Interest rate rise?

buglawton

Ozymandias73 wrote: »

I have read in various places that the days of the old-style QE are over (too many adverse side effects, and diminishing effectiveness with repeated use). In future, if needed, the authorities will use *helicopter money* - injecting newly printed funds into tax cuts, infrastructure projects etc, to prevent it inflating the asset prices of the haves, at the expense of the have-nots. This would be via a new committee, a *fiscal-montetary policy committee* FMPC. It sounds like *helicopter money* will not cause asset price inflation, and could even lead to higher interest rates (through fiscal loosening).

Which is something that the supposed expert Carney could have easily foreseen.

But lets assume that it was Conservative govt ideology that prevented the helicopter cash idea. They can afford to be so fixed due to the hopelessness of the Labour opposition which presents no serious threat whatsoever. What a lovely democracy.

System

lisyloo wrote: »

Farmers have run out of (free) grass due to fields being scorched and are now having to buy feed for their animals. In some cases they are having to slaughter animals where it's not economically viable to keep them alive. These are not all animals that were destined for slaughter e.g. some were milking cows.


Please tell us how you think money invested by venture capitalists is related to the BOE base rate.

The venture capitalists loaded the companies up with debt and used them as cash machines. It is awell known phenomenon

Debt is one fact but the independent mentions wages, rent, competition, squeezed consumer spending

Deloitte say (in relation to Gaucho) - over supply, rapid exapnsion, poor site selection, onerous lease arrangements and fundamentally poor guest proposition.

Altus group cited - rents, extra tax for business rates, rising food prices, staff costs, rising minimum wage.

Personally I think you are over-egging the risks of the rate rise which may be a tragedy for a few, but generally not without other issues as well. Companies with a good guest proposition can survive in competitive markets and high rent areas.

The venture capitalists have been buying companies by loading them up with debt and then using them as cash machines. It is a very well recognised phenomenon. Gaucho went down owning £50 million. That is a lot of money, with huge interest payments. Prezzo went under owing a stonking £220 million. Completely unsustainable debts.

lisyloo

Personally I think you are over-egging the risks of the rate rise

I am going to leave it here as you are entitled to your opinion.
However you should note that not all business and personal debts are linked to the UK BOE base rate.
My employer for example is US based with private investment (probably from the US).
In recent years mortgage affordability has been tested against higher interest rate i.e. behaviour has changed to expect this.

System

ilovehouses wrote: »

Good to see you've toned down your pain theory.

Yes it's about trying to influence behaviour but, in mortgage terms, when the latest interest rate increase is equivalent to the price of a Domino's pizza expect behavioural changes to be subtle and muted.

One man's pain is another man's discomfort. It all depends where someone's pain threshold lies. If someone has big debts, their pain threshold will be low, and the pain may kill them. If they have low debts, their pain threshold will be high and they will barely feel it.

System

ilovehouses wrote: »

Quite but don't expect £26/ month to kill many people.

The comment is about *companies* with high debt burdens that are tipped over the edge. The ex-Gaucho manager may be wondering how he will pay his mortgage now he is unemployed, or relying on a lower paid job. Zombie companies employ a lot of people, who wil become unemployed, and that will prevent them from affording their mortgage repayments.

Filo25

Ozymandias73 wrote: »

The comment is about *companies* with high debt burdens that are tipped over the edge. The ex-Gaucho manager may be wondering how he will pay his mortgage now he is unemployed, or relying on a lower paid job. Zombie companies employ a lot of people, who wil become unemployed, and that will prevent them from affording their mortgage repayments.

And yet in spite of all the high profile retail collapses, we aren't seeing some huge spike in unemployment.

Conversely if we were seeing a spike in unemploment we wouldn't in all likelihood be seeing any further rate rises, we would quite possibly be seeing the opposite.

We aren't in a situation here where inflation has gotten wildly out of control and we need drastic rate rises (which could well lead to recession), instead we are seeing very gradual rises with plenty of time to monitor impacts before the next rise comes through, the BoE has been very clear about their guidance on that, it just seems that some don't want ot hear it.

Rates are being tightened because the labour market appears to be tight, so why should that ex-Gaucho manager be unemployed for long.

System

Filo25 wrote: »

And yet in spite of all the high profile retail collapses, we aren't seeing some huge spike in unemployment.

Conversely if we were seeing a spike in unemploment we wouldn't in all likelihood be seeing any further rate rises, we would quite possibly be seeing the opposite.

We aren't in a situation here where inflation has gotten wildly out of control and we need drastic rate rises (which could well lead to recession), instead we are seeing very gradual rises with plenty of time to monitor impacts before the next rise comes through, the BoE has been very clear about their guidance on that, it just seems that some don't want ot hear it.

We are seeing a substantial increase in lower paid jobs, that is the story of the current jobs boom. If higher paid earners need to take lower paying jobs to get by, they may not be able to afford their mortgage payments if they have over-extended themselves.

lisyloo

Well Gaucho went bust before the interest rate rise so clearly not related.

The ex-Gaucho manager may be wondering how he will pay his mortgage now he is unemployed, or relying on a lower paid job.

It's possible he might find a better job or move or change career and it's possible that might be a postive change in his/her life.


Unemployment figures have been going down despite companies like toyrus, poundworld, gaucho.

that will prevent them from affording their mortgage

repayments.

Unless of course they have a spouse, partner, insurance, savings or possibly no mortgage at all..................but hey why not look at the worst case scenario.


I've been made redunant three times in my career and my partner once.
On each occassion we used redundancy money to cover the period in between jobs. That didn't run out in our cases but if it had we would have used saving and the spouses income and altered our lifestyle to fit in with our new lower income.

lisyloo

If higher paid earners need to take lower paying jobs to get by, they may not be able to afford their mortgage payments if they have over-extended themselves.

Anecdotally I can say there are plenty of well paying jobs in IT and the sector is quite bouyant.


The restaurant/retail area may be somewhat more competitive.

System

lisyloo wrote: »

Well Gaucho went bust before the interest rate rise so clearly not related.





It's possible he might find a better job or move or change career and it's possible that might be a postive change in his/her life.


Unemployment figures have been going down despite companies like toyrus, poundworld, gaucho.




Unless of course they have a spouse, partner, insurance, savings or possibly no mortgage at all..................but hey why not look at the worst case scenario.


I've been made redunant three times in my career and my partner once.
On each occassion we used redundancy money to cover the period in between jobs. That didn't run out in our cases but if it had we would have used saving and the spouses income and altered our lifestyle to fit in with our new lower income.

If you don't even bother reading what I have been writing, there is no point responding. I said that if some companies, like Gaucho and Prezzo have existential difficulty paying their debts when interest rates are rock bottom, how on earth will others cope when rates rise.