Rising interest rates – a nice problem to have?

 

            Ever since Mr Carney, the Governor of the Bank of England, offered his forward guidance that interest rates will stay low for along time, the markets have been trying to prove him wrong.

            I have written before how the interest paid on the  10 year government bond or loans rose. Markets said there would need to be an early upward adjustment to the cost of government borrowing for anything other than the very short term, despite the Governor’s view. The 10 year interest rate which went below 1.5% at one point is at 2.8% today.

            Now market commentators are saying the official 0.5% short term rate will have to go up earlier than Mr Carney implied, maybe as soon as 2014. Whilst there are many savers who would welcome this, people on mortgages would not. The commentators are saying this because Mr Carney said he would not consider higher rates until unemployment fell to 7%, thinking that might not be until 2015 or 2016. Instead, unemployment has fallen again last month to near 7%, and  many think the 3 month figure could be down to 7% next year.

           Markets should remember, however, that Mr Carney did not say interest rates would be automatically raised as soon as unemployment fell. He went out of his way to say that when unemployment reached that level, the MPC would merely look again at all the facts and forecasts. The most recent figures show inflation falling at last, to levels that do not require more monetary action to curb price rises.  (Fuel prices are a different mater that we have discussed before). I suspect the Bank, should unemployment reach 7% next year, will still be reluctant to raise interest rates, until the growing recovery is well advanced.

           The official forecasts have long predicted that gilt yields or the government’s own cost of borrowing will go up. It is doing so and may do more. That is part of a long process of adjusting to the end of the Bank’s big programme of buying up government  bonds, and artifically raising their price and lowering the interest charge. The main concern of the Bank, subject to no inflationary danger, is to promote recovery. That requires skilful exit from the extraordinary actions of recent years, as Mr Carney well knows and is seeking to do.

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141 Comments

  1. lifelogic
    Posted November 15, 2013 at 6:40 am | Permalink

    10 year rates heading toward 3% with the banks now charging very large margins on loans due to the lack or real banking competition is going to be a real problem for this recovery. We need more competition in banking now.

    The recovery we have seems to me not to be solidly bases on sensible investment, exports or any competitive advantage, but mainly on central London property speculation and being a tax haven for rich non doms and artificial government mortgage support. Oh well better than nothing I suppose but it could be so much better if we had had a sensible, low tax, cheap energy, smaller government, less regulation approach.

    I see that the bicycles good/cars bad religion is killing and injuring large numbers of cyclist in Central London just as any one sensible would expect it too. Just why does the government and Boris want to encourage a mode of transport that, in London, is perhaps 20 times more dangerous than driving while very drunk? Oh and it does not even save C02 either as steak, chips and claret are not a very efficient fuel to produce, process and cook. Not that that co2 matters as is now fairly clear.

    I see Ed Davey the energy (non production of) secretary on Question Time last night is still talking compete unscientific drivel about his silly catastrophic GW religion. He now seem concerned with sea level rises. These have been rising for centuries and show now acceleration since c02 concentrations have increased, does he ever look at any science facts or climate history?

  2. APL
    Posted November 15, 2013 at 7:14 am | Permalink

    JR: “Whilst there are many savers who would welcome this, people on mortgages would not.”

    Those would be the people who have taken this period of unprecedentedly low interest rates to spend the windfall on more stuff they don’t need, rather than paying their debts down.

    Those folk want the magic interest fairy to wave it’s wand again, there is another holiday in Morocco to pay for.

    Well, **** them.

    • APL
      Posted November 15, 2013 at 7:17 am | Permalink

      JR: “until unemployment fell to 7%, ”

      GOBSMACKED!!!

      Do you remember how the Thatcher administration was crucified by Labour because unemployment had reached 3%.

      • zorro
        Posted November 16, 2013 at 7:14 pm | Permalink

        Are you having a laugh?….When did we have a 3% unemployment rate?….
        Certainly not under Margaret Thatcher!!

        zorro

        • APL
          Posted November 17, 2013 at 10:55 pm | Permalink

          zorro: “Are you having a laugh?”

          Nope, just wrong.

  3. matthu
    Posted November 15, 2013 at 7:24 am | Permalink

    Inflation is a broken instrument on at least two counts.

    Firstly, because the government of the day modifies the basket of goods for political purposes, including or excluding such major expenditure as housing and energy.

    Secondly, because although technology is getting cheaper (for the same amount of power) consumers are obliged to replace their technology at an ever increasing rate in order to keep it operational, and inflation does not account for this.

  4. alan jutson
    Posted November 15, 2013 at 7:26 am | Permalink

    Its even more complicated that that.

    With the Government dishing out cheap money to the Banks, and printing it as well, the base rate and returns to savers is further blurred.

    For borrowers who can get money, (I exclude taxpayer underwritten mortgages) the rates are still huge, because the Banks have raised their margins hugely over the past few years.

    The 7% unemployment trigger may never happen as long as our borders are open, thus there is absolutley no control over that figure either.

    Methinks the problem is too much attempted manipulation in too many ways, to such a degree, that no one knows what is really happening and why.

    • alan jutson
      Posted November 15, 2013 at 7:28 am | Permalink

      Inflation coming down ?

      Utilities not included, says it all really.

      • Atlas
        Posted November 15, 2013 at 10:16 am | Permalink

        Agreed Alan.

        Artificial Interest rates are robbing Peter to pay Paul – and ‘selective’ measures of inflation are just another manifestation of the self-deluded spin nature of politics.

      • John Eustace
        Posted November 15, 2013 at 10:25 am | Permalink

        Exactly. Prices are quite stable if we ignore the things that have gone up.

  5. oldtimer
    Posted November 15, 2013 at 7:44 am | Permalink

    Mr Carney has wisely given himself some wriggle room. No doubt those in government will quietly, if not noisily, encourage him to use it this side of the next general election – and to keep the house price boom going until it deemed safe to prick that emerging bubble.

  6. Andyvan
    Posted November 15, 2013 at 7:48 am | Permalink

    A big rise in interest rates would, at least, have the effect of pushing us back to something like sound money. It would shake out all those people and businesses that rely on excessively cheap debt. The government would be in very serious trouble exposing their political maneuvers for the ponzi they actually are. It would be a lot of fun to watch as long as you’ve got an escape route from the chaos.

  7. petermartin2001
    Posted November 15, 2013 at 8:24 am | Permalink

    From a political perspective, rising interest rates could be seen as nice problem, I’d agree.

    The UK government, unlike other EU governments which have chosen to join the Euro, can have any level of interest rates it likes. Subject to the agreement of the Bank of England of course. So, from an economic perspective they aren’t a problem at all

    • yulwaymartyn
      Posted November 15, 2013 at 3:05 pm | Permalink

      “so from an economic perspective they aren’t a problem at all” –

      until continued deflation in the eurozone keeps interest rates low there and UK rates rise because of government spending to the next election and beyond and then, hey presto, money floods into the UK because of the higher rates and the UK banks lend again and … then you know what happens.

      • petermartin2001
        Posted November 16, 2013 at 10:52 am | Permalink

        ” UK rates rise because of government spending to the next election ..”

        Its possible they will rise, but they are not like exchange rates where the market tends to force the governments hand eventually. The government, or the Bank of England, can choose them to be anything it likes.

        Recently, interest rates have been very low worldwide at the same time as government deficits have increased worldwide. There isn’t any direct relationship in the way you suggest.

        • zorro
          Posted November 16, 2013 at 7:17 pm | Permalink

          We still have Cameron talking nonsense saying that low interest rates are due to his sound economic management. They are nothing but political manipulation to debase the currency and fund government largesse.

          zorro

          • lifelogic
            Posted November 17, 2013 at 5:26 pm | Permalink

            Indeed another back door form of taxation on pensions and holders of cash. Also a way for government to reduce is debt cost and debt in real terms.

    • Hope
      Posted November 15, 2013 at 6:17 pm | Permalink

      Indeed. Today the European Commission is exercising its power to change the national budgets of Italy and Spain! Is this what the Euro fanactics want to happen to the UK? Good grief the Italian finance minister, shipped in by the EU, is doing their work for them. This is not democracy. We also learn of the damage done by QE for savers and the prudent for no economic benefit but to effectively save the government paying interest for two years on the debt, disgraceful when it is considered that by stop spending on overseas aid and on the EU would have been beneficial for its UK citizens. I hope all pensioners and savers will remember when it comes to voting.

  8. Narrow Shoulders
    Posted November 15, 2013 at 8:30 am | Permalink

    I fear it is unlikely that rates will rise significantly for the foreseeable future. This slim upturn has to date been predicated by increased house prices driven by help to buy. The Governor and the Chancellor are unlikely to scewer the golden goose unless an election loss is assured.

    A small upward adjustment would be welcome and bring a dose of reality to those over borrowing to get on the housing ladder. It may also bring down the many zombie companies and home owners being propped up by these artificial rates and bring about market correction so that the future becomes rosy.

  9. Anonymous
    Posted November 15, 2013 at 9:08 am | Permalink

    By what measure is inflation coming down ?

    Accommodation costs ? Food ? Transport ? Heat ?

    Is it a ‘reduced’ rate of inflation whacked on to the huge price increases in recent years still hurts with a back-drop of frozen wages.

    Panorama this week showed a miserable little London flat (in fact the upper half of a terrace) on sale with a guide price of £250,000 – there was a queue of viewers with the estate agent operating like a ‘night club bouncer’.

    The flat eventually went for £320,000. One of the viewers with an income of £70,000 was priced out.

    Tuition fees, car insurance at £3000 pa and (if they do well at school/university) then a whopping 40% tax on subsequent earnings that can’t achieve a mortgage or deposit on the tardiest of maisonettes.

    For a young, hard working and skilled person striving to make their way hyper inflation is already here. How do we stop them from quitting Britain in disgust ?

  10. Bryan
    Posted November 15, 2013 at 9:25 am | Permalink

    When retired folk have no savings left, interest rates cease being an issue!

  11. Bert Young
    Posted November 15, 2013 at 9:29 am | Permalink

    Markets and the consequences of them are in a fragile difficult to predict state . Mr. Carney and other influential economists have admitted this in a number of adjectival ways ; the safest option is that of QE and low interest rates until a relatively stable international situation is reached . The USA with its high level of natural resources and consumer demand needs to stabilise first ; providing they maintain the sort of progress reported in the last year and show they can reign in some of their monumental trade imbalance , the rest of the world can then take a deep breath and step up money rate controls . The traffic lights have to turn green there first .

  12. Brian Tomkinson
    Posted November 15, 2013 at 9:41 am | Permalink

    JR: “the government’s own cost of borrowing will go up. It is doing so and may do more. ”
    Are you able to quantify this? To help you I repeat the figures from my previous post this week – the Government’s debts will cost taxpayers £46.5 billion this year and this is forecast to rise to £71.3 billion by 2017-18. How much more will the taxpayers have to pay whilst your government happily borrows another £1bn every 3 days?

    Reply The Treasury Red book sets out the official forecasts for the average gilt rate in future years.

    • Denis Cooper
      Posted November 15, 2013 at 1:11 pm | Permalink

      That largely depends on whether Osborne gets Carney to buy up more gilts with newly created money “to stimulate the economy”, or he decides that the Bank will start to unload its existing holdings of gilts onto the market, or he decides that the Bank will just keep all of its existing holdings of gilts to maturity.

      Note that Osborne will make these decisions without any reference to MPs.

  13. Brian Tomkinson
    Posted November 15, 2013 at 9:53 am | Permalink

    Who in your party cares the least bit about savers? Many of the savers whose money is being blatantly eroded as a result of low interest rates and inflation never had the benefit of today’s low mortgage rates. They had to pay much higher rates, even double digit rates. They have for years in effect been forced to subsidise today’s mortgage payers. Cameron and Osborne have made it very clear that in this regard they care only about keeping mortgage rates low – savers can go hang.
    I repeat, who in your party cares the least bit about savers and what will they do about it. To save you answering, my answers are – no one and nothing.

    • Anonymous
      Posted November 15, 2013 at 5:37 pm | Permalink

      Brian – Many first-time-buyers are having to earn in the 40% tax band in order to qualify the sorts of mortgages they need to be able to buy tiny houses at 10x average income. We had it easy in comparison – very easy. On top of this…

      We failed to provide the power stations that our young are going to need
      We failed to provide the water storage that our young are going to need
      We failed to protect the country from mass migration and EU meddling
      We failed to protect the unique and precious culture bequeathed us
      We failed to protect our industries and our national brands – sold off for fast bucks… and so much else.

      Given the choice – for all the double-digit interest woes of the past (doubtless to return) – would any of us swap the golden era we’ve lived through with the steaming great turd of a mess we’ve left today’s generation to sort out ?

      Not likely.

      I wouldn’t blame our educated and hard working young one bit if they decided to smash the place up or (better still) left the country to leave us to stew.

      We should be on our knees begging them for forgiveness.

      When we become old we should not demand automatic deference from our young. In our dotage being strangled in our own beds would be too good for us for what we have allowed to slip through our fingers.

    • APL
      Posted November 17, 2013 at 9:10 am | Permalink

      Anon: “Many first-time-buyers are having to earn in the 40% tax band in order to qualify the sorts of mortgages .. ”

      The whole thrust of government policy ( Osbourne setting the government up as a real estate vendor – one example ) is to maintain high house prices, and to encourage young and inexperienced people to over extend themselves financially.

      This is vulture governance.

      The target (young people) already have been burdened with huge liabilities – student loans, and Osbourne behaves (word left out) is encouraging these same people to take on more debt.

      It is absolutely reprehensible.

  14. John Eustace
    Posted November 15, 2013 at 10:21 am | Permalink

    I expect there are three real reasons why the official rate will stay at the current level as long as possible.
    1. The state of the UK banks, especially RBS.
    2. The ongoing crisis in the Euro zone. The Germans must have some people in a basement in Frankfurt working on their exit plans – now no doubt well away from any GCHQ ears.
    3. The election in 2015.

    • Brian Tomkinson
      Posted November 15, 2013 at 1:10 pm | Permalink

      John,
      Put your number 3 to number 1 to give a proper order of priority for the government.

      • lifelogic
        Posted November 16, 2013 at 7:26 am | Permalink

        Indeed but it will make little difference without some miracle or a UKIP deal the Tories are dead in the water and even then! Cameron cannot become what is needed – a cheap energy, small government, low tax, anti HS2, promise keeping and anti EU person.

        His lefty, genetics, his history of ratting and his fake green religion are all against it.

        • sjb
          Posted November 16, 2013 at 5:47 pm | Permalink

          Would a Conservative-UKIP deal be successful, though?

          A September 2013 poll had the Cons on 33% and UKIP on 11%.

          The sample was then asked how they would vote if there was a Con-UKIP alliance. This arrangement attracted just 56% of UKIP voters and 25% of Conservative voters would not vote for the alliance. The bottom line being the joint ticket polled only 35%.

          http://ukpollingreport.co.uk/blog/archives/8172

          • APL
            Posted November 17, 2013 at 9:13 am | Permalink

            sjb: “and 25% of Conservative voters would not vote for the alliance.”

            Did they vote for the current alliance?

            Does Cameron care what his supporters want?

          • lifelogic
            Posted November 17, 2013 at 5:31 pm | Permalink

            Clearly it has more chance than Cameron has alone which is almost zero. But it would depend on how it was done. We shall see in May 14 when Cameron comes third in the MEP elections. The main problem is Cameron is clearly not to be trusted on anything to do with the EU, smaller government, lower taxes, HS2, over regulation or the green religion, this is rather a big problem.

    • Denis Cooper
      Posted November 15, 2013 at 1:24 pm | Permalink

      The Germans may well have people considering contingency plans for Germany to leave the euro, but fortunately it is extremely unlikely that those plans will ever be activated. It’s “extremely unlikely” because Merkel has publicly stated that the goal should be for all EU member states to join the euro, making no exception for the UK it may be noted, and obviously her plan would not be advanced if Germany were to leave it. And “fortunately” because if Germany did exit the euro then the rest of the eurozone would undergo a very rapid, uncontrolled and catastrophic disintegration, whereas what is needed is careful controlled demolition.

  15. lifelogic
    Posted November 15, 2013 at 10:28 am | Permalink

    I see that the latest voting intentions suggest Cameron will have about 232 seats in 2015 (if he is lucky) about 186 short of an overall majority.

    Who cares what Cameron promises on referendums or anything else? Firstly he will clearly rat on them anyway if the mood takes him and secondly he will not be any ware near power or even a coalition.

    What a terrible waste when he had such an opportunity against sitting duck Brown but just chucked it all away with his fake green, pro EU, big state drivel.

    Reply Odd forecasts. A majority is 326 seats, so your shortfall is clearly wrong.

    • Hope
      Posted November 15, 2013 at 3:38 pm | Permalink

      Not a lost opportunity if his goal was to halve the Tory support, modernise the party to the left to become New Labour, entwine the country further in the EU, continue with mass immigration to help the EU superstate become a reality, increase taxation to catch more people in the higher rate band, 300 more tax rises rather than make spending cuts, borrow money and spend it unwisely on useless things and parliament continue along its corrupt path with daily news of another MP falling foul of the rotten rules. I think as a New Labour Party he has stuck fast to his party principles. No hope of re-election but he knew this was a high possibility by throwing everything in with the Lie Dumbs.

      • lifelogic
        Posted November 16, 2013 at 7:33 am | Permalink

        Perhaps that was indeed Cameron’s aim to bury the party John Major style for 3+ terms!

    • Bazman
      Posted November 15, 2013 at 4:24 pm | Permalink

      lifelogic is wealthy enough to afford his own facts John.

    • lifelogic
      Posted November 15, 2013 at 10:07 pm | Permalink

      Sorry I meant 186 behind all the opposition (and half of that) 93 more MP’s short of an overall majority. Either way not much point in listening to anything in the Autumn statement (or the budget) that does not take effect immediately. Because like the the IHT £1M threshold promise it will never happen.

  16. Ralph Musgrave
    Posted November 15, 2013 at 10:36 am | Permalink

    JR,

    You claim the BoE has “artificially” cut interest rates. Your only basis for saying that is that the BoE, along with other central banks, has held rates lower than was normal ten or twenty years ago.

    But that begs the question as to what the free market rate would be, and given that governments borrow HUGE AMOUNTS, I suggest that far from rates having been artificially low recently, they’ve actually been near the free market rate, and that rates have been artificially raised for the last century or so.

    Milton Friedman and Warren Mosler both advocated a system where governments borrowed nothing: i.e. the only liability they issued was money (monetary base to be exact) on which they paid no interest. In that scenario (which I’d favour) there would be no government / central bank interference with interest rates.

    • Denis Cooper
      Posted November 15, 2013 at 1:41 pm | Permalink

      How can the market price of something be considered the free market price when the market has been massively rigged?

      That wasn’t true for the market price of butter when the European Commission was buying up huge quantities of surplus butter and putting it into cold storage, and it isn’t true for gilts when the Bank of England has bought up huge quantities of surplus gilts and stored them away in its vaults.

  17. Mile Wilson
    Posted November 15, 2013 at 11:09 am | Permalink

    Mr. Redwood, you are a man who understands economics.

    Can you explain why base rate is 0.5%, savings rates vary between 0.25% and 1.5% – yet most lenders are charging at least 5% for mortgages.

    My impression is that the banks must be making an absolute fortune at the moment. Am I wrong? Is the difference between what they pay savers and what they charge lenders absolutely massive.

    Reply Lending rates are usually above savings rates, as banks incur costs in arranging the two. They also do need to make some profit to repair their balance sheets.

    • forthurst
      Posted November 15, 2013 at 3:10 pm | Permalink

      “Reply Lending rates are usually above savings rates, as banks incur costs in arranging the two. They also do need to make some profit to repair their balance sheets.”

      Am I wrong in thinking that historically, banks lent at between 2-4% over base rate depending on size and security, that base rates had some relationship to the real rate of inflation, that savers who shopped around could get a point or so above base rate?

      If the banks had been broken up as you have suggested quite often, presumably any that came into being without toxic assets would be able to compete advantageously with banks that needed to charge higher interest and pay lower deposit rates in order to repair their balance sheets? Is the real economy being hamstruck by poorly banks when what they lack is something which the BoE can create out of thin air?

    • lifelogic
      Posted November 15, 2013 at 10:11 pm | Permalink

      Mortgages used to be base plus perhaps 1/2% or 1% sometimes even below base. But now base plus 3/4 or 5 is very common. The banks have huge margins due to the lack of competition and the need for them to fill their black holes incurred by idiotic gambling.

      Cut out the rip off middle man banks is the clear lesson.

  18. libertarian
    Posted November 15, 2013 at 11:11 am | Permalink

    Sorry who gives a flying one what mortgage holders want? Savers outnumber borrows 6-1 and those savers especially pensioners have had their livelihoods stolen just to socially engineer the housing market.

    The unemployment rate bares no relationship to the huge amount of well paid full time work available, if the government stopped paying people to be unemployed then the rate would fall drastically.

    Interest rates should be 4-5% right now, and as soon as that does happen watch the private sector economy take off

    • Leslie Singleton
      Posted November 15, 2013 at 3:07 pm | Permalink

      libertarian–Agree with you on rates which are of course intrinsically ridiculously low at the moment and to Hell with what unemployment is especially as “unemployment” is not what it was in terms of what the State pays people to be out of work these days (albeit that that problem is being eaten away at, and about time too). Nobody mentions the banks (lending fixed rate long and borrowing short, simplifying dangerously) for whom rising rates are not so good at all, not that I care much any more but I very much did once. On any basis cannot just jump to 4-5%.

      • libertarian
        Posted November 16, 2013 at 2:14 pm | Permalink

        Leslie Singleton

        On any basis cannot just jump to 4-5%.

        Why? When I took out my first mortgage in March 78 it was 8% by Nov of the same year it was 17%. If you don’t allow banks and politicians to manipulate the rates the market will set them. That’s the beauty of markets they are self regulating.

        Currently business loans are charged at 7-9% why should I get 0.5% on my deposits with the banks?

        • lifelogic
          Posted November 16, 2013 at 5:25 pm | Permalink

          Cut out the bank middle men then and take security too, unlike lending to the bank.

        • Leslie Singleton
          Posted November 17, 2013 at 2:33 pm | Permalink

          libertarian–My point was that, especially as regards this particular aspect of banking, nobody pays attention to the bank’s point of view (except when their own bank goes bust–read on). Thus in the case when the bank makes say a 10 year fixed rate loan and makes the decision not to cover “congruently” as we used to say and rates unexpectedly go up all of a sudden that loan or in a worst case the whole branch or even bank can be at risk. And it is not so simple as saying the bank should always lock in cover because like it or lump it (real) banks (ie those making loans rather than being out of control playing with derivatives) make their money (when it doesn’t go wrong as above and assuming the yield curve is not inverted) by lending this way, though perhaps not usually as long as 10 years (I might be out of date), else no loans would be made because, contrary to popular opinion, spreads (on locked in cover) alone on loans are not large and most certainly are not commensurate with increasing risk as term lengthens. BTW, luckily we were covered in 1978 when rates shot up. If our potential “gap” had not been covered earlier (more by luck than judgement) our whole bank (we were the London Branch of an American Bank) might well have been brought down.

          • libertarian
            Posted November 19, 2013 at 5:01 pm | Permalink

            Leslie

            I’ve no idea what American Bank in London you worked for in 1978 but the one I worked in at the same time had no such trouble. We never operated fixed interest rates on loans. Nor did any other bank I know of in the UK ! Fixed rate loans were a feature of the US mortgage market and at that time a huge number of Savings and loans banks went bust in the US due to wild fluctuations in interest rates. These were never available in the UK at that time. Commercial banks including my own got badly hit when the Latin debt crisis hit but that was a default not interest rate fluctuations

            One thing that is overlooked here is that when lending money especially mortgage money the rate fluctuation was taken into account and there was a very precise lending algorithm no such thing as 100 or 100% loan only 2.5 times earnings allowed etc

        • Leslie Singleton
          Posted November 18, 2013 at 4:28 pm | Permalink

          libertarian–I replied to this but it would appear to have been deleted–No clue as to why–Not in the least contentious

          • Leslie Singleton
            Posted November 18, 2013 at 10:37 pm | Permalink

            Postscript–Dear John–Perhaps you thought I was exaggerating–I have no idea really but what I said was the God’s honest truth because our Balance Sheet in London was $1 billion and rates went up by 10%. The bank, which no longer exists, was at the time the 11th largest in America.

          • Leslie Singleton
            Posted November 20, 2013 at 5:40 pm | Permalink

            Postscript–Libertarian–I am perfectly willing to believe you if you say you never made fixed rate loans but I can assure you we did. I am talking about the Eurodollar market not British mortgages and I am not saying that I thought or think that fixed rate long term loans were a good idea unless covered in some way but again I assure you we also made them totally unmatched . There was one 10 year loan in particular (to a large City in Norway in fact) that I remember on which we made money for about a year and then we lost heavily for the remaining nine but on average or usually we did OK and all the 25 years I was there we made a monthly loss (closing down a gap we didn’t like for fear of worse) only once and an annual loss never.

    • Mike Wilson
      Posted November 15, 2013 at 4:21 pm | Permalink

      Why should interest rates be 4%-5% now? Who says? You? Why? Just so you can earn 5% interest on your savings? Why should you increase your capital by 5%, risk free, every year? Who set that in stone?

      To get 5% interest I think you should have to take some risk.

      • petermartin2001
        Posted November 16, 2013 at 11:04 am | Permalink

        That is a fair point, but there is a case for not having interest rates as low as they currently are. There is no incentive for savers and investment.
        If interest rates look like dropping too low, maybe less than around the 3% level, and it is still considered that the money supply should be increased to stimulate the economy, it is time to consider other possibilities for that.

      • libertarian
        Posted November 16, 2013 at 2:25 pm | Permalink

        Mike Wilson

        You obviously don’t know anything before Tony Blair. Mortgage and savings rates have always wildly fluctuated until the banks and politicians started manipulating them.

        You obviously also know nothing about banking. Why should I deposit my money with a bank and get a 0.5% return whilst they lend it at 7-9% ??

        You obviously also missed the last 5 years if you think leaving your hard earned money in a bank isn’t risky.

        The 4 million pensioners who rely on the income from their savings to live already took the risk in earning and saving.

        20 years ago before Gordon decided to end boom and bust interest rates where running around 10% so I am only asking for 4-5% as a start point !!!!

        With interest rates so low the only investment people consider is property and we really need more property bubbles don’t we? Some people just never learn.

        I guess you’re another one who over borrowed and now expect everyone else to suffer so that you can afford to pay it back. As I told you already savers outnumber borrowers 6 to 1. What do you suggest that those savers get in the way of return?

      • M.A.N.
        Posted November 17, 2013 at 4:36 pm | Permalink

        @ Mike Wilson. Why would anyone strive to achieve a better standard of living without a return on investment?. Unless you favour what we now have, investment bubbles in housing etc. Why would anyone ever start a business if they cannot enjoy thier own money. This is something socialists don’t understand, we cannot all work for the state, and people start up in business for themselves not some kind of public duty.

      • APL
        Posted November 19, 2013 at 1:09 pm | Permalink

        Mike Wilson: “Just so you can earn 5% interest on your savings?”

        The interest rate on loaned money should reflect a number of factors. Some but not all include:

        1) The inflation rate prevailing during the term of the loan.
        2) The lost opportunity you experience for not having access to your own money.
        3) The cost of the loan – the real interest rate.
        4) The risk of the loan – how likely are you to get your capital back.

        Mike Wilson: “Why should you increase your capital by 5%, risk free, every year?”

        There is no such thing as risk free lending, post Northern Rock, BOS, RBS – you must have been asleep to claim anyone has risk free lending.

        Any any sensible person would expect to get a return on capital that is higher than the government inflation rate. Else you’d be better off spending the money yourself.

    • Bazman
      Posted November 15, 2013 at 4:39 pm | Permalink

      Most of those savers will be pensioners as you say, so how is a rise in mortgage costs going to help anyone to move to other areas where there are lots of jobs? If you have specific skills and live or are willing to travel to that area there are many jobs as you say. You propose to cut benefits to incentivise people to get the skills and/or move to these areas? How is that going to work in reality? Where would they live and how would they pay for it? A rise in interest rates would make any borrowing for business and consumers more expensive further slowing down the economy.
      I think what you mean is they should take an agency job with no security and live in a bedsit or five to room/car whilst sending any spare money home to their families. Not real and why should they do this to satisfy your dogma in The UK.

      • alan jutson
        Posted November 16, 2013 at 9:56 am | Permalink

        Baz

        You are right on a number of points.

        The problem is that we (our Governments) have allowed unfettered immigration into this country, and some of those people do live 5 to a room, pool expenses and thus can afford to work for less.

        The sad fact is, these are the people that many have to compete with in the workplace, and if you do not live 5 to a room and pool expenses you simply cannot compete and work for the wages that these people do.

        Thus we (our governments) have been masters of our own populations downfall, by in effect creating unfair working expectations, because we have allowed in effect unfair competition to strangle it.

        We have in some circumstances therefore a race to the bottom.

      • libertarian
        Posted November 16, 2013 at 2:27 pm | Permalink

        Baz

        I stopped reading after your first nonsense sentence .

        “Most of those savers will be pensioners as you say, so how is a rise in mortgage costs going to help anyone to move to other areas where there are lots of jobs”

        Why would pensioners be moving to find new jobs?

        • Bazman
          Posted November 16, 2013 at 5:08 pm | Permalink

          There you have the logic of a libtard who when questioned has a fit.

          • libertarian
            Posted November 17, 2013 at 12:45 pm | Permalink

            Baz

            When you are easily defeated by a logical argument resorting to the normal socialist tactic of rudeness and name calling is pathetic. Not least of which last week you called me a right wing fantasist this a libtard which is the exact opposite.

            Are you really that dumb? Please explain why a pensioner ( ie someone retired) needs a new job which is what you posted.

          • Bazman
            Posted November 18, 2013 at 6:35 am | Permalink

            Pensioners do not have usually have mortgages and more often than not no jobs so a rise in interest rates may help them assuming they have savings, but would make moving house to areas with more work more expensive and difficult for millions who have jobs and mortgages and in many cases supporting pensioners. Is that difficult for you to understand?

          • libertarian
            Posted November 18, 2013 at 9:22 pm | Permalink

            Baz

            That isn’t what you wrote !!! So yes if you can’t write coherent sentences it does make it difficult to understand.

            Your point seems to be that this will hurt more people moving to find work than it will help pensioners.

            So provide some evidence of how many people need to move house to find a job. I’ve already told you 4 million pensioners rely on their savings to live. What do you think should happen to them? Are they to be dispensed with as they are too inconvenient for your socialist utopia?

            I would also suggest that the Labour Party/Socialist jealousy tax of stamp duty on houses is far more injurious to house moving than a % point rise in interest rates ( especially as you can fix interest rates for 2.3 5 years ) Whats your view on hard working people having to pay huge amounts of money to the government just to move house? Ram it

          • Bazman
            Posted November 19, 2013 at 4:59 pm | Permalink

            So the main point of your argument is that there is enough jobs for everyone within a commutable distance and the only reason there is unemployment is that they do not want to work as they do not like the jobs available even if they do not fit their skills. Quite a fantastic view don’t you think! I mean if the jobs says sales than anyone in sales can do it. It says welding than any welder can do this particular process and application? If you have no skills than you can easily get a job that pays a living wage against all the others who are trying fo the same job? Within a commutable distance and without moving being the key. Spending 20 quid a day in fuel to do a job that pays thirty. That is OK huh?

          • libertarian
            Posted November 20, 2013 at 4:07 pm | Permalink

            There are enough jobs within commutable distance for everyone ….. yes that is what I’m saying.

            No I never mentioned why people don’t take them. You made that bit up on your own, as usual. Rather than tell me what I think why not try asking me a straightforward question and learning the answer. Oh that would mess us your little fantasy world of oppressed socialists wouldn’t it

          • libertarian
            Posted November 20, 2013 at 4:15 pm | Permalink

            Baz

            There you go, first one I looked at top of the list

            Metal bashing , full time, permanent , non agency , paying £29k plus O/T and benefits in Cambridge

            http://www.gojobsearch.com/job/203093/cnc-miller-cambridge-Cambridge?source=indeed

            Dozens more.

            Ram It.

          • Bazman
            Posted November 20, 2013 at 6:37 pm | Permalink

            The job is from a recruitment agency if you look properly Company: Alecto Recruitment. As I have pointed out to you before the job may or may not exist. Big clue is in the advert where it says:
            ‘If you do not have the above experiences, please forward your CV to the below contact as we have many positions within the Cambridgeshire area.’
            They may have a client in mind, however CNC machinists are in demand most places they are most probably just fishing as they always are. CNC machining can be carried out by any ‘metal basher’ can it?
            Another point is Cambridgeshire is a large county and for less than £600 a week travelling for more than an hour may not be viable or desirable. To far for me.. Get real and Ram it.

    • uanime5
      Posted November 15, 2013 at 8:29 pm | Permalink

      Given that there’s 2 million more unemployed people than jobs available it’s clear there isn’t a ” huge amount of well paid full time work available”. Your claim that ending benefits would somehow increase employment is equally wrong.

      • lifelogic
        Posted November 16, 2013 at 7:35 am | Permalink

        The number of jobs available could increase hugely with sensible government policies.

        .

        • Bazman
          Posted November 16, 2013 at 5:26 pm | Permalink

          Such as no minimum wage, health and safety, hire and fire at will with no recourse whatsoever ever all creating desperation and competition with the working poor and thus employment? Is that supposed to be’sensible’ Rigsby?

          • libertarian
            Posted November 17, 2013 at 12:46 pm | Permalink

            Baz

            Germany Switzerland Sweden Norway amongst many others all have no minimum wage and lower unemployment than us. Please explain

          • Bazman
            Posted November 17, 2013 at 9:01 pm | Permalink

            They have stronger unions libtard ensuring a living wage. Something you hate.

          • libertarian
            Posted November 18, 2013 at 9:27 pm | Permalink

            Bazman

            1) I suggest you find out what a Libtard actually is before moronically trotting it out.

            2) I pay ALL of my 100’s of staff well above a living wage so thats another socialist lie from you

            3) Do you know anything about any of these countries? They have stronger unions do they? before you go any further I suggest you actually bother to check

            You’ve become a parody of yourself… Ram it

      • Bazman
        Posted November 16, 2013 at 10:38 am | Permalink

        Like many of his ilk he needs to explain how desperation creates work.

      • Edward2
        Posted November 16, 2013 at 11:03 am | Permalink

        How have all the millions of recent new arrivals to the UK all found employment if as you claim there are no jobs Uni?

        • Bazman
          Posted November 16, 2013 at 5:18 pm | Permalink

          Have think edward2. They all must all be driven and we are all bone idle?

          • Edward2
            Posted November 17, 2013 at 10:59 am | Permalink

            I dont know Baz
            Thats why I asked the question
            But it is a puzzle if as Uni says there are no jobs.

          • Bazman
            Posted November 18, 2013 at 6:39 am | Permalink

            Are you going to show use agency jobs again and commission only sales jobs and tell us there is a lot of work libtard?

        • uanime5
          Posted November 16, 2013 at 8:38 pm | Permalink

          1) I never claimed there were no jobs. I pointed out that there’s more unemployed people than jobs available.

          2) Many people are unemployed because they live in an area with few jobs and cannot afford to move.

          3) Many immigrants come to the UK for seasonal work (such as picking fruit), something they agree to do before they come to the UK. So they already have a job before they come to the UK and leave as soon as this job ends.

          4) You’ve failed to provide any evidence that there have been millions of new arrivals this year or any evidence that they lived and worked here permanently.

          • alan jutson
            Posted November 17, 2013 at 8:36 am | Permalink

            uni5

            Perhaps there are , perhaps there are not PAYE positions available, but many create work by looking for jobs that can be done on a self employed basis.

            Window cleaning, car valeting, gardening, leaflet distribution, etc etc.

            The fault is partly with the system that does not encourage the finding of such work, as signing on and off is not made easy.
            I have written at length about this in the past.

            Just because a job is not advertised, does not mean that work is not available.

            Think about it.

          • Edward2
            Posted November 17, 2013 at 11:06 am | Permalink

            I didnt say millions arrived this year stop making it up Uni.
            You keep referring to the official numbers of job vacancies which do not represent the full picture as most sme bosses firstly do not advertise at the useless job centres and secondly are not surveyed by Govt when they compile their dodgy statistics on nationwide vacancies.

          • libertarian
            Posted November 17, 2013 at 12:47 pm | Permalink

            Uanime5

            Lets try this

            Please tell me which area of the country has no or few jobs and I’ll show you with evidence why you are wrong. Go on I dare you

        • Bazman
          Posted November 17, 2013 at 9:03 pm | Permalink

          No jobs for the ones not desperate enough.

          • libertarian
            Posted November 18, 2013 at 9:29 pm | Permalink

            Baz

            Rather than bleat your pathetic insults, try actually manning up. Go on set me a challenge to find a non agency, full time above living wage job in any region of the country.

          • Bazman
            Posted November 19, 2013 at 4:51 pm | Permalink

            Almost all of the jobs would require specific skills or an age and certain eduction for apprenticeships, so show me one for there which does not and not an agency one, paying a living wage. Takeaways? No way. A specific skill such as the metal trade as well in this town. You cannot just move from the metal trades to nursing can you? You can? Oh really.. As you have said no one needs to move house to find work. Tell me what distance from this town is commutable on and every day basis. ‘Cumbria’ is not commutable from there. and nor is Blackpool though it may seem to you it is. In this town..

          • Bazman
            Posted November 19, 2013 at 5:05 pm | Permalink

            “All my staff.” You’re’ not an agent are you? Some agencies like the one I work for do not even run a payroll and use umbrella companies to do this. Which begs the question what do they actually do for their money?! They find the employees and then parasitically take money. How can it be any other way? In my case from the company I do the work for.

          • libertarian
            Posted November 20, 2013 at 12:13 am | Permalink

            Baz

            No I’m not an agency, employment business or recruitment firm.

            Outsourcing Is not umbrella learn the difference. I notice you bottled the challenge. Even a weak minded person like you could have at least made an attempt but no as always when faced with facts you run away an hide behind insults and made up facts.

            Either put up or shut up. You are the epitome of (an opinionated ed), ignorant socialist. Ram it

    • lifelogic
      Posted November 15, 2013 at 10:12 pm | Permalink

      Indeed and 4-5% is what they effectively are. Cut out the middle man banks.

  19. Terry
    Posted November 15, 2013 at 11:15 am | Permalink

    Neither Banks nor Bankers can stimulate demand. Only markets can do that.

    Instead of printing money for the banks to buy 2.5% Gilts with 0.5% loans why don’t they put that money into Industry by cutting the red tape and the taxes? Give the consumer more money to spend and they will spend it. The banks will not and their plan is doomed to fail. At our expense, of course.

    • Hope
      Posted November 15, 2013 at 3:40 pm | Permalink

      That sounds too much like a Tory economy drive, wrong party in power with the wrong leader.

    • Ralph Musgrave
      Posted November 15, 2013 at 4:36 pm | Permalink

      Same in the US: freshly printed money is used to save Wall Street rather than Main Street. The reason that happens is partly that every country has an elite – a clique of bankers and politicians who spend their time scratching each other’s backs and lining each others pockets at the expense of the general population. It’s been going on since the world began.

      It’s all done in a very subtle and gentlemanly way. And the elite always ascribes altruistic motives to itself when engaging in the above “pocket lining”.

  20. Acorn
    Posted November 15, 2013 at 11:31 am | Permalink

    Rising interest rates encourage people to save. The economy needs them to spend.

    The 10 year bond at 2.8% means the spivs think that the short term interest rate in ten years time, will have been set, by the BoE, at 2.8%. The BoE could drop that rate back to 1.5%, by going into the market, at any time, and buying a lot of ten year bonds and forcing up there price (and lowering the interest rate). The BoE has an infinitely large pile of pounds Sterling to spend. Its balance sheet can be any size it wants in theory. When programmed for a specific purpose, this process is known as Quantitative Easing. QE essentially amounts to shifting funds from a bank’s saving account at the BoE (Gilts) to its checking account at the BoE (Reserves). It reduces bank earnings by 1-2%. How this is supposed to simulate the economy is not quite clear yet?

    Banks now have huge piles of Reserves that are not lent to households or small businesses. You can only lend reserves to another bank or entity that has a bank account at the BoE. Big corporations are stuffed with cash anyway as they stopped investing and reduced wage costs with the Chancellors help. Only the Treasury can stimulate the household and the small business, by buying stuff from them and/or lowering taxes. A “balance sheet recession” is not cured by BoE ZIRP or QE.

    The BoE, (i.e. the MPC backstopped by the FPC) obviously, has been told by the Chancellor, that 7% unemployment will do nicely, to control any aspirations for higher wages in the labour market. The US FED targets 5% or better. This means actual GDP will be kept less than potential GDP (the Output Gap). Mind you, after six years of recession amplified by Austerity, the existence of any remaining output gap is debateable.

    Now that the BoE has bought up a third of the government’s Gilts, the Treasury is paying out interest to itself, via the BoE. That’s a lot of cash that isn’t getting into the private sector to buy stuff. It’s a bit like StopHS2 saying no VAT was allowed for in the governments estimates. Well, the Treasury financed HS2 Ltd (a Quango), may be charged VAT, which would be collected by HMRC who would pay it over to … er … the Treasury. Doh!

    • petermartin2001
      Posted November 16, 2013 at 11:27 am | Permalink

      ” QE essentially amounts to shifting funds from a bank’s saving account at the BoE (Gilts) to its checking account at the BoE (Reserves).”

      Yes exactly right.

      PS Have you been reading Warren Mosler?

      • Denis Cooper
        Posted November 16, 2013 at 3:35 pm | Permalink

        No, it’s not exactly right, and it’s not even partly right beyond the limited extent to which the gilts bought up by the Bank of England were bought from commercial banks. And that is a very limited extent, because the great bulk of the gilts were bought from insurance companies and pension funds and other investment companies, not from commercial banks which had relatively small holding of gilts to sell even if they wished to do so.

        And anyone who owns gilts does not have a “savings account” with the Bank, because the gilts are issued by the Treasury, not the Bank; if they sell the gilts to the Bank they are exchanging IOUs issued by the Treasury for IOUs issued by the Bank, money; and at the same as this was being done, the Treasury was selling new gilts to much the same set of investors at much the same rate as the Bank was buying up previously issued gilts, so the overall effect was that money created by the Bank was transferred to the Treasury through the gilts market, with some transmission losses, and the Treasury then used it help pay the government’s bills.

        • petermartin2001
          Posted November 18, 2013 at 12:50 am | Permalink

          Who owned the bonds, to begin with, and whether they are held as pieces of paper in bank vaults or in bank accounts can’t make any functional difference to the argument.
          Neither can any demarcation between the Treasury and the Reserve Bank. In principle they could be amalgamated, and it wouldn’t change anything in the slightest.

          • Denis Cooper
            Posted November 18, 2013 at 8:21 pm | Permalink

            Of course it makes a difference who owned the bonds to begin with: if they were not owned by a bank then they could not be described as a “bank’s saving account” whether with the Bank or the Treasury.

          • petermartin2001
            Posted November 20, 2013 at 3:57 am | Permalink

            Ok it should be “financial institution’s saving account’ !!

            Are we all in agreement now?

        • Acorn
          Posted November 19, 2013 at 6:39 pm | Permalink

          Denis, at the macroeconomic level, the Treasury and its Central Bank are one and the same. They both take part in the issue of the currency. The Treasury does not have a balance sheet, the central bank is required by the Treasury to operate as if it had a balance sheet when it spends new money into existence. That is, it has to exchange new money for an asset, at a price that the bank decides.

          Look up the definitions of “liquidity” and “monetisation”. Commercial banks are amassing “cash” by swaps and repos of Treasury savings certificates (Gilts) to use as capital to defend themselves against imploding toxic loans and possible bank runs.

      • Acorn
        Posted November 17, 2013 at 8:49 am | Permalink

        Oh yes, and the rest of the MMT crowd mainly L Randall Wray at the University of Missouri Kansas City. After four years of studying Macroeconomics in my retirement, MMT is the system that actually works. But, I disconnect it from the left wing label it has been given and accept it like an operating system in a computer.

        If you run MMT backwards from now, it explains the damage austerity has done particularly in the Eurozone but also in the US and UK. And it did predict the 2007 crash. You may have seen Neil Wilson’s (at 3Spoken) sector financial flows. You can see where household debt was going out of bounds through 2007 and the financial sector was literally coining it; only to crash in 2008. And how the government deficit had to start supplying the savings demand for the household sector and the rest of the private sector.

        • petermartin2001
          Posted November 18, 2013 at 1:26 am | Permalink

          Yes I would agree. MMT is too important to be left entirely to the left!

          I’m not sure Mr Redwood would agree with me on that. Maybe he would like to use it as a topic of a posting some time.

    • APL
      Posted November 17, 2013 at 10:06 am | Permalink

      petermartin2001: “Yes exactly right.”

      No.

      QE is essentially a salami theft of of your assets, my assets the assets of everyone in the economy, devaluing each while the nominal amount appears to remain stable. Since the government gets to spend the new money into the economy, the government as chief thief, gets the best slice of the pie. EVERYONE else gets uncomfortably shafted.

      Acorn: “Banks now have huge piles of Reserves that are not lent to households or small businesses.”

      Nope, if banks were forced to mark their assets to market, most of the ‘assets’ on their books would have zero value. About five seconds after that was recognized, the banks would implode leaving nothing but a black smoking hole where their head offices used to be.

      Anecdotal evidence for my assertion. There is still talk of splitting RBS into ‘good bank’ and ‘bad bank’, I presume the really rotten ‘assets’ would be dumped into the ‘bad bank’ which would then (word left out ed) continue trading with the sanction of the british government.

      Much of the talk of recovery is predicated on inciting the consumer to borrow more money and spend it into the economy. One problem with that is that the UK population is already one of the most heavily indebted in the world.

      The younger generation have been saddled with anything up to 40k – 50k student debt, so they aren’t in a position to borrow much more.

      • petermartin2001
        Posted November 18, 2013 at 1:05 am | Permalink

        I’d just make the point that all money is either printed or created by keystrokes in a computer. Similarly with all government bonds. They used to be printed , now they are mainly created by keystroke. Apart from an interest rate attached to a bond there’s no real difference between one and the other.
        The money supply is generally more one year than in a previous year.
        That’s the nature of a fiat currency everywhere.

        • APL
          Posted November 18, 2013 at 6:03 pm | Permalink

          petermartin2001: “The money supply is generally more one year than in a previous year.”

          But it doesn’t have to be. And in a recession it probably shouldn’t be.

          A government can ( maybe should ) expand the money supply in a growing economy. Although if it didn’t you would simply see deflation – that is the currency would appreciate in terms of goods and services in the economy. Not the terrible bogyman our politicians tell us we should avoid at all costs.

          That sort of deflation, the sort politicians are rightly afraid of is credit destruction after a credit boom ( opps! familiar ?? ). Because instead of the gentle appreciation you might get if you held the money supply steady in a growing economy, we get the crash and multiple bankruptcies the potential for civil unrest associated with the chaotic collapse of credit ponzi schemes.

        • Acorn
          Posted November 19, 2013 at 6:16 pm | Permalink

          petermartin2001

          Peter, we have got a big job ahead of us to educate these Rednecks, if JR lets us. I would recommend to them L Randall Wray’s book “Modern Money Theory: A Primer on Macroeconomics for Sovereign Monetary Systems”

          • petermartin2001
            Posted November 20, 2013 at 3:42 am | Permalink

            Acorn,

            I’d agree about Prof L Randall Wray. There is a lot of his work available for free on the net and on youtube.

            I wouldn’t agree that we should use terms like ‘redneck’. I might have been one myself a few years ago before I started to look into why the economy had crashed in 2008. Much as it was tempting to heap all the blame on Gordon Brown, and leave it at that, I felt I needed a more grown-up explanation.

      • Acorn
        Posted November 19, 2013 at 6:44 pm | Permalink

        APL
        Banks have huge piles of reserves because they don’t want to mark to market and frighten the crap out of their shareholders and the rest of the banking sector.

        • APL
          Posted November 20, 2013 at 5:40 pm | Permalink

          Acorn: “Banks have huge piles of reserves …”

          Talk about cognitive dissonance.

          Acorn: ” because they don’t want to mark to market and frighten the crap out of their shareholders and the rest of the banking sector.” (my emphasis)

          So in fact, banks only have “huge piles of reserves” when they assign their assets a fictional valuation.

          Yea! I’ve got a brown box tied up with string, I’m telling you it’s worth £10,000,000.00 come and buy it off me!

          The point is, if they mark to market they find there isn’t a market for much of the securities or derivatives on their books. If there isn’t a market, that is a willing buyer, then the security or derivative is worthless.

          Which is, more or less what I asserted earlier. When you buy a thing at a price, can’t sell it at any price, you have made a loss or experienced asset price deflation.

          Pretty good for an ignorant Redneck.

  21. The PrangWizard
    Posted November 15, 2013 at 11:55 am | Permalink

    My mortgage rate with the Halifax went down from 4.00% to 3.50% on 1st April 2009. On 1st May 2012 it went up to 3.99%. Don’t really know why or how they justify it. I suspect they will be one of the first to put it up further and soon. Not much sign of cheap and easy money as far as I am concerned.

  22. English Pensioner
    Posted November 15, 2013 at 11:57 am | Permalink

    The government will have a problem with all those people who have paid a minimal deposit when buying their home because of the government’s support. If they couldn’t scrape together enough for a sensible deposit, how will they pay for increased interest on their mortgage? This will particularly apply to those who actually had enough deposit for a small house, but with government support were able to use it for a more expensive one.
    Step forward the Chancellor with a new scheme to help them pay their mortgages (at the expense, as usual, of the more prudent)

    • alan jutson
      Posted November 16, 2013 at 1:04 pm | Permalink

      E P
      Agreed average mortgage rate over the last 50 years is 8% I am told.

      I do hope those who have purchased recently have a knowledge of history !

      • M.A.N.
        Posted November 17, 2013 at 4:45 pm | Permalink

        Joking right?. People have no knowledge of anything further than the next X factor winner. This country is now some weird socialist command economy, the government thinks it can engineer everything. Changing mentality of the population into one of entitlement. See mortgage provision fir this.

        • alan jutson
          Posted November 18, 2013 at 9:30 am | Permalink

          M.A.N

          I fear you are right.

          It was a tounge in cheek comment.

          But those who have thought it through, will be less likely to default.

          Problem is our Politicians always seem to want to help those in debt, and not help those who try to provide for themselves.
          That is the real problem.

  23. Denis Cooper
    Posted November 15, 2013 at 12:36 pm | Permalink

    Related:

    http://www.telegraph.co.uk/finance/personalfinance/houseprices/10448893/House-prices-to-surge-7pc-next-year-as-Help-to-Buy-transforms-the-property-market.html

    “House prices will soar across the UK by 7 per cent next year and 5 per cent in 2015 as the Government’s Help to Buy scheme and the improving economy transform the country’s property market.”

    “This time last year Knight Frank was predicting house prices would fall by 2 per cent in 2013. Now, the estate agent expects prices to end the year up 7 per cent, matching the predicted growth rate for 2014.”

    As stated a few days ago, I would like the Chancellor to announce an official target for the rate of house price inflation – my proposal was for 4% a year as a sustainable rate which should gradually make houses more affordable, but others may think it should be lower, say only 3% a year – and I would also like him to announce that Help to Buy will not be available in any local government area where house prices are already rising at or above that target rate.

    • zorro
      Posted November 16, 2013 at 7:28 pm | Permalink

      As you probably know, it is only a pathetic attempt to buy votes or fool people into thinking things are/will be hunky dory….

      zorro

  24. John B
    Posted November 15, 2013 at 1:01 pm | Permalink

    ”Markets should remember, however, that Mr Carney did not say interest rates would be automatically raised as soon as unemployment fell. ”

    ‘Markets’ is not a person; it cannot think, speak, act, see, hear or ‘remember’.

    ‘Markets’ is a process whereby a vast number of people act independently in their own interest to produce an outcome that none of them intended or foresaw, or could control, but overall benefits all, albeit some more than others.

    Politicians and Mr Carney should ‘remember’ that: unfortunately they do not and imagine they are omniscient, omnipotent and cant control markets, the economy and peoples’ lives… hence the increasing mess we get into the more they wallow in their hubris and try.

  25. David Hope
    Posted November 15, 2013 at 2:10 pm | Permalink

    They should have been raised a long time ago. We have seen a large asset bubble of late and no cleansing of the system.

    Massive moral hazard now exists, bank and hedge funds now know that as soon as aggregate figures be they GDP, stock indices or unemployment go down then the BoE (or Fed or ECB) will come to the rescue to keep things inflated.

    As Jeremy Warner says this morning we have seen a huge redistribution of wealth from the asset poor to the asset rich. All true capitalists must oppose this as strongly as they complain about socialist redistribution. For if we don’t we are nothing more than hypocrites .
    I worry about the way monetary policy is now going, ever more a tool of growth apparently (though this is not possible, simply a tool of boosting GDP numbers).

    Having these low rates has been sending up house prices at a rapid rate in some areas, meaning some people are on the limit with affordability. It’s inevitable a lot of people won’t be able to afford mortgages as the rates go back up. At which point no doubt we shall have even more “stimulus” and even higher asset prices

  26. Brett Trevalyan
    Posted November 15, 2013 at 2:50 pm | Permalink

    John

    My Company (The DDC Group – a privately held UK business) has 1,500 employees in Tacloban City. I have allocated a couple of million dollars to family
    support and rebuilding – we want and need to re-employ people locally (we are
    currently moving staff to Manila and Batangas, but that is no help to them at
    all in the medium term). I am trying to get to the UK Government, at the right
    level, to ask them to match our rebuilding commitment but this is, of course,
    no easy task (face to face is required on something like this). Can you or your
    readers help me to get in front of a Minister? Maybe Hugo Swire or William
    Hague?

    This is NOT part of the immediate disaster relief fund but is an internal
    relief fund for families of employees who have been killed, injured or suffered
    bereavement. I am posting this on a number of websites with the thought that
    one (who knows which) will help me to “break through” at a decision making level in Government.

    I know this is shameless, but the situation calls for shamelessness. We want to
    rebuild and to get people’s lives back together. We could use a little help.

    Brett Trevalyan
    Director
    Direct Data Capture Ltd – a member of: The DDC Group
    Reply The UK government has contributed generously to the disaster relief, and will look at the question of longer term rebuilding in due course. You should approach the government via your own MP.

    • alan jutson
      Posted November 16, 2013 at 10:09 am | Permalink

      Brett

      Lions International is organising some immediate relief to the area, and indeed has a local Lions Club in Tacloban and in surrounding areas, working hard to bring some relief locally
      Charity funds are being utilised from worldwide collections from all Lions Clubs (no admin expenses taken at all from any donations)
      One of our Club members has had previous business dealings with the Phillipines Governent and Prime Minister.

      If you think we can be of any help with regard to information, contacts or direct aid to the peole of the area, then please contact me via our Lions Club website

      Lions club of woodley and early.org.

      Regards

      Alan Jutson.

  27. forthurst
    Posted November 15, 2013 at 3:17 pm | Permalink

    Presumably Mr Carney has pencilled into his equation the effect on the unemployment rate by an increae in the labour force on Jan 1st? (when more EU people are eligible to come to the UK)

  28. waramess
    Posted November 15, 2013 at 3:47 pm | Permalink

    The USA has never needed to concern itself with the need for an influx of foreign money to support itself; it just prints more dollars.

    Most of the EU has not become dependent on foreign money to support its various economies.

    On the other hand theUK is entirely dependent on the influx of foreign investment to support its economy; it has not had an earned income in foreign exchange for many decades.

    Interest rates will rise when investors lose faith in a market that is dependent on foreign investment and that is most likely to be the UK.

    Osborne has just re-inflated the socialist bubble which could result in a massive and systemic collapse of the financial sector so, maybe it will be sooner rather than later.

    When? Well, advanced knowledge of the answer would generate untold wealth but it can’t be far off.

    • Denis Cooper
      Posted November 16, 2013 at 3:43 pm | Permalink

      If the US has never needed to concern itself about money from foreign sources, how come that about half of that part of the US government debt which is not now owned by arms of the US state is owned by foreign governments, with the Chinese at the forefront?

  29. uanime5
    Posted November 15, 2013 at 8:30 pm | Permalink

    Unemployment has fallen between July and September because of the increased number of seasonal jobs during this period. I predict it will also fall during November and December due to the increased retail activity during the Christmas periods, then unemployment will rise in the early part of 2014 after the seasonal work ends.

    • Edward2
      Posted November 16, 2013 at 9:06 am | Permalink

      Uni, I recall you saying something similarly pessamistic around this time time last year which didn’t come true.
      With the recent return to modest growth in the UK the trend for unemployment is downward.

      • uanime5
        Posted November 16, 2013 at 8:46 pm | Permalink

        Actually what I said last year did come true as unemployment rose back up to 2.5 million in January. When you consider that unemployment levels in 2012 were much the same as they are now the evidence shows that unemployment levels are likely to remain the same, rather than be reduced.

        I suspect you’ve confused an increase in employment with a decrease in unemployment. As the population isn’t static it’s possible to have increased employment and static unemployment. For example if thousands of immigrants come to the UK to pick fruit this will raise employment levels without effecting unemployment levels.

        • Edward2
          Posted November 17, 2013 at 11:10 am | Permalink

          So to be more accurate we should look at percentages of the workforce unemployed and this is falling with record numbers in work.

    • libertarian
      Posted November 20, 2013 at 12:16 am | Permalink

      Uanime5

      Wrong as normal the July-September period normally sees a reduction in jobs. Holidays and all that. Have another go at making up facts or better still get off here, go get a job and actually contribute to society

  30. jon
    Posted November 15, 2013 at 8:59 pm | Permalink

    Annuity rates have seen an increase on the back of it. Paying out more from the increase in guilt rates adding to the inflationary pressure. If interest rates don’t rise then a bubble will build a difficult balance it is.

  31. Brian Tomkinson
    Posted November 15, 2013 at 11:20 pm | Permalink

    Jereny Warner in the Telegraph: ” the big beneficiaries of QE since the onset of the crisis are governments. ………The big losers, on the other hand, have been households, which have been deprived of a similar amount of interest…..Most certainly the profligate have been bailed out at the expense of the thrifty, but it is not even clear that there is a net economic benefit from propping up the overborrowed. ……QE has resulted in a massive transfer of wealth from households the governments. ”
    http://blogs.telegraph.co.uk/finance/jeremywarner/100026069/heres-the-evidence-that-qe-has-harmed-the-uk-economy/
    Do you really expect us to vote for you after you have robbed us?

    • APL
      Posted November 16, 2013 at 11:22 am | Permalink

      Brian Tomkinson: “Do you really expect us to vote for you after you have robbed us?”

      I think they do, Brian.

      I think too that many people are beginning to notice the lie that is the ‘two party system’ in the UK. Perhaps they haven’t yet put their finger on just exactly what the problem is, but they know something is very wrong.

      I suggest everyone refuse to vote official conservative candidate, vote independent conservative if you must vote conservative.

      • petermartin2001
        Posted November 17, 2013 at 4:50 am | Permalink

        APL and Brian,

        The problem isn’t the two party system. At least not in the way you mean it.

        Unfortunately there’s a lack of basic appreciation, both among politicians and the electorate, of what is possible economically. Politicians make promises which arithmetically impossible to honour.

        It is a simple accounting fact that a government surplus implies a non-government deficit and vice versa. These principles are quite simple and were pioneered by Wynne Godley at Cambridge 30 years ago.

        You might like to look up the concept of three sector balances.

        • APL
          Posted November 17, 2013 at 8:39 am | Permalink

          petermartin2001: “The problem isn’t the two party system. At least not in the way you mean it.”

          I mean the two party system is a fraud, we have tenured politicians and occasionally we swap party names and faces but the policies:

          1. remain unchanged, except at the margins.
          2. are dictated from supranational bodies anyway, the EU and UN. Which partly explains (1).

          petermartin2001: “Politicians make promises which arithmetically impossible to honour.”

          Yes, absolute agreement with you there PM2.

          And my solution would be to dramatically roll back the state, to more of a 1900 rather than a 2013 model.

    • Rob
      Posted November 22, 2013 at 1:16 am | Permalink

      @Brian Tomkinson said “Do you really expect us to vote for you after you have robbed us?”

      I know a great many people who can’t wait to *NOT* vote conservative because of the continued theft from their savings because of QE and ZIRP. There’s now a lot of talk out there about it. The overborrowed have been helped enough now at the expense of savers.

  32. petermartin2001
    Posted November 15, 2013 at 11:51 pm | Permalink

    Very low interest rates act to the obvious disadvantage pensioners and others who are now receiving very much less income than they might have expected when they saved their capital originally.

    Governments have, for at least the last 20 years, almost entirely relied on monetary policy to control the economy. When they wish to increase the money supply, interest rates are lowered. When they wish to decrease it, or slow down the rate of increase, rates are raised.

    In other words new money is added to the system by commercial banks lending it out. Those banks are allowed, subject to the rules of the central bank, to lend out at least an order of magnitude more than they take in on deposit. That has worked reasonably well but it cannot work well at the moment as it is not possible, for all practical purposes, to go lower than zero.

    The other alternative would be, of course, for Governments to spend it out rather than lend it out. Is one any more inflationary than the other? I don’t see why it should be. If less reliance were placed on interest rates it could be possible to raise them slightly to the benefit of the economy as a whole.

  33. Stewart Knight
    Posted November 16, 2013 at 2:08 am | Permalink

    Is it me, or is the unemployment rate, or savers, or the markets, without Carneys remit? I thought his narrow responsibility was inflation? Or has the Government completely derogated responsibility for interest rates to the BoE Monetary policy committee? Wasn’t this always he danger?

    Reply The Bank has sole charge of interest rates, and has to take economic growth into account as well as the inflation target

  34. Lindsay McDougall
    Posted November 19, 2013 at 2:11 am | Permalink

    This myth that inflation is falling is gaining traction. May I remind Mr Redwood that the extra money is now going into buying houses, the prices of which are beginning to rise quite rapidly.

    Inflation targeting is a perfectly good way of controlling the money supply, but only if the right inflation index is used. It should include the prices of goods and services, and house prices, and perhaps other asset prices, and it should exclude VAT and excise duty, which are government imposts and nothing to do with underlying prices. It we had used such an index during the naughties, a lot of the boom and bust would have been avoided. Mr Carney has a good many bright young things on his payroll. If he asked them to concoct a suitable inflation index, they would.

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    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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