Inflation rises to 4%

And news today that the German economy is going from strength to strength. Unemployment falling economy growing.... mean while the one eyed Scottish twit writes his memoirs.....
 
groen said:
In a free market in banking a bank that is lending money that it does not actually have, would not be able to compete with a bank that only lends out its reserves.
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A bank only lending its reserves would not be able to offer a competitive interest rate on deposits.
 
Dj_Jestar said:
Do people really consider 4% to be "high inflation"?

I'm asking because I certainly don't, but wonder if I should. :)
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not historically but it is high in comparison to the last two decades. It's more a problem of mild stagflation since the economy isn't moving and unemployment is high. Mervin King calls this short term inflation but inflation was over 3% for the whole of 2010 and is predicted to hit 5%.
 
daz said:
A bank only lending its reserves would not be able to offer a competitive interest rate on deposits.
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Why is that?

As long as the interest on loans and other income is higher than their total costs, they can make a profit at offering banking services. (much like any business)

If a bank is lending money out that it does not have or lending other peoples deposits, the risk is that everyone will withdraw their money at the same time and the bank will go bust. If the bank is only lending money that it self has acquired, then there is no risk to the consumer. But if a bank would like to offer an account where their deposits are lent out to other people and charged interest on, then they might be able to get a more favourable interest rate on their deposits. But that is the choice of the consumer and with an increase in return comes more risk.
 
Banking was defined as a corrupt, zero sum game, that nobody can win.

I don't know how it could possibly be utopian-alised, when it was invented by greedy individuals to begin with (not saying i agree or disagree with that - empires were built on this).

Unless SOMEONE is printing money at some point in the system (and spending it into the system), then you can't have interest paid to anyone.
 
Right now it is pretty ridiculous from a consumer perspective.

Credit cards at 17% loans are at 8%. Banks will give people credit cards before loans. So they are giving people credit cards and charging 17% interest on money that they do not even need to keep in reserve (they just type it in to a computer screen). To top it all off if you have £10 in a savings account you will get half a pence interest per year. pfft. 0.05% interest on savings.
 
Naff8000 said:
not historically but it is high in comparison to the last two decades. It's more a problem of mild stagflation since the economy isn't moving and unemployment is high. Mervin King calls this short term inflation but inflation was over 3% for the whole of 2010 and is predicted to hit 5%.
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Tbf to Merv, in economics terms I think anything less than 5 years is "short term".
 
groen said:
Right now it is pretty ridiculous from a consumer perspective.

Credit cards at 17% loans are at 8%. Banks will give people credit cards before loans. So they are giving people credit cards and charging 17% interest on money that they do not even need to keep in reserve (they just type it in to a computer screen). To top it all off if you have £10 in a savings account you will get half a pence interest per year. pfft. 0.05% interest on savings.
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Nothing like exaggerating figures from all angles to make a point eh :p
 
groen said:
From a consumer perspective people want a bank that they know does not take risks or takes the least risk with their money, if a consumer had the choice of putting their money in to a bank that did not take risks with their money they would choose that bank. Eventually all banks would tow the line through competition.
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What do you think the bank does with your money, stick it under a mattress and hopes the tooth fairy makes a passing visit? How do you think a bank makes money? Banking is the risk business. Banks treat risk assesment very seriously but you can never tell when a loan goes bad or not. The whole industry is built around what may or may not happen.

For example, some people may be worried that mortgage rates may go up. The dilemma for those people is do I or don't I fix. That's a risk.. If they fix the mortgage and rates stay low. You loose! It's no different for the banking industry..
 
groen said:
... if a consumer had the choice of putting their money in to a bank that did not take risks with their money they would choose that bank. Eventually all banks would tow the line through competition.
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I wouldn't. No risks - little to no return on my money.
 
Stretch said:
Monetary policy is quickly becoming a farce. For all their faults the previous government made a good move by removing rate decisions from government control.

The MPC are now clearly being lent on to keep rates low to the point where there seems little point in having the MPC anymore. 4% is double the target rate.

If the committee is to retain any credibility they need to be free to act to reduce inflation i.e. raise rates. If that's not in the best interests of the country then the system is flawed. Especially since base rates seem to have little impact of the amount businesses/households are actually charged for borrowing money.
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Raising rates only works when inflation is being driven by excessive internal demand. Currently, the increases in inflation are being driven by external rises in commodity costs, which has nothing to do with changing internal demand, especially where demand is price inelastic (such as fuel).

Do you really think that raising interest rates is a good idea when it won't actually impact the current causes of high inflation, and will only damage the areas of the economy that we actually need to grow in the meantime?

To me, cutting of your nose to spite your face is always a stupid idea....
 
Dolph said:
Raising rates only works when inflation is being driven by excessive internal demand. Currently, the increases in inflation are being driven by external rises in commodity costs, which has nothing to do with changing internal demand, especially where demand is price inelastic (such as fuel).

Do you really think that raising interest rates is a good idea when it won't actually impact the current causes of high inflation, and will only damage the areas of the economy that we actually need to grow in the meantime?

To me, cutting of your nose to spite your face is always a stupid idea....
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wouldn't raising rates increase the value of the pound?. given that the UK is a net importer of most of those commodities, the prices should then actually fall as sterling gains 'value'?
 
Hold fast Mervyn, hold fast.
*Beams subliminal messages to the B of E team*

That said we're still some way off the majority required to raise interest rates.

The last meeting in January saw two out of nine members vote to raise interest rates.

http://www.xe.com/news/2011-02-04 08:21:00.0/1682085.htm?c=4&t=103

Absolutely nothing has changed since then because, as mentioned above, a rate rise would not affect the reasons for slightly higher inflation.
 
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