Reply to: Mervyn King: helping savers would push Britain back into recession

[BrilloPad]

The annual 2011 rate taken back in January showed inflation of 3.6%, far lower than the scaremongering 4.2% rate recorded in the previous month.

Regardless of whether inflation remains static or fluctuates a little, it looks to be under control at the moment as this graph shows and in comparison to the past century, or even the past few, is very stable

The real inflation experienced by the poor and retired is alot more. Inflation for food and power is more like 10%.

What annoys me is the government and BoE pretending that there is a 2% inflation target.

[wim121]

Er, maybe because the buying power of their savings is being gradually destroyed by inflation, with hardly any savings accounts currently available that pay enough interest to break-even with inflation, never mind exceed it.

One must adapt.

Let's say you work in IT and tomorrow, machines similar to those in the matrix come and destroy all electronics and remove all materials like sand (silicon) needed to build more, do you sit there and cry (like a saver who refuses to do anything but keep their money in a savings account) saying "I worked in IT, I don't know how to do anything else. I refuse to do anything else! Instead of retraining or working elsewhere, I will stubbornly look for only IT jobs, even though that industry no longer exists. If anyone asks why I don't work as a paper pusher like others, I will insist that the government should have protected us against alien overlords and rebuild IT equipment even though we lack the materials". A silly notion as I'm sure we can all agree, instead, one must start pushing paper or starve. The same can be said for if one wants to beat inflation on their savings or profit from interest payments, adapt to the climate or sit there complaining.

I'm a saver, and I could see that things were getting out of hand, particularly with the property bubble, as early as 2001. I knew a bust was coming. However, I didn't know exactly when it would happen (and I doubt anyone else did).

Indeed, I concur as I highlighted earlier.

I also expected that the BOE would act so as to keep inflation under control, as was supposedly their main objective. However, they have failed to do this. By failing to keep inflation under control, the BOE have wrong-footed a lot of people. Maybe it was naive to believe that the BOE would raise interest rates when inflation rose above 2%, but it was supposedly their main job (at least, that's what I read in the newspapers so many times for several years).

The annual 2011 rate taken back in January showed inflation of 3.6%, far lower than the scaremongering 4.2% rate recorded in the previous month.

Regardless of whether inflation remains static or fluctuates a little, it looks to be under control at the moment as this graph shows and in comparison to the past century, or even the past few, is very stable:

You seem to be stating the opposite view to what many people are saying.

That's because most people are retarded. I am not.

I've read loads of articles in the newspapers and on the web over the last year or two, which state how bad the situation is for savers and how they are being sacrificed in order to bail out the reckless/heavily-indebted. It is often stated that the (low-interest-rate + high-inflation) economic climate that we currently have has the effect of taking money from savers and handing it to debtors.

I think this is a bit of a melodramatic approach to the saga. I hate those who were foolish with money just as much as everyone else. However savers aren't being sacrificed at all. If the economy collapses and we become like Zimbabwe, your savings, earnings or indeed currency become irrelevant.

When economic conditions change, the BoE and government must do something to limit the damage.

Bailing out banks seems idiotic, but the consequences of banks collapsing would have far more dire consequences. Look at the damage some collapses of smaller institutions has done. Just imagine if a major bank like RBS folded. Welcome to the Kingdom of Zimbabwe everyone!

No-one is entitled to a base rate to maintain their ignorance and laziness with controlling their surplus money. Such a notion is as idiotic. That is like standing in Hiroshima after Little Boy was dropped and blaming the government for being exposed to fallout, instead of running home and getting as low down as possible in a sealed up house underneath mattresses.

Are you disagreeing with that, or are you saying that it is somehow good for savers?

If you know of some clever way to get an above-inflation return on savings without taking big risks or tying the money up for a long time, then please explain it. And don't just say "shares" because any fool knows that picking the right shares is about as difficult as picking the jackpot-winning lottery numbers.

As prawn said:

Peer to peer lending - RateSetter.com: A better way to save or borrow, peer to peer.
Lend money online with Zopa the peer to peer lending marketplace

Also as I said, some shares are a sure thing in these unstable times, which they rarely ever are in boom times.

For instance, in Jan 2009, I was finishing paying off debts from a family members illness so had limited surplus cash. That infuriated me when RBS shares dropped to pennies (10.9p per share down from an annual high of 354p). I advised two branches of my family to use all the cash they could lay their hands on to buy shares. One family member, the poorer one, ignored me. One had the same advice and pounced on it quickly. During 2009 the share price rose and by mid 2010 was up to 40p per share. There is no way the government would ever permit the collapse of RBS, that was a certainty.

This became known as the Blue Monday Crash and affected RBS, Lloyds, Barclays and HSBC. Shares rose again following recoveries to the market and bailouts. A lot of people became very rich off the back of that, well those that weren't retarded or poor.

There is still much money to be made, even now as RBS shares fell by 3.5% and Lloyds by 4.1% in January over backlash surrounding bonuses. People may lose faith and panic around major institutions but they will be bailed out so long as we can print money.

But back to lending money. Zopa and others, after defaults, offer rates of above 8% which is good for even boom times. One can also take more risk and bypass the middle man by lending themselves. Some people can repay their debts but cant get credit from banks and cant afford 4714% APR. That is where your wallet, a contract and a hammer come in to play. You may see that as extreme, but in an article I wrote against the extortion of thousand % APR lenders, I proved that one could borrow money off a loan shark with a hammer, default and have a leg broken, reset in a private hospital at cost and pay back the loan late at a cheaper rate than all these instant cash loan companies.

Then you are forgetting about the most obvious investment of all. Bricks and mortar baby! Ignore all the nay sayers that say house prices will make all home worthless, forever! They couldn't be more wrong. Yes, prices have suffered a readjustment or slump and will take a long time to recover, but we have an ever expanding population and a lack of housing. That will not change. People will always want a nice house instead of a scummy rented flat. Buy somewhere from someone desperate in a run down condition now for pennies. Either buy it outright with your savings or take a small mortgage, using your savings as a large deposit to get a low rate. It is still a buyers market and some sellers are desperate, let's say from the death of a parent and having to sell their unused house to pay off funeral bills (pretty much how we got our house during boom times). Contractors are also feeling the pinch. Less people have less liquid funds, so getting tradesmen/contractors really is very easy at a great rate. Following that, rent the property to make the payments on the small mortgage and insurance. Once prices recover in the next boom, perhaps decades from now when one comes to retire, they can sell the house and make a massive profit, or keep the regular income and retire to a country which allows them permanent residence under some visas.

I would agree that other routes are not guaranteed such as trading currencies, however some make that work very well.







Sources for figures:
Taxpayers lose £900million as RBS and Lloyds share prices fall over bonus backlash fears | Mail Online
Blue Monday Crash 2009 - Wikipedia, the free encyclopedia
Government may start sale of RBS stake in 2011, says chief executive | Business | The Guardian

[wim121]

Do you think your 'average joe' who's struggling to survive during a period of high inflation on a stagnant wage could cope with a rate rise right now?

Well if you want people to pay down personal debt you need to give them the conditions to do so.

Average joe now pays £1.40 for a litre of fuel and his utility companies treat him like an open cheque book, not to mention how Tescos are taking the piss.

Try putting yourself in his shoes rather than just preaching with the benefit of hindsight.

I never said that.

The cost of living has risen sharlpy, how will increasing rates right now help average joe?

Glad to see someone with common sense! Very good points and exactly what I was trying to put across.

Inflation or rates could be higher, but if they were, they would hurt all the average people, aka the majority. If the majority default on borrowings completely, we're all screwed!

[DimPrawn]

If you know of some clever way to get an above-inflation return on savings without taking big risks or tying the money up for a long time, then please explain it. And don't just say "shares" because any fool knows that picking the right shares is about as difficult as picking the jackpot-winning lottery numbers.

Peer to peer lending - RateSetter.com: A better way to save or borrow, peer to peer.
Lend money online with Zopa the peer to peer lending marketplace

[Jeff Maginty]

..

[suityou01]

But enough about me. We're all curious how many years you claimed the dole while developing SKA?

That should be enough to at least raise suspicion.

Hector?

[The Spartan]

I never said that.

The cost of living has risen sharlpy, how will increasing rates right now help average joe?

Thing is even with the cost of living rising, you still find people that aren't practical about it. They still have Sky and other things that would be classed as luxury goods.

[AtW]

The cost of living has risen sharlpy, how will increasing rates right now help average joe?

Well, reducing inflation might help stop costs growing!

[gingerjedi]

I never said that.

The cost of living has risen sharlpy, how will increasing rates right now help average joe?

[AtW]

Average joe now pays £1.40 for a litre of fuel and his utility companies treat him like an open cheque book, not to mention how Tescos are taking the piss

So you think interest rates should be permanently at 0%? Pity the banks did not drop their rates accordingly - if anything they are going up. It's the 2nd bank bailout that Sir Merv is doing, not helping Average Joe.

[BrilloPad]

Does it still pay to be prudent?

No

Should I spend spend spend in accordance with Merv's instructions?

Yes

HTH

[scooterscot]

Does it still pay to be prudent?

Should I spend spend spend in accordance with Merv's instructions?

[gingerjedi]

If average joe who got mortgage when rates were 5-6% goes bust when rates go up from 0.5% to 2% then that average joe overextended him/herself and should go bust to act as a warning to future generations.

Average joe now pays £1.40 for a litre of fuel and his utility companies treat him like an open cheque book, not to mention how Tescos are taking the piss.

Try putting yourself in his shoes rather than just preaching with the benefit of hindsight.

[AtW]

Just curious how you managed to live over nearly 10 years with no income?

Well, in the first 5 years of work in UK I've saved enough to last another 5 years without any income other then ever decreasing interest on my savings.

[sasguru]

None actually, what made you think I'd even bother trying to claim it?

Just curious how you managed to live over nearly 10 years with no income?