There are countries like Japan where interest rates have hardly shifted and inflation remains low.
Japan has had decades of very low growth. The Japanese government has been trying to stimulate the economy with very low interest rates. The lack of inflation is an indication of a problem, not of anything good.
https://data.worldbank.org/share/widget?indicators=NY.GDP.MKTP.KD.ZG&locations=JP
https://data.worldbank.org/share/widget?indicators=FP.CPI.TOTL.ZG&locations=JP
I was under the impression that the main reason for raising interest rates is to strengthen the currency. Which, if you buy stuff on the global market is useful.
I may be completely wrong and might have imagined it.
And most of that money going straight into bankers pockets.
Folk I know that actually are bankers will surely be happy, because they don't currently seem to millionaires. How does it work - is there a big bucket of notes in each branch that one can just help themselves to?
Might be a good payday for bucket manufacturers too then.
<p style="text-align: left;">Folk I know that actually are bankers will surely be happy, because they don’t currently seem to millionaires. How does it work – is there a big bucket of notes in each branch that one can just help themselves to?</p>
More accurately goes to people with assets.
That what interest does.
Generally that's people who are very well off.
is there a big bucket of notes in each branch that one can just help themselves to?
Would've thought it obvious that I'm not talking about branch workers. You can hardly describe them as 'bankers'. I'm talking about those who work in the city, who benefit from 6 figure salaries and bonuses. The banks are going to make billions in extra profits from interest rates being hiked, and that will find it's way into bonus pots. I don't know about you, but more than a little pissed off that I'm going to be paying hundreds more per month to make millionaire bankers richer.
I was under the impression that the main reason for raising interest rates is to strengthen the currency. Which, if you buy stuff on the global market is useful.
I may be completely wrong and might have imagined it.
No not at all.
The $ rate has been dropping against the £, and the Fed have been relatively aggressive.
Just get used to the idea that currency fluctuates for all manner of reasons based on supply and demand. The USA had a damn good run.
However there is an element of chase me with interest rates but like I say look to Japan.
The hawks keep telling us how bad it is and yet Japan has 3.5% inflation rate.
<p style="text-align: left;">Japan has had decades of very low growth. The Japanese government has been trying to stimulate the economy with very low interest rates. The lack of inflation is an indication of a problem, not of anything good.</p>
Possibly. But then look at the state of our economy and then say that with a straight face whilst enjoying mega prices on energy etc.
Markets are tools and seems to me they don't work for the majority of people.
Markets are designed for a middle man to cream profit from something that was originated in the state - a good chunk of the time.
It's bollocks
And I would argue Japan has good metrics for well-being something that doesn't get a look in got western economies.
Look - inflation is a measure of someone or organisation mitigating their costs to someone else. Mostly starts with energy.
We simply need to produce more energy most of the time to not get in this situation.
Nothing to do with monetarism.
Japan has had decades of very low growth.
You say that as if it's automatically a bad thing. I'd prefer a steady state, high employment, low growth economy in return for low interest rates and stable prices. I suspect the vast majority of working people would too. GDP growth means nothing to working people if the beneficiaries of that growth are in the top 10%. I really don't think you understand the scale of the financial hit on working people in the past couple of years.
Raising interest rates doesn’t automatically make banks rich. Banks have to borrow money to cover the loans they make. Given lots of people have fixed rate mortgages when the rates go up, the banks make less money. The consequences of this are evident from the spate of recent bank failures, particularly in the US (Silicon Valley Bank and First National most notably).
Whist the current round of inflation started due to shocks in supply, in the UK it has clearly become chronic; the wholesale prices of energy and food have fallen back but inflation is continuing. This is because, broadly, people are able to pay the prices and get pay rises to compensate. Interest rates aim to cut consumer spending by making people with mortgages poorer, but more importantly constrain companies’ and the goverment’s ability to give pay rises.
The net result is people feeling poorer than they did, but that’s the reality. We bailed out of the EU, hid behind the sofa through Covid, and have an aging and increasingly obese population. All of those are expensive, so it’s not realistic to maintain the level of income that we had before unless we can grow the economy through increased productivity.
Of course this sucks if you don’t have much disposable income to start with, but as demonstrated above neither does inflation as your wages are always one step behind prices.
Raising interest rates doesn’t automatically make banks rich. Banks have to borrow money to cover the loans they make.
And yet my bank - Nationwide just managed to cough up a spare £100 to give to all of its members that qualified.
Interest rates aim to cut consumer spending by making people with mortgages poorer, but more importantly constrain companies’ and the goverment’s ability to give pay rises.
For sure - but it's counter-intuitive when your government claims they want to return to growth.
In the USA people mostly have fixed rate mortgages (30 year) - and the biggest payer of interest is the US government on securities - so thus far the interest has been acting as a stimulus.
But each country's central bank plays catch up with the Fed with different short term and long term effects.
So short term currency markets may move around but over the long term interests rates are unlikely to be a dominant driver of currency strength ($ is dropping as we speak.) Hence why the Truss drop was so short lived and not really an indication of much other than the precipice that our economy operates on.
And don't forget currency speculators do well out of both directions - once the price drops to a certain level it will be bought back up.
All of those are expensive, so it’s not realistic to maintain the level of income that we had before unless we can grow the economy through increased productivity.
Another myth, wages would need to rise by 25% to match the productivity growth of the past 40 years. Productivity and wage growth have been decoupled, the workforce have met the productivity demanded by business to justify wage growth, but wagegrowth has not followed.
Whist the current round of inflation started due to shocks in supply, in the UK it has clearly become chronic; the wholesale prices of energy and food have fallen back but inflation is continuing.
You are Andrew Bailey and I claim my 5 pounds. Utter nonsense. Last time I looked my gas and leccy bills are still triple what they were two years ago. The drop in wholesale prices haven't been passed on. Why is that? Naked profiteering basically. Inflation is still being fuelled by energy prices, not too much money in the economy.
This is because, broadly, people are able to pay the prices and get pay rises to compensate.
Have you been living under a rock? Have you missed the record rise in use of food banks? There's also been a massive rise in shoplifting. Yes, some better off families can absorb the increases in the short term, I'm in that position myself. But that's because we're not saving, not going on holidays, and aren't spending on anything we don't actually need. It's not because we got bumper pay rises.
Interest rates aim to cut consumer spending by making people with mortgages poorer
It doesn't have to be this way. The UK has a mortgage market from the wild west. Even the US protects mortgage holders against fluctuations in interest rates and markets. There is no reason to punish borrowers, it's just a convenient way of getting them to pay to prop up the rich.
PS. @mods this is a really daft thread title. Can we change it to something relevant to the subject matter?
next year when I remortgage I’m looking at an extra £300-400/month and that’s assuming rates don’t go up again.
One the reasons inflation rate increases aren't having the immediate effect that they have done before. Most people used to be on tracker mortages, whereas now the majority are on fixed interest deals for 5-10 years. For those who re-mortgaged before the recent increases, or don't need to for some time, the BoE won't really be affected as much. Throw in the fact that Banks and Building Soc aren't (or haven't to date) incresed saving rates to match BoE rates, and there's not been the incentive to row back on spending by those who can afford to.
6% base rate will be the cruncher.
Its time this ridiculous system was put to sleep.
Currently ready a paper that says the natural rate of interest should be close to zero anyway.
All other economic targets can still be achieved.
I've never known such a system keep going and delivering such appalling results - and everyone just keep believing this is the only way to manage an economy.
