Bank of England Deputy Governor now saying we need to spend, spend, spend.

dazeruk

Posted this in another thread but thought it probably could lead to a discussion in it's own right.

The Bank of England has urged Britain's army of savers to "eat into" their reserve funds now to get through the current period of historically low interest rates, saying "in the short term we want to see households not saving more, but spending more".

http://www.channel4.com/news/bank-of-england-savers-should-eat-into-cash

doire_2

dazeruk wrote: »

Posted this in another thread but thought it probably could lead to a discussion in it's own right.

The Bank of England has urged Britain's army of savers to "eat into" their reserve funds now to get through the current period of historically low interest rates, saying "in the short term we want to see households not saving more, but spending more".

http://www.channel4.com/news/bank-of-england-savers-should-eat-into-cash

So they want those that saved to help those that are took on easy debt during the boom.

HAMISH_MCTAVISH

Paradox of Thrift in action.....

If society as a whole saves too much, and doesn't spend enough, we all end up poorer as a result.

gagahouse

HAMISH_MCTAVISH wrote: »

Paradox of Thrift in action.....

If society as a whole saves too much, and doesn't spend enough, we all end up poorer as a result.

True, but with the current psychology of uncertainty it is rational to save and pay down debt and people are going to be considering their individual circumstances primarily, most won't even know or care what the paradox of thrift is

even negative real interest rates are not enough to get people to spend rather than save, for some sectors of society i.e people on a fixed income it is in fact counter-productive as they no longer earn sufficient income from their savings for them to spend some of it into the economy

Heyman_2

Maybe they should ask Lord Ashcroft to spend some of his tax-avoided millions in the UK - he probably only eats when he travels overseas though!

HAMISH_MCTAVISH

gagahouse wrote: »

True, but with the current psychology of uncertainty it is rational to save and pay down debt

Actually, it is completely irrational given the wider consequences.

But most people are just too thick to realise it.

and people are going to be considering their individual circumstances primarily, most won't even know or care what the paradox of thrift is

See previous point. I rather suspect the BoE is about to educate these people the hard way.

even negative real interest rates are not enough to get people to spend rather than save,

Then maybe it's time for negative nominal interest rates, and more inflation, currency devaluation, and whatever else is required to get the intellectually challenged to wake up and smell the coffee.

Spending is necessary for economic recovery. The surest way to an economic death spiral is to turn into a nation of hoarders.

for some sectors of society i.e people on a fixed income it is in fact counter-productive as they no longer earn sufficient income from their savings for them to spend some of it into the economy

These people were saving for a rainy day. So that they could live from their savings if need be.

I see precipitation ahead.....

System

Certainly seems more likely we'll see IR cuts before rises at this rate. Seems like a no-nonsense policy to get cash flowing again.

Rainmaker_uk

When the banks start spending again then I may consider it...

Cheeky blighters

Radiantsoul

HAMISH_MCTAVISH wrote: »

Actually, it is completely irrational given the wider consequences.

But most people are just too thick to realise it.

It is probably rational for individuals to save more(if only because most people are saving nothing like enough for their retirements). But collectively it leads to negative effects.

Graham_Devon

I guess the problem is, we have run out of the means to shovel money to those who will spend it....whether that be through remortgaging, equity release, credit cards, loans. It's all contracted, and now those people can't spend anymore, it's hit saturation point.

The only people left now, are savers. Those with access to money in the bank.

Trouble is, they are less likely to spend their money now. Much less likely. Even if they got no interest, I doubt it would make that much difference. It's a different mindset of people. It's extremely difficult to spend money you have saved, but very very easy to spend money on a loan.

Doubt pleaing to spend is going to help really. The upcoming VAT rise is making me think about buying my next car now as I have been thinking about it anyway, and many people may spend some savings that way, but if the VAT rise wasn't going to add £2-300 to the price of the car, I'd leave it a while longer. Just thinking I should get in now before others have the same idea and dealers whack prices up as more people are coming forward with the same ideas.

As for spending more in general, it's a confusing old world. Were told to pay down debts, were told to save for a pension, were told benefits are reducing, were told to spend like theres no tommorow. It seems whichever way we go now, the economy is still gonna be screwed, we just have to get through it.

System

Problem for savers is they are losing money by hoarding it due to inflation.

They either spend it or lose it for nothing eventually.