Not raising rates is damaging the economy

Graham_Devon

No doubt the messenger will get shot

From the FT...

Low interest rates are not just damaging the economy but creating a situation where the over-50s are having to cut back severely, according to Ros Altmann.

The director-general of Saga said: "Of course policymakers are facing a difficult environment, but the evidence continues to mount that we must not keep devaluing debts for borrowers and bankers, but must pay attention to older consumers who remember stagflation.

"We have reached a point where not raising rates is damaging the economy. Contrary to perceived wisdom keeping rates low could damage economic recovery, not help it. Our surveys show that the over 50s - who are the section of the population with strong spending power - are cutting back.

"This will harm growth. They fear that Bank of England policy is only worried about devaluing borrowers' debts, which is damaging older people's interests.

"Danger that inflation fears are damaging spending have now entered a dangerous phase in our economy, where an inflation spiral that has been created by the policy of ultra-low interest rates, is starting to have a negative effect on growth.

"We can no longer just assume that keeping rates low is only good news for the economy, because high inflation figures, together with these low interest rates, are causing consumers - particularly older people who have seen stagflation before - to retrench."

http://www.ftadviser.com/FinancialAdviser/Pensions/News/article/20110512/59dfb5ec-772f-11e0-817b-00144f2af8e8/Low-rates-are-prompting-over50s-to-cut-back-Saga.jsp

FTBFun

You're great at not including the full quotes aren't you?

Ms Altmann added that the Bank of England seemed not to be taking the inflation threat seriously and has totally ignored the realities for older citizens who saved prudently to afford a better lifestyle in retirement.
She said: "They are seeing the value of their money whittled away each month and their savings are delivering little return. They fear this will continue so they will keep cutting back on spending, which will cause more damage to the economy."

Ah so that's the reason why the director general of Saga has put his opinion out. Not entirely sure why that appears to carry more weight for you than anyone else?

Also an alternative view at the bottom of that article:

However, national IFA firm Park House Financial Services disagreed with Saga's view. In a statement it said: "If the over-50s are not spending or saving then what are they doing with their money? A wide range of positions cannot be aided by base rate rises alone."

Graham_Devon

FTBFun wrote: »

You're great at not including the full quotes aren't you?

Were not actually supposed to give full quotes due to copyright. Theres a tip for you

And it doesn't carry more weight. It's just an alternative point of view. One which obviously, you do not care for and seem unable to debate in a reasonable manner.

lemonjelly

The over 60's have been massively looked after in recent years with the benefits system doing pretty much everything to look after the grey vote. The over 60's qualify for a disproportionate amount of welfare benefits on far more generous terms than the rest of society. There is no real reason why anyone 60 or over should be in poverty.

The government has redefined poverty for pensioners this week too, re-linking it to rpi.

Perhaps these over 50's should be bagging themselves some NS&I ILSC's to protect the savings they already have? Arguably that is a measure which will help them too?

Really2

"Danger that inflation fears are damaging spending have now entered a dangerous phase in our economy, where an inflation spiral that has been created by the policy of ultra-low interest rates, is starting to have a negative effect on growth.

"We can no longer just assume that keeping rates low is only good news for the economy, because high inflation figures, together with these low interest rates, are causing consumers - particularly older people who have seen stagflation before - to retrench."

So inflation is causing people to spend less? what could that lead to?
So how does raising rates give the general economy more money?

Raising rates means in general the population have less to spend (it is to cut inflation caused by a overheating economy) it also means company's costs increase (servicing debt) and it makes company investment more expensive (less likely to invest)
It would slightly increase the value of the £ making exports less attractive while not touching petrol or food inflation.

Saga ramping up the case for the over 50's who would have thought it. I thought most who want rates to go up hate the boomers.
Now they wan't higher rates for them so they get more money when they cash out of their 25+ years of HPI.:D

But if the economy was just over 50's you would want it different,Retired, no mortgage and net savings.

If you are under 50 you are likely to be working and possibly a net debtor so would prefer lower rates at the moment so you keep a job and can just about afford to live.

Good job the economy is not just run for the over 50's hey.

Graham_Devon

lemonjelly wrote: »

The over 60's have been massively looked after in recent years with the benefits system doing pretty much everything to look after the grey vote. The over 60's qualify for a disproportionate amount of welfare benefits on far more generous terms than the rest of society. There is no real reason why anyone 60 or over should be in poverty.

The government has redefined poverty for pensioners this week too, re-linking it to rpi.

Perhaps these over 50's should be bagging themselves some NS&I ILSC's to protect the savings they already have? Arguably that is a measure which will help them too?

All very true. But what the article is saying is that pensioners are slowly cutting back the spending. Saga doesn't want them to hoarde more, rather the opposite, spend more.

More interest will allow them to spend more and put more into the economy.

The NS&I bonds could quite possibly be the absolute worst investment for pensioners, considering it's a five year bond. That would reverse spending even more.

chucky

is this yet another thread about people desperate for interest rates to go up... zzzzzzzzzzzzzzzzzzz

have they not noticed that there are alternative investments out there.

btw - why can someone remind me why these people that are so dependent on the interest not allowed to touch their savings, is that not allowed?

if they have enough cash to generate interest to live off why don't they use that cash...

Really2

lemonjelly wrote: »

The over 60's have been massively looked after in recent years with the benefits system doing pretty much everything to look after the grey vote. The over 60's qualify for a disproportionate amount of welfare benefits on far more generous terms than the rest of society. There is no real reason why anyone 60 or over should be in poverty.

The government has redefined poverty for pensioners this week too, re-linking it to rpi.

Perhaps these over 50's should be bagging themselves some NS&I ILSC's to protect the savings they already have? Arguably that is a measure which will help them too?

Pensioners are the only ones getting index linked increases, all workers are getting on average less than inflation.
So in general it is workers feeling the pinch more than pensioners.

Really2

Graham_Devon wrote: »

All very true. But what the article is saying is that pensioners are slowly cutting back the spending. Saga doesn't want them to hoarde more, rather the opposite, spend more.

More interest will allow them to spend more and put more into the economy.

In the mean time 1/4 of under 25's are out of a job and I am sure they would love rates to go up. Lowering their chance of getting another job just so someone with savings can spend a bit more.

Quality.

The economy involves more than just over 50's with savings graham.

I would of thought lording job creation for under 25's was more important than trying to get those with high cash reserves more interest so they have a better lifestyle.

Maybe I am getting this economy bit wrong, but the biggest reducer of spending is unemployment not pensioners not making as much interest?

ILW

chucky wrote: »

is this yet another thread about people desperate for interest rates to go up... zzzzzzzzzzzzzzzzzzz

have they not noticed that there are alternative investments out there.

btw - why can someone remind me why these people that are so dependent on the interest not allowed to touch their savings, is that not allowed?

if they have enough cash to generate interest to live off why don't they use that cash...

Not that fussed about interest rates any more, but personally concerned that the BoE seems to have lost control over inflation.

[Deleted User]

How many threads do we need on inflation and interest rates Graham?

The BoE are keeping rates low because the lack of growth is more of a worry than the increase in inflation.

As mentioned on one of the other threads, inflation has advantages as well as disadvantages. I gave the reasons on that thread and if you want to reply to that please do it on the thread its in rather than play your usual childish games.