Deflation ?

[Cyberman]

A one percent cut right now would help a lot of people, regardless of what the negative commentators state.
Most banks will reduce rates because it is not in their interests to kill the economy.
HSBC, my bank, have followed the cuts on every occasion, and it is in my mortgage contract that I pay no more than 1 percent over base rate.

[HairyArsedBloke]

You've got some hopes!

Rate cuts will no longer reach the consumer as balance sheets are rebuilt.

See this from the Times.

[Cyberman]

You've got some hopes!

Rate cuts will no longer reach the consumer as balance sheets are rebuilt.

See this from the Times.

HSBC has a solid balance sheet and actually lends less than it has in deposits. What you say is no doubt true for some banks, but HMG may well bring in a less restrictive regime during the current crisis.... new asset valuation rules brought in a few months ago by New Lie are actually exacerbating the capital problems.

The Tories have already stated that they will change the way bank assets are valued to be more flexible, when they are in power.

[HairyArsedBloke]

The Tories have already stated that they will change the way bank assets are valued to be more flexible, when they are in power.

Oh yeah, put an end to mark-to-market valuations. FFS. It was the stuff that couldn’t be valued that way that got us into trouble. Loads of dodgy illiquid stuff were instead valued using mark-to-model or as one wag put it ‘mark-to-myth’ which gave grossly over inflated prices. So the only viable alternative option for government favours this; we are even greater doomed.

[Cyberman]

Oh yeah, put an end to mark-to-market valuations. FFS. It was the stuff that couldn’t be valued that way that got us into trouble. Loads of dodgy illiquid stuff were instead valued using mark-to-model or as one wag put it ‘mark-to-myth’ which gave grossly over inflated prices. So the only viable alternative option for government favours this; we are even greater doomed.

It wasn't the valuations of those mortgage instruments that got us into trouble, but the fact that banks were allowed in the first place to play pass the parcel with billions of US subprime and also to sell on their own packages to keep liabilities off book, and thus increase their lending beyond sustainable levels.

To allow self-certified mortgages to the unemployed, and also not to make rudimentary checks on house valuations is accessory to fraud.

That was a failure of regulation, banking management and it is time that the commission model of bank pay is scrapped.

[BrilloPad]

It wasn't the valuations of those mortgage instruments that got us into trouble, but the fact that banks were allowed in the first place to play pass the parcel with billions of US subprime and also to sell on their own packages to keep liabilities off book, and thus increase their lending beyond sustainable levels.

To allow self-certified mortgages to the unemployed, and also not to make rudimentary checks on house valuations is accessory to fraud.

That was a failure of regulation, banking management and it is time that the commission model of bank pay is scrapped.

Of course during that period the nominal amount of regulation increased. Loads more red tape - with no common sense.

Will the regulation ever involve any common sense?

[MPwannadecentincome]

Deflation is not so good for assets where loans or mortgages are outstanding, as this is the opposite case to the "previous" generation (ie my parents) where massive inflation eroded the size of their mortgages to pracitically nothing. Deflation would result in the asset remaining or decreasing in value but the size of the loan not getting much smaller in proportion.

Provided income remain stable then this is probably not a problem if the loan repayment is affordable. If income is wages these may remain stable, however if income is rent from a commercial let or residential buy to let then this is likely to drop and could fall below the level of the loan interest.

That is not to say that it is not bad for fully owned assets, it is just the impact may be less for those.

We are already seeing asset deflation in terms of share prices, housing and commercial property.

Personally I do not think this country or Europe will see significant price deflation as the resistance to wage drops will be high even with some increase in unemployment. However, if unemployment increases significantly above anything seen in recent recessions then I think we will see some wage and price deflation for some time before recovery is likely. It will be interesting to see what happens to interest rates then as when Japan hit the deflationary cycle interest rates were at or near zero for a long time I believe.

[xoggoth]

Has deflation ever happened in UK? Don't recall it. I remember stagflation.

[Diver]

I thought this thread was going to be about tyre punctures

[AtW]

I thought this thread was going to be about tyre punctures