Bank of England Cut base rate by 0.5% to 1%

[crockers]

If my recollection of history is right the "Great Depression" was eventually caused by the Banks and countries protectionism. At that time USA debt rose to 3 times GDP -

The problem was - the USA debt didnt equal GDP.........................until 1974...


over 40 years later...............now that is scarey ....

 

[Smiley]

If my recollection of history is right the "Great Depression" was eventually caused by the Banks and countries protectionism. At that time USA debt rose to 3 times GDP -

The problem was - the USA debt didnt equal GDP.........................until 1974...


over 40 years later...............now that is scarey ....

now the even scarier thing is that the great depression was only reversed by demand created by WW2.

 

[Smiley]

I get the impression that, in private, the Government is well aware of how and why we got into this mess, but are clinging, publicly at least, onto the hope that the majority of the country will not twig quite how bad things are and keep spending for long enough for world growth to turn such that the impact is softened. Unfortunately this is a worldwide problem. At least for Japan in the 90's they had exports and strong worldwide growth to soften the blow, we however cant expect this.

Alot depends on how China decide to act, they have been exporting goods and capital to the US and UK, hopfully they will continue the capital, and in some way promote domestic demand to replace out own inablity to import.

I had not thought about that "positive" for Japan before. Its a good point and makes it even more difficult for us to stop sliding into a deflationary spiral.
Makes the case for buying gilts yielding 4-5% over the next 20 years quite compelling.

 

[crockers]

I had not thought about that "positive" for Japan before. Its a good point and makes it even more difficult for us to stop sliding into a deflationary spiral.
Makes the case for buying gilts yielding 4-5% over the next 20 years quite compelling.

Well known philosophy ....the best hedge against deflation is Govt Gilts.....as long as the sovereign state doesn't default. (Bought at inception and held to redemption)....

 

[st4]

Well known philosophy ....the best hedge against deflation is Govt Gilts.....as long as the sovereign state doesn't default. (Bought at inception and held to redemption)....

An Index linked gilt for the times when inflation may come about. For I am about to do this investment for this year as I predict inflation is not away, just on the back burner so to speak. Inflation was a big issue prior to banks failing, once all the casulties are had, inflation will come back. Sharply.

 

[crockers]

An Index linked gilt for the times when inflation may come about. For I am about to do this investment for this year as I predict inflation is not away, just on the back burner so to speak. Inflation was a big issue prior to banks failing, once all the casulties are had, inflation will come back. Sharply.

Controlled inflation is what the Govt wants......Hence the QE policy. Just not convinced it will work (hope it does)...

 

[crockers]

now the even scarier thing is that the great depression was only reversed by demand created by WW2.

Yes - and the USA eventually became solvent in 1949....

 

[crammy69]

An Index linked gilt for the times when inflation may come about. For I am about to do this investment for this year as I predict inflation is not away, just on the back burner so to speak. Inflation was a big issue prior to banks failing, once all the casulties are had, inflation will come back. Sharply.

In principle I like the idea of an index linked gilt, but if RPI goes negative, do you pay the government? I havent looked into the actual detail myself. Being a pessimist I worry that the goverment will try and inflate away the debt by allowing inflation to run for too long IF we dont get deflation. The timing of this is key, I think we have a good 12 months before we know if QE and low rates will have avoided deflation, then it really will be time to look long and hard at some inflation protection. The thing about buying any Govt debt from the UK is that they could just keep printing more and more pound notes, your capital may well be protected but will it really keep pace with their devaluation of the pound?

 

[st4]

The thing about buying any Govt debt from the UK is that they could just keep printing more and more pound notes, your capital may well be protected but will it really keep pace with their devaluation of the pound?

Hmm, I've got to do something with £7500 I have saved up over the last year. Its yielding about 1%.

I have put £500 on a fixed deposit for 6months with HBOS.

Although gilts are a safe bet, I am wary as this governemt would be more likely to default than before due to how its channeling its (well ours collectively) funds (read failing banks) and its borrowing more.Its a highly unlikely scenario I paint, but either default or devaluation appear likely. Printing notes will see the later arise fairly quickly.

I must admit, I think the government should be raising interest rates, to around the 6% level (7 might be pushing it) which should get people depositing, which in turn gets the money moving hands again, albiet more slowly, but more sustainably too. This would remove the involvment of the tax payer as the money supply would come from depositors taking advantage of the higher rate, not from the tax payers coffers.

Just mp 2p. I am not an economist and I may have put up nonsense, but the aggressive rate cuts are not working, and are encouring the behaviours which brought about this financial problem in the 1st place. Excessive spending. On that basis, after another cut, rates will go up.

 

[crammy69]

These days i dont think being an economist helps much in predicting whats going to happen!, the rules seem to be changing. One of the major issues is not liquidity within the banks, theyve been given plenty of that, the trouble is that its stays with them, they dont lend it to companies and businesses, they just palce it back on deposit with the bank of england. If no lending takes place, then less economic activity, job cuts, less spedning, more bankrupcy, and around and around it goes.

I doubt the UK will choose to default on its exisiting debt, after all we issue debt in GBP and we can just orint lots of it (until the paper is worth more than the pound at least!!!). Also the Uk is part of the seelect 'nuclear' club, so other superpowers would not like to see us go tooo far into the mire, in case we get our colonial stroppiness back!!. The M/East, China and Japan will lend us a few quid for sure, its just how much of the UK we have to give them thats at issue.

 

[Thmsshaun]

Hmm, I've got to do something with £7500 I have saved up over the last year. Its yielding about 1%.

3.5% with a Natwest Cash ISA or 4.02 if your an Advantage customer.

Seeing as its approaching the end of the tax year you can stick your allowance for the year in this month and then the same in April.

Thats what I'm doing anyway.

 

[ibrar]

Even though rates are at an all time low,
Q. Which banks are actually actively giving out mortgages?
A. None, unless you have other assets/investments are guarantee

Hence why we are still in this mess. But if the world is suffering from this crisis, why can't everyone just agree to it being over?

 

[ASH98]

Please Help

The floor limit on my tracker has already kicked in so mine won't go down.

Still, at 2.24% I can't really complain.

I feel sorry for the guys on long term fixed rate deals though.

Hi- I want to change my mortgage, I need your help, please pass the details of your broker. Thanks Ash98

 

[Mudster]

Even though rates are at an all time low,
Q. Which banks are actually actively giving out mortgages?
A. None, unless you have other assets/investments are guarantee

Hence why we are still in this mess. But if the world is suffering from this crisis, why can't everyone just agree to it being over?

Lack of mortgage lending is nothing compared to the lack of lending to business/industry.

The government EFG scheme so lauded in the media is a huge red herring that actually doesn't exist. It transpired Mandleson has still failed to get the scheme approved by the ECB...yet many banks (mainly Barclays) are claiming to have processed Millions and actaully provided draw downs on loans......how? The scheme has not been approved...I've applied to five banks, one of which was Barclays, four of them told me they were unable to lend until they had full details from the government as the scheme although in place in principal actually has many points yet to be clarified.....Barclays tune was altogether different

 

[crammy69]

Lack of mortgage lending is nothing compared to the lack of lending to business/industry.

The government EFG scheme so lauded in the media is a huge red herring that actually doesn't exist. It transpired Mandleson has still failed to get the scheme approved by the ECB...yet many banks (mainly Barclays) are claiming to have processed Millions and actaully provided draw downs on loans......how? The scheme has not been approved...I've applied to five banks, one of which was Barclays, four of them told me they were unable to lend until they had full details from the government as the scheme although in place in principal actually has many points yet to be clarified.....Barclays tune was altogether different

Yep the banks really are'nt in the mood to lend at the moment, credit lines are being slashed, they are protecting what little private equity is still left. I think that the only way to force banks to lend will be full nationalisation, or a 100% underwiritng by the state of all new business lending, the banks just dont want any additional risks to the ones they already have. They have spent 10 years lending too much, now they are in reverse.

 

[crockers]

Although gilts are a safe bet, I am wary as this governemt would be more likely to default than before due to how its channeling its (well ours collectively) funds (read failing banks) and its borrowing more.Its a highly unlikely scenario I paint, but either default or devaluation appear likely. Printing notes will see the later arise fairly quickly.

I must admit, I think the government should be raising interest rates, to around the 6% level (7 might be pushing it) which should get people depositing, which in turn gets the money moving hands again, albiet more slowly, but more sustainably too. This would remove the involvment of the tax payer as the money supply would come from depositors taking advantage of the higher rate, not from the tax payers coffers.

Just mp 2p. I am not an economist and I may have put up nonsense, but the aggressive rate cuts are not working, and are encouring the behaviours which brought about this financial problem in the 1st place. Excessive spending. On that basis, after another cut, rates will go up.

Sorry I don't follow your logic...

1. Why are Gilts a safe bet? Unless you hold them from inception until redemption the values of them are driven by a) current interest rates and b) credit risk.
2. The credit risk of UK Sovereign Debt is minimal - it is highly unlikely that the British Govt will default. If they did - then holding gilts is the lesser of your problems because it will mean our economy has collapsed.
3. Raising Interest rates to 6% - would force many people into a position where they couldnt service their debts - banks would be awash (more than at present) with toxic debt. Companies would be unable to service their borrowings - and unemployment would be rife - No one would be able to afford to purchase goods and therefore we would see growth deteriorate to levels that would indicate we may move into a depression...

The aggressive rate cuts were to counter the above - but banks are not moving monies around hence the need for the Govt to effect QE to boost the lending. It is a dangerous and desperate measure and needs to switched off as soon as growth begins ... otherwise we can move quickly to to high a rate of inflation..

Trouble is - if you believe goods are going to get cheaper - will you buy today? If the answer is no - then you need to create some inflation....

 

[Smiley]

Sorry I don't follow your logic...

1. Why are Gilts a safe bet? Unless you hold them from inception until redemption the values of them are driven by a) current interest rates and b) credit risk.
2. The credit risk of UK Sovereign Debt is minimal - it is highly unlikely that the British Govt will default. If they did - then holding gilts is the lesser of your problems because it will mean our economy has collapsed.
3. Raising Interest rates to 6% - would force many people into a position where they couldnt service their debts - banks would be awash (more than at present) with toxic debt. Companies would be unable to service their borrowings - and unemployment would be rife - No one would be able to afford to purchase goods and therefore we would see growth deteriorate to levels that would indicate we may move into a depression...

The aggressive rate cuts were to counter the above - but banks are not moving monies around hence the need for the Govt to effect QE to boost the lending. It is a dangerous and desperate measure and needs to switched off as soon as growth begins ... otherwise we can move quickly to to high a rate of inflation..

Trouble is - if you believe goods are going to get cheaper - will you buy today? If the answer is no - then you need to create some inflation....

They are a "safer" bet than equities only because they are less volatile. They are no safer even if you hold them from inception to redemption because it depends what happens to interest rates and inflation in the meantime. Holding gilts to redemption will be no good at all if we get mega inflation - they will be as bad as holding cash.

 

[Dryce]

Even though rates are at an all time low,
Q. Which banks are actually actively giving out mortgages?
A. None, unless you have other assets/investments are guarantee

Hence why we are still in this mess.

Actually it's the lack of consideration regarding your A to that Q which is why we are in the mess and the global economy is going through a readjustment in liquidity.

 

[Dryce]

Trouble is - if you believe goods are going to get cheaper - will you buy today? If the answer is no - then you need to create some inflation....

Even if people believe goods are going to get more expensive that doesn't solve things.

We've had a much higher amount of spending which I would describe as discretionary - which means there's a lot of fat. And then we have a large number of people whose households are either being touched or afraid of being touched by the recession.

I think the government has to accept that both the public and businesses are going to consolidate their own positions and reserves for the next few years and that throwing public or artificial money at the situation isn't going to change that behaviour.

However MPs and upper tier civil servants who advise them don't live in the same world as the rest of us in terms of income and pension levels and security.

 

[st4]

They are a "safer" bet than equities only because they are less volatile. They are no safer even if you hold them from inception to redemption because it depends what happens to interest rates and inflation in the meantime. Holding gilts to redemption will be no good at all if we get mega inflation - they will be as bad as holding cash.

An index linked gilt may get round this as the principle repaid is proportional to inflation. However the income return is lower and the governments definition of inflation may not be yours so your return is still lower.