point, I was being serious to your post as opposed to referring to my couple of ironic previous posts in the thread. As a matter of fact I agree with you, I think we would have been better with a short sharp recession like the 90s and could have built up again from that, rather than the continuous drip feed (as opposed to panic to get out of the credit crunch) QE pumping assets and the market beyond realism, and now appear hooked like a junkie continuously promising to give up (cf Japan).
    • bigadaj
    • By bigadaj 16th Oct 16, 5:36 PM
    • 7,861 Posts
    • 4,796 Thanks
    bigadaj
    Missed my point, I was being serious to your post as opposed to referring to my couple of ironic previous posts in the thread. As a matter of fact I agree with you, I think we would have been better with a short sharp recession like the 90s and could have built up again from that, rather than the continuous drip feed (as opposed to panic to get out of the credit crunch) QE pumping assets and the market beyond realism, and now appear hooked like a junkie continuously promising to give up (cf Japan).
    Originally posted by talexuser
    Yes but it wouldn't have been as straightforward as the early nineties, it's equivalent to saying that but of flooding wouldn't have harmed us too much as it did last time, when a tsunami was about to hit.

    Promoting inflation is relatively a good thing and is the aim of all governments currently, the problem is once it starts can it be controlled.

    Japan has its own particular issues, some of which are problematic in that it isn't a very flexible economy and is reliant on exports, but at least mist if their debt is domestically held, unusually for almost all the other major economies.

    Just look at the amount of us debt now held by the Chinese, makes their bilateral negotiations more interesting anyway.
    • Pincher
    • By Pincher 17th Oct 16, 1:30 AM
    • 5,861 Posts
    • 2,145 Thanks
    Pincher
    Paying your debt is so last century.

    Did the Argentinians pay everything back?
    Are the Greeks going to pay anything back?

    When Donald Trump gets into the White House,
    he's going to be more belligerent than Vladimir Putin.
    Take 10 cent on the dollar or I'll ram this nuclear dildo up your backside. In his mind, that's good negotiation tactic.
    What happens if you push this button?
    • MatthewAinsworth
    • By MatthewAinsworth 17th Oct 16, 5:47 AM
    • 2,243 Posts
    • 908 Thanks
    MatthewAinsworth
    Yea, you can't rely on political stability so you can't rely on bonds either
    • MiserlyMartin
    • By MiserlyMartin 19th Oct 16, 7:35 PM
    • 1,809 Posts
    • 1,323 Thanks
    MiserlyMartin
    Seems as if you have little understanding of the true state of the UK economy. Brexit or no brexit. Sterling was significantly overvalued. No point in kidding ourselves that the UK was ultimately immune from market forces and could continue to spend beyond its means. Selling property to each other doesn't create real wealth.
    Originally posted by Thrugelmir
    This is very true as are many posts here from Matthew. Reading this thread with interest. The £ was already in a bear market before the vote to leave. What has constantly amazed me since the referendum is the hysteria and the sudden fascination with the value of sterling on the news, on forums such as these and social media. During the recession/credit crunch the £ was even lower than today against the Euro. I remember as I was working in Germany how low the £1 was in 2008. 1 euro = £1.05 . Nobody gave a monkeys. It barely made the news. There were certainly no keyboard warriors going on about it, suddenly all economic experts. And we also had a 0.5% bank rate with high inflation CPI of 5% and again, minimal fuss from most apart from a few OAPS, but hey who cares about them?!

    No this, like any piece of bad news they can seize on is all the fault of Brexit

    The BoE had no reason to cut interest rates to 0.25% - the economy is doing very well, their actions contributed to this 1% CPI this month. Carney should be sacked, he was Osbornes puppet in the first place. I'm sure he has converted back into CAN$ a long time ago just before he started to trash the £ with his actions and words.
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