Mervyn King: Raising rates would cause another recession

Derivative

I'm not quite sure that low interest rates hurt savers as much as is often touted.

Yes, it affects cash accounts and bonds, but not investments in equities or property - in fact, it often has the opposite effect of boosting those.

On the contrary, low IR's definitely do benefit borrowers hugely. A low IR on a hundred thousand pound mortgage increases individuals' cash flow immensely.

I say this as someone who holds no (net) debt and a modest amount of savings. The few percent of interest I get on my cash savings is a nice bonus, but nothing that would sway my decisions of how much to save.

Are there really that many people out there with tens/hundreds of thousands of pounds sitting in cash accounts?

Conrad

Savers have options such as B2L or equities if they want exposure to higher income streams, the hard pressed worker with a job has no such luxury. If rates go up he does not have easy access to alternate options to increase income.

In other words putting rates up would have a much greater detriment to society as a whole. Savers wanting higher returns do not need rates to go up, they have other options available. The fact they might not want to try those alternates is entirely irrelevant.

Derivative

Yes, indeed.

My cash savings exist to fund surprise events. Appliances breaking, unforeseen travel costs, bulk buys of discounted items at the supermarket, etcetera.

Savings are a necessity as insurance against destitution. They are not something that I would give up willingly simply because rates are a little lower. I would save at 0% - if rates went negative I would stick money under my mattress.

Anything over and above emergency savings goes into less liquid investments.

suburbanwifey

So, it seems from the posts following mine that a lot (if not the majority) of Joe public, want and need rates to stay low to enable a sustainable lifestyle and the ability to have some money left over to save! They/we/myself especially don't care about interest on savings being low, for the greater good of us all, interest rates being kept low is best.

suburbanwifey

suburbanwifey wrote: »

I do think it was a bad thing, you are right - I also said it wasn't the fault of the buyers, wasn't my fault I had to pay a fortune to buy my home, who's fault it was I do not know ... but I know that higher interest rates then or now does not benefit you or me, not unless our total aim in life is to amass interest on savings. I both save and spend, you are a long time dead ... pointless saving every single penny for when you are old, how many will actually never get old and if you do, and end up in a care home, the Govt. will take it all back from you! The trick is to balance saving and spending and if more did that, there would be less debt, more security for all and the economy would benefit. Higher interest rates then or now benefits not one jot Joe Blogg in the street.

You're forgetting though no, that the Govt. LIKE house prices being high (regardless of the spin they put out on TV) as they get MORE money from higher house prices! (Stamp Duty) The last thing the Govt. want is downward house prices, they get less money! We all know they like the prices high don't we? they fueled it in part and kept them high and are still doing so. To enable all homeowners to continue to fund those high mortgages they had to get to buy those high priced houses, they are keeping rates low. This is all part of what they want and need.

Graham_Devon

suburbanwifey wrote: »

You're forgetting though no, that the Govt. LIKE house prices being high (regardless of the spin they put out on TV) as they get MORE money from higher house prices! (Stamp Duty) The last thing the Govt. want is downward house prices, they get less money! We all know they like the prices high don't we? they fueled it in part and kept them high and are still doing so. To enable all homeowners to continue to fund those high mortgages they had to get to buy those high priced houses, they are keeping rates low. This is all part of what they want and need.

Err....and how does the ever increasing housing benefit bill fit into this?

suburbanwifey

Graham_Devon wrote: »

Err....and how does the ever increasing housing benefit bill fit into this?

They should NOT have stopped building council houses. Period. That was the biggest mistake this country ever made. Affordable housing for regular Joe public who doesn't earn a mint but earns a living. Maybe they should start building council houses again and push out all the greedy buy-to-let landlords ... whats your answer? I'm curious, you're a smart cookie so maybe you know

Thrugelmir

homelessskilledworker wrote: »

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.

If banks don't lend money for mortgages. Then deposit rates would fall even lower. There's a balancing act going on currently. Where ultimately market forces will dictate events.

Of course savers could always buy Greek bonds for an above inflation return.

ILW

suburbanwifey wrote: »

They should NOT have stopped building council houses. Period. That was the biggest mistake this country ever made. Affordable housing for regular Joe public who doesn't earn a mint but earns a living. Maybe they should start building council houses again and push out all the greedy buy-to-let landlords ... whats your answer? I'm curious, you're a smart cookie so maybe you know

Seems odd that you seem to dislike BTL landlords. Low interest rates are one of the best reasons to become one and many are doing very nicely due to the low rates.

MrRee_2

I like how Mervyn says "All groups in society are suffering" .... well, he knows, and we all know, that's NOT true!!

He isn't suffering, you can be assured of that ... neither are the Bankers ... neither are millions of others!!

I include myself in that list ... we are doing very well everything considered. It's hard for me to believe that there is suffering as I live and work in a very affluent area - I work and socialise with winners.

Make no mistake, I have been penniless in the past ... you've just got to get up off your rearend and get on with it, too many just sit there believing the world owes them a living.