Ponty
pfm Member
Whatever the market swap rate (plus margin) is at the time. You can fix for as long or short a term as you like.
By how much should the Bank of England increase interest rates in a traditional monetarist economy
- Thread starter lawrence001
- Start date
Whatever the market swap rate (plus margin) is at the time. You can fix for as long or short a term as you like.
ks.234
Half way to Infinity
Yes, there is a great deal we can do with little or no effort, but for one reason or another, we choose not to do!
However, I had added to that post to try to better illustrate my direction of thought, (oh look, a butterfly).
Ponty
pfm Member
People think they can beat the long term interest rate market and take a variable or short term (2 or 5 year) fix. Fine if you can manage that risk, but of course many can’t and get in a pickle, as we’re now seeing.
ks.234
Half way to Infinity
My question was more about negative interest rates which you seem to want and loathe in equal measure
Ponty
pfm Member
Negative IR’s are great if you want to encourage over indebtedness and asset value bubbles. Hunky dory until the music stops.
puddlesplasher
pfm Member
I read the article posted a few pages back and heard on the the radio this week the reason for increasing interest rates was to reduce people spending. What I don’t understand is people won’t be abe to spend as they are using a higher percentage of their money on mortgage or rent payments. So same amount of money being spent just more going into banks and less into other industries. Banks make higher profits and everyone else suffers. Higher risk of causing a recession
Ponty
pfm Member
Yes, the point of monetary tightening is to reduce demand and consumption and therefore inflation. It went way too far the other way and now we’ll see a correction. The banks fixed cost of funds in the money markets (swap rates) reflect higher base rates and also where markets see rates going. Of course, they can hedge in either direction but the cost of the product they sell (money) has increased, as it does for other businesses.
ks.234
Half way to Infinity
So why do you support what is a negative rate now?
Ponty
pfm Member
I don’t, IR’s need to go higher to bear down on inflation. Whenever we’ve had periods of high inflation, it’s never been combatted by IR’s being lower than the inflation rate. Only once inflation is 2 or 3% should base rates be circa 5.
ks.234
Half way to Infinity
But you support 5 to 8 % now? Or do you think a positive interest rate now, above inflation, say 12%, is the answer to our current economic woes?
ks.234
Half way to Infinity
And if higher interest rates are the answer, why not 15%, or 20%, to get inflation under control all the quicker?
puddlesplasher
pfm Member
What I don’t understand, yes I’ve probably taken the stupid pill, is that people money is not being used to buy what they need or want to live as it’s going to the banks instead. Higher IR leaves less money in your wallet or purse to buy the necessities. As I say banks make bigger profits, stores make less profit which means possible job losses and walk into a recession.
ks.234
Half way to Infinity
Yes.
That is the logic of tackling inflation by creating, er, more inflation.
And if that doesn’t work, we just need to create enough inflation to cause a recession.
It will work, if you create economic downturn, you will reduce inflation. But only, as I’ve said before, in the way that cutting off you child’s toes rather than buying them a new pair of shoes will make the old shoes fit. It will have certain long term consequences and inflation being what it is, your child will still face the same, buy new shoes/various levels of crippling, dilemma in 6 months time.
If slow mutilation is the key to solving the issue, just cut their legs off at birth.
There Is No Alternative
Ponty
pfm Member
Whatever it takes to knock inflation on the head. Money needs sucking out of the economy to reverse the QE. Of course, there’s a lag, which is why we’re now starting to see inflation fall a little. Base rate may only need to go to 6 if we see the falls predicted. But then, predictions have been wildly wrong and the BoE did too little too late. If they’d acted as quickly as they did when slashing rates and commencing QE, we wouldn’t have half the problem we have now IMHO. Transitory inflation my arse, we could see it coming a mile off from the increase in money supply alone.
ks.234
Half way to Infinity
This is sustained by the 16th c classical theory of the Quantity Theory of Money in which MV=PQ. It is sustained by the assumption that if V is fixed, then M (money supply) is the variable. But V is not fixed. It never was and it is even less so in a modern economy with ever new forms of money, the expansion of credit being one example.
It is an ‘if’/ ‘then’ equation in which the ‘if’ is wrong.
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puddlesplasher
pfm Member
But if all fuel costs are increasing and food along with it raising interest rates can’t help can they.
ks.234
Half way to Infinity
No, they can’t
Two thoughts:
1. The government lied to us about Brexit and cost the country a HUGE amount of money. My belief being that it was to avoid the potential for the EU to influence offshore tax havens
2. Those tax havens have been in existence for 2-3 decades now, allowing the super rich to avoid paying for our country. Chances are that "if" those taxes had been paid, that we wouldn't currently have a national debt
Based upon the above, my preference is that:
- We as the country insist that said persons/groups pay off the national debt, i.e. all 100% of it
- The money from said tax havens is used to pay for the re-joining of the EU
- We have another trillion "contributed" to the country to pay for social housing and recovery of the damage to the country that has been caused by decades of deliberate underinvestment and "austerity"
- That going forward those tax havens are closed and that our government works with others to close similar havens across the world. We did it with slavery, now's our chance to do it with corruption
- That instead of granting oil licenses, that the government sorts out and fast tracks the offshore wind power solution that in a few years could supply sufficient electricity for the whole country
- That the taxes currently being used to service our interest on the national debt is used going forward to pay for the running of better services within the country
1. The government lied to us about Brexit and cost the country a HUGE amount of money. My belief being that it was to avoid the potential for the EU to influence offshore tax havens
2. Those tax havens have been in existence for 2-3 decades now, allowing the super rich to avoid paying for our country. Chances are that "if" those taxes had been paid, that we wouldn't currently have a national debt
Based upon the above, my preference is that:
- We as the country insist that said persons/groups pay off the national debt, i.e. all 100% of it
- The money from said tax havens is used to pay for the re-joining of the EU
- We have another trillion "contributed" to the country to pay for social housing and recovery of the damage to the country that has been caused by decades of deliberate underinvestment and "austerity"
- That going forward those tax havens are closed and that our government works with others to close similar havens across the world. We did it with slavery, now's our chance to do it with corruption
- That instead of granting oil licenses, that the government sorts out and fast tracks the offshore wind power solution that in a few years could supply sufficient electricity for the whole country
- That the taxes currently being used to service our interest on the national debt is used going forward to pay for the running of better services within the country
ks.234
Half way to Infinity
There is much in what you say, but we need to understand what the National Debt actually is before changing it because the National Debt is a store of other people’s savings, pension companies for example, the interest on which is serviced by government money creation. We could easily pay it off tomorrow but if we did it would cause severe economic problems.
This is not the place for a discussion about government Debt and so called borrowing, but there was a useful thread about it not long ago.
https://pinkfishmedia.net/forum/threads/uk-national-debt.269935/#post-4740979
https://pinkfishmedia.net/forum/threads/uk-national-debt.269935/
ks.234
Half way to Infinity
Article about the relationship between the National Debt and inflation
https://www.geoffreymhodgson.uk/public-debt-and-inflation