Moneyweek: 0% interest rates are dangerous...

WTF?_2

Cannon_Fodder wrote: »

Is that shift of funds into and back out of the banks, going to be a factor (possibly a very small one - no idea!) in the supply of money, so there could be a kind of self-fulfilling easing of inflation, i.e. will STRers be performing their own reverse of quantitative easing, by taking their deposits and locking them up in assets, reducing money supply...?

Hmmm - they'll be taking their deposits out of one of the the banks in the system and paying them to someone in exchange for the house who most likely will put them back into another bank in the same banking system. The cash doesn't disappear, it just gets shifted around in the system. Still, the velocity of the money has increased stimulating economic activity.

If you want to take money out of the system, demand your savings as cash and put it away somewhere safe. That's pretty deflationary and also why the government would ultimately like to get rid of cash.

the_ash_and_the_oak

Don't see why your cash needs to be in an actual account imo. Or in Pounds

StevieJ

Dithering_Dad wrote: »

If you really believe that we're heading towards hyper inflation, then shouldn't you be buying a house right now and getting a long (5 yr?) fixed rate mortgage deal, while interest rates are low?

Even with a hefty deposit, it can take anything from 3 to 6 months to find a place and then for all the paperwork, etc to go thru - plenty of time for inflation to take off. Especially if the OPEC cut in oil production works and oil starts to climb again.

Hey DD, just a little too logical that

Sir_Humphrey

An interesting post by Cannon Fodder. The flaw in the argument is that in recession savings would be run down as people are made unemployed (and have to use savings to survive) which would mean that the amount ready to be pumped into the housing market would be reduced. So there could be an increase of velocity but a lower quantity.

the_ash_and_the_oak

^ Prob too early yet but if anyone can find data for asset price change in Iceland anyone think could be a relevant pointer (as they have just gone major currency attack and consequent inflation)

the_ash_and_the_oak

since sept I mean

WTF?_2

StevieJ wrote: »

Hey DD, just a little too logical that

I currently have enough cash to buy outright. (2-bed terrace)

I see prices falling further before the inflationary backlash hits. So 3-bed semi attainable for my cash in 12 months if market falls an equal amount this year as the last.

The housing market turns very slowly and will turn after the commodities markets giving ample time for the vigilant to get on board.

Based on recent history, the money taps won't be turned off until after inflation starts so plenty of time to arrange a small, low-interest, fixed rate mortgage should I decide to go for something like a detached house and take advantage of inflation's debt-eroding properties.

Dithering_Dad

StevieJ wrote: »

Hey DD, just a little too logical that

Thanks Stevie, I was a little despondant that my post was ignored, so thanks for commenting on it.

I see so many predictions on the Housing site from some of the regulars and some of them are quite alarmist. Some of them I agree with and have taken steps to protect myself.

A couple of years ago I came to the conclusion that with all the personal debt and huge house price rises, that it was unsustainable and there would be a reckoning. Obviously, unlike the seers on this forum, I never knew it would get this bad and have the banks and investment houses on the brink of bankruptcy, but I did feel that we would be in for some hard times.

I therefore cut my outgoings drastically, started reducing my liabilities (i.e. my mortgage), started building up my emergency savings and checked all my insurance policies were in place. Now that the worst has happened I'm in a much safer place than I would have been and I am mighty relieved that I listened to my inner voice.

However, when I see these guys spout on about deflation and inflation and doomsday, I wonder whether they just like to talk about these subjects in order to panic people and to pass the time, or whether they actually do really believe them. If they do believe them, then why are they not putting things into place to protect themselves?

If I believed that we were in for a period of hyper inflation, then I'd buy a house now and arrange a fixed rate mortgage. Hyper inflation would take off and reduce down my motgage debt significantly (i.e. if you bought a farm in Zimbabwe with a mortgage for £1M pre-inflation, you could now pay that debt off with less than a week's wage!) and the fixed rate mortgage would protect me from the BoE raising its interest rates to 15%+ in order to fight inflation.

All these guys seem to do is talk about these doomsday scenarios but do nothing about them - it really does make me think that they do not really believe their own predictions.

What does averyone else think?

greenwheels007

I think Mr Brown will have cold sweats every night about hyper inflation. If he can not avoid that then the price of houses will be irrelevant. Savings will be gone, so the house market will be gone. You could price your house a £10K or £10M it just won't sell. The primary concerns during hyper inflation are primarily around social impact and ultimately social breakdown.
The Japan model proves that hyper inflation is avoidable and as we are no longer truly an island there are options.
I would guard against pumping cash in to property in order to gain from hyper inflation. Nobody gains in that secanrio.
I think there is a clue in the fact that Mr Brown put down his calculator and flew to Iraq, as well as being a more stable economy, it is also where he spends loads of cash. The war in Iraq will be all finished by next summer. The cash saved will be a massive boost to our home finances but could spell the end of cheap fuel. That twinned with the need to tax the people to pay for the bank crimes will result in a decade of creeping inflation.
Creeping inflation can be managed and Mr Brown wins the election.
Sorted.

the_ash_and_the_oak

I think while large inflation is likely at some point in the next 2-3 years that it will not necessarily manifest in asset prices. For this reason the path I have taken to protect self is a mixture of yen and gold. Obviously this has been success for 2008 but is no guarantee of success in 2009 or 2010 - though I am not yet ready to switch horses away from these two

I am also concerned about remaining in employment so would prefer to remain liquid until I feel more secure about future

I think if I had enough cash to buy outright I might start to think about it for 12-18 months time. But as I don't I am too cautious and wary to be making plans in that direction right now, so will continue to hope that yen/gold works out (and, more importantly, hope that I can keep job for some time)

Those that come out the other side intact could be in a good position. It is my intention to reassess at that point)