Mervyn King: Raising rates would cause another recession

AndyGuil

IronWolf wrote: »

The BOE have a lot of control over government borrowing costs, they buy gilts and dramatically increase the prices therefore reducing yields.




I think they're being very proactive, and are looking beyond the current high inflation driven by commodity price rises to the period of deflation which could loom, thats why the QE has been continuing. Increasing interest rates would be reactive, trying to close the stable door after the horse has bolted.

All banks have to borrow the money and this depends on the rate at which it is loaned to them. The UK credit rating is already under threat (and individual banks) and this will hurt the rate at which they can borrow. Escalation of the Eurozone issue will cause a large increase in the cost of borrowing by the banks and this will cause a large increase in the interest rates set on loans (inc. mortgages). The BOE have zero control over this.

IronWolf

Wookster wrote: »

Savers (and the prudent) always get screwed.

Indeed, all we can do is assume it will happen and plan for the worst, so index linking savings, investing in alternatives etc.

I still believe the benefits of having savings outweigh the screwing we get though. I'd rather have a lot of spare cash losing out slightly each year than to have nothing and a load of expensive junk in my flat I dont really need

ILW

Wookster wrote: »

Savers (and the prudent) always get screwed.

I cannot figure out what he seems to want to happen. Does he believe encouraging everyone to go and run up a load more debt is the cure for our woes? Does seem that way.

abaxas

So if you were a betting man.... I'd stick 50 quid on raising rates causing a boom.

Why?

For the last 5-6 years reality is always the opposite of a BOE prediction.

RUN_RABBIT_RUN

erm, you people do realise that merv is only the figurehead and doesn't 'decide' on anything?

that's the job of the mpc as a whole, merv merely has the casting vote and the last vote was 9-0 in favour of keeping rates wehre they are

you may not like it but the reality is that in order to get the economy moving people need to spend, not save. if everyone sits on their money then its never going to happen

IronWolf

AndyGuil wrote: »

All banks have to borrow the money and this depends on the rate at which it is loaned to them. The UK credit rating is already under threat (and individual banks) and this will hurt the rate at which they can borrow. Escalation of the Eurozone issue will cause a large increase in the cost of borrowing by the banks and this will cause a large increase in the interest rates set on loans (inc. mortgages). The BOE have zero control over this.

Our banks have much more limited Euro debt exposure than the Eurozone itself, and defaults on those bonds are already largely priced in when loaning to banks now anyway. Of more concern would be the economic impact here if the Eurozone economies all started to collapse, but there's a hope that it wont get to that point.

A ratings cut would probably have little effect on yields, just like it didn't in the US when they were downgraded by S&P.

In general interest rates can only go up either way from here. Even if the worst doesn't happen, and the economies are fine we will still see much higher interest rates in the future.

IronWolf

ILW wrote: »

I cannot figure out what he seems to want to happen. Does he believe encouraging everyone to go and run up a load more debt is the cure for our woes? Does seem that way.

I think the low interest rates are more to do with banks than general consumers, although it does have an effect on them.

Banks will be more inclined to lend out to business if they can only get 0.5% on gilts. They will also be able to offer cheap loans to business meaning its easier for them to pay them off, or take the risk of expanding using debt.

Saying that all the new regulation is forcing banks to invest in less risky assets at the moment

AndyGuil

IronWolf wrote: »

Our banks have much more limited Euro debt exposure than the Eurozone itself, and defaults on those bonds are already largely priced in when loaning to banks now anyway. Of more concern would be the economic impact here if the Eurozone economies all started to collapse, but there's a hope that it wont get to that point.

A ratings cut would probably have little effect on yields, just like it didn't in the US when they were downgraded by S&P.

In general interest rates can only go up either way from here. Even if the worst doesn't happen, and the economies are fine we will still see much higher interest rates in the future.

Low exposure to the Greek debt is not going to stop the increased cost of borrowing, it will get very expensive for everyone. The whole credit market will become highly constricted and the credit rating of banks and countries will go down with the Eurozone. All of Europe is heavily exposed to Greece, Portugal, Italy and Spain through many direct and indirect routes.

suburbanwifey

Wookster wrote: »

Savers (and the prudent) always get screwed.

Its not savers who keep the economy afloat. Its not savers that keep people in jobs. It not savers who give more money to the Govt. in VAT etc. its spenders. Raising rates would ruin this country. Too many borrowed too much to buy a home (and I wish people would stop criticizing those that bought expensive homes to live in) - people need to live somewhere! (paying rent to a landlord is lining the landlords pocket, paying off his mortgage, you may as well line your own pocket and pay off your own mortgage as pay off his!)

They are right to not give a stuff about savers, savers don't help anyone but themselves. The savers whine because they want more interest on their money, so they can just spend that and leave their savings alone.

If people are interested in the UK economy as a whole, they would agree with the BOE's decision to keep rates are virtually zero, as they should be. Thousands would be repossessed, homeless, claiming benefits to pay to live in landlords homes with high rents that are not payable on most wages out there for the majority etc.

Shops, businesses and all sorts are collapsing as no one is spending (apart from me, but I am well off so I can afford to) - and by the way, I have no mortgage, I own my home so whatever the hell interest rates do do not bother me. But I feel keeping people away from repossession is a lot more important than savers who greedily care about no one but themselves. And yes, I AM A SAVER as well as a spender! so I'm not being selfish when I make these points.

Everyone out here (yes YOU!) wants what would benefit THEM, savers want rates up, mortgage holders want rates low - the BOE is doing what is best for the country, not YOU. That is their job!

All the comments about people should worry can they afford their mortgage when rates do eventually go up. Its like a narcissistic desire to enjoy watching people suffer, lose their homes and then you can gloat! Sick.

ILW

suburbanwifey wrote: »

Its not savers who keep the economy afloat. Its not savers that keep people in jobs. It not savers who give more money to the Govt. in VAT etc. its spenders. Raising rates would ruin this country. Too many borrowed too much to buy a home (and I wish people would stop criticizing those that bought expensive homes to live in) - people need to live somewhere! (paying rent to a landlord is lining the landlords pocket, paying off his mortgage, you may as well line your own pocket and pay off your own mortgage as pay off his!)

They are right to not give a stuff about savers, savers don't help anyone but themselves. The savers whine because they want more interest on their money, so they can just spend that and leave there savings alone.

If people are interested in the UK economy as a whole, they would agree with the BOE's decision to keep rates are virtually zero, as they should be. Thousands would be repossessed, homeless, claiming benefits to pay to live in landlords homes with high rents that are not payable on most wages out there for the majority etc.

Shops, buisnesses and all sorts are collapsing as no one is spending (apart from me, but I am well off so I can afford to) - and by the way, I have no mortgage, I own my home so whatever the hell interest rates do do not bother me. But I feel keeping people away from repossession is a lot more important than savers who greedily care about no one but themselves. And yes, I AM A SAVER as well as a spender! so I'm not being selfish when I make these points.

Everyone out here (yes YOU!) wants what would benefit THEM, savers want rates up, mortgage holders want rates low - the BOE is doing what is best for the country, not YOU. That is their job!

All the comments about people should worry can they afford their mortgage when rates do eventually go up. Its like a narcissistic desire to enjoy watching people suffer, lose their homes and then you can gloat! Sick.

The more people put into banks as savings, the more the banks have to lend out to small businesses etc. Savers cash does not just sit in a vault doing nothing.