Will interest rates ever rise again

henrik1971

Seems a crazy question, as surely rates will rise sooner or later.

However, this is the first time I've seen a serious economist come out and make such a claim. Quite a bit of what he says is difficult to dismiss, and goodness knows how many times base rate rises have been predicted, only for the horizon to be pushed back and back and back. Latest predictions for an increase seem to be slipping from second quarter of 2016 to fourth quarter of 2016. Next week it will be 2017, and so it goes on.

Mr Rubhinson seems to say that by the word 'ever' he means perhaps 10-20 years. Basically saying the longer rates stay super-low, the longer it becomes the norm and the more difficult it is to increase.

http://www.rics.org/uk/news/news-insight/comment/will-interest-rates-ever-rise-again/

Truth is, no-one knows, and we've all seen eminent economists, experts and 'commentators' predict rates rising and falling over the years, all for it to come to nothing, or for the opposite to happen!

Thrugelmir

One only has to look at Japan. Japan's problems were created by a credit bubble that over inflated the value of assets such as shares and property. The Western world faces similar issues that there's no easy answers to.

Generali

Thrugelmir wrote: »

One only has to look at Japan. Japan's problems were created by a credit bubble that over inflated the value of assets such as shares and property. The Western world faces similar issues that there's no easy answers to.

There are also some factors unique to Japan, chiefly that they will do almost anything to repay debts so a default fuelled collapse never happened and also that Japanese people are prepared to lend their Government almost any amount of money via Post Office savings accounts.

Thrugelmir

Generali wrote: »

There are also some factors unique to Japan, chiefly that they will do almost anything to repay debts so a default fuelled collapse never happened and also that Japanese people are prepared to lend their Government almost any amount of money via Post Office savings accounts.

In 1987 out of the world's 10 largest banks 9 were Japanese. Interesting correlation to the dominance of UK banks some 30 years later. Japanese banks were international also. Holding around 8% to 9% of all US banking assets at their peak.

While not identical. The problems faced have the same root cause.

kinger101

Thrugelmir wrote: »

In 1987 out of the world's 10 largest banks 9 were Japanese. Interesting correlation to the dominance of UK banks some 30 years later. Japanese banks were international also. Holding around 8% to 9% of all US banking assets at their peak.

While not identical. The problems faced have the same root cause.

I wonder if there is a Japanese film about a rogue vest wearing cop from Tokyo foiling a terrorist plot on a British bank in Osaka on Christmas Eve.

Thrugelmir

kinger101 wrote: »

I wonder if there is a Japanese film about a rogue vest wearing cop from Tokyo foiling a terrorist plot on a British bank in Osaka on Christmas Eve.

Starring "Fred the Shred" perhaps.........

henrik1971

I can imagine the inflationary pressures caused by the NMW being increased to £9/hr = approx £18k per annum will have an effect, but maybe that won't even be enough...

Interesting to read about the experience of Australia and Sweden when they tried to make small increases to their base rates recently.

Generali

henrik1971 wrote: »

I can imagine the inflationary pressures caused by the NMW being increased to £9/hr = approx £18k per annum will have an effect, but maybe that won't even be enough...

Interesting to read about the experience of Australia and Sweden when they tried to make small increases to their base rates recently.

I don't think you mean Australia. The RBA is cutting not raising.

Generali

Thrugelmir wrote: »

In 1987 out of the world's 10 largest banks 9 were Japanese. Interesting correlation to the dominance of UK banks some 30 years later. Japanese banks were international also. Holding around 8% to 9% of all US banking assets at their peak.

While not identical. The problems faced have the same root cause.

You need to be careful about drawing conclusions from superficial similarities. For a start, Japan has had a demographic timebomb explode which is of a different order of magnitude to anything the UK, US or Australia face (although in places like Italy and Germany without migration they will have similar problems). Also in the US and Europe, banks have been recapitalised and bad debts have either been taken on by the state or defaulted on and then the bank concerned bailed out (both things are the same really, just done differently). In Japan they have simply failed to do that so zombie businesses are stumbling along, unable to expand or go bust and the debts are weighing like an anchor chain around the necks of the banks which are resultingly unable to lend to good businesses. Japan also has a very closed, uncompetitive domestic economy: try setting up a haulage business in Japan to find out why!

I agree there are similarities but I would argue that there are plenty of differences and those are enough to make me extremely cautious about proclaiming that the UK is headed down the same road as Japan.

padington

Another big difference perhaps is that Japan didn't have the Japan case study to learn from.

henrik1971

So, see you all back here in five years time for a catch up on what's happened?