Next recession?

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    #31
    Originally posted by gnvqsos View Post
    In fact real rates of interest are wholly negative--no method of saving matches the rate of inflation .By the way recessions are not the functions of time, and any association would be considered spurious. Recessions are the consequences of human behaviour, not the mechanism of a clock.
    It has nothing to do with a clock and everything to do with how long it takes to pay a mortgage. At a rate of 4-5% interest it takes around 18 years to pay back a mortgage. It is not as simple as this obviously but recessions have been very much in time with the property cycle. There could be a recession now but I do not think we are talking a major recession - It is still a few years off according to the Real Estate Cycle. History is never the same and something like a War could easily disrupt things

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      #32
      BOE has just raised the bank interest rate from 0.75% to 1 % today ( 5 May ).

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        #33
        What was the point of that? Inflation is forecast to hit 10% and they raise it by a paltry 0.25%. Perhaps it's time rates weren't kept artifically low.
        Not sure why it would take 18 years to pay back a mortgage at 4-5%. When rates were 15% i took my first mortgage over a 12 year term and paid it off in less (lots of overtime and belt tightening) .

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          #34
          The pronouncements from the BoE make difficult reading for everyone for the coming months, the increase in BR by 0.25% to 1% has already triggered announcements from Nat West , Virgin, Santander and Skipton of increases to either their tracker or SVR’s and clearly the rest of the market will follow suit in the coming days; whilst the increases might appear to the layman as being insignificant particularly for those on Fixed Rates but the reality will kick in following changes in each lenders affordability assessments.
          Time for a glass of Red Wine!!!

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            #35
            I thought that the idea of raising interest rates was to take spending money out of peoples pockets

            given the inflation on fuel and food, I can’t see this increase doing much at all

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              #36
              Originally posted by royw View Post
              What was the point of that? Inflation is forecast to hit 10% and they raise it by a paltry 0.25%. Perhaps it's time rates weren't kept artifically low.
              It's to slow the economy down.
              One of the drivers of inflation is the speed at which money circulates.
              Another effect is that a slower-moving economy encourages price competition as companies seek to maintain income levels by gaining a higher share of a smaller market.

              A small increase in interest rates impacts company investment and normal trading, as well as making mortgages and credit cards more expensive.
              It encourages saving (in theory).

              The trick is to slow things down without causing them to slow too much.

              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

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                #37
                I think 1% interest is not enough to encourage savings in the bank account.

                Nobody talks about "saving money" since the last financial crisis in 2008.

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                  #38
                  I see at least another two interest rate rises before the year is up.

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                    #39
                    Originally posted by Gordon999 View Post
                    I think 1% interest is not enough to encourage savings in the bank account.

                    Nobody talks about "saving money" since the last financial crisis in 2008.
                    I tend to agree - but the last change in interest rate made a change in the interest paid in my savings account that I actually noticed.

                    Not that I expect to be able to actually save anything, even if I wanted to.
                    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                    Comment


                      #40
                      Originally posted by hech123 View Post

                      It has nothing to do with a clock and everything to do with how long it takes to pay a mortgage. At a rate of 4-5% interest it takes around 18 years to pay back a mortgage. It is not as simple as this obviously but recessions have been very much in time with the property cycle. There could be a recession now but I do not think we are talking a major recession - It is still a few years off according to the Real Estate Cycle. History is never the same and something like a War could easily disrupt things
                      The repayment period is determined by the size of a repayment .A mortgage could be repaid a day after its inception.

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                        #41
                        The Gov must have seen this coming. Its not hard to see that households had a lot of cash coming out of lockdown, then manufacturers not able to supply goods as fast as usual due to backlogs, means increasing demand but low supply = price increases (inflation). For example, caravan sales are crazy, we just sold ours for 5k more than we paid for it in September 2020! Because the demand is so much higher than the supply at the moment

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                          #42
                          Originally posted by jpkeates View Post
                          In theory, banks can do this, it's one of the factors that led to the crash in 2008/9.

                          In reality, nowadays they're prevented from doing this by regulators (although they sometimes try and circumvent the rules).
                          Banks have capitalisation ratios they have to adhere to and report on.
                          Are you sure this is correct? Banks, as far as I understand, are 100% allowed legally to do what I say they do (and they continue to do so to this day). They can literally create deposits (and simultaneously the corresponding loan) from thin air. There is nothing wrong with this per se. It is not as if banks can do this limitlessly in order to try boost profits - they are constrained by regulatory capital requirements and certain other liquidity constraints.

                          It is most certainly not the reason for the crash in 2008. The reason for the crash was the lack of regulations to limit the highly risky mortgage lending (subprime).

                          Someone with some actual expertise such as loanarranger can confirm.

                          Comment


                            #43
                            Originally posted by leasee123 View Post
                            Are you sure this is correct?
                            You said, "from my understanding, banks are not restrained by funding as they can literally "print" money into existence. This is done via double entry accounting so that the deposit created out of nothing is its liability to the borrower and the resulting loan is the corresponding asset."

                            It's possible I've misunderstood.
                            But they don't simply create transactions out of thin air, they are constrained by liquidity and capital ratios and risk profiling.
                            They can't create a transaction that increases value without increasing their underlying asset value (albeit by much less than the transaction value) or offsetting the risk to someone else(s).
                            As most banks are massively leveraged already, their ability to create money is massively constrained already.

                            If a loan is in a particular risk profile, it may be that the bank has to have underwriting at (say) 30%, so to lend a billion dollars, they'd have to find new assets of £300m (which would also have to fall within a particular risk profile - assuming that actual money wasn't available).

                            So they can create money, but not in an unlimited way.
                            And the regulation since 2008 has been much more strict - not that this stops banks from being creative.

                            It is most certainly not the reason for the crash in 2008. The reason for the crash was the lack of regulations to limit the highly risky mortgage lending (subprime).
                            That was the start of the problem.
                            But the reason it was fatal was that the banks had massively exceeded their capital and risk limits and they were all using each other's junk to underwrite their own junk loans.
                            Because it was wrongly categorised as low risk and therefore the multiple allowed by the bank regulators was too high.
                            And when the loans went bad, the effects rippled through the whole sector.
                            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

                            Comment


                              #44
                              The BBC website shows this below was reported about Northern Rock's failure in 2007/2008.

                              Rather than using customer deposits as the source of funds to lend out to homeowners, it borrowed in the international money markets.

                              " When the sub-prime crisis hit America, those markets took fright, and stopped lending to anything that looked like it might be over-exposed to the housing market. Northern Rock was an obvious first casualty.

                              The BBC broke the news that it needed Bank of England support 10 years ago tomorrow, and the day after there were queues outside branches, the first run on a British bank in 150 years. After limping on for a few more months, Northern Rock was nationalised in February 2008."





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                                #45
                                jpkeates,

                                You are right in that you seem to have misunderstood - because you appear to have completely missed the rest of my post which mentions about capital constraints. Nowhere did I say they can do this in an unlimited fashion.

                                Yes, the subprime lending was just the start of the problem. But the main factor that caused the crisis stems from the lack of regulations (both to limit the underlying subprime lending and also the securitisations that followed and aided the subprime lending in the first place). People will do things for greed - it is only human nature. That includes those who run banks. There was a massive oversight in regulations to limit this excessive risk taking behaviour.

                                But my point was to correct you on your false assertion on how the "double entry" deposit creation was a factor. It wasn't.

                                Comment

                                Latest Activity

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                                • Reply to Next recession?
                                  by gnvqsos
                                  It is quire acceptable to expand the supply of money in harmony with expanding economic activity, but if the expansion of money is too quick inflation is likely.. However the principal cause of inflation is increasing commodity prices(gas ,fertilisers, grain) and an expanding money supply accommodates...
                                  27-06-2022, 19:49 PM
                                • Next recession?
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                                • Reply to Next recession?
                                  by Neelix
                                  FWIW most of the inflation now has been created by the printing of money by the central banks.

                                  Inflation rising has been talked about for a few years and finally its hit the developed countries.

                                  creating money out of thin air was never going be at no cost
                                  27-06-2022, 17:49 PM
                                • Reply to Next recession?
                                  by Gordon999
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                                  27-06-2022, 16:14 PM
                                • Reply to first time buyer - need a lawyer
                                  by loanarranger
                                  Earlier in the OP’s I enquired where they lived as I know solicitors in various locations whom I would have no hesitation in recommending but to help I would suggest a call to TWM in Guildford, they act for several lenders and recently acted for a client purchasing in Nottingham but who was delighted...
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                                • first time buyer - need a lawyer
                                  by sixunforced
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                                  20-11-2020, 14:21 PM
                                • Reply to first time buyer - need a lawyer
                                  by Gordon999
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                                  27-06-2022, 10:50 AM
                                • Reply to first time buyer - need a lawyer
                                  by jpkeates
                                  Because they can't process their business.
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                                  There is a huge shortage of solicitors and other legally trained people.

                                  Much of which is due to how much it is possible for...
                                  27-06-2022, 10:25 AM
                                • Reply to first time buyer - need a lawyer
                                  by AlexR
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                                  27-06-2022, 10:19 AM
                                • Reply to first time buyer - need a lawyer
                                  by Samsontryn
                                  Why would any organization/corporation refuse to take new clients?
                                  27-06-2022, 10:05 AM
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