Here comes the the Big un , batten down and sell while you can.

And that's the good news?

You can get it all back maybe laying Flabbott at 999/1 ?

If/when the UK property bubble finally pops, the banks will be utterly screwed will they not?  Where will the money come from to bail them out?

Luslen

It is not here yet..The markets shoudl be welcoming the fact that they have a playing field which is going to support the world economy for years.. Interest rates are set to stay low for even longer if Deflation and Depression is really on the way.

It is in a way astonishing , that despite the financial and economic woes of the world, companies continue to increase profits. Is it morally right that supermarkets can continue to grow their businesses 10% year on year?

Low interest rates are the problem not the solution.

That's why we had the housing bubbles, that's why the pound is worth f*** all, that's why nobody has any savings and we are all broke, that's why there is no capital investment for business.

Don't you see?

Live 4

That is really not the issue . I think you are mistaken.

Ultra Low interest rates are a result of global recession.  How do you suggest rates are increased and what would the result be?  ABSOLUTE CARNAGE ..

I know YOU are upset about low rates , but that really should not be used to form an opinion on economic policy. Just embrace teh fact that rates are low for A VERYYYYYYYYYYYYYY LONGGGGGGGGGGGGGGGGGGGGGGGGGG Time!

LOw interest rates following Sep 11 led to credit bubble, and rasing rates too quickly done the rest. It shows that in reality the whole global omy is based on cheap credit , and unfortunately it needs to get cheaper , and more regulated.

Live4 Joined: 18 Mar 04
Replies: 123 21 May 10 11:42   


Low interest rates are the problem not the solution.

totally correct.100% right.
lets look at interest rates  v economy

japan .25% and very low for a decade at least-result- in recession for 20 years.

usa- ultra low interest rates during the greenspan era- result-catastrophe

australia- relativly high rates- housing rates low were 5.5%, cash rate 3.75%.current housing rates 7.25%- result- only developed country not to go into recession.

low interst rates mean either low economic activity OR bubble creation.Higher rates mean more economic activity and little bubble creation.

japan with its massive private savings could solve all its issues by making deposit rates 5%.The JPY would go up but domestic consumption would skyrocket.

I don't know how UK rates panned out over the last decade since I don't follow them.

Hi MrBen

Japan's interest rate is 0.1% and has been for at least a year.

Mr Ben should apply for a top government position imo.

Interestingly housing prices need not fall but perhaps they may not go up for 100 years.

Well put Mr Ben , you make a sound case.

suitcase.

Mr B

I dont agree with you about interest rates. Unfortunately the implications of higher interest rates when economies are in turmoil are unthinkable.

Australia is in a difficult situation, as it is exporting its rich mineral resources to Asia, enabling its economy to grow. I hear however that teh general public are starting to struggle with their mortgage costs, and that it is becoming a two tiered economy. I fear for the Australian property market if rates continue to rise

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chisel Joined: 19 Sep 08
Replies: 1367 25 May 10 09:45 
Mr B




Your on the money there chisel.The macro picture in aust looks great in part due to huge immigration and the exports to china.However individuals are beginning to struggle under big cost of living increases, a horriffically high taxing govt and rising mortgage costs.
  Aussies have virtually nil savings which 99% of assets being in superannuation and/or residential housing.Super has plummeted and if house prices come off we will be heading for a banana republic.

YOu may not agree with my interest rate case, but lets hear why low interest rates are good and please give examples where low interest rates have ended well.

The problem with low interest rates that 'are not' market driven ie set by a bunch of sometimes currupt but more often clueless central bankers, is that it encourages speculation and a very poor allocation of resources. I mean, look at our banks here in Aus Mr Ben, their balance sheets are saturated with ridiculous mortgages taken out by people that have seriously lost the plot.

But the free market (or what we have left of it) will bring these people and bankers to their senses by bringing them back to reality with a housing and banking crash.

Mr Ben

The point is to actually define what constitutes low interest rates. I honestly believe that when rates were pushed up to 5.75% in 2008 they were too high, given what had preceeded them.

I think rates can be increased too quickly , and central banks need to apprecate that if Interest rates double and wages dont, many are going to struggle. That is what happened in the US and in the UK.

It was only when teh credit crunch came that rates crashed, and ironically so did teh value of peoples property. For the time being I therefore believe that Ultra low interest rates are her for another two years. After that there will need to be a controlled path to gradually increase intrest rates without putting too much stress on teh economy. The bottom line is that the banks need to be saved.

In the medium term think 4-5% base rate is acceptable, as long as bank margins are lower. There is no point in base rate being 5% if banks want to charge 7%!! The public and teh World needs low interest rates for now

The banking system is insolvent. The losses are in the trillions and haven't been yet acknowledged. They are sucking the life out of the real economy and leading the world into a depression WHILE STILL CARRYING ON in rolling the dice in the high stakes derivatives game and paying outrageous bonus to those who are responsible (along with our politicians) for getting us in this mess in the first place. Over two years into this crisis and NOTHING has changed, only sovereigns are now more indebted trying in vain to cover the massive black holes created by the banks.

The banks must be restrained, the financial and political system reformed, and balance restored to the worlds' relationship with China, before there can be ANY sustained recovery.

Unfortunately, politicians will be forced to do what they must only after the system collapses.

Menelaus

RBS, LLOYDS have not paid a dividend to shareholders for 2 years, and are recapitalising. I struggle to understand why you think banks are still doing the same as before. They are clearly not.. This is clear by the way they lend money to individuals, who need deposits of 25% to get a decent mortgage .

Banks are reacpaitalising , and banks are about to be regulated more than ever. Bonuses can be high, but not as high as they were. The losses are paper losses right?? And to be honest relate to teh US property market. The UK property market has got away with things lightly. I will not say that to a Northern R ock or Bradford and Bingley shareholder, but you know what i mean.

I do agree with you about growth. It is impossible to get growth year on year forever!! UInfortunately we allow supermarkets liek TESCO to increase their profits by 10% year on year even during a recession. The banks are not teh only part of teh World economy that needs looking at . Oil companies, retailers , Banks, Power companies seem heel bent on doing nothing more than increasing profits and pushing up prices. They too are fearful fo slowing profits and an exodus of shareholders(usually banks and insutance companies) that want a better return elsewher. I adnmit , that things are unwinding at an immense rate.. The media spins it s fear and the markets react.

chisel, how much exposure does Lloyds or RBS have to naked CDS's? The truth is you don't know. No one knows, because they are STILL trading these instruments without any regulation and not through an exchange. Derivatives is what got the banking system in trouble, not lending to mom and pa.

Their recapitalization efforts are a pimple on a donkey's ass when compared with their massive exposure to SIV's laying in OBS entries. Re-instate mark-to-market accounting (not mark to whatever you want) and all these banks collapse tomorrow.

i also want shares to tumble so i can lump my savings on good value shares oops

Chisel give it 18 months or so and you'll realise how f***ed we really are. 

Great British Pound RIP.

Mrben Joined: 25 Oct 03
Replies: 2031 25 May 10 11:11   


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chisel Joined: 19 Sep 08
Replies: 1367 25 May 10 09:45 
Mr B




Your on the money there chisel.The macro picture in aust looks great in part due to huge immigration and the exports to china.However individuals are beginning to struggle under big cost of living increases, a horriffically high taxing govt and rising mortgage costs.
  Aussies have virtually nil savings which 99% of assets being in superannuation and/or residential housing.Super has plummeted and if house prices come off we will be heading for a banana republic.


Hi Mr Ben

There is an article in today's Sydney Morning Herald suggesting that Australian interest rates will drop by the end of the year, instead of continuing to rise - this is possibly being priced in to the currency markets with large drops against the US$ and others.

I love this comment Chisel,

I think rates can be increased too quickly , and central banks need to apprecate that if Interest rates double and wages dont, many are going to struggle. That is what happened in the US and in the UK.

So what you appear to be saying is that in order to cope with a doubling of interest rates wages must also double.  Can't wait to be on 8 times my current wages when interest rates return to a "normal" 4%. although if inflation takes off nominally I may way get there sooner rather than later.

Stay away from the economics Chis it makes you sound silly!

Washington

The point I was making is that wages were not increasing whilst rates increased VERY quickly.More than doubled in the States ove a short period of time. Central Banks did not take time to see what affect the higher rates wee having on Households.. Banks continued to lend money, which was being used to repay unsecured debts, credit cards and generally just spent!

Now the boot is on teh other foot, Inflation is high , yet Central Banks are going to be very careful not to increase rates too soon. When they eventually do, I can not see them increasing rates quickly..They will take their time

Are you talking about the US, assuming you are then they had more than halved a few years earlier, very quickly.  Some might argue that overly loose monetary policy in the early noughties was a significant factor in the overheating of their property market a few years later.

My opinion is that the UK is the same, that only by again cutting rates to shreds has the economy got through as well as it has but that this has had the knock on effect of breathing life back into a overblown property market.

Hi  Pastie, I would say that a rate cut is unlikely at the end of the year.The only caveat is that an election looms and it may be a political cut.The  rise last month is now accepted as being unnecessary.We have a left wing govt in aust now who is hell bent on stopping people from being successful.Im sure you heard about the resources tax.Interest rates are being used to knock the economy on the head and keep people  struggling as much as possible.

Hi Mr Ben

I think there may be one cut. The Reserve increased rates too quickly in order to get to what it considers is neutrality, rather than giving them chance to see what effect the increase had. You could be right that the cut will be more politically motivated than economically motivated.

As a home-owner I'm pleased that it seems that the increases have at least come to a temporary halt.

I agree with you about the mining super profits tax. If Labor hadn't wasted so much money on $900 handouts, school halls, ETS and other hair-brained incompetent schemes, then they wouldn't have to gouge a successful sector to fund their idiocy.

I for one will be backing the Mad Monk!

Interesting guys!

Washington.. I would like to stres sto you that I am aware of what happened to US interest rates and why.. The reason for the slashing of rates in teh early millenium was the Terrorist attacks on September 11th. They were cut to protect teh economy , but ironically they probably led to the downfall.. The economy was not in bad shape atthis time, and peopel were able to borrow cheaply. Regulators should have been aware of thius fact, but increasing interest rates as quickly as they did without any signposting was in the end too much.

This time although base rate has been slashed, the rate at which borrowers can borrow money is still rather high, and large deposits of capital are required to get a good deal. Margins are high. They pay less to savers and charge more to borrowers. This is enabling banks to recapitalise. This is what the next 5 years is going to be all about.  There will be a move away from unsecured borrowing, with lenders making sure they are not exposed to borrowers that have no intention of paying them back

No point buying shares GI.
In fact no point investing in anything at all with the proposed hike in Capital gains tax.
Mayhem and revolution is just around the corner imo !

chisel     26 May 10 09:26

Washington.. I would like to stres sto you that I am aware of what happened to US interest rates and why..

Yes Chisel the reason that the US suffered in the financial crisis of 07/08 wasn't anything to do with a house price bubble and sub prime mortgages.  It was all the fault of those pesky economists at the Fed raising interest rates too quickly and without signposting.

Get a grip Chisel, preferably on a book titled "Macroeconomics for Dummies" it would really help you!!

Washington

Th eresult stemmed form peoplenot being able to afford teh mortgages they were offered. It was called Sub Prime. The expected mortgage payments when they took out their loan may have looked affordable, so more people were lent money and credit was easy. This lending could continue as rates rose because they increased so quickly. They wee going up 0.25% month on month on month. By the time tens of thousands of people could not afford their mortgages, and started handing in teh keys it was too late. Property market crashed and thousands more simply handed back the keys.

Inflation caused US rates to increase on teh back of OIL (another Bubble) increasing to 140 bucks and fallig below $40 during the peak of the credit crunch. I think it is you Washington that needs lessons in Policy and economics. At least I constantly back up my lines of thought with reasoned arguments.

Chisel,

At least I constantly back up my lines of thought with reasoned arguments.

No sometimes you back up your arguments with a confused understanding of opinions that you have read but obviously didn't quite understand and at other times with half-truths, waffle and lies.  Both of which you present in a lazy error laden manor.

Let me disect

Th eresult stemmed form peoplenot being able to afford teh mortgages they were offered. It was called Sub Prime.

I know I used the phrase sub prime in my post you didn't need to tell me this.

The expected mortgage payments when they took out their loan may have looked affordable

Unfortunately for a lot of sub prime mortgage borrowers the rates never looked affordable but as house prices were going up up up, who cared, a lot of those that borrowed didn't, a lot those that initially lent didn't, any shortfall in mortgage payments would be easily counted by increases in equity.

This lending could continue as rates rose because they increased so quickly.

Firstly refer to my point regarding your laziness. 

Secondly  rates did go up 4.25% in 25 months but they started from the historic low of 1% and then only reached 5.25% which is hardly high. 

Thirdly this was a steady rise which was clearly signalled by the Fed and was quite easily foreseeable plus I will point out again rates peaked at only 5.25% this is not high!! 

Inflation caused US rates to increase on teh back of OIL (another Bubble) increasing to 140 bucks and fallig below $40 during the peak of the credit crunch.

Did it really, it certainly had a minor role but your argument doesn't stand up to the historical facts.  For a start the fed funds rate hit 5.25 in July 2006 when oil was less than $80 a barrel!  The Fed funds rate began to fall from Oct 07, before Oil went above $100 a barrel, and was down at 2% before Oil peaked at $140.  Exactly how was the rate driven up by the oil price reaching $140?

So initially you made some ridiculous statement about rates doubling and wages not doubling and that that was the problem.   This I think you agree was you being confused.  Then I corrected you on this point you agreed but wanted to assert your authority by telling me why rates had gone so low in the early part of the decade.  You then appeared to blame the 07/08 crisis on the increase in fed funds rate from 04-06.  Again you were confused.  Again I pointed this out.  Then came the half-truths, waffle and lies from you as you tried to blame it all on the fed reacting to the oil price.  I hope I have again corrected you.

Well done Chisel true to form as ever.

Washington

As many mortgages would have increased dramatically during 2004, 2005 and early 2006, those that had started to struggle would have seen mortgage payments saw. As many had interest only loans , The payments would have more than doubled. That is the point I was making, and is a simple one.

The fed took no care , and in fact was totally unaware that there was such a problem with Sub Prime. Ultimately it was sub prime that bought down the system. The FED has acknowledged that theuy made mistakes and that is good enough for me. Of course the 07/08 crisis relates to the years that proceeded it , It is people with cheap mortgages from 2 or 3 years earlier that hit on hard times..

Finally

5% interest rates are not high historically, but they are high when you consider the past 10 years or so.

When economies get used to low interest rates, it is verty difficult to escape them.

Chisel,

As many mortgages would have increased dramatically during 2004, 2005 and early 2006, those that had started to struggle would have seen mortgage payments saw. As many had interest only loans , The payments would have more than doubled. That is the point I was making, and is a simple one.

So what you meant all along was that when interest rates go up mortgages get more expensive, excellent that's a great insight, thanks!!

The fed took no care , and in fact was totally unaware that there was such a problem with Sub Prime.

What were they supposed to do??  Leave interest rates at 2-3% and see the bubble grow even bigger.  I think they have admitted to not knowing the scale of the problem not that they were totally unaware that there was froth in the market.

The FED has acknowledged that theuy made mistakes and that is good enough for me.

Obviously this highly reasoned argument completely backs up your assertion that the fed caused the 07-08 sub prime crisis by raising rates too quickly.  Sorry hang on your argument was actually just that when rates go up mortgage payments go up, which is more or a truism than an argument but that's typical Chisel.

May I remind you of a recent post.

chisel     26 May 10 16:22 

If I am wrong I will put my hand up and admit it, as I have done in the past

I look forward to you admitting that you were mistaken that rates where driven up by the oil price and that this caused the financial crisis of 2007/08.

In your own time.....

rates WERE driven up by inflation, and as the cost of fuel is a massive contributor to that I am happy with my assertion.. You are also right that the oil price eventually rocketed at a time when Interest rates in teh states were falling, although LIBOR was actually the proble at this point , as it was a lot higher that the fed funds rate.

So hang on what you meant all along was that,

The fed are influenced in their decision making by current and forecast inflation, which is influenced by fuel prices and that when interest rates go up mortgage payments get more expensive.

Excellent cheers Chisel, you have certainly backed up your line of thought with a reasoned argument.  Oh hang on you were just stating the obvious.  It only took us a day for you to realise what you'd meant all along.

Once again it's all just blah blah blah blah.

Get a grip...

come on washington your giving chisel too hard a time.Actually he is correct in saying oil @ 150$ was a contributor to the gfc.It may not have been the cause but one could certainly argue it was the straw that broke the camels back.
  I disagree that rates are driven by inflation however, there just is not any signs of real inflation for 2 decades or more.Rates are driven by goverment policy.There is in reality little or no independance.Central banks raise interest rates at the behest of govt but hide behind a cloak of independance.
  Washington is right that rates have not been "high" for a long time, just higher than ultra low.

Mr B

It is all realtive now. 5% rate may not be high in historic terms, but thet are high for the past 10-15 years...That is why rates are not going above 5% for teh forseeable future. Our economy and teh global economy is NOW built on cheap credit. Taking that away will destroy it once more

Mr B

It is all realtive now. 5% rate may not be high in historic terms, but thet are high for the past 10-15 years...That is why rates are not going above 5% for teh forseeable future. Our economy and teh global economy is NOW built on cheap credit. Taking that away will destroy it once more


chisel that is a somewhat deluded comment.

the world is in economic trouble
the world is now built on cheap credit

therefore it is axiomatic that cheap credit is part of the cause of economic trouble.

taking away cheap credit will infact help the world economies not destroy them, by this reasoning.

And therein lies the problem. It would help for the future but hurt at the present. Whats happening at the minute is akin to putting a plaster on a leper.

Mr B,

Can I really be giving Chisel to hard a time?  He consistently makes outrageous comments, attempts to flavour his arguments with macro economics of which he has very little grasp and then backtracks and squirms when these failings are pointed out, while simultaneously and hypocritically commenting on other threads that when wrong he is the first to admit his errors.

With regard to Oil then I think there is a interesting discussion to be had as to the cause and effect of oil prices on the financial crisis but this is not what Chisel was suggesting, he stated that it was oil reaching $140 that had pushed fed rates up to 5.25% which is factually incorrect as rates had already fallen by the time that price was reached.

I completely agree with you on the problems of cheap credit but what can we do now?  We (the UK) collectively need to realise some economic pain but preferably not all at once,  we've got a decade if not more of belt tightening and first we have to actually stop running up more debt whether that be public or private, we're in a huge mess.

The point is that cheap credit is what runds the global economy. It does not make it right!. But that is teh point. You can not all of a sudded decide it is wrong and be done with it.

It will take years to create a market /global economy that is not reliant on cheap credit.

Mr B , it is not my opinion that Cheao Credit is right. I am just saying that it is here, and it is likely to stay here for teh forseeable future

more rumours , but there's speculation that france and italy could be downgraded. could me a big mess before the week is out.


a correction for chisel - it is not just cheap credit but constantly expanding levels of cheap credit

Mr B

That is the point my friend. I really do not disagree with you . What I am suggesting though is that the UK, US, Euro governments and Central bankers will NOT pull the rug out from underneath any economy. That is why I think it dangerous to base investment decisions on rumours and hearsay.

I really believe the latest drop in stock markets is a prelude to a sustained rally!

I note that the Aussies kept rates on hold, and there seems to be a little bit of concern about growth, jobs etc . What is teh feeling in Aus at the moment. Is there growing unrest that the interets rate hikes and taxes on antural resources are starting to adversely affect the growth potential of Asutralia?  Do teh Australian Public believe that interst rates at 4.25% are too high?

chisel
situation in aust  has changed quite a bit in 2010.We now have a fake prime minister who basically promises the world but delivers little.Also the govt is on an out of cotrol spending binge, most of which is totally wasted.The most recent example is a school tuck shop re built for 600,000$ which is no bigger than a single garage.Read ripp off/gravy train.
  The resources tax at 40% has knocked confidence here as the penny is starting to drop that all this reckless spending is to be financed with tax and charges hikes.Also everyone knows that aust is riding off the resouces industry and igf that reverses we are cactus.So people are worried that the govt is a total dud.Cost of living goes up and up with eletricity rising 60% over the last 4 years.Less discretionary $$$ to go around so each interest rate hike hurts more than it would say 4 yrs ago.
  Further rate hikes are I think reasonably unlikely for a while, at least until after the election.
   You know I think that the reality is that democratic govt worldwide is out of control with its spending in order to vote buy.Sooner or later those chickens just have to come home to roost.

10,000 broken

see you Monday when they realise the news is actually better than expected!! More scare mongering and panic fro absolutely no reason. Things are moving in the right direction!

who do we owe money to ?

and can't we just bump them and pay them nothing ?

we owe other countries .. who owe other countries ......

In humour, truth.
http://www.youtube.com/watch?v=5D0VhS8qXT0