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Everyone; things are really expensive at the moment I’m worried about our finances and our ability to pay for the basics never mind a holiday new telly etc Bank of England; hold my pint
In the spirit of reconciliation and happiness at the end of the Banter Era (RIP) and as a result of promotion I have cleared out my ignore list. Look forwards to reading your posts!
Yep difficult to know what measures to introduce as they all seem to have a downside.
I’ve probably missed something, but for those learned minds on the forum, any reason why we couldn’t have a commercial/business boe base rate and a residential boe base rate. Seems to be consensus that residential mortgages aren’t key to the inflation dilemma, so separate the base rate out (like stamp duty). Discuss.
I think the problem with that suggestion is money supply, you would have to have a discrete group of lenders who would be prepared to supply funds to the residential market at a lower rate and another grouping dedicated to commercial interests and lending at the higher rate. As rates of interest are sensitive to defaults by borrowers then any lack of alignment between the two groups is likely to see one or the other supply of loans withdrawn - most likely the lower rate of interest residential one.
The Green Party are going for a wealth tax and inflation matching public sector pay increases. I wonder what the left wing opposition have to offer?..........oh it's platitudes.
Edit....ps your health and education will still cost the same so not inflationary in the same way as private sector pay rises are.
[Post edited 22 Jun 2023 18:10]
I like the sound of a wealth tax as a way of sharing the blow.
Has anyone ever looked at their own postings for last day or so? Oh my... so sorry. Was Ullaa
I think the problem with that suggestion is money supply, you would have to have a discrete group of lenders who would be prepared to supply funds to the residential market at a lower rate and another grouping dedicated to commercial interests and lending at the higher rate. As rates of interest are sensitive to defaults by borrowers then any lack of alignment between the two groups is likely to see one or the other supply of loans withdrawn - most likely the lower rate of interest residential one.
I’m not sure I follow this.
There is already a differential between commercial lending (higher risk higher margin), and residential lending (perceived lower risk lower margin). The only difference here would be the starting point. Margins would likely remain the same, and I don’t understand why lenders would need to change the way they lend money. I can’t see how it would lead to funds being withdrawn from the residential market, just as commercial defaults would only have an impact on residential lending if the bank was poorly capitalised. Probably missing something.
As one analyst said. QE pre 2020 was recirculating in the financial system and eventually goes back to the central bank. After covid the money was chucked around and went 'bad' in many ways. The government punched the economy on the nose in 2020. 3 years later it can't stop it bleeding. Economy policy madness by the government supported by the main opposition parties.
There is already a differential between commercial lending (higher risk higher margin), and residential lending (perceived lower risk lower margin). The only difference here would be the starting point. Margins would likely remain the same, and I don’t understand why lenders would need to change the way they lend money. I can’t see how it would lead to funds being withdrawn from the residential market, just as commercial defaults would only have an impact on residential lending if the bank was poorly capitalised. Probably missing something.
I've been a bit broad brush in my explanation, it has been a while since I studied all this stuff, but what I am trying to get across is that the Bank of England cannot easily mandate lender to lend at different nationally set base rates when the lenders draw in their own supply of money from a variety of sources. The existing differential, as you quite rightly point out, is driven by risk so to have a 'starting point' that is outside of the lenders risk calculations would, I think, be unacceptable to them.
I've been a bit broad brush in my explanation, it has been a while since I studied all this stuff, but what I am trying to get across is that the Bank of England cannot easily mandate lender to lend at different nationally set base rates when the lenders draw in their own supply of money from a variety of sources. The existing differential, as you quite rightly point out, is driven by risk so to have a 'starting point' that is outside of the lenders risk calculations would, I think, be unacceptable to them.
Ok I get your point on this. Remember though that lending in line with the base rate is not mandatory even now. If lenders get money at better rates from different sources, then they are free to lend it at whatever rate they choose (free market and all). For money originating from the boe, the ‘starting point’ is of course factored into the risk calculations. I do accept what I think you’re alluding to though which is that we have no idea how lending behaviour might change if we have 2 rates.
The only ways house prices are going to fall by any significant amount is surely by ramping up supply with a massive housebuilding program. Just so much demand pressure.
That's the logical way to do things , basic supply and demand, the trouble is that house building companies simply shut down and stop building properties and sometimes don't even finish off ones already started which keeps prices of new builds high. People get laid off and they just sit on the land. This is happening now.
Saying that, labour prices are high as there's a lack of skilled workers so a massive building program just can't happen and material price inflation is high. I don't work in the house building sector but our brick prices went up by 38% in January.
I like the sound of a wealth tax as a way of sharing the blow.
sharing the blow is a radical policy.
And so as the loose-bowelled pigeon of time swoops low over the unsuspecting tourist of destiny, and the flatulent skunk of fate wanders into the air-conditioning system of eternity, I notice it's the end of the show
That's the logical way to do things , basic supply and demand, the trouble is that house building companies simply shut down and stop building properties and sometimes don't even finish off ones already started which keeps prices of new builds high. People get laid off and they just sit on the land. This is happening now.
Saying that, labour prices are high as there's a lack of skilled workers so a massive building program just can't happen and material price inflation is high. I don't work in the house building sector but our brick prices went up by 38% in January.
The planning system plays a role too, construction companies probably have a complex structure that includes house building and land investment companies. If the return on investment looks better through land banking as compared to actual building then group direction will favour keeping sites undeveloped with an intention to make a better return in future, either through sale or development.
Ok I get your point on this. Remember though that lending in line with the base rate is not mandatory even now. If lenders get money at better rates from different sources, then they are free to lend it at whatever rate they choose (free market and all). For money originating from the boe, the ‘starting point’ is of course factored into the risk calculations. I do accept what I think you’re alluding to though which is that we have no idea how lending behaviour might change if we have 2 rates.
Thinking on, and recollecting a bit more of Steve Lumby's 'investment Appraisal' (required reading in the second year of ACCA studies) it is also important to consider the effect that interest rates set by the Bank of England have upon the Sterling exchange rate. There is a three way interplay that the official rate setting has to find the clearest way through.
For any of the more informed finance people in here.... the thing about interest rates that I really struggle to reconcile, is the difference between savings and mortgage rates. Natwest sent me an email today telling me the savings rates were going up. So, apart from a digital regular saver account at 6% ( max £150 per month, with the rate dropping as soon as you have more than £5k), the highest rate on any savings product is 2.85% ( for those with more than £250k only).
Similarly their lowest mortgage rate is ~4.85%.
So there's a 2% gap between lending and saving....
Feels to me that there should be a crowdfunding type solution for this, matching those who want a bit more from their savings, to those who want a bit less on their mortgage.... I've seen it for developers and buy-to-lets, but not so much on personal mortgages.
is there a reason that there doesn't seem to be a competitive element in the banking market? Why does the base rate matter so much? If you can match borrowers to savers at an appropriate rate, why do mortgage rates have to track boE rate so tightly?
There's a guy that J2 has been posting a lot (Gary Stevenson) who has changed my view a bit on this. He's a former trader turned economist and he went over some of this. Originally I was with you and a few others but surely this is just making a bad problem worse for everyone, in that the issues weren't down to people having money to burn but that the inflation was more down to energy costs + knock on from the war.
He argued that it was more down to us pumping the economy with money over the Covid period which flowed into the wealthy (the properly wealthy) and now inflation is rocketing up. Whilst the Government should be focussing on trying to get some of that back, they're not doing a lot on the fiscal side that really caused it.
Meanwhile, BoE does the monetary side and really they only have this one lever to use, which they are doing. They aren't wrong to do it and it'll work but it is at the expense of the middle class and below whilst the wealthy are ready to hoover up even more stuff, increasing inequality which is already getting quite bad.
I think this was the video he went through it.
It's an interesting view.
Thanks for posting this. Really interesting stuff which makes a lot of sense. Have to question why this isn't being talked about more widely in the media.
Thanks for posting this. Really interesting stuff which makes a lot of sense. Have to question why this isn't being talked about more widely in the media.
Follow the money.
The CONvid cost 300 billion. The arrivals on our beaches cost 3 billion per year….more like 6 billion and rising fast. That’s just to keep, not including the cost of vast resources. More people unfit to work and claiming benefits than ever before and rising fast. Thanks to government policy millions of foreign nationals working minimum wage jobs with benefit top ups. NOT SUSTAINABLE…… We all will eventually own nothing. Which we should be grateful for…. Average 50 applications for each private rental currently…..rent rises way above inflation and set to stay that way. Inflation will not be defeated as in past times. It’s here to stay in line with .gov policies.
There's a guy that J2 has been posting a lot (Gary Stevenson) who has changed my view a bit on this. He's a former trader turned economist and he went over some of this. Originally I was with you and a few others but surely this is just making a bad problem worse for everyone, in that the issues weren't down to people having money to burn but that the inflation was more down to energy costs + knock on from the war.
He argued that it was more down to us pumping the economy with money over the Covid period which flowed into the wealthy (the properly wealthy) and now inflation is rocketing up. Whilst the Government should be focussing on trying to get some of that back, they're not doing a lot on the fiscal side that really caused it.
Meanwhile, BoE does the monetary side and really they only have this one lever to use, which they are doing. They aren't wrong to do it and it'll work but it is at the expense of the middle class and below whilst the wealthy are ready to hoover up even more stuff, increasing inequality which is already getting quite bad.
I think this was the video he went through it.
It's an interesting view.
I know this video has come in for praise elsewhere in the thread but I gave up a few minutes in when he said interest rates will not rise above 4.5 - 4.75%...
Thinking on, and recollecting a bit more of Steve Lumby's 'investment Appraisal' (required reading in the second year of ACCA studies) it is also important to consider the effect that interest rates set by the Bank of England have upon the Sterling exchange rate. There is a three way interplay that the official rate setting has to find the clearest way through.
I figured there was something I was missing. Sounds like it would be too complicated. Oh well……
Course, but it's safe to say those of that age group are generally better off than the younger age groups (especially re home ownership) and yet they are always heavily insulated against anything that the normal populace has to deal with
The triple lock is such a divisive issue because it completely removes the incentive for economic growth among pensioners.
It is in their interests to be NIMBYs* and block housing and infrastructure to preserve their own property prices, safely in the knowledge that no matter how sh1t things get for the rest of us, we still have to fund their generous pensions.
I'd personally peg the pension just to annual earnings to provide an incentive for older people to help younger generations. That would also free up extra money for the less wealthy within that age group to have their pension credit expanded, rather than giving more and more every year to millionaires.
*This refers to a small percentage of that age group but they have a lot of influence over politics both locally and nationally.
The triple lock is such a divisive issue because it completely removes the incentive for economic growth among pensioners.
It is in their interests to be NIMBYs* and block housing and infrastructure to preserve their own property prices, safely in the knowledge that no matter how sh1t things get for the rest of us, we still have to fund their generous pensions.
I'd personally peg the pension just to annual earnings to provide an incentive for older people to help younger generations. That would also free up extra money for the less wealthy within that age group to have their pension credit expanded, rather than giving more and more every year to millionaires.
*This refers to a small percentage of that age group but they have a lot of influence over politics both locally and nationally.
[Post edited 26 Jun 2023 20:09]
Whilst I do not necessarily disagree with the thrust of your argument I must pick you up on a blatant piece of misinformation at the end of your first para graph.
Pensioners most certainly do take part in the economy even if all they do is buy stuff, thereby providing employment for people in producing and service industries, Beyond that many of us use our free time to engage in voluntary work that contributes to the economy in overt and covert ways, often supporting necessary functions that are not incentivised enough in a Capitalist system to be fulfilled by regular employment models.
And then there is the downward pressure on prices that we exert by always complaining about the costs of things...
Whilst I do not necessarily disagree with the thrust of your argument I must pick you up on a blatant piece of misinformation at the end of your first para graph.
Pensioners most certainly do take part in the economy even if all they do is buy stuff, thereby providing employment for people in producing and service industries, Beyond that many of us use our free time to engage in voluntary work that contributes to the economy in overt and covert ways, often supporting necessary functions that are not incentivised enough in a Capitalist system to be fulfilled by regular employment models.
And then there is the downward pressure on prices that we exert by always complaining about the costs of things...
That was very badly phrased and I have taken it out, it wasn't my intention to diminish your generations' contribution to society. Apologies.
It was a poorly expressed way of saying that the current political and economic settlement is so badly designed it discourages generations from working in each others' interests.
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