Bank Of England MPC - Interest Rates CUT to 0.25% + QE increase £60 Billion

cells

sann420 wrote: »

I dont know how changing rates from 0.5 to 0.25 will change anything. Markets run on sentiment and at the moment there is a lot of uncertainty and BOE is only increasing it with these desperate looking measures. Silly move IMO.

why must it be the BOE manipulating the market rather than the BOE just following the market?

Rates have been on a one way downward slide for the last 25 years, its not new, its pre 2008 recession.

There are fundamental reasons why the rate of return on debt should be 0 or negative. The simplest and to me the most convincing argument is that its simply mathematically impossible for real rates to be above 0% for any significant amount of time.

A real rate of 5% return is impossible to sustain. If you could get that from risk free investment it turns just a single $1 into $100 trillion within just 660 years. $100 trillion is more than the whole worlds GDP therefore its clear 5% real rate of return sustained is impossible. The argument also holds true for 4% real return, 3% real return, 2% real return, 1% real return..... all the way down to 0% which is sustainable

economic

cells wrote: »

why must it be the BOE manipulating the market rather than the BOE just following the market?

Rates have been on a one way downward slide for the last 25 years, its not new, its pre 2008 recession.

There are fundamental reasons why the rate of return on debt should be 0 or negative. The simplest and to me the most convincing argument is that its simply mathematically impossible for real rates to be above 0% for any significant amount of time.

A real rate of 5% return is impossible to sustain. If you could get that from risk free investment it turns just a single $1 into $100 trillion within just 660 years. $100 trillion is more than the whole worlds GDP therefore its clear 5% real rate of return sustained is impossible. The argument also holds true for 4% real return, 3% real return, 2% real return, 1% real return..... all the way down to 0% which is sustainable

but if the economy were to grow and thus create wealth then the real rate should be positive again right?

in this environment its best to stick to defensives producing income: good solid blue chip stocks, property in good location and keep significant cash for opportuntiies.

cells

economic wrote: »

but if the economy were to grow and thus create wealth then the real rate should be positive again right?.

For exactly the same reasons economic growth cannot be positive indefinitely. If economic growth (productivity) could expand by 5% a year then you would find that in just 472 years only just 1 person would need to work in the whole world to sustain 10 billion people at today's UK level of consumption

The same is true for 4%, and 3% and 2% and.... All tne way down to zero%. The timeframe is just slightly longer

This suggests the world will continue to grow until it reaches a steady state. My guess is that will be hit in around 100-200 years from now.

The good news is we will all be madly rich and probably want for nothing. The not so good news for those who deferred consumption for savings will regreat it.


It's an interesting idea. What are savings worth now, if in 5 years time a machine is invented that is able to produce or do or make anything and everything a person could want? Of course no one expects this machine to be here in 5 years time but it will come at some point probably in the not so distant future

economic

cells wrote: »

For exactly the same reasons economic growth cannot be positive indefinitely. If economic growth (productivity) could expand by 5% a year then you would find that in just 472 years only just 1 person would need to work in the whole world to sustain 10 billion people at today's UK level of consumption

The same is true for 4%, and 3% and 2% and.... All tne way down to zero%. The timeframe is just slightly longer

This suggests the world will continue to grow until it reaches a steady state. My guess is that will be hit in around 100-200 years from now.

The good news is we will all be madly rich and probably want for nothing. The not so good news for those who deferred consumption for savings will regreat it.


It's an interesting idea. What are savings worth now, if in 5 years time a machine is invented that is able to produce or do or make anything and everything a person could want? Of course no one expects this machine to be here in 5 years time but it will come at some point probably in the not so distant future

yes i see your point. so where do you suggst i invest now? it looks like we will get zero growth and zero rate of return for a very long time?

CLAPTON

economic wrote: »

yes i see your point. so where do you suggst i invest now? it looks like we will get zero growth and zero rate of return for a very long time?

for goodness sake don't take anything cells says as a serious comment and certainly don't make any investment decisions on his nonsense.
just enjoy the jokes

cells

economic wrote: »

yes i see your point. so where do you suggst i invest now? it looks like we will get zero growth and zero rate of return for a very long time?

There's a long way to go before we hit that wall especially worldwide. This generation probably doesn't have to worry about it too much.

In the near future I expect there to be strong world growth in the 2020-2040 period as the near AI and much higher automation kicks in.


As a general asset class software/tech companies have done very well over the last 10 years. I expect this to hold for the next 10 years for much the same reasons as the last 10. A rapidly developing world will allow them to sell to many more customers products that have low marginal cost.

merlingrey

I must admit i didn't think they wanted to push the pound below $1.30, i thought they'd talk the talk while the pound recovers and then pull the trigger at a later date, by doing QE and talking of room to go to the zero bound and more QE then it is likely we will see the pound tank further closer to parity with the dollar. (although the pound is probably the most shorted thing on the planet so it has room to have sudden spikes higher).


Its a forced bubble, damned if you try to go against it but also damned if you're in it when it pops.
You could stay in cash and miss the party while inflation eats your money or you can jump into the party assuming that hangovers are impossible and the party will never end.

As an aside: devaluing your currency to boost exports only works well if the other countries are doing better and boost their imports from you. Things go horribly wrong if your currency tanks and you have nothing but inflation to show for it.

At a global level everyone is devaluing their currencies like in 1932-1937 back then it worked they dropped the gold standard and GDP grew 10-15% per year.

Are we all going to get 10% GDP per year....err no, however if you look at the share prices of defense firms like BAE and Babcock over the last few years you can see that a new Guns or butter program is building, so they are gearing up for war globally.
The out performance of the defense firms is not due to terrorism its much broader than that and cannot be ignored.

N1AK

Graham_Devon wrote: »

Secondly, go back to the 22nd June and look at your posts warning of carnage in the economy and warning interest rates would rise, people won;t be able to get mortages etc. You were wrong.

Have you got any actual examples of them claiming interest rates would rise?

What you should at least consider is that people warning about the economic impact of Brexit were talking about the result of leaving the EU something that the government has already kicked back potentially 3-4 years; many were also assuming we'd actually leave the EU in a meaningful way, but again the people in charge seem determined not to commit to anything including restricting free movement of people if it impacts on free movement of goods. So yes aside from decreasing our forecast GDP by a few hundred billion pounds the impact so far has been reasonably modest; let's see if that's still the case if or when we actually leave.

Thrugelmir

N1AK wrote: »

Have you got any actual examples of them claiming interest rates would rise?

What you should at least consider is that people warning about the economic impact of Brexit were talking about the result of leaving the EU something that the government has already kicked back potentially 3-4 years; many were also assuming we'd actually leave the EU in a meaningful way, but again the people in charge seem determined not to commit to anything including restricting free movement of people if it impacts on free movement of goods. So yes aside from decreasing our forecast GDP by a few hundred billion pounds the impact so far has been reasonably modest; let's see if that's still the case if or when we actually leave.

Mark Carney was giving evidence to the Commons Treasury committee on financial stability risks.

Mark Carney said that in the event the UK left the EU, or looked as though it would leave, the interest rates we pay here in the UK - what he called in City jargon "the risk premium attached to UK assets - could rise.

http://www.itv.com/news/2016-01-26/carney-warns-brexit-could-lead-to-interest-rate-rise/

N1AK

Thrugelmir wrote: »

Mark Carney was giving evidence to the Commons Treasury committee on financial stability risks.

http://www.itv.com/news/2016-01-26/carney-warns-brexit-could-lead-to-interest-rate-rise/

My error. I had incorrectly assumed the discussion was related to the BoE base rate rather than interest rates in general. Clearly they did say the interest rates we would pay as a nation would rise, something I've seen little evidence of so far; whether we would have if it wasn't for the actions the BoE has already taken is harder to determine.