Savers take more than £8bn from accounts

Sir_Humphrey

A._Badger wrote: »

Moreover, the ability to obtain a good return on capital is the wellspring of a successful economy. Take that incentive away and the engine seizes up.

The engine seizes up if savings in the bank have a higher return than other investments. Which is why IR's had to be cut. If a bank pays more for the money than they receive from their investments, then they will not lend. Then people's incomes get cut, and their savings reduced to cover living expenses. Paradox of thrift.

A._Badger

I think we can probably agree that the current situation has not been brought about by banks receiving less from their investments than it costs them to borrow. It has been due to the banks having lent unwisely.

IRs have been sacrificed to compensate for bad lending, not low margins. The theory that low rates will encourage an economy to grow wasn't crowned with success in Japan and I have little faith the magic will work any better here.

ad44downey

Joeskeppi wrote: »

This is good right? This is the whole point of lowering interest rates, make people spend some cold hard cash?

It'd probably be better if they paid their debts rather than splashing out on a new kitchen.

Sir_Humphrey

A._Badger wrote: »

I think we can probably agree that the current situation has not been brought about by banks receiving less from their investments than it costs them to borrow. It has been due to the banks having lent unwisely.

Yes. But I am looking forward from the current situation.

A._Badger wrote: »

IRs have been sacrificed to compensate for bad lending, not low margins. The theory that low rates will encourage an economy to grow wasn't crowned with success in Japan and I have little faith the magic will work any better here.

Well, if you lend badly, you get a low return on your investment, or make a loss. In a recession, you tend to get a poor return on investment. I agree that in the current situation low IRs alone will not save matters, but things would be even worse if they were kept high.

No government will protect savers at the expense of business. Even when government do decide to keep IRs high in a recession it is a result of currency worries/Exchange Rate Mechanisms etc.

But as I said before, savers are still making a return in real terms, this return will likely improve as deflation takes hold. This is unless they lose their jobs of course. I am a saver as I am building a deposit for a house, and I do not see what grounds I have to moan. My savings are ahead of inflation, and house prices are dropping by several thousand a month.

A._Badger

"But as I said before, savers are still making a return in real terms, this return will likely improve as deflation takes hold."

There are two assumptions there. The first that the figures accurately reflect everyone's experience which, clearly, they cannot and do not. The second that deflation is a certainty. Even if it is, it is likely to be followed by rapid inflation and savers with experience know only too well how IRs never keep pace to allow the restoration of capital.

" I am a saver as I am building a deposit for a house, and I do not see what grounds I have to moan. My savings are ahead of inflation, and house prices are dropping by several thousand a month."

That's a common and understandable sentiment of people in your position. Older savers approaching the end of their working days might well feel a lot less sanguine.

Sir_Humphrey

A._Badger wrote: »

There are two assumptions there. The first that the figures accurately reflect everyone's experience which, clearly, they cannot and do not. The second that deflation is a certainty. Even if it is, it is likely to be followed by rapid inflation and savers with experience know only too well how IRs never keep pace to allow the restoration of capital.

Deflation is extremely difficult to shift when it takes hold. I am making a call about the future, true, but I am only looking ahead over a 12 month period or so. If inflation looks like it might make a comeback, I will switch my position.

I doubt it will over the next couple of years anyway, I think people are fighting yesterday's war when they worry about inflation. The structure of the UK economy makes it more vulnerable to deflation now, owing to the 'flexible' labour market, anti-trade union laws and other supply side changes since the 1970s. I am not making any predictions longer than a couple of years, by which time I should have used most of my savings as a house deposit.

A._Badger wrote: »

That's a common and understandable sentiment of people in your position. Older savers approaching the end of their working days might well feel a lot less sanguine.

It is a choice between that and having much higher unemployment. As I have pointed out ad nauseum over the last few months, losing your job is an easy way of losing your savings. Older people in general have benefited from house prices at the expense of the young over the last ten years. Swings and roundabouts and all that.

A._Badger

"Deflation is extremely difficult to shift when it takes hold. I am making a call about the future, true, but I am only looking ahead over a 12 month period or so. If inflation looks like it might make a comeback, I will switch my position.

I doubt it will over the next couple of years anyway, I think people are fighting yesterday's war when they worry about inflation."

<snipped>

Not in a country which imports the overwhelming majority of what it consumes. I spent most of this morning speaking with importers contemplating price rises of between
20 and (in one astonishing case) 80 per cent.

These price rises will reach the streets within months. Add 'quantitative easing' into the mix and you have the makings of a very toxic brew indeed.

Sir_Humphrey

A._Badger wrote: »

"Deflation is extremely difficult to shift when it takes hold. I am making a call about the future, true, but I am only looking ahead over a 12 month period or so. If inflation looks like it might make a comeback, I will switch my position.

I doubt it will over the next couple of years anyway, I think people are fighting yesterday's war when they worry about inflation."

<snipped>

Not in a country which imports the overwhelming majority of what it consumes. I spent most of this morning speaking with importers contemplating price rises of between
20 and (in one astonishing case) 80 per cent.

These price rises will reach the streets within months. Add 'quantitative easing' into the mix and you have the makings of a very toxic brew indeed.

I would suggest that a company that tries to push through a 20% increase on non-essentials will go bust rather than contribute to inflation.

EDIT: Increasing IRs would make customers even less able to pay, making company failures even more likely.

A._Badger

Not if everyone else is doing the same thing. The combination of a collapsed pound and Chinese production difficulties mean these price rises are more or less universal.

I find it worrying, though perhaps not surprising, how few outside of manufacturing and distribution are aware of what is on the way. Certainly, government appears either blissfully ignorant or has its head firmly in the sand.

Ironically, halfway through writing this, I was interrupted by a call from the head of a UK trade association complaining of exactly this impending impact. In his members' estimation, price rises are averaging as much as 40 per cent.

Coming soon, as they say, to a shop near you...

Sir_Humphrey

A._Badger wrote: »

Not if everyone else is doing the same thing. The combination of a collapsed pound and Chinese production difficulties mean these price rises are more or less universal.

I find it worrying, though perhaps not surprising, how few outside of manufacturing and distribution are aware of what is on the way. Certainly, government appears either blissfully ignorant or has its head firmly in the sand.

Ironically, halfway through writing this, I was interrupted by a call from the head of a UK trade association complaining of exactly this impending impact. In his members' estimation, price rises are averaging as much as 40 per cent.

Coming soon, as they say, to a shop near you...

I am sorry to say that this will lead to businesses failing. There is little prospect of wages rising (quite the opposite) and consumer credit is frozen. This would imply a drop in living standards rather than inflation. Where does the money come from to pay the higher prices?

The UK consumer area is a market economy, not a cartel. The deflationary forces are far larger than the inflationary pressure of a lower pound.