Shouldn't Interest Rates be Increased?

...provided they think Brown will agree with it.

f the government believed that the MPC was seting the "wrong" interest rates, they'd intervene - it'd be their clear duty to do so. The discretion of the MPC is therefore limited by the range of options they think the government will accept - the situation could not be otherwise.

But the Eurozone interest rates have been higher than those of the UK for years and yet there has been no housing bubble, how do you explain that? No it has nothing to do with interest rates it has everything to do with lending when the borrowers were'nt really financially viable. That worked as long as the asset they borrowed on increased in price but once the borrowers had to show the colour of real money the whole thing collapsed. And a very good thing too.

On Sat, 10 Jan 2009 13:59:56 +0100 'Lou Ravi' wrote this on uk.politics.misc:

They haven't been afaik.

In any case, mortgage lenders in mainland Europe have tighter lending policies than the UK practiced over the last ~10 years.

Europe didn't have Brown claiming to have abolished boom/bust, which simply encouraged irresponsible lending/borrowing.

They have for many years, ever since the inception of the Euro as far as I know without checking and still are.

That's the main thing IMO rather than the interest rates

He didn't oblige anyone to borrow beyond their means, that was a personal choice on the part of the idiots who thought it was free money.

Easy to say but I'm afraid just saying things doesn't make them true. Bring some evidence for your claim.

They're hardly a bunch of puppets.

Details of the minutes of their meetings are published here.

On Sat, 10 Jan 2009 15:48:12 +0100 'Lou Ravi' wrote this on uk.politics.misc:

I think you are wrong but feel free to prove me wrong.

And it's a very important factor. The further a society moves away from sound money, the higher the risk.

True, that's why I say there's plenty of blame to go round.

But it has to be accepted that in Britain, with a govt that claims total power, that power carries responsibility.

Brown shirked his by engineering a fake boom to generate fake GDP and lotsa juicy taxes from all the frothy spending.

AFAICS The changes make less difference than TPTB say.

Lowering interest rates reduces the income savers get from their savings, they get more cautious and spend less.

OTOH borrowers, especially the incautious ones who only look at repayments spend more.

It was incautious lending / borrowing that got us into this fine mess.

Derek

I didn't say they were.

Nevertheless, they would be over-ruled by the Chancellor (ie, the Prime Minister) if they strayed outside the permitted bounds.

Just imagine what might happen if they tried to add one per cent to interest rates each month for five months, culminating in a rise within the week before the next election.

Is there a statutory body (eg, a local council) which does not make its decisions within the official and unofficial framewaork of what the government will put up with?

I couldn't find the UK rates over the years (after a very quick look, I'll come back to it) but here are those for the ECB

Your phrase was "...provided they think Brown will agree with it."

that's not the case, and implies it's a priority in their minds, they have a framework to work to, Brown's made his bed on this one, and would suffer massive political damage if he overruled them on a whim.

One more time: It wasn't a housing bubble. It was a credit bubble with domestic housing as the primary asset.

FoFP

Yes... and?

What, complying with the framework is *not* a priority?

Why ever not?

It is normally better to pay off a mortgage than deposit money in the bank unless you can get a better savings rate than your loan. Nothing has changed there.

People don't *choose* between the two. If people have debts they pay them off. If they have savings they don't incur debts. Anybody who has both is crazy.

That's not entirely true. It makes sense to have adequate savings (both for unplanned disasters ("rainy days") and for planned spending, like holidays, or for anything else you'd rather save up for than plan to buy on tick), despite the fact that you might have plenty of debt too (such as related to a mortgage). After all, not all mortgages are flexible enough to let you reborrow capital already repaid, or to offset savings against your loan.

Only if you have savings you know you won't need in a hurry does it make sense to spend them on reducing your debt. The interest consideration (that you generally save more in interest you pay than you lose in interest you earn, when you use savings to pay down your loans) is usually secondary when having accessible funds in a hurry is the primary concern.

I agree if you don't have much income it's sensible to save something for emergencies but many people are not in a position to save.

I've got two mortgages and no savings. Any spare money I have goes to reducing my debts. If I need to make an unexpected payment I use it from cash flow but then again I don't have to rely on one deposit a month because I get daily receipts from two businesses and property income. If I needed more I would phone my bank. I'm sure most people who could save money would be able to get a short term overdraft from a bank rather than keep an amount of savings in the bank at a poor rate of interest. People who couldn't get an overdraft wouldn't usually be able to save.

People don't *choose* between the two. If people have debts they pay them off. If they have savings they don't incur debts. Anybody who has both is crazy.

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Rubbish.

Whenever I got a mortgage I maxed out the amount that the BS would give me, despite the fact that this would leave me with 30K in the bank.

I work freelance and I have to have a buffer in case I am between work (which in the current market could be up to 24 months). Additional mortgage borrowing is by far the cheapest way to borrow, but would be impossible to get if I had no work, so I have to think ahead, and pay the small price of, borrowing it in advance in case I need it later.

I know that I'm not a "normal" person but you made no exceptions to your "crazy" person claim.

tim

To be fair, isn't "crazy" just another word for "abnormal"? :-)