Savings ratio down to pre-2008 crash levels

tara747

http://www.independent.co.uk/news/uk/politics/uk-economy-kept-afloat-spending-binge-obr-treasury-watchdog-warning-a7619351.html


Any thoughts??


Anecdotally, I know several people who brought forward 'big ticket' purchases before Christmas because of predicted price rises. Those people are now paying off said purchases and tightening the purse strings.


Others are still borrowing merrily away.


The Government is still borrowing at record low interest rates.


But for how long...?

westernpromise

The size of the state's debt has since 2008 been the best indicator of the trajectory of interest rates. I've been saying for a couple of years that we aren't even halfway through the era of ultra low rates.

Imagine how colossally deflationary a rate rise would be. The cost of state debt would rise, the cost of a lot of private debt would rise and taxes would have to rise too to fund the costlier state debt.

I don't see base rates going over 1% for another 10 years, if then.

tara747

westernpromise wrote: »

The size of the state's debt has since 2008 been the best indicator of the trajectory of interest rates. I've been saying for a couple of years that we aren't even halfway through the era of ultra low rates.

Imagine how colossally deflationary a rate rise would be. The cost of state debt would rise, the cost of a lot of private debt would rise and taxes would have to rise too to fund the costlier state debt.

I don't see base rates going over 1% for another 10 years, if then.

Depressingly, I think you may be right.


What happens if the pound falls further, though? Or if inflation accelerates?


Also, if there is another financial crisis, there's no ammunition left iro interest rates.

westernpromise

If inflation accelerates the MPC would have to raise rates, but we're at 1.8% and the range is 1 to 3% so that seems some way off.

wotsthat

Good news as far as I'm concerned.

The key to a decent retirement is a high savings rate and, ideally, to be richer than your peers who will be chasing the same goods and services.

It warms my heart to hear of people keeping the economy ticking over whilst making efforts to be poorer than me in retirement.

wotsthat

tara747 wrote: »

Also, if there is another financial crisis, there's no ammunition left iro interest rates.

Print a load of money and give it to people to pay off their mortgages.

Thrugelmir

Consumer debt is a far bigger concern. Once people stop spending the economy may stall. So heavily dependent upon the service sector for growth.

tara747

Thrugelmir wrote: »

Consumer debt is a far bigger concern. Once people stop spending the economy may stall. So heavily dependent upon the service sector for growth.

True. Mind you, consumer debt and the savings ratio are linked. High debt = low savings ratio.


What happens when people reach the limit of personal debt they can carry? As Martin says...

always_sunny

tara747 wrote: »

What happens if the pound falls further, though? Or if inflation accelerates?

If the pound falls further (which more likely will) it will get the economy to look domestically to produce what it buys from abroad. It may make the country a magnet for foreign purchases.

Or people will need to tighten the belt even further.

GreatApe

The savings rate needs to fall to zero, with women having fewer than 2 children there is no need to save (aka create capital) as each generation will just inherit all the capital they need and then some

economic

GreatApe wrote: »

The savings rate needs to fall to zero, with women having fewer than 2 children there is no need to save (aka create capital) as each generation will just inherit all the capital they need and then some

assuming the children dont spend any money? which is highly doubtful.