Bank interest cut
Posted by: Bruce Woodhouse on 07 November 2008
Bear with me. I'm an economic simpleton perhaps. It is just that I don't really understand how the rate cut helps.
We are told the current crisis is partly fuelled by personal debt. A rate cut encourages personal borrowing, albeit with low rates. However rate will rise at some point, and jobs are being lost. Aren't we just encouraging more bad debt?
We are told UK banks had a ratio of savings to lending that used to be approx equal but that it has skewed heavily in recent years in favour of lending. Low interest rates means less savers may put their money with the banks. How does that help?
Is it just hoped to get the housing market moving again as an 'engine' to drive a recovery?
Bruce
Posted on: 07 November 2008 by Simon Douglass
My [likewise a simpleton]understanding is that most mortgage debt is based on the LIBOR and Darling seemed to be pleading with the Banks to pass on the effects of the BoE interest rate cut to borrowers, but stated the govt.cant't force them to. The interest rate cut will hopefully stimulate the willingness of banks to continue offering credit to companies that rely on it for cashflow. The effects on consumer spending/ confidence will probably not filter through for another 5-6 months.A cynical view might be that savings rates will be cut in line with the base rates, but borrowing rates will remain high, so the banks will be able to rake it in once more.
Simon
Posted on: 07 November 2008 by Bruce Woodhouse
Should the Govt consider artificially controlling the LIBOR?
Bruce
Posted on: 07 November 2008 by Simon Douglass
Posted on: 07 November 2008 by Bruce Woodhouse
Posted on: 07 November 2008 by Simon Douglass
Intriguing with regard to shared risk between borrower and lender being made more more explicit and interest linked to profitability of bank. One wonder if the enormity of the financial systems in the west could adapt to such a personal level between lenders and borrowers.I agree though, the current paradigm needs to change. The free market principles of western capitalism appears to have enslaved an awful lot of people.The money programme on the TV last night made this pretty clear.
Simon
Posted on: 07 November 2008 by Adam Meredith
quote:
Originally posted by Bruce Woodhouse:
Bear with me. I'm an economic simpleton perhaps. It is just that I don't really understand how the rate cut helps.
I may be able to help.
The economy is a small boat.
At present it is sinking and the passengers are dying of thirst.
What the Bank of England has done is provide a much needed injection of water.
If you don't understand how this is helpful you don't deserve your bonus.
OR -
This is homoeopathy in Bizarro World. A patient is ill so you give him loads more of the disease to cure him.
No bonus for Adam.Posted on: 07 November 2008 by BigH47
Posted on: 07 November 2008 by Cymbiosis
quote:
Originally posted by Adam Meredith:
I may be able to help.
The economy is a small boat.
At present it is sinking and the passengers are dying of thirst.
What the Bank of England has done is provide a much needed injection of water.
No bonus for Adam.
I'd want to fix the hole first!
At least I could die thursty then rather than drowning..... that has to be the worst
Of course I'd much prefer not to do either.
Any better with this one Big H?
KR
Peter
Paddling away furiously.........................
Posted on: 07 November 2008 by Adam Meredith
quote:
Originally posted by Cymbiosis:
I'd want to fix the hole first!
irony is the first to be eatenPosted on: 07 November 2008 by count.d
The economy is a big boat made in America.
At present it is sinking and the passengers think they're dying of thirst.
What the Bank of England has done is provide a much needed injection of water for the Captain and crew.
If you don't understand how this is helpful you don't deserve your drink.
Posted on: 07 November 2008 by Bruce Woodhouse
quote:
Originally posted by count.d:
The economy is a big boat made in America.
At present it is sinking and the passengers think they're dying of thirst.
What the Bank of England has done is provide a much needed injection of water for the Captain and crew.
If you don't understand how this is helpful you don't deserve your drink.
Did we miss the iceberg, or is that something looming in the mist?
Bruce
Posted on: 07 November 2008 by tonym
A smaller version quietly dissolves in my Gin and Tonic at this very moment.
Posted on: 07 November 2008 by Frank Abela
My understanding is that the current economic crisis is due to cashflow between banks, not due to the rates being paid at grass roots. By reducing the rate so much, the BoE is stimulating lending between banks as well as helping small businesses to absorb the stagnating cashflow. Once the cashflow increases to previous levels, they can put in the safeguards to ensure it continues.
Posted on: 07 November 2008 by count.d
quote:
Originally posted by Bruce Woodhouse:
quote:
Originally posted by count.d:
The economy is a big boat made in America.
At present it is sinking and the passengers think they're dying of thirst.
What the Bank of England has done is provide a much needed injection of water for the Captain and crew.
If you don't understand how this is helpful you don't deserve your drink.
Did we miss the iceberg, or is that something looming in the mist?
Bruce
Does anyone know anything? I spent four days at a petrochemical plant in June and they were forecasting oil to be $200+ a barrel by Christmas!
Posted on: 07 November 2008 by 555
quote:
A smaller version quietly dissolves in my Gin and Tonic at this very moment.
Given the economic outlook I'm having my G & T like this Tony!
Posted on: 07 November 2008 by JamieWednesday
Some lending is better than no lending.
Some lending is better than too much lending.
No Lending is as bad as too much lending.
No lending = no trade = no economy = doom.
We need some lending.
Posted on: 08 November 2008 by tonym
quote:
Originally posted by 555:
quote:
A smaller version quietly dissolves in my Gin and Tonic at this very moment.
Given the economic outlook I'm having my G & T like this Tony!
Posted on: 08 November 2008 by rupert bear
According to the Grauniad this morning, Terry Leahy, boss of Tesco, leaned heavily on Mervyn King to cut rates.
So here's how it really works.
Dame Shirley Porter creates the UK retail monster in the 1980s, then is hounded out of the country back to Israel.
Meantime, the company she created takes over the spending habits of the great British public. Suddenly the bubble bursts and Dame Shirley's pension looks wobbly. Now we know who really runs UK plc.
The initial poster is correct: cutting rates is simply going to re-fuel the flames which caused the firestorm.
Posted on: 08 November 2008 by 555
Dame PS wasn't hounded out of the country Rupert,
she left of her own accord in an attempt to avoid justice.
Posted on: 08 November 2008 by Bob McC
quote:
Dame Shirley Porter creates the UK retail monster in the 1980s, then is hounded out of the country back to Israel
Have you got an honours degree from the Stasi in writing revisionist history?
Posted on: 10 November 2008 by rupert bear
quote:
Originally posted by bob mccluckie:
quote:
Dame Shirley Porter creates the UK retail monster in the 1980s, then is hounded out of the country back to Israel
Have you got an honours degree from the Stasi in writing revisionist history?
I take your point! But I do feel it's a bit worrying when policy seems to be dictated by the CEOs of leading retailers - not exactly a balanced judgment which will benefit society as a whole.
And Tesco is a retail monster - hugely over-powerful, and with some very dodgy business practices - which have all been very well-documented by better historians than me or the Stasi.
Posted on: 10 November 2008 by David McN
