'How high should interest rates be?' poll discussion

stevemcol

Just to add that inflation isn't currently being driven by the classic spending/pay rise spiral. It's higher prices due to world economic conditions and events. Monetry policy probably isn't the right tool.
With the government struggling for funds, I'm surpised they aren't resorting to fiscal measures.

minerva_windsong

I voted 0.75%, but would also be OK with a rise to 1%. Then again I've got (for my age) a fairly decent whack of savings but don't have a mortgage, so I am probably biased in favour of a rate rise to get a better return. However I do think the MPC are being overly stubborn about this issue and that within their next few meetings (as in when the board is more evenly split) their hand is going to be forced.

(Disclaimer: This post was brought to you by someone who freely admits she knows very little about economics and therefore may be talking total rubbish.)

Occy

It seems from this forum that the only motivation for increasing interest rates is to make borrowers suffer, just feels like a knee jerk reaction.

Can someone explain what on earth what the link is between interest rates and reducing inflation? seems to me inflation happens whether we have a rate 0.5% or 5% and isn't most of the inflation we are seeing now unavoidable, increasing food prices due to production shortages, fuel costs and VAT, not sure how interest rate hikes stops those. I don't plan to stop eating in the short term.

Before anyone leaps on the fact that like everyone I am only motivated by self interest all I have to say is my wife and I have no credit card debits, one car loan finishing this year and a modest mortgage, but I can not see interest rate hikes making me better off as interest on savings is never going to offset mortgage rate increases.

If you want to get angry then ask why anyone should every be allowed to have a personal fortune of $53,000,000,000? and why as Michael Moore states should the top 400 Richest people in the US have more wealth than 155,000,000 of their fellow Americans combined.

I watched the Oscar winning documentary "Inside Job" recently, I implore everyone to watch it, if there is a group of people to shout "unfair!" at it's them.

Occy

Bloomberg

RussWWFC wrote: »

I want them risen. Why should responsible people like me get poor savings rates whilst people who borrow what they've not got get off lighter. I appreciate mortgages make up a fair chunk of this and maybe some protection for people paying back these could be introduced

I agree with you totally, the ridiculously low interest rates which we have had for the last two years have punished savers on account of people who have taken on mortgages which they cannot handle. Let's get back to reality and get rates back to five or more percent. Furthermore I believe that the day we in this country started seeing a house as an investment was the day a time bomb started ticking.

Inflation is now out of control and the Bank of England need to raise interest rates to combat this. As there are so many people who can only just about afford their mortgages the rates have to remain low. Mortgage payers have had it too good for too long.

robberrob

I was always taught that you should get a fair return for a 'loan' (ie Savings), and that when there was either no or very low inflation 2.5% (Taxed) was considered fair rate.
So 2.5% + Inflation is probably a bit mean as the inflation is taxed.

In the days when we had PROPPER Building Societies they would then add around 1-1.5% and lend it out as mortgages.

Perhaps I have 'rose coloured specs' ?????,

Robber Rob.

dots_thots

I think there should be free-market interest rates.

Central banks create reserves out of thin air to try to meet the target rate they set. Hayek and the Austrian School of Economics showed that interest rates serve as very important signals. When savings are plenty, interest rates drop which allow entrepreneurs to open new businesses. As the savings pool dries up, rates rise which reduces business expansion and in turn encourages more saving. This process is self-correcting and very important.

When central banks artificially control interest rates they distort the economy, cause mal-investment and most importantly they hugely exaggerate the boom/bust or business cycle, causing huge bubbles and huge collapses.

The banks are allowed to operate on a system of fractional reserve banking which allows them to create money out of thin air and lend it with interest. The central bank creates reserves, the commercial banks pyramid loans on top of that. This causes inflation and is actually stealing purchasing power from people. The free market would bankrupt commercial banks who engage in this practice if there were competition but central banks and FSA/FDIC deposit insurance keep the game going - transferring wealth and production (people's time and effort) upwards.

We the people.. need to get our heads around this problem. Interest rates should be high, not to hurt borrowers but to stop the situation from getting worse. Unfortunately we need the bust to bring prices of bubble assets like houses down to become affordable again so people aren't trapped in debt slavery just to own a house and to stop people being robbed through inflation. The problem is no-one wants the pain but the truth is we'd never have got in this mess if we had free banking and no central bank. The BofE must be abolished.

We work hard for every pound we earn, but banks get to create them for essentially no cost. Most people don't realise that banking used to be separate - deposit banking and loan banking. Individuals could choose what types to engage in depending on their risk tolerance and desire for rewards.

Unfortunately thanks to a case in 1811 of Carr vs Carr... rather than money coming under bailment law, money held in a bank can essentially be held on deposit and out on loan at the same time allowing banks to increase the supply of money. It's complete theft. Mervyn King himself, in a rare moment of honesty (for a central banker), said...

"Eliminating fractional reserve banking explicitly recognises that the pretence that risk-free deposits can be supported by risky assets is alchemy. If there is a need for genuinely safe deposits the only way they can be provided, while ensuring costs and benefits are fully aligned, is to insist such deposits do not co-exist with risky assets." Mervyn King - "Banking: From Bagehot to Basel, and Back Again" The Second Bagehot Lecture, Buttonwood Gathering, New York City on Monday 25 October 2010

We can have safe deposits, money available for business expansion, stable money and a stable economy without needing to expand credit ad nauseam. If you look throughout history most times of great prosperity were under stable money regimes, and conversely most times of great hardship came under times of currency debasement which has happened over and over and over... We've had 30 hyperinflations since 1914, all occurring with a budget deficit of over 40%. Britain monetised 100% of its deficit last year. We desperately need an honest money system.

It's no good people picking an interest rate that they want for their own reasons. Without savings the only way to lower interest rates artificially is to supply money out of thin air which steals from the holders of money, mainly people on fixed incomes or retirements annuities.


I urge people to read, amongst other books... Murray Rothbard's "The Mystery of Banking"...

http://mises.org/books/mysteryofbanking.pdf


Check out the Austrian School of Economics and Austrian Business Cycle Theory - you'll be amazed how the jokers who got us in this mess are still being listened to despite a complete lack of credibility and how the people who predicted this and have the answers are still being ignored. It's no wonder when nothing has been solved; the can just gets kicked down the road a little further - the bailouts steal from the people who did the right things and give to the people who did the wrong things. Let's stop the moral hazard! The only people being bailed out and made whole are the banks. We should be frothing at the mouth but most people don't understand the monetary system and that needs to change.

Money is one half of every trade and to most people, even economists, bankers and financial workers - it really does remain a mystery.

ann.chil

When I had a mortgage and interest rates were 17% I worked hard to pay the mortgage and live.

Now I've got no mortgage, no proper job, but have some savings it's galling that interest rates are so low.

We need a rate that encourages saving, while still making it possible to borrow. Between 5 and 8 would be good.

aggrieved

Interest rates should always be slightly above the inflation rate otherwise savers lose money every year. Also the 0.5% rate is a godsend to our beloved bankers. They pay 0.5% on borrowings and even if they only charge 5% on loans, it is a mark up of 900% or 1900% if they charge 10%. At these rates they don't need to gamble to "earn" their bonuses they can screw it out of the public. A suitable reward for wrecking the economy?

Makey

I totally agree with everyone who thinks rates have been far too low for far too long. Yes, the banks are laughing - as they always do.

I think the rate should be at least the same as inflation (i.e. present day 5%). I too had a mortgage when the rates were around 15-17% yet I tried to do what they encourage everyone to do - save money for old my age.

Now, my life savings are not much help to my State Pension.

Why is it that the least responsible in our society get the most help. Once again it's the banks who were responsible for encouraging the ridiculously high amounts of borrowing - look where that's got us!

The Bank of England is taking the wrong side - but then, it's a bank!

icklepeach

Sorry - WHAT?!

I'd love to know who these borrowers are that are "getting it easy"!?

Our mortgage (which most people accept to be fairly responsible / common debt) is at 6% because it's a first time mortgage (we're 30 and been married 12 years and only got our first place recently) Unless you're on a tracker mortgage (which aren't that common because people like to be secure) then you're not benefitting.

We have had debt - and it's minimal now - but the rates that you find on loans, credit cards and store cards hasn't been affected one iota by the low base rate - in fact one card I have cleared has gone from 10%apr to 28% and possibly more :eek:

I agree with people getting irate about low savings rates, but you're not getting those at the expense of people getting cheap borrowing.