Fed Cuts Rate to Zero-0.25%
Discussion
Fittster said:
So why would anyone want to hold US treasuries?
Several reasons,,,they are free from default risk, you know how much you are going to get back unlike other asset classes at present and also they are required to enhance a portfolio of assets to bring it up to the required investment standard...even with the long one trading under 3%.on the day where consumer prices printed the largest fall on record are you quite sure the curve can't flatten further?Fittster, also consider the sentiment amongst investors after Madoffs "little" scam, I am sure there will be $billions coming out of hedge funds looking for somewhere else and safe to hold $$$, let alone invest!
Edited by bluevelvet on Tuesday 16th December 20:30
Fittster said:
So why would anyone want to hold US treasuries?
because you will actually get your money back. Unlike if you put it into a bank or shares possibly. There is massive capital inflow into the safest assets irrespective of the (lack of) yield - and this is professional money which has long abandoned what it used to do such as buying cp, corporate bonds, shares etc. 10year US treasuries are about 2.35% at the moment so you are being paid to invest long and finance short dated. This is sort of free money for the banking system
NoelWatson said:
bluevelvet said:
Fittster said:
So why would anyone want to hold US treasuries?
Several reasons,,,they are free from default riskpioneer said:
Don't think we can, can we ? Are we not locked by the EU to not go lower than 2%stuart-b said:
pioneer said:
Don't think we can, can we ? Are we not locked by the EU to not go lower than 2%
stuart-b said:
pioneer said:
Don't think we can, can we ? Are we not locked by the EU to not go lower than 2%I know are VAT rates are locked to EU levels but didn't think interest rates were?
Amazing to see as 0/0.25% rates are, I'm intrigued by the FT's description of it "heralding a raft of dramatic and unconventional measures to support the economy" and the Fed vowing to use "all available tools to promote the resumption of sustainable growth and to preserve price stability".
I wonder just how unconventional those measures might be? IMO we should have had a market correction several years ago but more debt was pumped in to keep the boom going.
Since we didn't have that correction, too right they need some "unconventional measures" to sort this out. All the commentators talking about "corrections" are focusing on prices and, sure, up to a point, it's sensible that a house value should move back closer to its land+cost+profit kind of valuation as opposed to the [debt-fuelled] what-the-market-will-stand valuation. BUT... that £500K house retreating to £300K (if the 40% pundits are right) very likely has a mortgage north of £375K on it. Where's the debt correction? How can somebody with over £100K of negative equity participate in stimulating the housing market or indeed any other consumption?
Part of this correction process will be people losing their homes. The banks will sustain - with the above maths - a loss of up to £200K but acquire a £300K property to sell. The feeding frenzy by professional landlords on repos has already started. The displaced family from the house in question will probably enter the rental market. So much for an Englishman's home being his castle.
The net result of this is the bank "loses" up to 40% of the £500K it had on its books and the actual house asset (a chattel of wealth) is redistributed from a working individual to a wealthy individual. It's another redistribution of wealth from many people to a few wealthier people. Run the maths up and down the house price scale and the extension of that is an increase in the poor/rich wealth divide.
An "unconventional" method I believe governments should examine is forcing a DEBT CUT. Slash all debt by a percentage, by decree, across the board. The banks are going to lose a percentage of money as a result of their reckless lending which is itself an abuse of the privileges afforded to banks by the fractional reserve system. They should be punished for that abuse and the economy rescued - bank bailout punishes the economy and rewards the banks.
What will be tragic is for the fallout of what's presently happening to be a socially divisive increase in the gap between rich and poor. It was a few powerful, wealthy people whose greed f
ked this up for everybody. It is morally reprehensible that it will enable another click of the ratchet shifting even more wealth and assets into the hands of a few.
Sure, let the market find its values again but consider the other side of the coin too: the debt. There is no economic stimulus with falling asset prices, static debt levels, widespread default/bankruptcy, ultra-low interest rates and phoney "tax cuts" like 2.5% off VAT.
So: unconventional methods eh? Let's see what they got....
I wonder just how unconventional those measures might be? IMO we should have had a market correction several years ago but more debt was pumped in to keep the boom going.
Since we didn't have that correction, too right they need some "unconventional measures" to sort this out. All the commentators talking about "corrections" are focusing on prices and, sure, up to a point, it's sensible that a house value should move back closer to its land+cost+profit kind of valuation as opposed to the [debt-fuelled] what-the-market-will-stand valuation. BUT... that £500K house retreating to £300K (if the 40% pundits are right) very likely has a mortgage north of £375K on it. Where's the debt correction? How can somebody with over £100K of negative equity participate in stimulating the housing market or indeed any other consumption?
Part of this correction process will be people losing their homes. The banks will sustain - with the above maths - a loss of up to £200K but acquire a £300K property to sell. The feeding frenzy by professional landlords on repos has already started. The displaced family from the house in question will probably enter the rental market. So much for an Englishman's home being his castle.
The net result of this is the bank "loses" up to 40% of the £500K it had on its books and the actual house asset (a chattel of wealth) is redistributed from a working individual to a wealthy individual. It's another redistribution of wealth from many people to a few wealthier people. Run the maths up and down the house price scale and the extension of that is an increase in the poor/rich wealth divide.
An "unconventional" method I believe governments should examine is forcing a DEBT CUT. Slash all debt by a percentage, by decree, across the board. The banks are going to lose a percentage of money as a result of their reckless lending which is itself an abuse of the privileges afforded to banks by the fractional reserve system. They should be punished for that abuse and the economy rescued - bank bailout punishes the economy and rewards the banks.
What will be tragic is for the fallout of what's presently happening to be a socially divisive increase in the gap between rich and poor. It was a few powerful, wealthy people whose greed f
ked this up for everybody. It is morally reprehensible that it will enable another click of the ratchet shifting even more wealth and assets into the hands of a few. Sure, let the market find its values again but consider the other side of the coin too: the debt. There is no economic stimulus with falling asset prices, static debt levels, widespread default/bankruptcy, ultra-low interest rates and phoney "tax cuts" like 2.5% off VAT.
So: unconventional methods eh? Let's see what they got....
A while ago, I needed , say, £500k to buy a house. Now that same house is worth, say, £400k.
is the house worth less OR is the £ 'worth' more? It must be THE LATTER, as I only nedd 400,00 of these new, more valuable £'s to buy the same house.
So, quite clearly I should be able to settle my debt with the bank with 20% less of these new, more valuable £'s.
I cannot believe my bank doesn't understand this simple maths. It is their sytem, afterall, that has led to this increased valuation of the pound vs the bric.
Simple exchange rate economics really.
is the house worth less OR is the £ 'worth' more? It must be THE LATTER, as I only nedd 400,00 of these new, more valuable £'s to buy the same house.
So, quite clearly I should be able to settle my debt with the bank with 20% less of these new, more valuable £'s.
I cannot believe my bank doesn't understand this simple maths. It is their sytem, afterall, that has led to this increased valuation of the pound vs the bric.
Simple exchange rate economics really.
johnfm said:
A while ago, I needed , say, £500k to buy a house. Now that same house is worth, say, £400k.
is the house worth less OR is the £ 'worth' more? It must be THE LATTER, as I only nedd 400,00 of these new, more valuable £'s to buy the same house.
So, quite clearly I should be able to settle my debt with the bank with 20% less of these new, more valuable £'s.
I cannot believe my bank doesn't understand this simple maths. It is their sytem, afterall, that has led to this increased valuation of the pound vs the bric.
Simple exchange rate economics really.
Quite right.... but it's a minority of people who are able to benefit from their 'stronger pound' in this scenario. If you're debt free, and assuming you can get a mortgage at next-to-nothing interest rates (or don't need one), great. But most people are not in that position and that's why the economy will stall. is the house worth less OR is the £ 'worth' more? It must be THE LATTER, as I only nedd 400,00 of these new, more valuable £'s to buy the same house.
So, quite clearly I should be able to settle my debt with the bank with 20% less of these new, more valuable £'s.
I cannot believe my bank doesn't understand this simple maths. It is their sytem, afterall, that has led to this increased valuation of the pound vs the bric.
Simple exchange rate economics really.
Cutting debt levels by decree - at the same time as asset values fall - will also increase the value of the £s because there will be less of them. Less than 10% of the money "in the system" is hard currency. The expansion of the "digital money" in the banking system has grossly devalued currency. A debt cut would increase the ratio of real:digital currency which would strengthen the banks - a better way of protecting shareholders and citizens than bailing the banks. The banks will endeavour to extract themselves from government involvement at tax payers' expense and if they fail to do so, that will also be at the tax payers' expense. Heads they win, tails we lose.
pioneer said:
stuart-b said:
pioneer said:
Don't think we can, can we ? Are we not locked by the EU to not go lower than 2%I know are VAT rates are locked to EU levels but didn't think interest rates were?
Well aparently 2% base rate is the lowest in 300 years... !
http://seekingalpha.com/article/109390-bank-of-eng...
coyft said:
bosscerbera said:
So: unconventional methods eh? Let's see what they got....
There's only one option left, the "financial nuclear" option, the new buzzword is Quantitative easing. Central Banks have maneuvered interest rates to near zero. They will increase the money supply and lend it to commercial banks at near zero percent. The excess liquidity will eventually filter into the economy as loans from commercial banks. Which can only lead to inflation, more likely hyper inflation.And, yeah, you couldn't make it up.
One interesting point is if things do bottom out next year, say in the summer, how long until the recovery starts.
Households will be servicing their debt for years, and so large corporates. Small businesses, many with low debt, are not spending anything as they either cant get a loan to invest or fear going bust. As was hidden in the BofE report, many business are turning work away becasue they cant get the deal financied or insure against none payment.
There needs to be, like in the early 90's a period of re balancing the economy, and that i think might take a couple of years. I think they will be a recovery starting the end of next year, but in a very lose sense and a period of sluggish growth is a head of us. I think Brown's dream of fast paced growth returning in 2010, 11 is a pipe dream.
Households will be servicing their debt for years, and so large corporates. Small businesses, many with low debt, are not spending anything as they either cant get a loan to invest or fear going bust. As was hidden in the BofE report, many business are turning work away becasue they cant get the deal financied or insure against none payment.
There needs to be, like in the early 90's a period of re balancing the economy, and that i think might take a couple of years. I think they will be a recovery starting the end of next year, but in a very lose sense and a period of sluggish growth is a head of us. I think Brown's dream of fast paced growth returning in 2010, 11 is a pipe dream.
Gassing Station | The Pie & Piston Archive | Top of Page | What's New | My Stuff