Does Mervyn King really have a clue about what's happening?

julieq

So in other words it comes from the "idiots" who borrowed on mortgages and credit cards? So it seems to me that if you remove idiocy from the equation you stop getting returns for the prudent. Interesting paradox that. If you get what you wish for, you cut your own throat.

You have to say that this whole thread is pretty clueless anyway. Mervyn King is perfectly rightly saying that the situation is volatile and difficult to predict. That doesn't mean you can't form policy or take reasonable actions based on probabilities.

Graham_Devon

julieq wrote: »

So in other words it comes from the "idiots" who borrowed on mortgages and credit cards? So it seems to me that if you remove idiocy from the equation you stop getting returns for the prudent. Interesting paradox that. If you get what you wish for, you cut your own throat.

It's all either parasites or idiots with you it seems

What happened to the normal banking procedures that happened for the last 100+ years? It always worked then, so why all of a sudden do you take the absolute extreme every time this is discussed, as you ask the question so very often?

chewmylegoff

B_Blank wrote: »

Keeping interest rates at record lows (even in the face of rising inflation) means that all those idiots the banks leant massive mortgages to are able to continue paying their debt off. If rates were to rise (as they should given the banks roll to control inflation - which it has failed to do for 3 years now) then more people would default on their debts to the banks. The banks would then reposses these homes and the housing market would be flooded wit lots of new houses. This would drive down house prices and mean that the repossed houses lose value (and dont cover the outstanding debt owed to the banks on their mortgage). Seen as the banks would own these houses they would fail to recoup alot of the money they leant out and fall into trouble.

This is all because the banks, and the idiot people who borrowed off them, gave out stupid mortgages on the understanding that the false housing boom would go on forever.

That is how he is helping the banks at the expense of savers.

so basically you have large savings and either a fixed mortgage or no mortgage and you want interest rates to go up so you get more money? why didn't you just say so.

anyway, if interest rates are jacked up, and the scenario you predict came to pass, then the banks will have to be bailed out again, and you'll have to pay for it through taxation.

tomterm8

Typhoon2000 wrote: »

Why is the target rate of inflation 2% and who decides what the target rate should be? Government or BOE?

The target rate is set by the treasury, in accordance with s12(1) of the Bank of England Act 1998. The target is not actually set to 2%, it is set to 1% above or below 2% (so it is a range).

1984ReturnsForReal_2

tomterm8 wrote: »

The target rate is set by the treasury, in accordance with s12(1) of the Bank of England Act 1998. The target is not actually set to 2%, it is set to 1% above or below 2% (so it is a range).

Oooooooooo

I have learnt something today rather than read the same old bull


Thanks

B_Blank

chewmylegoff wrote: »

so basically you have large savings and either a fixed mortgage or no mortgage and you want interest rates to go up so you get more money? why didn't you just say so.

anyway, if interest rates are jacked up, and the scenario you predict came to pass, then the banks will have to be bailed out again, and you'll have to pay for it through taxation.

Not if we start raising interest rates now and make the raise slow and steady. The banks will be fine and house prices will come down gradually. Sure the banks wont make as much profit, but they wont go under or anything.

And no I dont want "more money" I just dont want my money to lose its value like it is at the moment because shifting wealth from savers to borrowers is truely immoral.

Niksan

B_Blank wrote: »

Keeping interest rates at record lows (even in the face of rising inflation) means that all those idiots the banks leant massive mortgages to are able to continue paying their debt off. If rates were to rise (as they should given the banks roll to control inflation - which it has failed to do for 3 years now) then more people would default on their debts to the banks.

If this true and BoE raises the rates, the banks need not change what the rates are currently at, the only ones who it will affect are the trackers/SVR's, me included, but it'd have to raise 4% to basically be in the same position I was 3 years ago. And looking at most of the posts in here (probably not a good gauge) that are struggling don't seem to be on the lower SVR's they still seem to be on 4-5% rates. So the base would have to move a lot, of course that's dependent on what the banks do following a rate change.

*sorry for probably talking pap, it's been a slow day.

julieq

Graham_Devon wrote: »

It's all either parasites or idiots with you it seems

What happened to the normal banking procedures that happened for the last 100+ years? It always worked then, so why all of a sudden do you take the absolute extreme every time this is discussed, as you ask the question so very often?

I didn't introduce the term idiots, BBlank did. I do use the term parasites, and it's semantically accurate in the context of those demanding risk free above inflation returns. That money has to come from somewhere.

But as to the last 100 years:

1) It was not the norm until quite recently to buy your own home.
2) Until quite recently most people didn't have the disposable income to save. Those who did tended to both invest in stocks and shares and saved at very modest rates of return.
3) Until quite recently we were not in competition for resources with the the rest of the world, and we could protect domestic markets as well as having a dominant position in the rest of the world due to technological strength. So we became relatively prosperous. For quite a proportion of the last 100 years we had access to cheap raw materials essentially via theft.

If you attempt to apply the same rules and practices now to banking as you did in 1911, you will fail to address the new realities. Things change. Sorry, but it's a fact.

julieq

B_Blank wrote: »

And no I dont want "more money" I just dont want my money to lose its value like it is at the moment because shifting wealth from savers to borrowers is truely immoral.

Why?

You may not like it, but it's not immoral. The borrowers generated your savings returns in good times, why is it "moral" to accept that transfer of wealth when it's immoral to accept the reverse effect?

Mr_Mumble

Typhoon2000 wrote: »

Why is the target rate of inflation 2% and who decides what the target rate should be? Government or BOE?

A low single digit inflation rate is targeted for price stability purposes. 2% was chosen for CPI while 2.5% was used previously for RPIX. Why 2% and CPI? Well, it gets political. CPI is the UK's version of HICP. The UK government decides the target rate and this differs from (more) independent central banks such as the ECB or Federal Reserve.

The UK does differ from the ECB and Federal Reserve in targeting inflation. The UK targets 2% and Inflation below the target of 2% is judged to be just as bad as inflation above the target. While the ECB "aims to maintain inflation rates at levels below, but close to, 2%". The Fed has no official target but its believed to target inflation of 1.5%-2%.

To confuse matters there has been a lot of talk in the FT about the BoE not targeting inflation, instead it targets nominal gross domestic product growth of 5%.