A big rate cut at last !!?? I hope........

[Peoplesoft bloke]

History shows that it would have helped. SMUG

What history? The CyberTory Historical Fiction Channel?

[Cyberman]

You still don't get it? Most economists believe low rates are the reason we were in this mess in this first place, cheap money, easy credit, bang!
If rates were higher and reflected true inflationary pressures the banks would not have been lending so freely for so long. The cruch was caused by low rates! and your plan would have been to lower them further. But then your concern isn't the wider economy but servicing YOUR mortgage.


PS As an economic 'expert' you are the person who also told us the housing market wouldn't crash due to supply and demand!

You are right. Low interest rates are wrong in a boom period because an economy overheats and you get inflation plus other nasties that we are seeing.

BUT!!!!!! We are not in a boom period. We have been coming into a recession for over a year but HMG have sleepwalked. In a recession, low interest rates are desirable to stimulate the economy by putting money back into business and consumer's pockets. HMG have left it so late. The USA was drastically cutting rates in June 2007 !!!!

[EternalOptimist]

You are right. Low interest rates are wrong in a boom period because an economy overheats and you get inflation plus other nasties that we are seeing.

BUT!!!!!! We are not in a boom period. We have been coming into a recession for over a year but HMG have sleepwalked. In a recession, low interest rates are desirable to stimulate the economy by putting money back into business and consumer's pockets. HMG have left it so late. The USA was drastically cutting rates in June 2007 !!!!

I didnt think the govt set interest rates any more. I thought the BOE set them in order to control inflation.
maybe someone has a conspiracy theory that will put me straight on this

[Bagpuss]

The USA was drastically cutting rates in June 2007 !!!!

And where did this start?

We are in this mess because interest rates should have been higher sooner, probably circa 2005. Too low for too long, too much borrowed, too much owed, and now the banks are unwilling to lend to those who aren't f_eckless, small/medium sized businesses. Which is why rates now HAVE to come down.

Interest rates are a tool to control the money supply, you don't lower them when it's expanding exponentially, which is what happened.

[Cyberman]

I didnt think the govt set interest rates any more. I thought the BOE set them in order to control inflation.
maybe someone has a conspiracy theory that will put me straight on this

Gordon Brown's policy of an independent BofE is great during boom times because all we are worried about is inflation. However, I said a year ago that Brown would come to regret this because the BofE is looking at inflation when it should be looking at a much broader picture in recessionary times. Inflation becomes irrelevant in a recession. Certain members on this BB were slagging me off only a month ago for advocating rate cuts. I hope Dim Prawn etc have had a change of opinion!!!

Brown did not plan for this scenario because he thought he had abolished boom and bust. He should have intervened with the BofE well before now to order a big cut in rates, but his ego has held him back.
Even in the budget in March he refused to acknowledge an impending recession. Now just look where we are !!

[Bagpuss]

Gordon Brown's policy of an independent BofE is great during boom times because all we are worried about is inflation. However, I said a year ago that Brown would come to regret this because the BofE is looking at inflation when it should be looking at a much broader picture in recessionary times. Inflation becomes irrelevant in a recession. Certain members on this BB were slagging me off only a month ago for advocating rate cuts. I hope Dim Prawn etc have had a change of opinion!!!

Brown did not plan for this scenario because he thought he had abolished boom and bust. He should have intervened with the BofE well before now to order a big cut in rates, but his ego has held him back.
Even in the budget in March he refused to acknowledge an impending recession. Now just look where we are !!

They made a mess of it by acting as you would like i.e. Low interest rates, now they have to go lower because it's resulted in a depression. They eventually realised low rates had messed things up, so what does one do? Lower them and potentially make it worse? Keep them unchanged?

Short term answers to a long term f-up seldom have the desired effect. So yes in hindsight, rates perhaps should have fallen a little sooner under the present scenario, this should however have not resulted in more freely available credit, which is difficult to predict. BUT the present scenario could and should have been avoided by raising them sooner.

So what is the best way to fight a fire after starting it?

[Peoplesoft bloke]

I didnt think the govt set interest rates any more. I thought the BOE set them in order to control inflation.
maybe someone has a conspiracy theory that will put me straight on this

You are missing the CyberTory view of the world. If anything bad ever happens whilst we have a Labour government, it's their fault, even if they didn't do it. Hence the Bank of England isn't related to the government when things are going well, but is being directly controlled by Brown in bad times.

If anything good happens, it's because of a previous Tory government.

If, however, anything bad happens under a Tory government, it is the fault of the previous Labour one or "world conditions", never the government.

[Bagpuss]

He's a football fan and his team are The Conservatives

[b0redom]

Much as though I am loathe to admit it, the CyberCretin is partly right. Lowering the interest rate in times of depression can get things moving BUT in this current market, it only makes sense to lend to people who can afford to pay it back.

The problems we're in at the moment are caused at least partially by low credit cost, and the banks lending to people who had no way of realistically paying it back.

In addition, lowering the interest rates will weaken the exchange rate, hopefully convincing people to buy more British stuff (domestically and Internationally). Of course the rest of the world is in recession too, so basically we're stuffed.

*DOOMED*

[Cyberman]

And where did this start?

We are in this mess because interest rates should have been higher sooner, probably circa 2005. Too low for too long, too much borrowed, too much owed, and now the banks are unwilling to lend to those who aren't f_eckless, small/medium sized businesses. Which is why rates now HAVE to come down.

Interest rates are a tool to control the money supply, you don't lower them when it's expanding exponentially, which is what happened.

This was at the start of the credit crunch and moneymarkets drying up which was already building in the USA in June last year. The USA immediately made massive cuts to their interest rates. We ignored it!!