Interest rates

[grafikhaus74]

So our monthly self-fulfilling prophesy has happened again and interest rates have come down. When will Brown learn that it isn't working?

I foresee major problems with civil unrest in years to come. As the pool of people working, and therefore contributing, to welfare benefits shrinks and the armies of people claiming grows, where is the money going to come from?

 

Furthermore, we have been told for years that the basic state pension will not be sufficient and that we must all 'get saving'. Who on earth will save with the near non-existent interest rates?

 

Still, it won't concern Brown and co. Their future is assured.

[andyofborg]

So, what would you do instead?

[Cynic]

I'm so glad I was sensible with my money and saved what I could as well as having a fixed rate mortgage! It turns out I should have spend all my savings and gone for the riskier flexible rate mortgage.

 

Huge interest rate cuts seem to only reward people who spend all their money and take bigger risks. The type of thing that got is in this trouble in the first place.

[grafikhaus74]

So, what would you do instead?

 

As has been mooted elsewhere, give everybody a lump sum (I've heard sums of between £5k and £50k)

It would get people spending and would be easily affordable compared to the billions that Brown is giving to the banks - just so they can continue paying themselves massive bonuses.

 

It may sound simlistic, but then we've been conned by an entire lexicon of mumbo jumbo - Fannie Mae, Freddie Mac, sub-prime, toxic, quantative easing etc. and it's all a load of crap designed to make us appear as if we don't understand high finance (and all those so-called 'experts' do?).

 

We got into this state because people were encouraged to borrow beyond their means, so Brown says "I know, let's make it cheaper to borrow money at the expense of those who preferred to put something away."

 

Make no mistake, it isn't the Bank of England who have the 'independence' to set interest rates, it's the Government. And with every cut in interest rates, Brown is devaluing the pound and causing sterling to plummet. But what do you expect from this economic genius who flooged off most of our gold at a record low price?

 

Labour aren't bailing the banks out -they're bailing themselves out, and we're all paying for it.

[Lucy18]

As has been mooted elsewhere, give everybody a lump sum (I've heard sums of between £5k and £50k)

It would get people spending and would be easily affordable.

 

That is so short sighted and brainless i cant belive anyone is stupid enough to come up with that! what happens after everyone spent the 5k?

[jeremyjh1]

I have heard it said that cuts in interest rates - however deep they are - take around 18 months to have an effect on the economy...!

 

So, if we can all just hang in there, by around 2011ish everything will be fine!

 

As for what should be done? Well, the major problem at the moment is the banks not lending and the banks wanting the money they've loaned out to be repaid at very high rates. I recently had a letter about the credit card APR rising to over 20% - so much for 1% or so from the Bank of England (which, by the way, has absolutely no impact on us!)

 

The problems are many, but they are basically the level of debt, the level of debt repayment and the sudden removal of virtually any kind of lending.

 

All those things combined are causing the problems we have.

 

We have too much debt - for sure. But by asking for it all back PDQ or by hiking up the rates of the existing debt and by not extending lending, the whole system is choking itself.

 

The banks need to realise that it was their greed by trying to cash in on the US loan market that has caused the problem and NOT their own domestic lending policies which were pretty sound before they 'tightened' them up recently.

 

Oh, and the FSA cannot 'tell' the banks what to do - they merely put out advice and guidelines in most cases; the banks than interpret that advice in their own, ultra-cautious way.

 

Hence, the financial paralysis

[andyofborg]

The uk population is around 61 million, of which about 20% are under 16. Which leaves around 48.8 million adults. At £5000 an adult, your lump sum would cost £244 thousand million. Which is quite a substantial sum.

 

Some, perhaps many people, would use this money to either save or pay off some debts. Which would limit its impact on the economy.

 

On the other hand, if everyone spent it all in a relatively short period of time it would cause a short lived, massive inflationary bubble which would then burst and we'd be back where we are now but probably in a worse position.

 

Part of the problem is that there is too much debt both at the corporate and personal level which needs to be serviced. Until that debt is disposed of people and companies will not have the spare cash to start spending again.

 

The hope seems to be that by supporting the banks and lending services they will start to offer sensible amounts of credit to companies and people at a decent rate which will allow a modest degree of spending over and above what's needed to survive.

 

Over time, this should reinflate the economy and things will start to get better. Whether or not things will go back to how they were is open to question, since where they were was built on an unsustainable amount of debt.

 

In the "good old days" the economy of each country was to a greater or lesser extent disconnected from the economy of other countries. This meant, that at any one time there would be countries with expanding ecomonies to balance those with contracting ones which always provided some sort of export market. Globalisation has linked the economy of each country to the extent that there is now one "global" economy and if that fails everything fails.

 

Those who sold the advantages of globalisation didn't mention the disadvantages. The politicians, those in power and those in opposition, bought into the myth and reaped the rewards of the boom. Now we've found that the Emperor really isn't wearing any clothes we're stuffed. It matters not one whit who is in power, be they Conservative or Labour. They both would have done pretty much the same things and both would have been equally unable to do anything, because there is nothing that can be done except to try and stabilise things and hope.

 

When (if?) things get better, there needs to be better control and monitoring of the globalisation processes, which means that there will need to be greater cooperation between national regulators and governments and probably there will need to be some global regulators with real powers, which means that all countries will have to surrender some of their precious "sovereignty".

[laineyiow]

All I've noticed is that the interest rate continues to go down making any savings you may have not worth anything yet the credit card interest is constantly going up and therefore making it even harder to either spend or save money - maybe if the interest rate on credit cards came down and people were able to pay off their debts easier and sooner then that may make a difference to the economy? Mind you I am absolutely useless at maths so maybe I've got it all wrong!!

[Blade73]

I'm so glad I was sensible with my money and saved what I could as well as having a fixed rate mortgage! It turns out I should have spend all my savings and gone for the riskier flexible rate mortgage.

 

Huge interest rate cuts seem to only reward people who spend all their money and take bigger risks. The type of thing that got is in this trouble in the first place.

 

 

Exactly what I think mate! My savings are getting a pittance in interest, so reward the ones that went out buying on tick and we get screwed for it!

[brianthedog]

Great. A further reduction in interest on my savings. So do you think that's going to encourage me to go and blow £10k down the shops? Not likely. However, it's not going to encourage me to save anything above and beyond what I already save each month - which is exactly the opposite to what the banks need at the moment; credit. So in all it's wisdom, the BofE is compounding the credit crunch, every time they cut interest rates.