IMF tells the UK to consider dropping interest rates!

[Mercenary Keyboard Warrior]

Its 0.5%, I mean what is the benefit of going lower?

Mortgage rates are on a slow trickle upwards, savers have already been majorly damaged so how is dropping the rates going to really help?

BBC linky.

http://www.bbc.co.uk/news/business-18158226

 

[BDEE]

You make a good link - Mortgage rates are on the up regardless of what happens to the base rate. A reduction will only benefit those currently on a tracker with no collar - The effect of "cash in the pocket" of those people is not likely to be significant enough to have a positive impact on growth. Chances are they wouldn't "spend" the money anyway - It would just get swallowed up into the cost of living, despite the latest indicative inflation figures.

Oh and business lending, which is usually linked to BBR, would only again be helped by a very small amount to current borrowers. It is not uncommon now for banks to charge 8/9/10 above base for business lending - They will just increae the margin to reflect any drop in base rate, making a lower base rate potentially more damaging in the future.

 

[Amleto]

"Sometimes you feel like you could look back and wonder 'what if?'. And when I think back myself to May 2010, when the UK deficit was at 11% and I try to imagine what the situation would be like today if no such fiscal consolidation programme had been decided ... I shiver."

Quite. Thank **** labour aren't around atm.

 

[Hatter The Mad]

"Sometimes you feel like you could look back and wonder 'what if?'. And when I think back myself to May 2010, when the UK deficit was at 11% and I try to imagine what the situation would be like today if no such fiscal consolidation programme had been decided ... I shiver."

I have a lot of respect for Lagarde, and I don't find her to be an over-the-top austerity hawk, so I take her comments on austerity without much salt.

It sounds like she was saying 'You've got the first bit right, but you're not following up.', which I think is a fair assessment.

 

[Hatter The Mad]

Its 0.5%, I mean what is the benefit of going lower?

If they reduced it to 0.25%, that makes money 50% cheaper. That's what the point is.

 

[Naffa]

I have a lot of respect for Lagarde, and I don't find her to be an over-the-top austerity hawk, so I take her comments on austerity without much salt.

I would be interested to hear what your thoughts are, as to whether she has changed her stance on austerity, since becoming head of the IMF. I remember when she was working in the French government, she sounded much closer to George and David, but since she moved to the IMF, she has shifted ground substantially.

A couple more quotes from the fund:

Fiscal space for further growth-enhancing measures could be generated by property tax reform, restraint of public employee compensation growth, and better targeting of transfers to those in need. This fiscal space could be used to fund higher infrastructure spending, which has a high multiplier and raises potential output. It will also be important to shield the poorest from the impact of consolidation.

If growth does not build momentum and is significantly below forecasts even after substantial additional monetary stimulus and further credit easing measures, planned fiscal adjustment would need to be reconsidered. Under these circumstances, gains from delaying fiscal consolidation could be larger as multipliers are estimated to move inversely with growth and the effectiveness of monetary policy.

 

[Mercenary Keyboard Warrior]

If they reduced it to 0.25%, that makes money 50% cheaper. That's what the point is.

You what?

For who?

Every business I have worked for is on LIBOR+

Every householder I know has never paid bank base rate, a few will pay base rate+ for mortgages but most do not

Millions of savers will probably see the impact in lower rates, reducing their income yet further. This is a very serious issue, many elderly rely on savings to provide a boost to income, some have seen rates drop 90%. The more elderly tend to be less financially savvy and hence suffer most.

I see far more negative from this sustained low interest rate than I see positive. Please tell me a large group of people who will benefit from this.

 

[mattx2]

I see far more negative from this sustained low interest rate than I see positive. Please tell me a large group of people who will benefit from this.

Banks or anyone else that borrows at the very short end of the yield curve 0-1 month

 

[[TW]Fox]

If they reduced it to 0.25%, that makes money 50% cheaper. That's what the point is.

The COST of money isnt the problem though is it?

It just further screws savers and consumers - sterling will depreciate even further, everything we import will get more expensive, oil in sterling terms will get more expensive, etc etc.

 

[kwerk]

The COST of money isnt the problem though is it?

It just further screws savers and consumers - sterling will depreciate even further, everything we import will get more expensive, oil in sterling terms will get more expensive, etc etc.

Its a stealth tax.

 

[BDEE]

If they reduced it to 0.25%, that makes money 50% cheaper. That's what the point is.

No, it doesn't.

 

[anything I don't mind]

So how that is that centrally planned economy going ?

This is the same imf that gets third world countries in to the excessive debt and extorts their national resources.

 

[BDEE]

Banks or anyone else that borrows at the very short end of the yield curve 0-1 month

Banks do not borrow against the BoE base rate.

Bank borrowing rates are market driven (SWAPs, LIBOR markets etc) and are on the up. The differential between BoE and these markets has been increasing over the last 24 months, which is why you are seeing mortgage rates go up and why a cut to the base rate will make no difference to our economy.

 

[anything I don't mind]

They should let the market set the interest rate. Liquidate all the bad debt and let the housing market adjust (collapse) wait 5 years everything will be back to good standing and on the road to growth again. But this will only drag out the inevitable depression in to a generation long stagnation.

 

[bam0]

A couple more quotes from the fund:

Fiscal space for further growth-enhancing measures could be generated by property tax reform, restraint of public employee compensation growth, and better targeting of transfers to those in need. This fiscal space could be used to fund higher infrastructure spending, which has a high multiplier and raises potential output. It will also be important to shield the poorest from the impact of consolidation.

Does that say; no wage rises for public sector workers, save money elsewhere and invest in infrastructure projects. So we are supposed to spend our way out of this mess unlike what some people are saying.

 

[elmarko]

The problem with debt is, it only has value if the person is likely to be able to pay it back.

As most of the world is toiling in debt & on the brink of another collapse, a simple global debt wipe isn't that irrational.

Based on the condition that no government can spend more than it takes in tax & that we move away from a debt based currency system.

The unfortunate fact is, we have screwed up the global economy - pushing the bit "reset" button isn't as damaging as letting the entire system go under.

 

[Tyron]

Its 0.5%, I mean what is the benefit of going lower?

The banks would be giving away free money.

 

[kwerk]

They should just drop it to -0.5% That would stimulate some "growth" for sure.

 

[Hatter The Mad]

The COST of money isnt the problem though is it?

No, I didn't say it was. But in terms of reducing the cost of creating more money and increasing the supply of it, that's why they'd reduce the rates further. Whether or not I agree that is a solution or if the problem exists in the first place is another matter.

 

[Hatter The Mad]

No, it doesn't.

In the context of the BoE interest rate, yes it is. When you start attaching other peripheral markets and mechanisms, you're right - that 0.25% becomes less valuable. My point was that it isn't fair to consider a 'drop of 0.25%' as face value - its impact will be created, even if the markets layer up a few points around it.