FED cuts by 0.5%

WTF?_2

van_persie wrote: »

People seem to think that interest rate cuts are the miracle cure to the current economic crisis; let's not forget, it's low rates that encouraged this insane boom, along with lax lending criteria, making over-leveraged borrowers sensitive to even the smallest rate rises.
Now, we have a disconnect between the IRs set by the BoE and that exercised by the banks. Those on tracker rates will not benefit fully from rate cuts, for example. Other mortgage products will probably go UP in the event of another IR cut with most banks keen to attract savers rather than borrowers.

Yes - if you set rates too low in the near term, you always end up having to set them much higher than they should otherwise be later on.

Rates were set way too low during the bubble - hence the scope to cut them now has been greatly reduced. If they'd been set at reasonable levels it would be much easier to cut now and the 'requirement' for cuts wouldn't be as steep anyway.

And as you say, there is a disconnect between rates offered to borrowers and central bank rates. In Japan where rates have been zero or close to it for a decade there was no way that banks were lending to the Japanese people at anything like those low rates. The low rates are there to help the banks recapitalise and the hope is that some of that will eventually trickle into better rates for the borrower.

Personally, I feel rates will be going up again to counter hyperinflation by mid next year.

If rates are set too low now, there is going to have to be a brutal jacking up somewhere down the line to counteract the effects so that's a real possibility depending on what effect that the literally unlimited amounts of cash which are currently being thrown into the markets has and when that effect manifests itself.

As for house prices, they'll continue their downward spiral until they reach affordable, sustainable levels with sensible lending criteria.

The government seems hell bent on getting lending back to peak levels as a way to 'save' the economy. The disconnect between LIBOR and base rate should be telling them that something is wrong with the notion that what we need is more lending.

Lending depends on saving. If we want to see more money available to lend out in future, we are going to have to start encouraging saving now. If the government insist on printing up money to lend, not based somewhere along the lines on real savings, they are going to run the risk of severe distortions. Actually, we already have severe distortions so we'll likely see the craziness continue and get worse.

WTF?_2

kennyboy66 wrote: »

Perhaps you can see inflationary pressures everywhere in the UK, can you let me know what they are?

Have you noticed that there's a huge balance of trade deficit and that practically everything is imported these days?

Now tell me what you think the effect of our currency plunging in value against major trading partners is going to be....

WTF?_2

Realy wrote: »

:rolleyes: Because you won't answer a very simple question, you know lower intrest rates will result in less unenployment than increasing it.
But you won't, can't admit it becaues you want higher rates!
You are very touchy when it suits you.;)

I produced a reasonably detailed reply detailing why I thought that simply cutting rates to 'save the economy' wasn't a smart move - totally unaddressed by you in favour of a stupid sarky putdown.

Little point debating with people who just seem to be looking for a slanging match it would seem.

StevieJ

!!!!!!? wrote: »

Have you noticed that there's a huge balance of trade deficit and that practically everything is imported these days?

Now tell me what you think the effect of our currency plunging in value against major trading partners is going to be....

Interesting that US interest rates are so much lower than ours , (yes they do have the same balance of payments problems) and don't mention the Yen.

WTF?_2

chucky wrote: »

4.5% really low interest rates. where did you get that from!?!? Japan, the US and the Euro rates are much lower.

Take a look at historical rates, 4.5% is definitely on the low side.

inflation is a much smaller problem compared to other issues - it can be put on the back burner for a while as it is on it's way down currently.

With most of the spurious 'money' (via credit) generated during the insane boom still out there, banks being kept alive at all costs, financial rules being bent, money being injected by the central banks in effectively unlimited amounts and interest rates tending to zero (therefore absolutely no incentive for those holding wealth to put it in the banks which desperately need recapitalisation) it doesn't take too much logic to realise that we could well be in for a very nasty period indeed as all that money comes home to roost.

Short termism is what got us into this mess and short term panic-driven rate cuts that aren't properly thought out won't get us out of it.

WTF?_2

StevieJ wrote: »

Interesting that US interest rates are so much lower than ours , (yes they do have the same balance of payments problems) and don't mention the Yen.

Yes - low rates (and they started slashing them months back) have certainly worked for the US, haven't they :rolleyes:

Whew, they won't be having any economic problems now, will they?

Thanks for showing us the way US of A!

purch

Take a look at historical rates, 4.5% is definitely on the low side

If you just go back to 1970 then yes that is true...

But overall, through it's many "names" from Bank Rate, to MLR, Repo Rate and now Base Rate since 1694 (when it was initially set at 6%, before falling to 3% the following year) 4.5% is probably around the average Base Rate over that time.

WTF?_2

purch wrote: »

If you just go back to 1970 then yes that is true...

But overall, through it's many "names" from Bank Rate, to MLR, Repo Rate and now Base Rate since 1694 (when it was initially set at 6%, before falling to 3% the following year) 4.5% is probably around the average Base Rate over that time.

Thanks for the info - do you have links to any longer term stats available?

StevieJ

!!!!!!? wrote: »

Yes - low rates (and they started slashing them months back) have certainly worked for the US, haven't they :rolleyes:

Whew, they won't be having any economic problems now, will they?

Thanks for showing us the way US of A!

Strong currency at the moment though, I thought that was your point i.e. drop rates and weaken currency.

purch

http://www.bankofengland.co.uk/monetarypolicy/decisions/decisions08.htm

There is a PDF link at the bottom...

I try not to look at the periods from 1974/77 79/86 and 89/91 as it makes me depressed :mad: