Is the end nigh for the Euro? [vol. 3]

[anonymous-user]

Andy Zarse said:

I ask again; where do we go from here when the next downturn comes?

Unfortuantely you're not going to like the answer... more QE

Edited by anonymous-user on Thursday 21st August 02:18

[Perik Omo]

Didn't know whether to post here or in the France forum but decided on here as it's sort of economy related.

Bit of background first, in 2004 I was about to lose my job (which I'd had enough of anyway) so we decided to early retire and up-sticks and move to the Haute-Vienne in France where we had had some really good holidays. We found some land with a stone barn and completely derelict cottage all for a very good price so we jumped at it, sold up in the UK and moved over. Over the years we have converted the barn into a very nice, well insulated, 5 bedroom house of some 3300 sq ft and completely gutted the cottage (stripped back to just the bare stone walls, roof off and all floors out), the cottage too is now a very nice place finished to a high standard like the barn.

We used all local contractors for the specialist work like rebuilding some stone work, extending and completely re-roofing the barn, another specialist company to install the underfloor heating and geothermal heat pump and vacuum tube solar panels, local plumbers to do the plumbing and local electricians to do the electrics and another specialist to install the rainwater collecting system for garden watering and the fosse septique and epondage.

Now what prompted me to post this is that we have had a devis (estimate) outstanding since late January to do some essential maintenance on the geothermal and underfloor system but the company that does the maintenance and did the installation are un-contactable and looks like they have gone to the wall, seems they stopped trading in April. I then tried to contact the manufacturers of the heat pump to find another service company but they too have ceased trading so I'm left high and dry with this hugely expensive system until I can find a company that has spares and do the servicing work, not something that we could possibly foresee in 2007. I looked at my paperwork for the other contractors that I had used and found:

Electricians - ceased trading 2012
Plumbers - ceased trading 2013
Fosse engineers - ceased trading 2013
Swimming pool installers - ceased trading 2010

The only contractors I can find that we used that are still going are the ones that did the major structural work. It seems that businesses are closing all over the place and there is just one major employer left in our local main town. There was a large cabinet makers that ceased trading and a sports and cycling enterprise took over the building but that didn't even last a year and closed in June. The local very good hotel/restaurant closed in town closed in May as the owner said he could no longer make a living even though he was full most lunchtimes, he's gone to southern Portugal to open a small restaurant there.

I don't know how others are finding the situation in their areas of France but around here the situation is dire. We are effectively trapped here now as we could only ever get a fraction of the money we've spent on turning this piece of land/derelict buildings into a very nice place to be, certainly not enough even to buy a terraced house in the town that we came from. I'm not complaining as I don't want to move and love it here but if it came to the crunch and had to leave then we would be "up he creek" as they say. What the hell would happen if the euro disintegrated ? What would happen if UK left the EU? Worrying times indeed....

[Digga]

Perik Omo said:

I don't know how others are finding the situation in their areas of France but around here the situation is dire.

Hate to tell you this, but a French firm in our line of work, construction equipment (hence my username) reckons they are only now seeing a real downturn. Add this to the fact that Hollande needs to make budget cuts and the writing on the wall does not look optimistic.

I'd say the majority of your firms going in 2013 is indicative - France have yet to acknowledge the crunch.

Major, major reforms of taxation and employment law were needed but instead by heavier burdens were placed on enterprise. There is a way out, but I simply cannot see it happening in such a socialist country.

[Claudia Skies]

Andy Zarse said:

I ask again; where do we go from here when the next downturn comes?

Current low rates are nothing to do with a cyclical downturn - their sole purpose is to rebuild banks balance sheets at the expense of savers and pensioners. As such, it will be business as usual when the next downturn arrives.

Meanwhile, cutting rates by .25% here and .5% there made no difference at all to behaviour. Hence increases of .25% and .5% will make no difference to behaviour. But rates should have started ticking up 12 months ago so that there wouldn't come the "shock" of an eventual quick return to normality - say 3.5%

[DJRC]

Rates were never going to go up 12 months ago!!! Are you nuts???? Do you actually want to 100% ensure a general Depression and widespread repossessions??

News flash...lowish growth, poor returns for savers and potential highish inflation are much more preferable to the alternative. Namely mass repossessions and mortgage poverty.

Savers are hard done by is pure crap. Investments have made a fortune over the last 3yrs. If you haven't benefitted from that then tough titty, life's a bh etc.

Low growth. 3%+ is out performing almost everywhere else.

Inflation hasn't shot up because demand is down for raw goods around the world and consumer goods are in cut throat competition where slashing prices is the order of the day.

Putting rates up 12 months ago would have been been utterly disastrous because it would have wiped out every last ounce of consumer confidence and retail confidence. You would have to be an idiot of monumental proportions to even consider it.

[Andy Zarse]

I don't believe there would have been widespread repossessions or indeed a depression if rates had been moderately raised over the last two odd years. It might however have put a cap on the unwanted (by me at least) return of double-digit growth of residential property.

Still, no need for DJRC to panic, there's very little likelihood of a rise any time soon, even accounting for Weale and McCafferty voting to increase by 0.25% in the last MPC minutes.

Finally, since fblm mentioned more QE, does anyone else agree it's surprising the BoE don't try to shift some of the £375 billion of existing asset purchases? In the current search for yield, and even borderline-junk like Italian 10yr spread at only about 1.5% above German, you'd think Fred Carney would at least stick some of it on eBay to see what it'll fetch...

[anonymous-user]

Claudia Skies said:

Meanwhile, cutting rates by .25% here and .5% there made no difference at all to behaviour. Hence increases of .25% and .5% will make no difference to behaviour.

£1400bn in personal (inc mortgage) debt x 0.25% = give or take £3.5bn annually to household budgets. This makes no difference? I think not.

[RYH64E]

Perik Omo said:

I looked at my paperwork for the other contractors that I had used and found:

Electricians - ceased trading 2012
Plumbers - ceased trading 2013
Fosse engineers - ceased trading 2013
Swimming pool installers - ceased trading 2010

Quite usual in the UK too, you'll probably find them currently trading as Electricians 2012, Plumbers South West, Fosse Mk II, New Swimming Pool Co Inc, with a long trail of unpaid suppliers, worthless guarantees for shoddy work, and unpaid CCJs (or French equivalents thereof).

[RYH64E]

Claudia Skies said:

Current low rates are nothing to do with a cyclical downturn - their sole purpose is to rebuild banks balance sheets at the expense of savers and pensioners. As such, it will be business as usual when the next downturn arrives.

Meanwhile, cutting rates by .25% here and .5% there made no difference at all to behaviour. Hence increases of .25% and .5% will make no difference to behaviour. But rates should have started ticking up 12 months ago so that there wouldn't come the "shock" of an eventual quick return to normality - say 3.5%

That's a common mistake to make, if an interest rate increases from 0.5% to 0.75% that's a 50% increase in cost to some poor bugger not 0.25%.

I could never get my mum to understand this concept, she persisted with the argument that 1/4% or 1/2% was a meaningless and trivial increase, but she is old and daft (and fortunately for her in receipt of a gold plated, public sector pension that she still complains is poor value compared to the 'fortunes' she paid in...).

[Andy Zarse]

Except most people don't pay 0.5% on their mortgage. A normal SVR is around 2.5 to 3%.

Both fixed and variable mortgage rates have varied over the last few years by more than the 0.25 to 0.50% DJRC thinks will drive us all straight into Carey Street... (home to the London bankruptcy court )

[Claudia Skies]

DJRC said:

Savers are hard done by is pure crap. Investments have made a fortune over the last 3yrs.

Total non sequitur.

You appear to have very little understanding of the subject. Might as well say it's sunny in the Sahara so don't complain about the rain in UK.

[RYH64E]

Andy Zarse said:

Except most people don't pay 0.5% on their mortgage. A normal SVR is around 2.5 to 3%.

That depends upon when the mortgage was taken out, I have a SVR commercial mortgage set at base plus 0.5%, and at that time it was possible to get base less a percentage on domestic mortgages. Regardless, it doesn't change the fact that an interest rate increase from 0.5% to 0.75% represents a 50% increase in payments, not a 0.25% increase as some might think. Hardly trivial for those whose finances are tight.

[anonymous-user]

Claudia Skies said:

You appear to have very little understanding of the subject.

Yet you are arguing that savers are being ripped off by interest rates whilst borrowers won't notice the difference if they go up.

Why should 'savers' receive interest on risk free deposits?

[Mermaid]

Andy Zarse said:

Except most people don't pay 0.5% on their mortgage. A normal SVR is around 2.5 to 3%.

Both fixed and variable mortgage rates have varied over the last few years by more than the 0.25 to 0.50% DJRC thinks will drive us all straight into Carey Street... (home to the London bankruptcy court )

1% increase will not result in any human or corporate deaths, guaranteed. People will adjust.

Then the next 1%.

[DJRC]

Claudia Skies said:

DJRC said:

Savers are hard done by is pure crap. Investments have made a fortune over the last 3yrs.

Total non sequitur.

You appear to have very little understanding of the subject. Might as well say it's sunny in the Sahara so don't complain about the rain in UK.

Feel free to enlightenment me. No, feel free to enlighten all of us in fact. I'll give Schroders a call when you are done and ask them to change the investments immediately!

[Gargamel]

Mermaid said:

1% increase will not result in any human or corporate deaths, guaranteed. People will adjust.

Then the next 1%.

Ideally though rates rise as either taxes fall or wages grow. bThe squeeze in the last four years has left some close to the edge or certainly with less purchasing power.

At the margins the adjustment back to normal interest rates will be tricky.

[anonymous-user]

DJRC said:

Feel free to enlightenment me. No, feel free to enlighten all of us in fact.

I'm not holding my breath.

[Steffan]

Mermaid said:

Andy Zarse said:

Except most people don't pay 0.5% on their mortgage. A normal SVR is around 2.5 to 3%.

Both fixed and variable mortgage rates have varied over the last few years by more than the 0.25 to 0.50% DJRC thinks will drive us all straight into Carey Street... (home to the London bankruptcy court )

1% increase will not result in any human or corporate deaths, guaranteed. People will adjust.

Then the next 1%.

Interesting, isn't it?

On the basis that interest rates are in real terms, unsustainably low currently, which is directly as a result of the crash in 2007 and the extreme actions that had to be taken to restore pubic confidence, and very probably the continuance of the Banking system, which was in real crisis, it does seem almost inevitable that rates will rise in the future to restore the levels to a more sustainable level.

I do understand and agree with the concerns that DJRC and others are expressing and several contributors have quite correctly suggested it would be all to easy to halt the recovery in our economy with an ill judged rates rise. However I do think anticipating the continuance of a base rates at 0.5% or possibly below that rate, as the ECB is offering, does seem to me to be bunkum Economics.

Being very old and involved in financial matters for some 40 years these very low rates do call me deep concern. In my entire lifetime of approaching 70 years, interests rates have never approached such levels before and this rate is actually too low IMO to be sustainable. I am no lover of Carney and I share the concerns expressed about his ineptitude. But I cannot see how rates cannot rise inevitably personally because I think the current rates are just too low. In effect it means money has lost its real value and that is a very dangerous game to play.

At the time of the Banking crisis I crossed Colmore Row in Brum on the way to my offices and remarked to a colleague who walked with me past the huge queue of indidividusls outside the Northern Rock premises, when the run on that Bank had started, that this was sight that my Father never witnessed, his Grandfather never witnessed and his Great Grandfatherr never witnessed. At that point in more than 150 years such a sight never existed with a UK lender and what an exceptional event that truly was to witness.

The primary reason I became very concerned with the Banking crisis was, that to mind mind then, this was absolute confirmation that the Government of the day had allowed unbridled greed to destroy public confidence in Banking. Despite two World Wars in the 20th Century and the massive increase in knowledge and effective control and planning in Economics in that period the truth is the Government of the day totally failed the country and lost control of the Banking System. And the truth is that virtually no one in or out of government saw this coming.

Steps were taken by the Government of the time to correct this and, without any consultation or information the entire unsupported debts of the failing banks were underwritten by the UK taxpayers, who are saddled with an almighty debt that our grand children will still be paying. Plus interest.

I make these points to set the background that I think we need to judge the risks of interest rate changes against. These rates have never existed before in the commercial world and the fact is that these totaly exceptionally low interest rates have now remained in force for many years. Fools rush in!

Altering the rates in any way could have the most serious effects upon our Economy and on our Banking systems. Whilst i do agree these rates are too low and unsustainable I think we must judge the risk of any changes against the almighty disaster that incompetent government foisted upon us only seven years ago.

Any change in interest rates must be considered against the downside risk. We cannot afford another Banking crisis because the Taxpayers cannot bail out another crisis with any credibility. My view is that extreme caution and treading very careful is absolutely the right approach. Think and think agin IMO.

I realise that many observers on here and elsewhere do not share my vew of the best way to proceed and particularly, about who was really responsible for the Banking crisis. My concern is that there have been no real changes to the status quo in Banking and the comfortable relationship tht existed then between the movers and shakers in Banking, Regulatory supervision, the Treasury and politicians, which caused this mess in my view, continues to this day. The closeness and that interchangeability of the relationships remains the major problem. All the players do very nicely out of this game and therefore they would prefer this state of play to continue. In essence I personally lost my trust in the financial sector in 2007 and from that point I have regarded the whole gamut with deep suspicion.

Sadly I think the abilities of the individuals involved to truly appreciate the seriousness of the changes that are needed and made at the time were fundamentally inadequate and remain fundamentally inadequate. This collapse was allowed and encouraged by incompetent and ineffective government and my view is that as yet, there has not been the fundamental realisation of how inadequate the control mechanisms currently remain despite the tinkering and ballyhoo about how much change there has been. Much as I understand the need to rebuild public confidence in the Banking system, I do not think what has been enacted so far, has been anything like the changes needed if we are to avoid another almighty bang.

I do not regard Carney as in any sense up to the job, nor do I think that the changes needed have been either formulated effectively or are in fact adequate. In such a situation what was needed was a root and branch reform of the system. What we have had is sleight of hand and bluster and the well stablished boys club has been continued with window dressing. I think the risks of over trading and collapse continue.

Edited by Steffan on Thursday 21st August 21:27

[anonymous-user]

Steffan, you say repeatedly that rates are unsustainably low. Why are they unsustainable? It supposedly wouldn't kill us if we had a rate rise, well conversely then why will it kill us if we don't? What metrics are you using to determine they are unsustainable? I'm quite prepared to accept they are historically low but that does not mean they are unstainable, yet.

Edited by anonymous-user on Thursday 21st August 21:26

[DJRC]

We will see a .25% rate rise post election next yr and provably another .25% before Xmas. In 2016 you will see another 0.5 - 0.75% rise. That will be a useful balance between growth and managing increasing the rates. I don't see growth hitting 5% to force panic measures so a slow and steady job over the next couple of yrs will do just fine. I would imagine that should be similar be it blue or red winning next year.