Interest Rates. Why So Low?

[Anna B]

3 hours ago, Westie1889 said:

Interest rates are at historically low levels because they need to be.  Yes the banking crisis was over a decade ago but economies and credit flows  around the world have not recovered.

Inflation was 0.6% last year, that’s far too low and well under the Bank of England’s target, any increase in interest rates would further depress this.

Central banks put interest rates up to cool an economy that is growing too fast, hence there has been no reason to do this since the financial crisis.

I understand older savers being frustrated as they were told be sensible, pay off your mortgage and save but they have had it good compared to the younger generation.

10%+ interest rates would see half the country lose their homes, the older generation benefitted from cheap housing, a healthy jobs market (mostly), good pensions compared to today, free university education and huge increases in property values. If a lack of interest on their savings is the only downside they are very lucky, many people today will do well to be able to buy a house, never mind build up a good pension and savings.

Also the focus on the likes of Jeff Bezos is a waste of time, yes there are some issues around fairness but if people think that by heavily taxing these types of people we will solve the worlds problems they are greatly mistaken. There wealth is a drop in the ocean when taken in context.

Bezos is worth $131bn dollars (mostly through Amazon stock - this can go up or down), Joe Biden has announced the latest stimulus programme in the US is going to be worth 2 trillion dollars! So you tax Bezos a few billion a year, it’s nothing in the scheme of things.

Also where do people think pension funds and savings plans get their profits to grow people’s retirement plans - through investing in businesses like those run by Bezos. The better these businesses do, the better your pension pot performs.

Capitalism is far from perfect and there are some structural issues at the moment that need to be sorted, but focusing all your anger on those at the top is no different to blaming immigrants for societies ills.

The real problems are elsewhere but both sides of the political spectrum would rather focus your attention on easier targets.

 

This, taken verbatim from business pages of today's DM. There are many other similar examples:

 

' Cineworld is facing an investor backlash over plans to pay bonuses worth up to  £65 million to its chief executive despite receiving taxpayer cash to survive the pandemic.

More than 5,000 staff have been furloughed while its 127 UK cinemas are shut. But next week the board will try and push through a pay policy and long term bonus scheme that could hand bosses up to £208 million.'

 

That doesn't sound like an economy that hasn't recovered, that sounds like 'having your cake and eating it.'

Edited January 24, 2021 by Anna B

[Westie1889]

6 hours ago, Anna B said:

This, taken verbatim from business pages of today's DM. There are many other similar examples:

 

' Cineworld is facing an investor backlash over plans to pay bonuses worth up to  £65 million to its chief executive despite receiving taxpayer cash to survive the pandemic.

More than 5,000 staff have been furloughed while its 127 UK cinemas are shut. But next week the board will try and push through a pay policy and long term bonus scheme that could hand bosses up to £208 million.'

 

That doesn't sound like an economy that hasn't recovered, that sounds like 'having your cake and eating it.'

It’s one business so of minuscule relevance when you take into account the scale of the World economy. Yes there will be others and it may be immoral but overall it’s a sideshow and not a relevant point when discussing interest rates.

 

Economists estimate the banking crisis has so far cost every person in the UK £21,000 on average.

It took until December 2019 for inflation adjusted wages to pass their 2008 level pre-banking crisis - thats 11 years of lost growth.

Businesses are still struggling to obtain lines of credit from the regular banking system and often have to revert to other means of borrowing.

QE is a form of life support for the financial system and it’s being used throughout the UK and Europe at the moment as it was through the banking crisis for several years.

Because the jobs market has been relatively healthy pre-Covid it’s easy to assume everything is fixed - but it’s not. The impact of the banking crisis will be felt for a long time yet unfortunately.

 

Raising interest rates would suck more cash out of the system, resulting in more business failures and more unemployment.

The only positive in all of the current borrowing is that we have the Bank of England so are in effect lending to ourselves. It’s very doubtful we will ever pay it back in full.

Much of the banking crisis debt is rolled over in that the Bank lends fresh money to us so we can pay the previous loans from them and the huge benefit here of low interest rates is that our interest payments are far lower than they could be which benefits the public purse and ultimately public services etc

There is a push in some quarters of the Conservative party for the Bank to write the debt off, it’s not something that historically governments want to be seen to do but before Christmas the bank ‘quietly’ wrote-off £150bn of debt owed to it by the government so maybe they are going down that route already.

[El Cid]

8 hours ago, Anna B said:

' Cineworld is facing an investor backlash over plans to pay bonuses worth up to  £65 million to its chief executive despite receiving taxpayer cash to survive the pandemic.

More than 5,000 staff have been furloughed while its 127 UK cinemas are shut. But next week the board will try and push through a pay policy and long term bonus scheme that could hand bosses up to £208 million.'

I know Cineworld is an international company, so although its UK staff needed help from the tax payer; its an international business that needs a chief exectutive that is paid relative to other companies of that size.

I agree that those at the top seem to be well paid what ever happens, but that is a matter for the share holders.

[Anna B]

8 hours ago, El Cid said:

I know Cineworld is an international company, so although its UK staff needed help from the tax payer; its an international business that needs a chief exectutive that is paid relative to other companies of that size.

I agree that those at the top seem to be well paid what ever happens, but that is a matter for the share holders.

Well paid? I think obscenely well paid is closer the mark. 

 

Prior to Thatcher's reign those at the top were paid roughly 5 - 15 times the pay of the average worker. Now it's more like 2,000 times the pay of the average worker - how did that happen? And so quietly.

Compare that to the furore  when miners wanted the princely sum of £100 a week. Chaos, strikes, blackouts, arrests, mounted police charging at people and pitched battles.

 

As for shareholders taking action - there have been many well documented cases where they have overwhelmingly voted against such bonuses etc only to be totally ignored.  When Companies/CEOs get to this size the power they wield can slay all before it.

Edited January 24, 2021 by Anna B

[El Cid]

2 hours ago, Anna B said:

Prior to Thatcher's reign those at the top were paid roughly 5 - 15 times the pay of the average worker. Now it's more like 2,000 times the pay of the average worker - how did that happen? And so quietly.

Compare that to the furore  when miners wanted the princely sum of £100 a week. Chaos, strikes, blackouts, arrests, mounted police charging at people and pitched battles.

Part of the reason that top company directors are paid more, is that companies are always merging and forming bigger companies.

Many companies are now international, just look at McDonald's for instance.

[Westie1889]

2 hours ago, Anna B said:

Well paid? I think obscenely well paid is closer the mark. 

 

Prior to Thatcher's reign those at the top were paid roughly 5 - 15 times the pay of the average worker. Now it's more like 2,000 times the pay of the average worker - how did that happen? And so quietly.

Compare that to the furore  when miners wanted the princely sum of £100 a week. Chaos, strikes, blackouts, arrests, mounted police charging at people and pitched battles.

 

As for shareholders taking action - there have been many well documented cases where they have overwhelmingly voted against such bonuses etc only to be totally ignored.  When Companies/CEOs get to this size the power they wield can slay all before it.

I think the big difference compared to the 70’s is globalisation. Businesses are far bigger than they used to be as it’s easier to grow internationally.

The market for people capable of running businesses of this complexity and size is competitive, and the growth a good CEO can deliver a businesses of such scale is huge so they expect their cut for the skills they bring and the sacrifices they make.

I’ve no issue with someone delivering huge growth getting a big pay packet as many other people in the business will also benefit financially.

The CEO of my employer earns $19m a year, much linked to performance through share options. In the 7 years I’ve worked there it’s market value has grown from $20 to $65 billion so shareholders see that pay packet as well worth it. Also every single employee has also benefitted from this growth through share options and bonuses so the CEO’s remuneration is not stopping those at the bottom from also benefitting.

What is wrong is people bleeding businesses dry, such as Philip Green who profit whilst the business struggles.

As an aside I know how much time our CEO works and how much pressure he is under. I also see the amount of time he spends away from his family often on different continents, I can honestly say I would not swap places with him.

In my view no amount of money is worth the stress and sacrifices he has to undertake, especially in the last 12 months when he has had the responsibility of 270,000 employees and their families futures on his plate throughout the pandemic.

[Anna B]

4 hours ago, Westie1889 said:

I think the big difference compared to the 70’s is globalisation. Businesses are far bigger than they used to be as it’s easier to grow internationally.

The market for people capable of running businesses of this complexity and size is competitive, and the growth a good CEO can deliver a businesses of such scale is huge so they expect their cut for the skills they bring and the sacrifices they make.

I’ve no issue with someone delivering huge growth getting a big pay packet as many other people in the business will also benefit financially.

The CEO of my employer earns $19m a year, much linked to performance through share options. In the 7 years I’ve worked there it’s market value has grown from $20 to $65 billion so shareholders see that pay packet as well worth it. Also every single employee has also benefitted from this growth through share options and bonuses so the CEO’s remuneration is not stopping those at the bottom from also benefitting.

What is wrong is people bleeding businesses dry, such as Philip Green who profit whilst the business struggles.

As an aside I know how much time our CEO works and how much pressure he is under. I also see the amount of time he spends away from his family often on different continents, I can honestly say I would not swap places with him.

In my view no amount of money is worth the stress and sacrifices he has to undertake, especially in the last 12 months when he has had the responsibility of 270,000 employees and their families futures on his plate throughout the pandemic.

Probably true, but globalization also goes hand in hand with neoliberalism. which means there's no stopping it, as it sucks more and more wealth to the few at the top end at the expense of those lower down.

 

Sure employees can buy shares if they have the money, and that's a good thing, but it's not a new thing, John Lewis and Marks and Sparks have been doing it for years. There will be plenty who can't do that and get left behind, and certainly none will ever reach the heights of the CEO. I appreciate your CEO works hard, but so do the workers. Does he work 700 times harder than them.?

With £19 million in the bank just for one year he has options - if it all gets too much for him he can probably afford to give up work altogether and still have a nice life.  Most people earn less than 1 million in an entire working lifetime. 

[Westie1889]

9 hours ago, Anna B said:

Probably true, but globalization also goes hand in hand with neoliberalism. which means there's no stopping it, as it sucks more and more wealth to the few at the top end at the expense of those lower down.

 

Sure employees can buy shares if they have the money, and that's a good thing, but it's not a new thing, John Lewis and Marks and Sparks have been doing it for years. There will be plenty who can't do that and get left behind, and certainly none will ever reach the heights of the CEO. I appreciate your CEO works hard, but so do the workers. Does he work 700 times harder than them.?

With £19 million in the bank just for one year he has options - if it all gets too much for him he can probably afford to give up work altogether and still have a nice life.  Most people earn less than 1 million in an entire working lifetime. 

Our employees get share options so they don’t have to buy them so everybody benefits. They also receive higher than the market average salaries and annual bonuses based on the business performance - exactly the same plan as the CEO. Hourly paid employees have also received an extra bonus last year equivalent to 4 weeks wages for working through Covid.

 

Whilst it’s impossible to work 700 times harder than someone else it’s not about that as anybody can work hard if they choose too, that should be a given in any job in my view.

Where he is relatively unique is the skill set and experience he has to run such a complex international business, also I would argue he does have over 700 times more responsibility than the lowest paid worker and with that comes huge pressure.

Ultimately its market forces, people at that level have options as they could easily start successful businesses themselves, or get well paid directorships and consultancies. There is a very limited pool of people with the ability and experience to run these huge globalized businesses so they are paid to reflect that.

If everyone in the business is treated well then I don’t see an issue with it.

If you lowered the calibre of people running these huge businesses they could fail which ultimately would affect those at the bottom of the ladder the most.

 

Huge remuneration for failure should not be allowed, but if someone brings success and growth due to their leadership capabilities and everyone benefits I don’t see the issue.

[Padders]

On 23/01/2021 at 20:21, El Cid said:

Think again!

 

The amount of quantative easing in 2009 was £200 billion, in 2020 quantative easing was £2,285 billion, wow just wow.

 

https://www.bankofengland.co.uk/monetary-policy/quantitative-easing

Interesting,

Why not print a bit more money and give every household, say £10k to help them through the pandemic ?

[El Cid]

20 minutes ago, Padders said:

Interesting,

Why not print a bit more money and give every household, say £10k to help them through the pandemic ?

I was a little shocked. I believe the UK stock market crashed more than other countries. I need to check that, but the USA market is higher than a year ago.

But they probably propped it up by spending millions too.