BOE 3rd November Rate Announcement
Discussion
Ashfordian said:
Why are Central Banks going to cut interest rates from the current level and move back closer to emergency IR levels? Is there an economic emergency similar to what triggered the last move to emergency interest rates?
There is lots that need to be unwound from the last 16 years and because of the what has been built up by the system, they cannot do anything that risks spooking the markets or undermining confidence. And cutting IR's could certainly be taken as a negative by said markets.
One such driver would be a spike in junk bond and debt defaults on employers who would then rapidly offload staff to compensate and on commercial real estate which would start blowing holes in pensions (If some people haven't liked the Boomers having big fat pensions, wait until they saw a world where the boomers had small pensions!!There is lots that need to be unwound from the last 16 years and because of the what has been built up by the system, they cannot do anything that risks spooking the markets or undermining confidence. And cutting IR's could certainly be taken as a negative by said markets.
). I don't see any issue with a 25 point cut around the middle of the year to just stabilise things and confirm rises are over and we are now heading lower but if there were a series of cuts this year then my gut feeling is that it is because some really nasty things are happening, things which blow huge holes in families.
DonkeyApple said:
Ashfordian said:
Why are Central Banks going to cut interest rates from the current level and move back closer to emergency IR levels? Is there an economic emergency similar to what triggered the last move to emergency interest rates?
There is lots that need to be unwound from the last 16 years and because of the what has been built up by the system, they cannot do anything that risks spooking the markets or undermining confidence. And cutting IR's could certainly be taken as a negative by said markets.
One such driver would be a spike in junk bond and debt defaults on employers who would then rapidly offload staff to compensate and on commercial real estate which would start blowing holes in pensions (If some people haven't liked the Boomers having big fat pensions, wait until they saw a world where the boomers had small pensions!!There is lots that need to be unwound from the last 16 years and because of the what has been built up by the system, they cannot do anything that risks spooking the markets or undermining confidence. And cutting IR's could certainly be taken as a negative by said markets.
). I don't see any issue with a 25 point cut around the middle of the year to just stabilise things and confirm rises are over and we are now heading lower but if there were a series of cuts this year then my gut feeling is that it is because some really nasty things are happening, things which blow huge holes in families.
There is the somewhat inconvenient matter that many countries run up larger debts than historically possible due to ultra low rates (G7 debt to GDP average is about 128%). Countries and governments are going to need lower rates to service their debts, especially as the low rate stuff is maturing and needs to be rolled over.
Italy's numbers are the easiest to look at, Debt to GDP around 140%, with a 5%+ budget deficit (there are various ways to calculate deficit - the OECD has them at >7.2% for 2023 compared to the UK around 4.2%) The deficit should fall in 2024 - a tad (due to higher tax receipts) - but will start to grow again in 2025/6 as they have to refi at least 260billion of debt this year at much higher rates. Now this isn't saying Italy is going to fail, but is posing a big challenge domestically - where to find the savings and also to the EU because they will have to redo SGP accepting higher debt burdens / deficits. Everyone in the west is (largely) in the same boat - but there are legal wrappers around the Euro that will make the obviousness of high debt to GDP a thing AND the need for accommodative ECB policy (regardless its like Lord of the Flies in there at times). If those deficits increase, then Govts ARE going to get downgraded and that WILL spook markets. Italy is one notch above junk - if it hits junk - then a lot of bond holders can't, so less buyers (with a dump / firesale) = higher spreads = more deficit. The risks of higher rates are larger than getting them down to neutral rate bands.
The risk of declining rates is when / if they are burning through neutral rate. That means economies can't function without accommodative Central banks and you are looking like a zombie (or worse reliant upon monetary financing which is straight to hyper inflation hell).
So 2 years before I was born.........
"The Nixon shock refers to the effect of a series of economic measures, including wage and price freezes, surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold, taken by United States President Richard Nixon in 1971 in response to increasing inflation.[1][2]
Although Nixon's actions did not formally abolish the existing Bretton Woods system of international financial exchange, the suspension of one of its key components effectively rendered the Bretton Woods system inoperative.[3] While Nixon publicly stated his intention to resume direct convertibility of the dollar after reforms to the Bretton Woods system had been implemented, all attempts at reform proved unsuccessful. By 1973, the current regime based on freely floating fiat currencies de facto replaced the Bretton Woods system for other global currencies.[4]
So when I was born it was the fiat taps starting to be opened?
When prior to this the Gold standard worked best (it didn't work well all the time) it
"led to a system of fixed exchange rates, and balance of payments between nations were adjusted by gold flows to maintain the rates. Wen and Reinbold provided the example that if a nation runs a trade surplus under this system, that nation will then have a net inflow of gold; conversely, a trade deficit leads to a net outflow of gold. Therefore, it becomes difficult for a country to sustain persistent trade deficits because that leads to persistent net outflows of gold, in turn making it difficult to defend the gold parity.
“Ultimately, adhering to the gold standard prevents large gyrations in a nation’s balance of payments,” Wen and Reinbold wrote. “In addition, fixed exchange rates make the cost of foreign goods more predictable, which can facilitate international trade.” "
I don't want to get in the specific Gold side of things here, more that I just want to highlight the very easily understandable facts that in a productive global economy those doing the most work and exporting the most goods were then rewarded and the other side had to pay in something, which at the time was Gold, it kept things more honest/transparent?
You can see the equitable nature of this system and how it would encourage an ebb and flow of work/innovation for a country to go between trade deficits and surpluses, it also shows the problems faced by someone wanting to be a net importer of goods and services over a long time?
Fiat 'seems' to have facilitated many countries to run constant trade deficits, and it's hard to not see this as getting something for nothing and there therefore being an element of exploitation? As we live on the right side of this I spose it pays to keep quiet and enjoy the spoils?
The US did ok for 3 years after 1973, but from 1976 it's never again run a trade surplus, never, since 1997 it's tipped into the hundreds of billions and it's now heading towards a trillion. Instead of them paying a lot of Gold and promptly running out, they have been able to pay/owe dollars (and keep their Gold!), that they can print/keystroke into existence and that the creditors can't do much but accept them as to now destroy the value of them would be to hurt themselves too in the process?
So the US is too big to fail? never mind the banks? Also as they have used those decades of trade deficits to amass among other things a huge military power then "resistance is futile" !?
What is the result of their ever increasing debt ceiling, it never seems to matter and always gets raised, so why not go the whole hog and eliminate taxes for all US citizens and just bump the debt ceiling that bit higher and more often? essentially when is too much debt truly too much and what happens when it finally is.........it feels like every debt ceiling bump like every bank bail out means nothing/has no noticeable consequences to the ordinary person on the street, but that an "enough is enough" moment/scenario, will be very noticeable! but as it gets close to happening the will/means for anyone to do anything about it disappears?
So any soft landing can only be short lived as it doesn't do much to fix the underlying debt issue?
"The Nixon shock refers to the effect of a series of economic measures, including wage and price freezes, surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold, taken by United States President Richard Nixon in 1971 in response to increasing inflation.[1][2]
Although Nixon's actions did not formally abolish the existing Bretton Woods system of international financial exchange, the suspension of one of its key components effectively rendered the Bretton Woods system inoperative.[3] While Nixon publicly stated his intention to resume direct convertibility of the dollar after reforms to the Bretton Woods system had been implemented, all attempts at reform proved unsuccessful. By 1973, the current regime based on freely floating fiat currencies de facto replaced the Bretton Woods system for other global currencies.[4]
So when I was born it was the fiat taps starting to be opened?
When prior to this the Gold standard worked best (it didn't work well all the time) it
"led to a system of fixed exchange rates, and balance of payments between nations were adjusted by gold flows to maintain the rates. Wen and Reinbold provided the example that if a nation runs a trade surplus under this system, that nation will then have a net inflow of gold; conversely, a trade deficit leads to a net outflow of gold. Therefore, it becomes difficult for a country to sustain persistent trade deficits because that leads to persistent net outflows of gold, in turn making it difficult to defend the gold parity.
“Ultimately, adhering to the gold standard prevents large gyrations in a nation’s balance of payments,” Wen and Reinbold wrote. “In addition, fixed exchange rates make the cost of foreign goods more predictable, which can facilitate international trade.” "
I don't want to get in the specific Gold side of things here, more that I just want to highlight the very easily understandable facts that in a productive global economy those doing the most work and exporting the most goods were then rewarded and the other side had to pay in something, which at the time was Gold, it kept things more honest/transparent?
You can see the equitable nature of this system and how it would encourage an ebb and flow of work/innovation for a country to go between trade deficits and surpluses, it also shows the problems faced by someone wanting to be a net importer of goods and services over a long time?
Fiat 'seems' to have facilitated many countries to run constant trade deficits, and it's hard to not see this as getting something for nothing and there therefore being an element of exploitation? As we live on the right side of this I spose it pays to keep quiet and enjoy the spoils?
The US did ok for 3 years after 1973, but from 1976 it's never again run a trade surplus, never, since 1997 it's tipped into the hundreds of billions and it's now heading towards a trillion. Instead of them paying a lot of Gold and promptly running out, they have been able to pay/owe dollars (and keep their Gold!), that they can print/keystroke into existence and that the creditors can't do much but accept them as to now destroy the value of them would be to hurt themselves too in the process?
So the US is too big to fail? never mind the banks? Also as they have used those decades of trade deficits to amass among other things a huge military power then "resistance is futile" !?
What is the result of their ever increasing debt ceiling, it never seems to matter and always gets raised, so why not go the whole hog and eliminate taxes for all US citizens and just bump the debt ceiling that bit higher and more often? essentially when is too much debt truly too much and what happens when it finally is.........it feels like every debt ceiling bump like every bank bail out means nothing/has no noticeable consequences to the ordinary person on the street, but that an "enough is enough" moment/scenario, will be very noticeable! but as it gets close to happening the will/means for anyone to do anything about it disappears?
So any soft landing can only be short lived as it doesn't do much to fix the underlying debt issue?
Edited by Scootersp on Tuesday 19th March 16:08
OoopsVoss said:
But the medicine is working... CPI down to lowest level since 2021 and under expectation 3.4%. Jeremy Hunt says the medicine is working and inflation will be 2% soon (one assumes he hopes the Tories have lost the next election when base effects bump it up again).....
Hmmmmmm......
You can see the positive spin in action, Hmmmmmm......
Hunt's tweet
"Beating back inflation has been this Government’s number one priority. It’s now half what it was - down from 10.7% to 4.6%. That’s thanks to deliberate action we’ve taken - being disciplined on spending, helping people into work, and resisting calls for additional borrowing"
Hunt reported as saying
"families across the UK will have welcomed today's inflation figures with a 'sign of relief' "
Is anyone pointing out that something that was £100 went to £110.70 and now to £115,79 (instead of £122.54) so the relief is relative, the rate at which you are getting poorer has slowed, but you are still getting poorer is a bit harder to breathe a sigh of relief to!?
£100 at the target 2% would have taken 5 years to increased to the £110.70 that happened in 1 year, and over 7 years to get to the £115.79 figure that's happened now in 2 years.
From a BBC link
"This "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed."
It's an interesting 'basket'
https://www.bbc.co.uk/news/business-68515100
You'd think it would focus on essentials wouldn't you, not things some will never buy, or buy once or twice a year?
OoopsVoss said:
But the medicine is working... CPI down to lowest level since 2021 and under expectation 3.4%. Jeremy Hunt says the medicine is working and inflation will be 2% soon (one assumes he hopes the Tories have lost the next election when base effects bump it up again).....
Hmmmmmm......
The BoE twiddling the IR knob is not why inflation has come done though.Hmmmmmm......
But they had to be seen to do something and its the only knob they had to twiddle.
Tim Cognito said:
Does anyone else think house prices haven't really cooled enough for interest rate cuts? Feels like if rates start coming down this year we will return to stronger than desirable/sustainable house price growth.
That's exactly what I think will happen. If rates start coming down again now, the 5%+ base rates will just be seen as a blip and the housing market will rise accordingly.Deep Thought said:
The BoE twiddling the IR knob is not why inflation has come done though.
But they had to be seen to do something and its the only knob they had to twiddle.
Whilst I tend to agree that "twiddling the IR knob" has had limited effect here (or the timing is out), its definitely had an effect with all the major CBs twiddling concurrently. I'd counter, its definitely NOT the only knob they can "twiddle".But they had to be seen to do something and its the only knob they had to twiddle.
This is a leverage problem, QT - particularly speed off will or could have a far more immediate effect. Testing that theory gives everyone the willies. An abrupt tightening will de-leverage the financial system very, very quickly. Whether they could contain the asset price drops - no one wants to test. Its why, no one is going to let the current system fail.
Inflation is solely due to increase of currency supply which they did to obscene amounts. Prices aren’t increasing, the value of the currency is decreasing. Turning off those taps just means inflation will of course slow, which is has (well done Hunt!), all interest rate changes do is direct where that surplus currency goes to.
We need massive deflation, but that doesn’t fit into the debt driven economy system we have if the people at the top want to continue getting rich. Which they very much do, and are doing very well with it.
I used to visit the old Yugoslavia as a kid, and was astounded with the amount of zeros on their bank notes. If it wasn’t for digital transactions, our smallest currency denomination now would probably be the £10. No one would use coins. True currency worthlessness has been masked by the fact that no one knows the true value of it thanks to digital transactions. Not saying that’s a cause or a bad thing, but I think it’s why we keep going headlong over this cliff and don’t understand why.
We need massive deflation, but that doesn’t fit into the debt driven economy system we have if the people at the top want to continue getting rich. Which they very much do, and are doing very well with it.
I used to visit the old Yugoslavia as a kid, and was astounded with the amount of zeros on their bank notes. If it wasn’t for digital transactions, our smallest currency denomination now would probably be the £10. No one would use coins. True currency worthlessness has been masked by the fact that no one knows the true value of it thanks to digital transactions. Not saying that’s a cause or a bad thing, but I think it’s why we keep going headlong over this cliff and don’t understand why.
ThingsBehindTheSun said:
It will 100% stay at 5.25% tomorrow.
I think you won't be disappointed!Edited by ThingsBehindTheSun on Wednesday 20th March 20:01
The funs stuff is - who is going to change their vote. Forget about Dhingra who thinks the BoE should be at negative, lets see who moves around.....
Scootersp said:
OoopsVoss said:
But the medicine is working... CPI down to lowest level since 2021 and under expectation 3.4%. Jeremy Hunt says the medicine is working and inflation will be 2% soon (one assumes he hopes the Tories have lost the next election when base effects bump it up again).....
Hmmmmmm......
You can see the positive spin in action, Hmmmmmm......
Hunt's tweet
"Beating back inflation has been this Government’s number one priority. It’s now half what it was - down from 10.7% to 4.6%. That’s thanks to deliberate action we’ve taken - being disciplined on spending, helping people into work, and resisting calls for additional borrowing"
Hunt reported as saying
"families across the UK will have welcomed today's inflation figures with a 'sign of relief' "
Is anyone pointing out that something that was £100 went to £110.70 and now to £115,79 (instead of £122.54) so the relief is relative, the rate at which you are getting poorer has slowed, but you are still getting poorer is a bit harder to breathe a sigh of relief to!?
£100 at the target 2% would have taken 5 years to increased to the £110.70 that happened in 1 year, and over 7 years to get to the £115.79 figure that's happened now in 2 years.
From a BBC link
"This "basket of goods" is regularly updated to reflect shopping trends, with vinyl records and air fryers added in 2024, and hand sanitiser removed."
It's an interesting 'basket'
https://www.bbc.co.uk/news/business-68515100
You'd think it would focus on essentials wouldn't you, not things some will never buy, or buy once or twice a year?
among most people they’ll have seen negligible pay rises.
That’s huge amounts of disposable now not being spent.
With inflation back to neutral I don’t see how this is all over, a happy ending… it’s the start of a decade long slog for huge swathes of society just to get back to where we were in late 2019.
How is that a success, or a soft landing?
Can our economy really survive off the consumption of the top half of society?
That basket of goods sums it up perfectly.
Out with things like cookware that people have used for a century or more, in with an air-fryer.
No rotisserie chicken, but rice cakes.
Spray oil.
It reeks of thrift. Of a country buying things to make do.
Or with vinyl, a wealthy exuberant section of society with the means to buy LP players and indulge in nostalgia.
A true bifurcation of society, and not one that should signal positivity, but a depressing inequality that a supposed leading nation should be ashamed of.
I’m past caring now really. It’s all a bit f
ked.I could pretend it’s all great, but I have two young kids who have utterly no future in this country if this is the sign of things to come.
Where is the light at the end of the tunnel?
People always bang on about goals, or having a vision, without which you achieve nothing.
What are this country’s goals? It seems we have none. We’re just swirling the toilet with all politicians in blame/platitude/denial mode.
Pay down the debt? Nope.
Industrialise? Nope.
Embrace AI and tech, nope.
Infrastructure, nope.
Energy production and export, nope.
World class education? Nope.
Health? Nope.
Nope nope nope.
Mr Whippy said:
Can our economy really survive off the consumption of the top half of society?
That seems to me a pretty good summary of where we are today.Mr Whippy said:
A true bifurcation of society, and not one that should signal positivity, but a depressing inequality that a supposed leading nation should be ashamed of.
That's kinda related to the point I made previously. In essence, half the people may have most of the money but the other half have just as many votes when the election comes around. The political implications might lead almost anywhere.Meanwhile stock markets explore new all time highs which, with a bit of luck, go some way towards making up for the smouldering wreckage in bonds.
Panamax said:
That's kinda related to the point I made previously. In essence, half the people may have most of the money but the other half have just as many votes when the election comes around. The political implications might lead almost anywhere.
Meanwhile stock markets explore new all time highs which, with a bit of luck, go some way towards making up for the smouldering wreckage in bonds.
Worry not our dear leaders have already thought of that. Through a variety of methods political classes across most democracies including our own have successfully disenfranchised the poor and the young so they don’t turnout.Meanwhile stock markets explore new all time highs which, with a bit of luck, go some way towards making up for the smouldering wreckage in bonds.
djc206 said:
Worry not our dear leaders have already thought of that. Through a variety of methods political classes across most democracies including our own have successfully disenfranchised the poor and the young so they don’t turnout.
and even if they do the 2 choices are largely the same? and/or that's one of the methods!Gassing Station | Finance | Top of Page | What's New | My Stuff