Interest rates 'may hit 8pc' in two years

Barnetbear

When I read the won't let it happen threads my mind wanders to sunny meadows with fluffy lambs skipping about oblivious to the large truck pulled up by some unmarked buildings. Many weeks have passed without seeing that truck but today they are fuelling it. Still the lambs skip.

Really2

Barnetbear wrote: »

When I read the won't let it happen threads my mind wanders to sunny meadows with fluffy lambs skipping about oblivious to the large truck pulled up by some unmarked buildings. Many weeks have passed without seeing that truck but today they are fuelling it. Still the lambs skip.

TBF the guy is predicting a 90's style boom/credit boom to go with it.

He argues that the US and UK monetary authorities will respond to this by printing more money.

Coupling that, he says, with the planned deep government spending cuts, would lead to the fastest economic growth rate since the late 1980s.

Doctor Lilico says in a research note: "Once the economy gets growing sustainably, there will be a huge expansion in the money supply, which will lead to inflation."

The Bank has already pumped £200bn into the economy under quantitative easing to help stimulate demand.

'Rise rapidly'
He says that policy of the Bank of England has quadrupled the monetary base and once the economy starts growing properly again, lending will expand and there will then be "too much money chasing too few goods".

Doctor Lilico believes that "once inflation rises, interest rates will rise rapidly as well. Since interest rate rises will raise mortgage rates, the initial effect will be even more inflation".

He expects inflation to hit a similar level to that of the early 1990s, in the region of 10%.

So on the prediction home owners seem to have little to fear. (wages will be increasing and asset prices, also the stability a boom brings)
He is predicting wage inflation, asset inflation etc etc.

Not inflation without wage inflation and falling asset prices like some are arguing.

System

Is this thread about comparing the mortgage rescue thing with savers not getting a decent rate?

Seriously?

Really2

Joeskeppi wrote: »

Is this thread about comparing the mortgage rescue thing with savers not getting a decent rate?

Seriously?

It's a reward to owners innit.

Well if you forget that they have lost their job/ jobs and are on the verge of losing their home presumably after using up all their savings etc to support it.

How could you see a difference?

StevieJ

Barnetbear wrote: »

When I read the won't let it happen threads my mind wanders to sunny meadows with fluffy lambs skipping about oblivious to the large truck pulled up by some unmarked buildings. Many weeks have passed without seeing that truck but today they are fuelling it. Still the lambs skip.

You are not him are you :eek:

julieq

Graham_Devon wrote: »

Thats weird. As it's the first time I think I have ever said it

Do a search, and see how many times I have actually said it

Oh, once. Making up things as you go along again Julie me dear?

Graham, quite a number of times in my recollection you've dismissed serious and detailed arguments and analysis with dismissive comments such as that one. It's discourteous and cowardly. If you want to sustain an argument, discuss substantive issues, don't just dip out with a comment to play to the gallery.

Just to go back to my question from several weeks ago, where do you think the money needed to pay above interest rates to savers comes from exactly? I don't think you ever did answer that one.

And what would you think if the key basis for those returns, lending for property, suddenly disappeared so that default rates increased and opportunites to lend for profit were restricted? And do you think anyone would be insulated from the effects of that?

I'm interested too in knowing how house price inflation starves industry of investment, which was one of the claims made by one of the dippier bears. Given we just had a house price inflation stoked boom and all which went away when prices were reducing, the evidence would be that a HPI based boom increased investment levels.

What the bear in question is saying is HE want's a cheaper house so HE can spend more of his disposable income HIMSELF on the basis that HIS PARENTS had been able to 30 years ago. His income gets spent eventually somewhere in the economy, if only because it's gone back to one of the poor pensions living off savings interest.

Think of the poor pensioners

The most serious point here is that this 8% number is the top figure of a range of estimates, and there is no discussion of the full range or the methodology and underlying assumptions. Anyone who uses financial models will tell you that it is therefore completely pointless information. Arguably irresponsibly pointless becuase it could well panic people into taking poor decisions on long term fixes, and very poor and lazy journalism.

julieq

The ACTUAL report, which urges a maintenance of tight spending controls incidentally (rather contrary to the ideas of the Labour apologists earlier in the thread) is here

http://www.policyexchange.org.uk/images/publications/pdfs/5_things_....pdf

Lillico acknowledges that rates are likely to be sub 2% until the end of next year. He also acknowledges that his analysis is highly speculative, and requires a substantial boom to be created in the run up to higher inflation rates, in fact he suggests that there will be a boom in lending for investment rather than consumption (i.e. BTL). He actually AGREES with a policy of printing money to deal with a double dip, and acknowledges the dangers of mortgage default to the banking system:

"Obviously these aren’t normal circumstances, so the increase in the monetary base (the extra money
printed) has actually served to prevent what would otherwise have been a sharp fall in the broad money
supply — which is why I favoured it, and favour doing more still; for now the big risk remains, as it has been
since 2008, that we will see significant deflation, nominal wages would fall, and people would default on
their mortgages. We need to print more money now to limit that risk."

So in agreeing with this opinion piece, the bears are actually disagreeing with their own analysis. As usual they'd do better to read the original piece than look at the press reports.

But it remains the case that this is a polemic, not a study. It's based on what may or may not happen based on a particular view of what happened at one particular point in history. And it's scandalous that the "8%" figure, which has been plucked out of thin air, is being put forward as the projection of an "expert".

Graham_Devon

julieq wrote: »

But it remains the case that this is a polemic, not a study. It's based on what may or may not happen based on a particular view of what happened at one particular point in history. And it's scandalous that the "8%" figure, which has been plucked out of thin air, is being put forward as the projection of an "expert".

I think you will find it's plucked from here in the actual report:

On the other hand, to keep inflation down to only 10% for one year, the economy will have to be able to tolerate interest rates of perhaps 8% (note that interest rates were 7.5% in 1998, so the rates I am suggesting were very normal before the past ten years). But there is a risk that, between now and 2012, households will not take the opportunity to reduce their debts by enough, and so the economy will not be able to tolerate 8% interest rates without the mass defaulting on mortgages that we are trying to avoid. If that is the case, then interest rates may have to be kept lower for an additional nine months and the consequence will be inflation peaking at 20% rather than 10%, as in the 1970s (when there were two years of inflation above 20%).

I think our definitions on "thin air" may somewhat differ.

You are right though, it is absolutely scandalous that the reports have used what's in the report. Frankly outrageous.

Graham_Devon

LOL. The bloke is on Radio 5 right now explaining all about his 8% prediciton.

He's not squirming away from his 8% talk at all. He's explaining everything quite well infact.

Really2

IF he sees deflation as a risk of nominal wages falling.

What do people think he factored in for an inflationary boom? more nominal falls?

The 8% is based on a boom happening, not on the back drop of the moment.
That would be nominal increases in wages, assets etc. (especially as the money looks like it would enter the economy through investment/ lending.)

This would be fare better news for any owner than the current situation.