Interest Rates - BoE should cut them or the governer should go!

SuperV

"Recession fears weigh on sterling"

"While the report said growth would be "broadly flat", Governor Mervyn King said there was a possibility that output may fall."

(http://news.bbc.co.uk/1/hi/business/7557019.stm)

And so on... BoE rate can't hold sterling on its own. Economy can!

SuperV

"A rash of market bets on a rate cut by December sent the pound tumbling to an 11-year low on its trade-weighted index, which closed in London at 90.8. The pound tumbled below $1.90 against the dollar, ending the day at $1.8651, its lowest since October 2006, and lost 1.5 per cent against the euro, which climbed to 79.71p"

(http://www.timesonline.co.uk/tol/money/property_and_mortgages/article4526119.ece)

BoE rate has to be high to keep pound strong ))))))))))) hahahahahaha

ManAtHome

The pound tumbled because most of the world has seen that UK government and their wholly-owned subsidiary el BankO d'Excess would rather lower rates and keep the debt boom going until the next (forced) election than pursue anything remotely resembling an economic policy.

They can now do pretty much what they want - rest of world will continue to charge a premium/currency risk for lending to poundland (currently around 2% over base), maybe 3-4% over base next year..?

wisbech_lad

SuperV wrote: »

Yes, that can happen, but again loans can be conditional. In the same way you suggest, but with a market flavour instead of social.

Exchange rate will go down in a recession anyway. Even worse for the UK, it will very probably affect its technological base as people in IT will move away (and if you check any technological company in the UK, there will be a significant number of foreigners). That will be a long term blow for economy.

How can loans be conditional? Well, they can be - but then welcome to the concept of "crowding out" BoE gives 50 billion to banks on condition they use for UK mortgages. Banks do so, but then the 50 billion they would have lent on UK mortgages they lend to Taiwanese iPod manufacturers...

SuperV

ManAtHome wrote: »

The pound tumbled because most of the world has seen that UK government and their wholly-owned subsidiary el BankO d'Excess would rather lower rates and keep the debt boom going until the next (forced) election than pursue anything remotely resembling an economic policy.

They can now do pretty much what they want - rest of world will continue to charge a premium/currency risk for lending to poundland (currently around 2% over base), maybe 3-4% over base next year..?

Currency is as strong as it economy, not interest rate... Even if they increase interest rate to 10% it will only make pound weaker as it will kill economy that underwrites its currency.

We are not any more in gold or silver standard currency age. Currency is as strong as its economy is. British economy is weak due to many factors and high interest rate is only going to make it weaker.

SuperV

wisbech_lad wrote: »

How can loans be conditional? Well, they can be - but then welcome to the concept of "crowding out" BoE gives 50 billion to banks on condition they use for UK mortgages. Banks do so, but then the 50 billion they would have lent on UK mortgages they lend to Taiwanese iPod manufacturers...

I am more thinking about the health of the whole economy - BoE rate will affect it, in my opinion a significant cut will help economy, strengthen sterling and cut inflation.

Regarding mortgages, and how to help that segment specifically - healthy economy will boost that segment.

Other measures - I will have to think about

tonyhamm

What is 'weak' and 'strong'? Is it that a strong economy is engaged in real production, not production of house prices inflation? High interest rates normally drive the currency higher because they have a side effect of strangling inflation and lowering wages in uk plc by putting people on the dole.
Unfortunately the private sector worker is the one which suffers with his job loss for the bloated higher wages of the unproductive unsackable golden plated government sector.
If the recent vast expension of government to the point of id carding and tracking all citizens to meet its vast liabilities had not occurred, then we would not have had infaltion, the need for higher interest rates and the need to dump people on the dole.

SuperV

tonyhamm wrote: »

What is 'weak' and 'strong'?

Be more precise, please.

tonyhamm wrote: »

Is it that a strong economy is engaged in real production, not production of house prices inflation?

Strong economy will drive house prices up in absolute terms of that economy's currency. As well as the currency itself against other currencies.

tonyhamm wrote: »

High interest rates normally drive the currency higher because they have a side effect of strangling inflation and lowering wages in uk plc by putting people on the dole.

Sorry, that is not true as we already can see. Two weeks ago 1£ = 2$. Today 1£ = 1.85$.

Interest rate itself is not as important as the strength of economy. In the case of the UK today, it can be argued that the opposite is true in deed - the higher interest rate, the weaker economy, the weaker currency, the bigger inflation due to many factors (mostly external).

So, cut interest rate, boost economy (that will boost housing market itself), make sterling stronger and that will cut inflation.

Increase interest rate and expect inflation to reach between 10 and 20%.

SuperV

Has anybody calculated the effect of housing market on sterling?

The higher prices are, the more sterling is needed, so foreign investors have to spend more $ or € and that will strengthen sterling as well.

The lower prices are, the less sterling is needed, so sterling is weaker causing inflation to rise due to imported inflation...

wisbech_lad

LOL! In Zimbabwe house prices are now measured in the quadrillions of dollars. Obviously this mean that lots of dollars are needed, and so the Zimbabwe dollar is a pillar of strength!

In general, SuperV, more of a currency = a weaker currency. Supply and demand and all that