Mervyn King: Raising rates would cause another recession

HAMISH_MCTAVISH

Sir Mervyn insisted he understood the problems facing savers, but made clear he believes he can do nothing to help.

The Bank could respond by increasing Bank rate from its current level of 0.5 per cent to 4 or 5 per cent, he said. But that would push up the exchange rate, depress investment and consumer spending “and we would go back into a recession.”

“All groups in society are suffering from the financial crisis,” Sir Mervyn said, insisting that there can be no special help for particular groups. “Difficult though it is, we have to make a difficult judgement about the right course of action for the economy as a whole.”

During periods of economic turmoil, many people save more because they are worried about their future prosperity.

According to the Bank’s latest Inflation Report, the household savings ratio increased sharply during the recession. Even though it has fallen back since, the latest figures show households are still saving 6.6 per cent of their disposable income on average, well above the pre-crisis levels of 2007.

The report also suggested that saving may yet rise again, because “households may want to increase the amount that they save due to other factors, such as the need to save more for future retirement provision.”

Sir Mervyn said that savings were effectively acting as a brake on the economy: “One of reasons for slow growth in the last year was weakness of consumer spending and higher savings by household.”

http://www.telegraph.co.uk/finance/financialcrisis/9084399/Mervyn-King-helping-savers-would-push-Britain-back-into-recession.html

hallmark

HAMISH_MCTAVISH wrote: »

Sir Mervyn insisted he understood the problems facing savers, but made clear he believes he can do nothing to help.

The Bank could respond by increasing Bank rate from its current level of 0.5 per cent to 4 or 5 per cent

Disingenous words from Mervyn King. Not many people are suggesting an increase to 4 or 5 per cent however there could & should certainly have been increases above 0.5%.

Mervyn King could not make it clearer that he couldn't care less about savers, his only priority is doing everything he can to keep mortgages low & preserve the current bubble in house prices.

Still not one word from Martyn Lewis on the fact that savers & especially pensioners are being royally screwed by current policy. Rates reduced to 0.5% & when the MPC couldn't make them any lower they simply started printing money instead - pretty much the same as reducing IRs to a hefty minus figure.

Plenty of campaigning from this site to help morons who allow themselves to get stung by bank charges or idiotically bought PPI they could never claim on. But not a word to help anyone who has actually acted sensibly.

Can't be many sites with a less appropriate name than Moneysavingexpert.

IronWolf

It's not Mervyns job to take care of savers, its his job to ensure the economy is stable and inflation is on target. The former can only be achieved by disincentivising saving, which helps consumerism. The latter has been out of their control for a while, with VAT rises and commodity price increases they can do nothing about.

If you want a decent return then you only have to look to equities which are generally quite low valued at the moment.

hallmark

IronWolf wrote: »

It's not Mervyns job to take care of savers, its his job to ensure the economy is stable and inflation is on target.

Yes and he hasn't done that job. Inflation has been way above target for a long while but King refuses to raise Interest rates & simply justifies it by saying it's because of where inflation "will be" in one year, two years, or however far away he has to say to justify his policy. Weasel words.

IronWolf wrote: »

If you want a decent return then you only have to look to equities which are generally quite low valued at the moment.

My post isn't wasn't related to my own investing . FWIW I agree equities look outstanding at the moment & have posted on here before that I'm extremely bullish on shares.

homelessskilledworker

IronWolf wrote: »

It's not Mervyns job to take care of savers, its his job to ensure the economy is stable and inflation is on target. The former can only be achieved by disincentivising saving, which helps consumerism. The latter has been out of their control for a while, with VAT rises and commodity price increases they can do nothing about.

If you want a decent return then you only have to look to equities which are generally quite low valued at the moment.

It's not Mervyns job to look after the debt loaded either.
And I wonder how many mortgage holders with be in serious trouble if their mortgage rate went back to the level where they first took it out.

There are 100,000's if not millions that never planned for a few percent rise in rates when they took their mortgage out, some cannot even manage with the record low rates.

CRASH_BANG_WALLOP

That King dude is a funny man. for millions of every day dudes the last recession has not gone away.

pqrdef

HAMISH_MCTAVISH wrote: »

“All groups in society are suffering from the financial crisis,” Sir Mervyn said

Wasn't he saying last year that we'd never had it so good?

CRASH_BANG_WALLOP

pqrdef wrote: »

Wasn't he saying last year that we'd never had it so good?

i think the dude was talking about his pension which is ticking along very nicely

IronWolf

hallmark wrote: »

Yes and he hasn't done that job. Inflation has been way above target for a long while but King refuses to raise Interest rates & simply justifies it by saying it's because of where inflation "will be" in one year, two years, or however far away he has to say to justify his policy. Weasel words.

I think its the lesser of two evils, inflation or recession. I agree with him that money supply is not whats causing inflation, so interest rate rises probably would do more harm in the short term, possibly leading to deflation if commodity prices are steady.

Also it benefits everyone in the long term that gilt yields are at record lows, less debt to pay off for us all.

homelessskilledworker

The one thing with rates from now on is that there is only one way they can go.. UP

It might be 12 months before a rise it might be three years, but the question every responsible mortgage lender should be asking is could your income handle a few percent raise.

Graham_Devon

hallmark wrote: »

Disingenous words from Mervyn King. Not many people are suggesting an increase to 4 or 5 per cent however there could & should certainly have been increases above 0.5%.

Indeed. You said it for me.