How long can/will interest rates stay this low?

Phlik

stevetodd wrote: »

I think a lot of people on this site DO think QE is like printing zillions of banknotes, I think they just don't bother to read around the subject and believe posts like the one that you are corretly criticising and as you say some seem to relish disaster

You mean it isn't! :eek:

turns printer off...


I was just doing my bit

Phlik

Arcaine

Heyman wrote: »

There's a fair amount of rationale here to go along with the usual hysterical doom-mongering, but I guess it's worth remembering that what the BofE are attempting has never been tried before and has a lot of ifs and buts attached to it.

Actually Japan has been doing QE for years, to tackle deflation and insolvent banks. I have been trying to have a look at Japans deflationary period but havent really had time of late.

JayScottGreenspan

Rochdale_Pioneers wrote: »

If we were printing zillions of banknotes and handing them out in wheelbarrows, then your obsession would have a point to it.

The thing is, I think it is economically equivalent to just printing more money. In these examples, what's the real differnce between 2 and 3?

1) No printing money
Sell $50bn of Treasury backed bonds on the commerical market
Use $25bn cash to pay the bills
Use $25bn cash buying up commercial bonds as a stimulus package

2) Quantitative easing
Sell $25bn of Treasury backed bonds on the commerical market
Use this $25bn cash to pay the bills
Bank of England buys $25bn of commercial bonds as a stimulus, creating a new 'IOU' entry in its accounts

3) 'Proper' money printing
Sell $25bn of Treasury backed bonds on the commerical market
Use this $25bn cash to buy up commercial bonds as a stimulus
Bank of England prints $25bn of fresh notes and hands them to the government who use them to pay the bills


I think the key thing is that we are talking about pretty small numbers, which means two things: it won't result in hyper-inflation, and it won't really achieve much - it's just pi55ing it the wind.
They want to be seen to be doing something, but no one wants to go down in history as the UK's Mugabe.

The crucial thing for me is that they call a halt to this (and reverse it) at the earliest opportunity. Like PFI, it's not good to have tempting 'good short term / bad long term' options freely available to whatever lying, cheating, greedy, self-serving, arrogant, hubristic, egotistical gits that happen to be in charge at the time.

Antispam

I wonder how many people with mortgages are using the money saved on low rates on spending goods/holidays etc or many over paying

I am just interested as my fixed ended last month and only this month I have now gone on a SVR saving me £50+ as I have a low mortgage compared with some, I will save a little more as two more rate decreases haven't kicked in yet for us

System

So when inflation starts, the interest rates will rocket and everyone in negative equity gets reposssesed?

BlondeHeadOn

Antispam wrote: »

I wonder how many people with mortgages are using the money saved on low rates on spending goods/holidays etc or many over paying

I am just interested as my fixed ended last month and only this month I have now gone on a SVR saving me £50+ as I have a low mortgage compared with some, I will save a little more as two more rate decreases haven't kicked in yet for us

Mostly overpaying, on the basis that I want to get my mortgage as low as possible now in preparateion for if the interest rates go sky high.... (I remember them being 15%, so I know it can happen). We're on a tracker, so it's worth doing.

But I also have booked and paid for a holiday.... I can only be sensible for part of the time!

Wookster

Rochdale_Pioneers wrote: »

If we were printing zillions of banknotes and handing them out in wheelbarrows, then your obsession would have a point to it. As we're not, and the cash in circulation stays the same, then it doesn't have a point. You seem ignorant of what QE actually means and does. Deliberately of course. You're one of the UK versions of Rush Limbaugh - desperately wanting the economy to crash and burn so you can score political points.

Of course QE is the same as printing money! There is no difference at all!

Can you explain to me why we are taking steps to further boost lending when too much debt got us into this in the first place? The mechanism for getting all this extra money into people's pockets is through loans... with debt levels at record levels this seems like more of the same... just in time for the election...

Cannon_Fodder

Rochdale_Pioneers wrote: »

once it starts heading up the government simply liquidates the assets bought through QE and the inflationary push from that disappears.

If that is an accurate description of what can happen, then £75Bn is miniscule in the scale of problems we face. Compared to hundreds of billions already directly provided, it seems pointless.

But I don't think its as simple as you imply. Which is good, in a way, because it might be enough to make a difference, but not without consequences.

Presumably the idea is not solely to inject £75Bn, but it relies on the "multiplying effect" (fractional reserve etc), which will turn that into what 6, 8, 9 times the £75Bn...?

Which should have a pretty hefty effect, so after a few months IF there's nothing else to dent confidence, then that amount of money SHOULD generate activity, growth, in turn restoring some confidence/demand etc.

BUT, by the time you KNOW the growth/confidence/demand has returned, however, and you switch OFF the £75Bn (like its a flick of a light-switch, yeah right), then the VELOCITY of money will have already been influenced, on top of the multiple effect remaining, because it doesn't just disappear in a puff of smoke, it takes time for that to contract...then you will probably have inflation, double-digit style.

It also ignores the possiblity of cost-push inflation - suppose USA's QE works, they've been doing it for months, and their economy shoots ahead before ours has funds circulating that business can take advantage of - the US industry's demand will probably push the oil price up, commodity prices up, and our industries will try to survive by staying in the market, but without the benefit of economies of scale, not having the gearing funds available.

Plus the inflationary effects themselves on prices for consumers, on top of QE's inflationary push.


Just to confuse further, the BoE could mis-read the signs, flick off the switch too soon, the growth turns out to be illusory, and then you have put the brakes on just as the the wheels of industry were spinning up...so that was for nothing, and put a long-term dent in confidence as it is viewed as a failure - maybe that equates to Japan's past attempts.

Antispam

I dont think I can over pay and to be honest I dont really have that much in funds

I am looking for a fixed rate but in no rush. However with over 1k in fees and only 57k in debt for mortgage it may not be worth it for short term unless rates increased massively

BlondeHeadOn wrote: »

Mostly overpaying, on the basis that I want to get my mortgage as low as possible now in preparateion for if the interest rates go sky high.... (I remember them being 15%, so I know it can happen). We're on a tracker, so it's worth doing.

But I also have booked and paid for a holiday.... I can only be sensible for part of the time!

Rochdale_Pioneers

Wookster wrote: »

Can you explain to me why we are taking steps to further boost lending when too much debt got us into this in the first place?

"Further boost" suggests that there is lending going on in the first place. As widely recognised by economists and politicians here on planet Earth the problem at the moment is the near complete cessation of lending.

If there is a lot of lending going on today on Planet Wookster then good for you.