Property crash, just maybe it really is different this time

[spygirl]

On 13/06/2022 at 15:54, spygirl said:

To prevent further  inflation de to weak £, the BoE needs to set rates at least 1% higher than the FED.

Always been the case.

The BoE has never been fully independent; just independent to set rates x% higher than the FED.

 

, assuming 4% as the top  which may be wrong - BoE rates need to go 5%, with the current 2%-3% spread of mortgage rates ....

7%-8%.

Looks like the BoE wont be needing to apply the 6% IR affordability test anymore ...

 

I had a quick look to see the earliest post I made the claim - UK needs rates 1%-2% above FED.

Over the years, Ive made this statement multiple times, both here and TOS.

Found this one, which is only June 22.

UK shop price inflation rises to record high, industry data shows

Food cost growth eases slightly as lower energy costs filter through supply chains

https://www.ft.com/content/e217b6db-b34f-4b57-b673-bf84adb5263a

UK shop price inflation reached its highest rate for at least 18 years in May, despite the pace of food price growth marginally easing, according to new sector data.

The cost of shop items rose at an annual rate of 9 per cent last month, up from 8.8 per cent in April, marking the fastest increase since the British Retail Consortium (BRC) records began in 2005, the trade body said on Tuesday.

The 'at least 1% above FED' has been true since coming off gold standard in the early 70s.

BoE sets rates higher - or faces higher inflation a few quarters down the road and has to raise rates much higher.

The only wild card/ unknown is how much worse does having China make this situation.

And the answer to that is - probably a lot.

At the mo, Chinks are recovering from 3y of coof lockdown - with no gov support.

Soon their consumption will crank up.

 

 

 

[spygirl]

R4 just mentioned a BoE gets a kicking column -

https://www.dailymail.co.uk/columnists/article-12137727/STEPHEN-GLOVER-bumbling-inept-Governor-Bank-fall-sword.html

Even the former Labour Chancellor's critics have mostly agreed that, although he may have made his fair share of mistakes, he was right to remove self-serving politicians from the process of setting interest rates.

And, indeed, for many years Mr Brown's revolution appeared to have been vindicated. Until recently, Britain enjoyed a long period of low inflation, although as other developed economies also did, the Bank can scarcely lay claim to unique competence.

But what happens if the Bank seriously fouls up? What can, and should, the Government do if the Governor of the Bank of England makes a series of mistakes for which he's unwilling to accept responsibility?

This is the predicament in which we now find ourselves. Mr Brown's much-lauded system no longer seems so perfect after all. 

The talking heads n techocrats are *still* getting Browns changes wrong.

He didnt give BoE independence for independence sake.better monetary control

He tied up the BoE and Treasury and regulators with al aod of new roles and frameworks so theyd be tied up not knowing who does what when he started his massive Vote for me bubble in 2002.

That the Bank has failed in its remit can't be denied. Although Britain's annual headline rate of inflation fell from 10.1 to 8.7 per cent in April, it is still the highest among the advanced G7 economies.

The price of food has risen faster in the UK than in almost any other advanced economy. Over 12 months, the cost of eggs has gone up by 37 per cent, of milk by 34 per cent and of flour by 30 per cent.

It seems certain that interest rates will rise from the current level of 4.5 per cent, possibly as far as 6 or even 7 per cent, according to some economists. That would mean cripplingly higher mortgage rates for millions, and possibly a crash in house prices.

There are those scary rates before. However, once you look at the spread on borrowing, and this is especially true for 'non standard/specialist lending ' i.e high LTE loans and commercial lending such as FHLs and BTL.

IO BTL SVR is 6% plus.

Its not going to be long before SVR hit 12%+

 

 

[spygirl]

And now — if we may leave Mr Bailey and the Bank of England for a moment — we see the ludicrous spectacle of the Government contemplating its own form of exhortation. It hopes to persuade supermarkets not to put up the price of some foods.

It would be astonishing if this sticking-plaster approach to economics were effective. Supermarkets aren't going to impoverish themselves to please ministers. They may go along with the plan in order to look like goody-goodies, but they won't undermine their own businesses, and nor should they be expected to.

What this risible episode reveals is that the Government has rather little in its locker when it comes to controlling inflation, and so takes refuge in idiotic notions such as asking capitalists to cut their profit margins.

Real power lies with a dysfunctional Bank of England, which could and should have brought inflation under control if it had acted earlier. It will probably now be forced to raise interest rates to a level at which they could precipitate a recession, and at the very least are bound to cause widespread pain.

But when things go wrong — when the mistakes of the Bank actually serve to worsen an admittedly already dire situation — people are liable to ask whether the system introduced by Gordon Brown is so wonderful after all.

No ........ surely not ....

[spygirl]

That may well be true. But what about the trust of the people in what is supposedly a democracy? The British constitution isn't set in stone. The Bank was nationalised in 1946. Twenty-five years ago, a flawed politician made it independent. If it fails at a time of crisis, as it has, its role should be reviewed.

[GTM]

14 minutes ago, spygirl said:

Even the former Labour Chancellor's critics have mostly agreed that, although he may have made his fair share of mistakes, he was right to remove self-serving politicians from the process of setting interest rates.

This is absolute crap. I struggle to think of anything more political than interest rates. The Bank of England has spent at least the last 15 years smashing prudent savers and staying the hangman's hand for over leveraged morons. But there is absolutely nothing prudent savers could do to vote against this as it was all stitched up by a load of unelected technocrats.

I've absolutely no faith in politics or politicians, but I have even less faith in unelected technocrats. How can anybody argue that massive power without any kind of accountability is a good thing?

[sleepwello'nights]

On 26/05/2023 at 08:28, Yadda yadda yadda said:

 

Those flats are fucked. They're not viable. They will end up owned by a housing association.

 

and fall into disrepair.

[Frank Hovis]

24 minutes ago, GTM said:

This is absolute crap. I struggle to think of anything more political than interest rates. The Bank of England has spent at least the last 15 years smashing prudent savers and staying the hangman's hand for over leveraged morons. But there is absolutely nothing prudent savers could do to vote against this as it was all stitched up by a load of unelected technocrats.

I've absolutely no faith in politics or politicians, but I have even less faith in unelected technocrats. How can anybody argue that massive power without any kind of accountability is a good thing?

 

Surely the government controls them anyway because it sets the inflation target for which the BoE must aim.

For years the inflation target was 2%, inflation was below that so the interest rate could stay stupidly low.

If the government had ever wanted to lift the interest rate all that they had to do was to reset the inflation target to 0.5% and then the BoE would have had to raise the base rate to achieve this.

 

Though taking the longer view, as @spygirl mentioned, the usual position of the UK base rate is 1% or so above the US base rate to prevent sterling falling against the dollar, making the whole debate fairly pointless so abolish the BoE and just put into statute that the UK base rate = the US base rate + 1%.

[sleepwello'nights]

On 26/05/2023 at 23:23, With a crooked smile said:

The real killer is that over 100k they take away your tax free allowance meaning you pay 60% tax between approx 100-125k.

Despite DOSBODS moaning about 40% tax I've never been too bothered about that. But the 60% bracket above 100k really got me.

It seems that a sensible strategy is to take advantage of the tax breaks by putting your earnings into pensions. Now why would the government encourage that? 

[Guest]

2 hours ago, Frank Hovis said:

 

Surely the government controls them anyway because it sets the inflation target for which the BoE must aim.

For years the inflation target was 2%, inflation was below that so the interest rate could stay stupidly low.

If the government had ever wanted to lift the interest rate all that they had to do was to reset the inflation target to 0.5% and then the BoE would have had to raise the base rate to achieve this.

One of the main arguments for central bank "independence" was always meant to be that without needing to worry about re-election independent central bankers would find it easier to say no and take the punch bowl of cheap debt away when necessary. In reality we got 15 years of ZIRP and highly political central bank governors who send letters to the Chancellor of the Exchequer about wildly missing their inflation target yet again with no institutional consequences and who make speeches about how inflation can't possibly be the result of their money printing.

Edited May 30, 2023 by Guest

[Frank Hovis]

1 minute ago, Darude said:

One of the main arguments for central bank "independence" was always meant to be that without needing to worry about re-election independent central bankers would find it easier to say no and take the punch bowl of cheap debt away when necessary. In reality we got 15 years of ZIRP and highly political central bank governors who send letters to the Chancellor of the Exchequer about wildly missing their inflation target yet again with no institutional consequences and making speeches about how inflation can't possibly be the result of their money printing.

 

One genuinely independent central bank is that of Japan but the current incumbent is a low interest rate fanatic which is even worse!

 

At its two-day meeting that ended on Friday, the BOJ maintained its short-term interest rate target at -0.1% and that for the 10-year bond yield around 0%.

https://www.cnn.com/2023/03/10/economy/japan-boj-kuroda-hnk-intl/index.html

 

[Rare Bear]

Actually the inflation target should be zero as inflation is a wealth tax. So the UK interest rate needs to be high enough to maintain zero inflation. Getting the inflation rate to zero may need high rates but maintaining it probably won't. After all, sterling would be one of the few stable currencies in the world.

Other countries rates would become much less relevant.

 

 

[Guest]

21 minutes ago, Rare Bear said:

Actually the inflation target should be zero as inflation is a wealth tax. So the UK interest rate needs to be high enough to maintain zero inflation. Getting the inflation rate to zero may need high rates but maintaining it probably won't. After all, sterling would be one of the few stable currencies in the world.

Other countries rates would become much less relevant.

Yes, 2% inflation being better for economic growth than stable prices seems like complete superstition. Switzerland has had decades of very low inflation and has a strong economy and high standard of living.

[GTM]

4 hours ago, Frank Hovis said:

Surely the government controls them anyway because it sets the inflation target for which the BoE must aim.

For years the inflation target was 2%, inflation was below that so the interest rate could stay stupidly low.

If the government had ever wanted to lift the interest rate all that they had to do was to reset the inflation target to 0.5% and then the BoE would have had to raise the base rate to achieve this.

I'm sure somebody, somewhere has worked this out, but of the nearly 26 years that the BoE has been "independent" I wonder just how often the Governor's secretary has had to use their letter writing skills compared to those where they get a break. I don't see that the actual target makes much difference. You have a small coterie with their own beliefs and agendas who are given free reign to indulge themselves. They'll draw a little fan chart explaining how they'll get it right soon and there is nothing that most people, especially those of us who pay for this shitshow, can do to put a stop to it.

[Frank Hovis]

2 minutes ago, GTM said:

I don't see that the actual target makes much difference.

 

I agree that it hasn't and that's because the BoE has, from 2008 - 2022, given the government exactly what it wants.

I am sure that the Chancellor and the Governor meet regularly to make sure that the BoE follows the government line; that is the primary means of control and not the publicly stated inflation target.

[sancho panza]

5 hours ago, Frank Hovis said:

 

Surely the government controls them anyway because it sets the inflation target for which the BoE must aim.

For years the inflation target was 2%, inflation was below that so the interest rate could stay stupidly low.

If the government had ever wanted to lift the interest rate all that they had to do was to reset the inflation target to 0.5% and then the BoE would have had to raise the base rate to achieve this.

 

Though taking the longer view, as @spygirl mentioned, the usual position of the UK base rate is 1% or so above the US base rate to prevent sterling falling against the dollar, making the whole debate fairly pointless so abolish the BoE and just put into statute that the UK base rate = the US base rate + 1%.

They also decide which inflation measure to target and obviously ignored any measuyre that included house prices.

[sancho panza]

Jan 23 transaction figures and things are looking low

pointless trying to read anything into the rpice action as transaction so low

 

[Democorruptcy]

8 hours ago, Frank Hovis said:

 

Surely the government controls them anyway because it sets the inflation target for which the BoE must aim.

For years the inflation target was 2%, inflation was below that so the interest rate could stay stupidly low.

If the government had ever wanted to lift the interest rate all that they had to do was to reset the inflation target to 0.5% and then the BoE would have had to raise the base rate to achieve this.

 

Though taking the longer view, as @spygirl mentioned, the usual position of the UK base rate is 1% or so above the US base rate to prevent sterling falling against the dollar, making the whole debate fairly pointless so abolish the BoE and just put into statute that the UK base rate = the US base rate + 1%.

Except inflation wasn't low before the recent spike, CPI was 5.1% and RPI 5.7% in 2011 when interest rates stayed at a stupidly low 0.5%.

[Frank Hovis]

2 minutes ago, Democorruptcy said:

Except inflation wasn't low before the recent spike, CPI was 5.1% and RPI 5.7% in 2011 when interest rates stayed at a stupidly low 0.5%.

 

Yes, I remember as I was piling money into RPI linked NS&I bonds at that point as they were RPI+1%, this was my house fund and was going up much faster than house prices. 

Then when inflation dropped I cashed it all in and bought in 2014.

[Rare Bear]

A view from the Telegraph

[One percent]

10 hours ago, Frank Hovis said:

 

Surely the government controls them anyway because it sets the inflation target for which the BoE must aim.

For years the inflation target was 2%, inflation was below that so the interest rate could stay stupidly low.

If the government had ever wanted to lift the interest rate all that they had to do was to reset the inflation target to 0.5% and then the BoE would have had to raise the base rate to achieve this.

 

Though taking the longer view, as @spygirl mentioned, the usual position of the UK base rate is 1% or so above the US base rate to prevent sterling falling against the dollar, making the whole debate fairly pointless so abolish the BoE and just put into statute that the UK base rate = the US base rate + 1%.

I’m not sure it was. More likely they played with the figures.  

[Democorruptcy]

2 hours ago, Frank Hovis said:

 

Yes, I remember as I was piling money into RPI linked NS&I bonds at that point as they were RPI+1%, this was my house fund and was going up much faster than house prices. 

Then when inflation dropped I cashed it all in and bought in 2014.

You weren't in 2011 because the last issue of ILC's was July 2010.

[spygirl]

1 hour ago, Rare Bear said:

A view from the Telegraph

It echoes comments from Willem Buiter, Andrew Sentance and DeAnne Julius, who all worked for the Central Bank’s Monetary Policy Committee, who this weekend said steeper rate rises would need to be implemented this summer to stamp out inflation.

Mr Buiter said he anticipated a peak of “no less than 6pc”, adding: “They’re going to have to go significantly higher. There’s no way in which a 4.5pc policy rate will do the job.”

In July, when the Bank rate was 1.25pc and markets had priced in a peak of 3pc, Jon Cunliffe, the Bank’s Deputy Governor, said 5pc was the level at which mortgage borrowers and companies would run into debt distress

 

Again. People under 45 have been priced out/out bid by io btlers on property.

 

People over 60ish don't tend to have much mortgage debt.

 

Saying higher rates = recession just doesn't work.

 

 

[Frank Hovis]

15 minutes ago, Democorruptcy said:

You weren't in 2011 because the last issue of ILC's was July 2010.

 

I'm sure I was, I was putting in about £60k a year with the new issues (2 x 3 yr, 2 x 5 yr) and rolling maturing certificates.  It came to a bit under £300k when I cashed it all in in 2014.

Given that it was £300k I must have started before 2011 but I'm sure that I was still buying afterwards.

[Democorruptcy]

9 minutes ago, Frank Hovis said:

 

I'm sure I was, I was putting in about £60k a year with the new issues (2 x 3 yr, 2 x 5 yr) and rolling maturing certificates.  It came to a bit under £300k when I cashed it all in in 2014.

Given that it was £300k I must have started before 2011 but I'm sure that I was still buying afterwards.

I have some and thinking about it, you might have got a 5 year in 2011 but the 3 year definitely stopped in 2010. It's disgusting they were pulled, especially as the US has never stopped issuing their comparable I-Bonds.

I got just over 10% on a payment for one earlier this month because in 2019 the robbers switched renewals from RPI to CPI.

[Frank Hovis]

3 minutes ago, Democorruptcy said:

I have some and thinking about it, you might have got a 5 year in 2011 but the 3 year definitely stopped in 2010. It's disgusting they were pulled, especially as the US has never stopped issuing their comparable I-Bonds.

I got just over 10% on a payment for one earlier this month because in 2019 the robbers switched renewals from RPI to CPI.

 

Long term I always prefer equities but I was buying these specifically for a house purchase so I wanted something which was a cash equivalent and wasn't subject to crashes but still rose above inflation, albeit only by 1% though that was something.

I agree that it's terrible they aren't still available as that betrays a total lack of confidence in the strength of the currency by the government, if they were confident that they could control inflation then they would be happy to issue index linked bonds at RPI and not CPI.