BoE Base Rate, What if...
Discussion
Mr Whippy said:
In a world where economic growth is slowing and/or reversing then the debts and leverage we all carry has to unwind at some point.
But before it does, we'll have our wealth raided as much as is possible before reality bites.
Things that will happen eventually.
1. A crash.
2. Helicopter money and a debt crash/rapid inflation.
At that point then we can move forward again because debts have been written off one way or another, and we can move forward again getting new debts. But this time we'll have learned our lessons and won't borrow too much we promise
Interest rates can then rise.
Sadly going through that won't be nice one way or another. GDP boosters and distractions like wars are probably what we'll have to put up with.
Your financial qualifications are????? Looking at your profile it says drawing and colouring in, one assumes with crayons.But before it does, we'll have our wealth raided as much as is possible before reality bites.
Things that will happen eventually.
1. A crash.
2. Helicopter money and a debt crash/rapid inflation.
At that point then we can move forward again because debts have been written off one way or another, and we can move forward again getting new debts. But this time we'll have learned our lessons and won't borrow too much we promise
Interest rates can then rise.
Sadly going through that won't be nice one way or another. GDP boosters and distractions like wars are probably what we'll have to put up with.
Excessive leverage build up and reliance on short term wholesale funding caused the 07/08 financial problems. Whilst leverage has indeed grown in bank balance sheets, liquidity regimes have improved. Furthermore the gradual reduction of bank balance sheets will begin in the next few years as Leverage Ratio and other solvency measures kick in.
the banking system is exceptionally complicated, the regulators are at least smart enough not to kill the global economy to meet the fantasies of school boys.
Contagion is a huge issue still, and new market infrastructure is untested. CCPs have failed in the past, and there is plenty of evidence that haircut ramping causes pre-default fire sales / stresses (Lehmans collapse).
Everyone wants a controlled landing. Or in other words, banks correctly pricing risk.
Now, throw in lacklustre economic growth, you want bank balance sheet to increase (banks being the on off ramp for central bank money or monetary policy); totally at odds with what the regulations want them to do. If anything it looks like a lot of paralysis as we sort through this conundrum.
Efbe said:
Firstly, people wouldn't be able to pay off their mortgages. a £500 a month mortgage would go to £825.
Then rental prices would go up to meet the landlords mortgages
You think that landlords are currently discounting rent because their mortgages are cheap..? Then rental prices would go up to meet the landlords mortgages
Houses let for market value (ie, as much as they can squeeze out of the market). Renters won't suddenly have more money to to be squeezed just because interest rates have gone up.
Efbe said:
Firstly, people wouldn't be able to pay off their mortgages. a £500 a month mortgage would go to £825.
If their mortage was £800 before it dropped to £500 and they've kept their job or their business is still afloat then the chances are it'll be OK if rates go back up. They may even have been overpaying recently.Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
turbobloke said:
If their mortage was £800 before it dropped to £500 and they've kept their job or their business is still afloat then the chances are it'll be OK if rates go back up. They may even have been overpaying recently.
Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
That might be the theory, I'm not sure it's the practice. A chap I know got divorced and recently took on a £115K mortgage on about £25K/year. He's struggling like hell to make ends meet - any rise at all and he's fvcked. I'm going to make an educated guess that he's not alone...Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
Ari said:
turbobloke said:
If their mortage was £800 before it dropped to £500 and they've kept their job or their business is still afloat then the chances are it'll be OK if rates go back up. They may even have been overpaying recently.
Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
That might be the theory, I'm not sure it's the practice. A chap I know got divorced and recently took on a £115K mortgage on about £25K/year. He's struggling like hell to make ends meet - any rise at all and he's fvcked. I'm going to make an educated guess that he's not alone...Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
It may not be 100% perfect but it has certainly closed a lot of access for reckless lending.
Can't comment on yer mate without more details.
Jockman said:
I've just undergone the stress testing as I moved house. The process is intense and thorough. My wife has had to reduce her botox treatments as a consequence. I'm not happy.
It may not be 100% perfect but it has certainly closed a lot of access for reckless lending.
Can't comment on yer mate without more details.
I had a very similar experience to this.It may not be 100% perfect but it has certainly closed a lot of access for reckless lending.
Can't comment on yer mate without more details.
Sensible affordability considerations and someone with a brain actually deciding whether or not I could cope with the mortgage.
Even asking about potential savings to cover any income shortfall or pay it down in an emergency.
LTV was almost irrelevant other than determining which rate.
edh said:
JagLover said:
Esseesse said:
Adam Ansel said:
The ONLY answer is a big relaxation of planning rules.
There are plenty of other answers.Compare the cost of land as a proportion of the sales value of a house in 1947 (when the current planning regulations started) and now.
turbobloke said:
If their mortgage was £800 before it dropped to £500 and they've kept their job or their business is still afloat then the chances are it'll be OK if rates go back up. They may even have been overpaying recently.
Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
The gobbins at Natwest were trying to get my girlfriend to cancel her NHS union subscription when she went for a mortgage... In my opinion it is just a stupid tick box exercise.Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
There is nothing stopping people from cancelling all subs while applying for a mortgage, then when you have the mortgage joining a gym, buying a new car on finance etc.
I suppose young people have had it too easy and are unaware of what could happen in regards to a interest rate hike.
Ari said:
turbobloke said:
If their mortage was £800 before it dropped to £500 and they've kept their job or their business is still afloat then the chances are it'll be OK if rates go back up. They may even have been overpaying recently.
Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
That might be the theory, I'm not sure it's the practice. A chap I know got divorced and recently took on a £115K mortgage on about £25K/year. He's struggling like hell to make ends meet - any rise at all and he's fvcked. I'm going to make an educated guess that he's not alone...Those who mortgaged up more recently have allegedly had tough affordability tests and stress tests with microscopic financial examinations rooting out frivolous gym memberships etc so it might not be that bad even with people who bought topside.
That's not to say nobody would struggle.
walm said:
Jockman said:
I've just undergone the stress testing as I moved house. The process is intense and thorough. My wife has had to reduce her botox treatments as a consequence. I'm not happy.
It may not be 100% perfect but it has certainly closed a lot of access for reckless lending.
Can't comment on yer mate without more details.
I had a very similar experience to this.It may not be 100% perfect but it has certainly closed a lot of access for reckless lending.
Can't comment on yer mate without more details.
Sensible affordability considerations and someone with a brain actually deciding whether or not I could cope with the mortgage.
Even asking about potential savings to cover any income shortfall or pay it down in an emergency.
LTV was almost irrelevant other than determining which rate.
Correct about the LTV - it seemed like a side issue.
Edited by Jockman on Tuesday 26th April 10:17
Mr Whippy said:
What this country needs wrt land/farming, is lots of social housing that is built with quality allotments of land that is locked into public ownership for 200yrs+
Just build build build. Print money and build. Rent them out and use it to service debts today, and give a whole generation a chance to have a decent enough house to have a family in and grow some of their own food.
What? So you can get on the ladder? Just build build build. Print money and build. Rent them out and use it to service debts today, and give a whole generation a chance to have a decent enough house to have a family in and grow some of their own food.
ps, & if you really think by building cheap housing the people that will occupy them will be the type inclined to grow their own food you really need to go & see a doctor. About the only thing they will do is have a family. A VERY big one at that.
stongle said:
Mr Whippy said:
In a world where economic growth is slowing and/or reversing then the debts and leverage we all carry has to unwind at some point.
But before it does, we'll have our wealth raided as much as is possible before reality bites.
Things that will happen eventually.
1. A crash.
2. Helicopter money and a debt crash/rapid inflation.
At that point then we can move forward again because debts have been written off one way or another, and we can move forward again getting new debts. But this time we'll have learned our lessons and won't borrow too much we promise
Interest rates can then rise.
Sadly going through that won't be nice one way or another. GDP boosters and distractions like wars are probably what we'll have to put up with.
Your financial qualifications are????? Looking at your profile it says drawing and colouring in, one assumes with crayons.But before it does, we'll have our wealth raided as much as is possible before reality bites.
Things that will happen eventually.
1. A crash.
2. Helicopter money and a debt crash/rapid inflation.
At that point then we can move forward again because debts have been written off one way or another, and we can move forward again getting new debts. But this time we'll have learned our lessons and won't borrow too much we promise
Interest rates can then rise.
Sadly going through that won't be nice one way or another. GDP boosters and distractions like wars are probably what we'll have to put up with.
Excessive leverage build up and reliance on short term wholesale funding caused the 07/08 financial problems. Whilst leverage has indeed grown in bank balance sheets, liquidity regimes have improved. Furthermore the gradual reduction of bank balance sheets will begin in the next few years as Leverage Ratio and other solvency measures kick in.
the banking system is exceptionally complicated, the regulators are at least smart enough not to kill the global economy to meet the fantasies of school boys.
Contagion is a huge issue still, and new market infrastructure is untested. CCPs have failed in the past, and there is plenty of evidence that haircut ramping causes pre-default fire sales / stresses (Lehmans collapse).
Everyone wants a controlled landing. Or in other words, banks correctly pricing risk.
Now, throw in lacklustre economic growth, you want bank balance sheet to increase (banks being the on off ramp for central bank money or monetary policy); totally at odds with what the regulations want them to do. If anything it looks like a lot of paralysis as we sort through this conundrum.
It seems contrarian attitudes are ignored in economic and financial circles, until after the fact when it was all so clear. And then people fail to learn from it because next time is different.
So in your expert opinion, you accept there is a conundrum. So what is the route out of it?
Projecting GDP growth that makes it all seem ok, and then just keep revising it down year on year on year for almost a decade and pretending you're still in control and have any idea what is actually going on despite being perpetually wrong?
Dave
American rates could be going up again in June:
http://www.bloomberg.com/news/articles/2016-04-26/...
We would have no option but to follow if our government wants to issue bonds to cover its debt.
Even if the US rate doesn't go up this time the global trend is up. We cannot avoid this.
http://www.bloomberg.com/news/articles/2016-04-26/...
We would have no option but to follow if our government wants to issue bonds to cover its debt.
Even if the US rate doesn't go up this time the global trend is up. We cannot avoid this.
Willy waving? Don't think so. I do apologise for a rambling post though, was a touch whimsical.
My point. Anyone thinking a financial crash is a good idea or to preempt one is a moron.
Leverage hasn't reduced yet, it's taken years to get close to an agreement on how to do that, and there is still regional variations on implementation (thus presenting arbitrage opportunity). It will reduce gradually, a rapid run for the exit creates contagion effects that may push others firms into default.
And on, and on... There won't be some mystical wiping of the slate, just misery for millions.
And yes, I did end with a conundrum, but it's very real. We need to prevent the banks and reckless behaviour from tipping another crash; but they need to perform a utility function. At the rate regulation is going you could end up with 4 US banks and al the others are branches of the civil service. You won't need to worry about base rates then, just the banks spread.
I assume by contrarian you refer to yourself. You certainly have an unusual stance on property ownership.
My point. Anyone thinking a financial crash is a good idea or to preempt one is a moron.
Leverage hasn't reduced yet, it's taken years to get close to an agreement on how to do that, and there is still regional variations on implementation (thus presenting arbitrage opportunity). It will reduce gradually, a rapid run for the exit creates contagion effects that may push others firms into default.
And on, and on... There won't be some mystical wiping of the slate, just misery for millions.
And yes, I did end with a conundrum, but it's very real. We need to prevent the banks and reckless behaviour from tipping another crash; but they need to perform a utility function. At the rate regulation is going you could end up with 4 US banks and al the others are branches of the civil service. You won't need to worry about base rates then, just the banks spread.
I assume by contrarian you refer to yourself. You certainly have an unusual stance on property ownership.
Edited by stongle on Tuesday 26th April 17:46
Adam Ansel said:
American rates could be going up again in June:
http://www.bloomberg.com/news/articles/2016-04-26/...
We would have no option but to follow if our government wants to issue bonds to cover its debt.
Even if the US rate doesn't go up this time the global trend is up. We cannot avoid this.
Eh? Have you told the ECB of this? Draghi's bazooka shooting the wrong way? US wants to normalise rate policy in self interest, whether this stacks up globally is a different matter. Or are you thinking World Series of baseball type global trend.http://www.bloomberg.com/news/articles/2016-04-26/...
We would have no option but to follow if our government wants to issue bonds to cover its debt.
Even if the US rate doesn't go up this time the global trend is up. We cannot avoid this.
stongle said:
Eh? Have you told the ECB of this? Draghi's bazooka shooting the wrong way? US wants to normalise rate policy in self interest, whether this stacks up globally is a different matter. Or are you thinking World Series of baseball type global trend.
I don't think his gaming's that sophisticated - think tiddlywinks Adam Ansel said:
American rates could be going up again in June:
http://www.bloomberg.com/news/articles/2016-04-26/...
We would have no option but to follow if our government wants to issue bonds to cover its debt.
Even if the US rate doesn't go up this time the global trend is up. We cannot avoid this.
Global trend is up? We've had one hike from the fed and it took its sweet time over it.http://www.bloomberg.com/news/articles/2016-04-26/...
We would have no option but to follow if our government wants to issue bonds to cover its debt.
Even if the US rate doesn't go up this time the global trend is up. We cannot avoid this.
Euro curve is a negative curve, swiss is negative but with a tiny positive curve, scandis are negative front end and fairly flat, easten europe are mainly negative, austrailia is a negative curve for about three years or so, i could go on.
i certainly would not call this an upward trend.
That article, though i've not time to read it all, looks like a simple summary of what to take from the post conference comments from the fed meeting tomorrow, its not news, its just speculation about speculation, nothing has changed.
Adam Ansel said:
We would have no option but to follow if our government wants to issue bonds to cover its debt.
Even if the US rate doesn't go up this time the global trend is up. We cannot avoid this.
What the hell are you talking about? The level of fed funds or base rate has virtually nothing to do with the rate or demand for government bond issuance. Even if the US rate doesn't go up this time the global trend is up. We cannot avoid this.
Very simply the central bank sets the rate for overnight (or fortnightly) lending of deposits between it's self and the banks otherwise known as the base rate, or fed funds rate, etc... The interest rate on government debt is set by the prevailing market rate for term borrowing, ie the level of demand by the market for each issuance. The interest rate on government borrowing is NOT set by the central bank or government; it is determined by demand. Less demand, lower price, higher implied rate and vice versa.
Edited by anonymous-user on Tuesday 26th April 18:20
stongle said:
Mr Whippy said:
In a world where economic growth is slowing and/or reversing then the debts and leverage we all carry has to unwind at some point.
But before it does, we'll have our wealth raided as much as is possible before reality bites.
Things that will happen eventually.
1. A crash.
2. Helicopter money and a debt crash/rapid inflation.
At that point then we can move forward again because debts have been written off one way or another, and we can move forward again getting new debts. But this time we'll have learned our lessons and won't borrow too much we promise
Interest rates can then rise.
Sadly going through that won't be nice one way or another. GDP boosters and distractions like wars are probably what we'll have to put up with.
Your financial qualifications are????? Looking at your profile it says drawing and colouring in, one assumes with crayons.But before it does, we'll have our wealth raided as much as is possible before reality bites.
Things that will happen eventually.
1. A crash.
2. Helicopter money and a debt crash/rapid inflation.
At that point then we can move forward again because debts have been written off one way or another, and we can move forward again getting new debts. But this time we'll have learned our lessons and won't borrow too much we promise
Interest rates can then rise.
Sadly going through that won't be nice one way or another. GDP boosters and distractions like wars are probably what we'll have to put up with.
Excessive leverage build up and reliance on short term wholesale funding caused the 07/08 financial problems. Whilst leverage has indeed grown in bank balance sheets, liquidity regimes have improved. Furthermore the gradual reduction of bank balance sheets will begin in the next few years as Leverage Ratio and other solvency measures kick in.
the banking system is exceptionally complicated, the regulators are at least smart enough not to kill the global economy to meet the fantasies of school boys.
Contagion is a huge issue still, and new market infrastructure is untested. CCPs have failed in the past, and there is plenty of evidence that haircut ramping causes pre-default fire sales / stresses (Lehmans collapse).
Everyone wants a controlled landing. Or in other words, banks correctly pricing risk.
Now, throw in lacklustre economic growth, you want bank balance sheet to increase (banks being the on off ramp for central bank money or monetary policy); totally at odds with what the regulations want them to do. If anything it looks like a lot of paralysis as we sort through this conundrum.
Most banks have heavily deleveraged their entire balance sheet since 2008 (with lots more still to do) and the retail side has been reigned in significantly.
Ps that crayon comment made me chuckle, harsh but funny
ETA the biggest fallacy on this thread is the thinking that base rate equates to cost of funds...people might want to look at LIBOR vs Base during the height of the credit crunch...credit risk is huge at times of stress.
Edited by BigLion on Tuesday 26th April 18:20
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