Why punish savers?
Part of the reason we're in such an economic mess is that, over the past few years, we (that's individuals and businesses, in this case) borrowed considerably more than we saved.
A cause both of the initial funding/liquidity crisis of our banks and of the subsequent solvency crisis was that the loans and other assets of our banks grew at a much faster rate than deposits from customers, such that the gap reached about £700bn earlier this year.
To put it another way, consumers and businesses (big businesses, NOT small ones), borrowed considerably more than what they deposited with banks.
We saved far too little in general. But, in particular, we placed far too little cash in the banking system. Or perhaps it's the other way round, that banks foolishly lent considerably more than we had deposited with them: they became lending machines, not havens for savings.
Either way, that gap of £700bn had to come from somewhere. And it came from wholesale markets, much of it from money managers and institutions outside the UK.
Since the summer of 2007, in fits and starts, those providers of wholesale funds have been demanding their money back. But those banks had already lent all that money to us, in the form of mortgages or massive corporate loans, so the cash wasn't readily available.
Which is why weaker banks, like Northern Rock and Bradford & Bingley, have had to be wholly nationalised and Royal Bank of Scotland is now largely state-owned.
And it's why the entire banking system is being funded to the tune of £600bn and rising by taxpayers, because taxpayers have had to step in to fill the funding gap created by the closure of wholesale markets.
To state the bloomin' obvious, our previous excess of borrowing over saving has now led the banks to lend considerably less than they were (to deleverage, to use the ghastly jargon), which has been a principle cause of the economic contraction that looks increasingly like a nasty recession.
If you're in a recession, what do you do? Well, if you're the Bank of England, you cut interest rates - to stimulate economic activity.
And today the Bank of England's Bank Rate will be cut again, perhaps by one percentage point to 2%, a rate we haven't seen in the UK for more than half a century.
As always, there'll be a massive political and media fuss to ensure that the cut in interest rates is "passed on in full" to borrowers of mortgages and other loans.
The chancellor and the business secretary will presumably warn the banks again that they're keeping a beady eye on them, to ensure that borrowers reap the benefit of the Bank of England's reduction.
But there is a paradox here. Part of the cause of our woes is that we saved too little and borrowed too much.
Yet by cutting interest rates the Bank of England is - in a way - punishing the thrifty and rewarding the feckless.
Although it's not quite as simple as that, because even the thrifty would be in the doo-doo if we plunged into the deepest, darkest recession.
Even so, there is an absolute imperative for banks to reconstruct their balance sheets in a more sound and stable way, and that means funding more of their loans from our deposits and funding fewer on wholesale markets.
For Royal Bank of Scotland and HBOS, for example, its vital that they attract more retail deposits - or they'll suffer very serious long-term shrinkage of how much they can lend (unless, as I've pointed out ad nauseam, we as taxpayers are comfortable financing them more-or-less forever).
So if the Bank of England were to cut interest rates by 1% today, would it be rational for a bank such as Royal Bank to slash savings rates by 1%?
If it did so, wouldn't it be punishing savers whose support it dearly needs?
But Royal Bank and others would only be able to afford to reduce savings rates by less than 1%, if it were to cut lending rates by less than 1%.
It's a dilemma, isn't it?
Small businesses are at the sharpest end of this dilemma, because for all the understandable fuss about banks restricting credit to them, as a group they actually save more than they borrow.
So although most of the banks are committed to passing on the Bank Rate cut to small businesses in the form of lower rates on loans, arguably small businesses would be more out-of-pocket if the meagre amounts they earn on their deposits were to evaporate completely.
For what it's worth, where banks have discretion, I'd be amazed if they passed on the full cut to mortgage holders.
Would that be a scandal?
Perhaps not, if banks were to maintain interest rates on savings accounts at higher levels.
In the scale of alleged bank boo-boos, what's worse? Failing to pass on all the interest rate cut to hard-pressed families, or slashing the retirement income of elderly couples who live off the interest on their bank and building-society savings?
As I say, it's a proper old dilemma.
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I entirely agree. Why should I deposit my dosh for what will now be nothing with a bank whose solvency is dubious? Even given HMG's underwriting, political promises with this bunch are unreliable and may take months to come to fruition. There's less risk under my bed, now.
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Do give the full story.
Yeah, we've had a decade of massive personal and business borrowing. But what of the third leg of the decade of irresponsibility?
Massive government borrowing. National debt doubled already. And, if the PBR statement is to be treated as anything other than a work of complete fiction it will be doubled again.
National debt quadrupled.
I think we're being a bit hard on the banks and individuals here.
The government was (and remains) the one leading the charge in irresponsible borrowing.
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n the scale of alleged bank boo-boos, what's worse? Failing to pass on all the interest rate cut to hard-pressed families, or slashing the retirement income of elderly couples who live off the interest on their bank and building-society savings?
No contest. Brown will put pressure on to help 'hard-working families' borrow even more.
To hell with the pensioners. They all vote Tory and they'll be dead soon.
New Labour. New pragmatism.
Labour will simply print money. That'll fix it.
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Quite right. We have saved a bit of money, not a vast amount and rates on our savings are dropping all the time.
However the mortgage rates for people who have borrowed buy by Mercedes Jeeps, plastic surgery and five star holidays are dropping. Does not make much sense to me.
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A Grasshopper gay
Sang the summer away,
And found herself poor
By the winter's first roar.
Of meat or of bread,
Not a morsel she had!
So a begging she went,
To her neighbour the ant,
For the loan of some wheat,
Which would serve her to eat,
Till the season came round.
"I will pay you," she saith,
"On an animal's faith,
Double weight in the pound
Ere the harvest be bound."
The ant is a friend
(And here she might mend)
Little given to lend.
"How spent you the summer?"
Quoth she, looking shame
At the borrowing dame.
"Night and day to each comer
I sang, if you please."
"You sang! I'm at ease;
For 'tis plain at a glance,
Now, ma'am, you must dance."
And that, with thanks to M la Fontaine and Wikipedia, is the Bank's quandry. The investments the UK will need will flee the country, and Sterling' s plummet accelerate. Ths crash is not far off, I fear.
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I'm not sure it is that simple. The wholesale funding of 700bn of our banks you keep mentioning is also someone's savings. It just isn't savings in the form of retail bank deposits. For example, pension fund investments would count as wholesale, but they are still very much personal savings, just bundled up in a different way. Perhaps the real story is that the low interest rate environment of the last ten years has driven people away from bank deposits into much riskier investments in the search for higher returns?
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You're right that savers are doing very badly at the moment.
As someone who is trying to ensure that I'm self-sufficient in my forthcoming retirement, it feels like I'm trying to fill a bath while Gordon Brown pulls the plug out. And I must say that with inflation still high, and interests rates still plummeting, it now feels like Gordon Brown's remedy to my slowly emptying bath is to fit another plughole for me....
I do wonder why I bother!
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Robert,
Which UK are you living in ?
As a SME (Small Medium Enterprise), we cannot obtain a savings rate from the banks (as a business, not as a private individual) over 0.5%.
And that is today, before the cut in interest rates !
So you do not need to be a master BBC Journalist to work out that the banks cannot pass on a 1% rate cut to SME's.
It is coming out of the bank's fat.
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Low interest rates mean savers will move funds to accounts that pay higher rates, eg, abroad. Banks need cash and will see savings reduce which in turn means loans - if there are any out there - will become even more endangered. In short, the recession slope will get steeper and more slipery. As always the measures put in place will create more damage than they will mend. I say put up interest rates, attract savers and investors and all those with mortgages to feed, can sit back for 2 years until the government extends it to 3 or 4 years of taxpayers paying your rent.
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Just another sign of our never never land.
Another interest rate drop will devastate those who saved prudently, unlike a Government which has borrowed more than any before it. The only future is a council house, all expenses paid by benefits and no council tax and a tax credit pension. Why save hard and pay your way through life ! Is that really what Britain wants ? Obviously a socialists dream, one that will unfortunatly come to an end one day when there are NO real jobs and no one has any savings and we all become benefit claimants ourselves. What a sad and sorry outcome. But, one loved by dictators.
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It is not a dilemma.
The economy can only flourish sustainably if we have savings to fund borrowings and if banks have strong balance sheets. This can only happen if a) banks can make profits on their lending and b) if savers are paid for saving.
Interest rates should be held or raised and the pressure should come off the banks about passing on the cuts.
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Finally, a mention about savers who are paying for the mess through no fault of there own.
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Couldn't agree more... we have just inherited a small sum of money, but it has moved us from being in debt to savers status.
Only problem is inflation at 4 or 5% means that our 1.9% rate of interest at the Post Office is meaningless.
In fact we should all be borrowing now, as inflation 'eats' debt. This governments fixation with borrowers has to end, it is savers that will ultimately bring order back to the banking system.
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meagre is not the word. Nationwide and NatWest are at .5% for basic accounts down from 2.something a week or so ago. It seems banks lend ref. to libor and borrow ref. BoE. Nationalise and be d**mned I say.
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Crash is quite happy punishing savers because it doesn't help his wee pals in the City if we don't spend our money.
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#8
"I do wonder why I bother!"
I wonder too - I wonder if it's time to put my tiny ammount of savings in National Savings "Inflation +1%" bonds and sit tight.
As someone who's only experienced 1 recession before (early 90s) I find it startling that we had really high interest rates then and no interest rates now........
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A very interesting explanation and clearly shows the problems faced.
Mr Osborne's broadcast last night was disappointing as he could put forward no new ideas. The impression I got was that if you were having difficulties all you could expect from the Tories was to have David Cameron come round to babysit.
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Isn't all this talk of borrowing more money than is invested a completely circular argument, as by the huge rise in public borrowing and VAT cut, this appears to be exactly what the present government is doing on the pretext of spending its way out of the recession.
In my simplistic view, people purchase what they need or feel they need and with the UK ever more reliant on service industries I do not feel we are best placed to weather any storms.
As an individual who is reliant on interest on invested capital to provide the icing on my cake with the rounds of interest cuts it looks like time to hibernate.
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If banks are paying a much higher percentage to borrow money from the wholesale money markets, why not offer a similar rate to retail depositors. Gradually they would reduce their dependence on the markets and revert to being proper banks again.
Then I suppose Flash Gordon would take our deposits for some other mad cap idea.
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Interest rates---------WHO needs them?
Banks.
If as stated they need to attract investment (savings) then it is suicidal for them to be cut as investors will flee to places of safety, national saving etc as there is no premiun for tying up your money in what can be a risky environment.
Banks need to generate profit from mortgages and loans and as far as I see they are increasing margins by not passing on base rate cuts to businesses and individuals for overdrafts and loans.
Low base rates are not being passed to new mortgage lending at all and if.......rates were to fall to ZERO then in theory there would be no charge for an interest only mortgage. this would allow the mortgagee to live for free in their property. (excluding endowment payment) with the banks and others footing the bill.
How would hard up savers and those in rented accomodation feel about that?
Prudent Gordon, Aistair and their band of not so merry men would be robbing the poor to pay for the foolhardy. The bail out package would also cost less if rates are slashed. in fact if rates are zero then it would cost nothing at all.
The rental market would collapse and it would still not inject any monies into the housing market as banks would not lend to those who had no financial incentive ..
Get rates up and let the free market decide
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"Or perhaps it's the other way round, that banks foolishly lent considerably more than we had deposited with them:"
Mr peston, is this illegal? As a Fractional Reserve Bank, where did the fractional reserve go?
Why did the regulators and rating agencies not spot it and put the brakes on?
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Yet again the thrifty are paying for the irresponsible.
Retirement savings will yield next to nothing and there is now no incentive to save but to spend the lot and then go to No 10 with a begging bowl [which seems par the course these days]
Can we ever get back to sanity?
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The last idea stated, "Failing to pass on all the interest rate cut to hard-pressed families, or slashing the retirement income of elderly couples who live off the interest on their bank and building-society savings?" gives a perfect knowledge of the affect it has on the generations. When we look back at this recession, we will see that two generations have been hit and will carry many 'scars' through many years to come. We will see many friends with some financial problem to resolve or inhibited because of bad loans. Hopefully, the very young generation will survive with a lesson well taught.
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two questions -
how can Mr Peston ensure Mr Brown reads this blog every day?
what would Robert do with 30k savings now?
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Saving will have to wait until the inevitable upturn. If business and individuals reduce their borrowing due to deflation which we are certainly in, then it is impossible for banks to pay interest on deposits The system depends on risk takers. For an economy to function there has to be confidence to invest. It is no dilemma, the first priority is avoid a deep reccesion.
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Excellent post Robert
GB might have kept a lid on the PSBR but he completely missed that what really matters is how much the country borrows as a whole.
The time to pay down the debt has arrived and the question is who should bear the pain, those who have spent above their means funded by debt, or those who have lived within their means and saved.
I should have thought that, in order to protect future generations the (now apparently abandoned) rules of moral hazard should apply.
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The economics of this country are topsy - turvey at the moment.
Work all your life, pay off your mortgage, don`t get into debt and what does the Govt do? Skew the inflation figures so your savings actually lose money.
Now, if you have been reckless its a different story. Borrowed more on your mortgage than your house is worth? borrowed 5 or 6 times your wage? heavily into debt? Never mind the Govt will order the banks to leave you alone. The good old saving accounts can be raided to offset the bank charges and hey if it all goes wrong for you the good old tax payer will bail you out.
No wonder this country`s finances have gone belly up. Its the economics of lala land.
Gordon Brown has only one aim in life - political survival.
Personally I have had enough and if I hear him talk about hard working families once more I will throw up.
The Pms never never land should never never have happened if he had not buried his head in the sand when people were borrowing at insanely high levels.
This is far from over - the worst unfortunately is yet to come.
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This may be a bit doomsday-ish but can any of you see a time in the future where the country has to basically nullify everything, debt, currency, GDP etc and start again from a blank canvas?
A year ago i would have thought of myself as a nutter for even thinking this - but now?
I was in Belgium last week talking to a business buddy of mine. The recession is not really being felt there, he told me, as Belgians dont like to owe money and take on massive debt. At the moment to my eyes at least taking actions such as joining the Eurozone, and behaving more like the thrifty Belgians seems very attractive.
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Two weeks ago I moved £10k into Euros at the moment I am nearly £300 up. Show me a deposit account where I could earn £300 in a year never mind 2 weeks.
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Robert,
Individuals and banks taking the flak for borrowing and lending too much. True to a point but egged on by this government and a lack of effective regulation.
How about some real examination of how this government in the last ten years has raided the tax payer by stealth, windfall tax scams, pension funds, oil revenues, the gold reserve, and seen how far up the wall it can........
In the 1970's a labour government thought it could run car factories and shipyards to create wealth and employment even though there were no buyers for those cars and ships. Now it has created a bloated public sector to feed with cash, (how many times have I heard the intellectual pygmies that make up the governing party tell how how they are "investing") while the pension and off balance sheet PFI liabilities mount.
So we reach the end game and like a tired and emotional gambler in the early hours of the morning this government lurches from gaming table to slot machine emptying out it's pockets and borrowing monies from passing stangers, pulling levers and rolling the dice in a bid to rescue it's fortunes with just one last bet.
.......and the real kicker in this? Where is an effective opposition holding this outfit to account. If anyone sees young George around please let me know.
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This is all about the strong (politicians, bankers, journalists - "system managers") attacking the weak (the old, the infirm, the poorly educated).
Those in the middle will simply exit sterling and the UK.
So, there is no dilemma at all - If you are too weak to defend yourself you are going to get crushed, if you can defend yourself your money and possibly yourself will leave the UK.
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Never mind not passing on the cut in rates in full to borrowers. The banks' are abusing depositors too.
I run a small business that regularly has signifciant sums on deposit with NatWest (RBS). Following last month's 1.5% cut in base rates, our deposit rate went from 4.99% to 2.44%.
Try explaining that one to me.
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This is not a dilemma, Robert, it is the huge hole in this government's argument.
As Prudence thrashes around in the ecstasy of a collapsing economy he excites himself by making initiatives ostensibly to keep demand moving. He will thrill at the crowds in the shops for Christmas and feel that his policies are working.
These policies might be working after a fashion and in the short term. In the intermediate term, that is after Christmas, these policies will fail as they are based on the same illusion as Brown's Noughties Bubble.
It was necessary to stabilise the banking system in October but as it was soon discovered this could not alter the economic fundamental that the economy has been in a leveraged bubble puffed up by Brown for the last five years. The effects of this bubble now deleveraging were going to happen anyway. Now no matter how much cash is thrown at the problem now, the economy is going for a hard landing with many unemployed. This angers me as it was avoidable.
Like many others I am a saver without a mortgage who has worked in the private sector for nearly forty years with a small pension to look forward to.
What is Gordon doing for me? What he is doing is destroying forty years of my hard work. He will not be forgiven and I will do anything peaceful it takes to destroy this wastrel government.
Yes, he can send the anti-terrorist police round my house if he wants. We will make them tea but the hospitality will not extend to cake: we can't afford it.
Time for a national government to rebuild our country, our constitution and our economy.
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I don't know why the low interest rates are such a surprise, low interest on savings will mean some folk spend savings to buy a cheap car, kitchen ,tv or whatever before the value of their savings fall too much and then GB, AD etc will have gotten their hands on the last available cash to be injected into the system.
Of course some of us will find somewhere else to put the savings where the value will not erode quite so much.
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"Or perhaps it's the other way round, that banks foolishly lent considerably more than we had deposited with them: they became lending machines, not havens for savings"
I should say so! Yes, people got greedy, but a simple "no" to credit would have ended that! The banks are at fault and we're paying (literally) the price -
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A very good article but a couple of points need to be made.
It is not a foregone conclusion that the banks have to alter lending and savings rates by a similar amount. They could actually look at cutting overheads. Do they need all those people and fancy high street premises if business is down and online facilities are available? Certainly we don't need people "selling" credit and credit cards, and we don't need inadequate Chief Execs on big bonuses.
They've bled the public for long enough - now it's time for them to bleed.
Secondly, how about the Government giving us an incentive to save in the long term? I will not invest any more in pensions because:
1) the tax advantages for pension funds have been withdrawn by G Brown
2) I want an alternative to losing my life savings in return for a compulsory poor value annuity
3) I have absolutely no protection. As an Equitable Life policyholder I know that this government offers no protection at all for pension fund investors whilst it hurls taxpayers' money at Northern Rock et al. There will be some loud noises in the press if they shirk their obligations to compensate us for their failure.
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The banks may not be interested in small saver amounts but people who have reasonable sums can find reasonable rates.
I have a small business and in October I fixed £75K at 6.8% for 6 months. The same bank offers a business bonus savings account paying 5.25% until April. (More than I could get on the money market through another bank!)
So if your bank is paying 0.5% I suggest you switch - after all the chairperson of the BBA did emphasise the competition between banks - although as she, you and I know most people don't bother swithcing due to inertia.
Of course the problem with banks and businesses is that they have borrowed expecting an increase in growth to enable them to receive interest/ pay off the debt. However as any (non-Labour) fool could tell, you can't have unlimited growth. Government policy theough the 00s has been to try and keep this growth gowing by ever more desperate measures - until they ran out of them (no-one believes the PBR surely?) This happened in Japan - there the banks failed, here the Government has committed billions to save them - but if there is a gap of £700 billion then £35 billion is a very small amount to recapitalise.
Somehow the country has to find £665 billion: pick your choices.
1) Increase taxes - deepening recession - the 'cold-turkey' treatment.
2) Cut Government spending - with Labour????
3) Contact the IMF - who presumably will tell us to do option 2 anyway
4) Print it - inflate the debt away.
The Government is panicing about deflation - witness falling prices due to sales and employees accepting pay cuts - because it increases the actual value of debt - i.e. you repay with money that is worth MORE than when you borrowed it instead of less.
Option 4 will be the last throw of the dice and I don't think it will happen - for about a year to give it some effect before the 2010 election.
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Dead on Robert and also poster #27
Very low interest rates in my opinion actually create stagnation in the money markets.
Something else it's mentioned in the blog and Mr Brown keeps mentioning his "hard working families" does this include me? I live on my own have some small savings, pay all my bills have reasonable mortgage (but not a silly 100% one) and pretty much get nothing from HMG. Has HMG forgot there are an awful lot of people like me who contribute a lot to the country but as we are not a "hard working family" get diddly sqat!
GW
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"Or perhaps it's the other way round, that banks foolishly lent considerably more than we had deposited with them" you say.
I think we all know it is this way round. The banks had nowehere near full deposit reserve cover, and lent 20 or 30 times more than they had on deposit.
I look forward to your post on Fractional Reserve Banking - people need to know. Why be embarrassed by off balance sheet debts then. It is a scandal, verging on pyramid selling cashflow fraud.
The Banks have created money from nothing, and the £700bn hole is nowhere near the full extent.
Sadly for savers, the reality is Bank's desparately need our deposits, but are skint and can't afford to pay any more interest than the measly offerings.
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This is a day to day dilemma for any bank - let alone in our present crisis.
Doesn't this show just how far off good banking principles our major banks have got that they appear to be unable to manage a dilemma that is inherent in the business of banking.
As for savers moving money abroad - where to? With an exchange rate to the $ at well below 1.50 the hit would be too high!!
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Base rate... 3%..............???
Libor rate ...4.5%
SVR ......5.5%--6.5%
Loans...7.8%--11%
Overdraft rates ... 10--17%
CC ...15%
Store cards 25%.....????
Get Gordon to outlaw store cards, make the banks to reduce CC charges and limit further borrowing limits.ban the introductory rates as these stoke the financial crisis and fool the fools into thinking that they can spend likre there is no tomorrow or at least no day of financial accounytability.
But no these are the real profit making machines of the Bank and if a few simple measures that help would the needy and not the greedy are not in the banks interest.
Financial reality would come return and stability sometime after after the medicine had its time to reward, not punish the prudent ...only problem is that banking profits would be down.
But then again it is us, the poor taxpayer that is funding these excessive rates and allowing them to be the only ones who are not feelong the pinch
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@ 2
Isn't it funny how when the government tries to implement certain measures cries of "nanny state" abound yet now people perceive they haven't done anything they are getting the blame. It doesn't seem very reasonable.
I think one has to accept that there are a number of guilty parties contributing to this mess we are in:
- bank for lending recklessly
- individuals for taking on far too much debt
- the government for targetting inflation around the CPI rather than RPI
- rating agencies for not really doing their job properly
- estate agents for contributing to the house price bubble
What beggars belief is that we are now being encouraged to spend spend spend. When will they realise that people need to rebuild savings and reduce personal debt. Unfortunately that will destroy retail spending and cause us all a great deal of pain.
Sadly I don't see how we can avoid this one.
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#22
""Or perhaps it's the other way round, that banks foolishly lent considerably more than we had deposited with them:"
Mr peston, is this illegal? As a Fractional Reserve Bank, where did the fractional reserve go? "
No the banks themsleves went out and borrowed the money from someone else to lend onto mortgage holders. Not illegal but, in that case of some of them (Northern Crock, B&B etc) bonkers as they relied on this borrowing totally.
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My German grandmother told me that out the outbreak of the Second World War she had stocked up on LAVATORY paper buying all she could. Her thinking was that in the long term it would be more valuable than CURRENCY notes. How silly was that ! Perhaps she could be forgiven - she was then a very young housewife.
She argued that she had learnt a lesson from her own mother and grandmother who had lived through Weimar inflation.
We do live in INTERESTing times. Do we not, Mr Peston ?
The UK becomes more like Weimar Germany everyday. Just ask Herr Braun.
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It really isn't interest rates that are a problem, or a solution. It is liquidity. Before banks lend, whether you are an individual seeking a mortgage, or a small business you are now expected to have a greater proprtion of the capital needed yourself. If interest rates reduce again, it will take longer for savers to reach the required level of deposit - hence extending the downturn. I have met few borrowers that have problems with interest rate repayment problems at the current level (or indeed the old higher level); but several that are simply unable to secure a loan that they are able to pay back. The MPC and treasury should not just be using the blunt tool of interest rates, but should start recognising that we have entered a new economic paradigm that requires a new approach to liquidity in the broader economy.
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10 peter
'low interest rates mean people move their savings abroad for higher rates'
Like where?
Iceland, perhaps?
Speaking as a saver, rates must be cut all over the world to counter the risk of deflation.
In the short term, deflation is great for savers, as even 2% is great if prices are dropping by 2% per year.
When the effect of time lag / gross profiteering by energy companies is taken out of the equation, the real rate of deflation is probably at least 2%, ie inflation of -2%. You can't see it yet, because our beloved friends at Eon, Centrica etc. claim that we must pay because they bought gas at vastly inflated prices- this is the real scandal.
So real interest rates are 4%, or at least will be when the energy companies are forced to cut prices drastically- which will definitely happen in the New Year, unless they do it voluntarily (don't hold your breath for that one).
Savers are still doing OK at the moment, in comparison with those without jobs etc.
Also, it is good for us all that banks make some profit back (from borrowing low and lending a bit higher).
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There has to be a balance between risk and reward. If we make "safe" investments to lucrative relative to "risky" investments than we discourage equity investments in real businesses that, in the long run, make the economy grow.
Unfortunately, the banks took some of this risk capital and funneled it into pyramid schemes that suffered the inevitable collapse. Some of this money was not even risk capital; the banks sold some of the asset backed securities as being low risk, with the willing help of the credit rating agencies.
The real issue is how do we deploy this capital into at least potentially productive firms and not into financial myths that the financial industry perpetually seems to have promoted.
Turning to the United States as an example first there was the "Asian Tigers", then there was the savings and loan crisis followed by the dot com bubble. Now the industry that brought you all of this has brought the economic devastation we now see. The dilemma is how do we regulate, or at least discourage, the type of investment advice that led to this debacle? If ethics won't do it, I am not sure that the government can.
Unfortunately, we are forced into a position where we are bailing out the very institutions responsible for this.
There is a deep dead dull thudding anger at this breach of trust being rewarded with bailout money, but the alternative would be tantamount to allowing a Great Depression as opposed to a "merely" a very severe and prolonged recession.
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Peter Peston, thank you for being the ONLY person in the whole of the BBC who has used the correct word "points" to describe the interest rate change.
Everyone (BBC News Channel, Radio 4 Today, Radio 5 Live "Wake Up To Money") have all said a "1% drop in interest rates", not a "1 point drop".
Thank you for you accuracy.
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Indeed. Because of this mess - which I believe is mostly attributable the people who borrow, spend, move money about and never actually pay for anything (and the financial concerns who feed them) – my company have been making losses and now I’ve been made redundant.
I’ve been sensible all along. I save my money to pay for things and I had a tiny amount in the bank to help me get through a situation such as the one I find myself in now. I’ve paid the price for living in a country full of borrowers and lenders and to try to keep the country going it looks I’m going to be paying even more.
When things improve, the banks should be made accountable and a) start using their profits to secure their future and b) start putting money back into the economy by way of increased interest rates on their accounts to make up for the losses that savers will be making now.
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The worst part for me, as a recently graduated student, is that my student loans are linked to inflation. This means that whilst the little I have saved inches up, the amount I owe from University is rising incredibly fast.
Add to this the government want to tax me more to give people who earn a little less than the chance to save (I can't afford to save myself anymore) and to give people who earn a little more than me the chance to keep their mortgage (I can't afford one of those either).
It seems that prudence isn't the way to go- all you do is pay for everyone else's mistakes. Including our PM's.
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Number 18
Your are spot on.
It makes no difference which party is in power - whether it be Labour or Conservatives - neither will be able to fix the UK's problems which look set to continue for the next five years or so.
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29.
Have you seen what Belgium's public debt looks like?
It's eyewatering, and that's even with the massive advantages of having the European adventure set there.
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My sympathy goes to those who fixed their mortgages around 6-7% when the BoE was telling the whole world rates would rise to combat inflation.
Professional bankers who were unable, Blanchflower aside, to predict a thumping great recession.
Shocking.
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i have been banging on for weeks that the answer is to raise not lower interest rates. Has it not dawned on GB that in order for the banks to lend they need people to save money with them.
When will it dawn on the government/BOE that lowering interest rates will not work, just look at US which has lower interest rates.....
I am fed up with subsidising the profligate who spent everything and now rely on my taxes to pay their mortgage.
GB is always talking about helping "hard working" families but never a word about the hard working savers;I am surely not alone in thinking that a hike in interest rates would solve the banking problem, encourage savers, strengthen the pound, and change houses into places to live not "investments"
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"Part of the reason we're in such an economic mess is that, over the past few years, we (that's individuals and businesses, in this case) borrowed considerably more than we saved."
People learn by example. Rote repetition of 'low interest rates' and 'borrowing to invest' from a man who doesn't understand what investment is, convinced many the house price escalator would never stop. They weren't borrowing to spend, they were borrowing to invest! If it's alright for Chancellor Brown it's alright for me.
Except Chancellor Brown's vain attempts at keeping the house price bubble inflated didn't work.
This is what you get when you have an oversupply of credit. We have an over supply of manufacturing, and oversupply of retail outlets and an oversupply of people employed in the financial and service sectors.
The future is not bright.
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"Part of the reason we're in such an economic mess is that, over the past few years, we (that's individuals and businesses, in this case) borrowed considerably more than we saved."
The vast majority of businesses borrow inorder to invest, expand and create jobs. This is not a bad thing and does not necessarily mean the borrowed money is blown on expensive holidays and waste, as your article seems to imply. Waste certainly does occur, particularly in the public sector, but i think you will find that most small to medium sized businesses account for every penny of their expensively borrowed money and generally put it to very good use.
When banks start lending again at reasonable rates and with some degree of fairness then we will start reinvesting and recreating jobs. Until that time the current stasis will prevail.
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Interest rates should come down. It's not a punishment of the thrifty, just that those that 'have' are less important than those that 'have not'
Bleating about being 'punished' is just another sign of how we got to this piont in the first place, ie a lack of any community spirit, or me me me, I'm alright jack get your hands off of my stack.
It's all nonesense anyway, just a lot of numbers on screens that need to be shifted around again, a lot of funny money it is.
so there.......
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Obviously it is utterly vital that the Bank of England continues to lend to our banking system at something close to the base rate.
It is a very dangerous proposition that you make, suggesting that we should all start saving to replace the alleged £700 billion withdrawn from the money markets over the past year. Such an increase in saving would obviously result in a proportionate decrease in spending, recking havock to our economy.
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Did anyone in the last decade hold a gun to the heads of borrowers making them borrow more and more???
If they have overstretched themselves and now need to tighten their belts they only have themselves to blame.
Yes the economy will contract while these belts are tightened but the economic 'growth' of the last decade was never real, just an illusion created by this overborrowing.
All Brown is desperatley trying to do is recreate a feelgood factor for the next election. He doesn't care about the longer term interests of this country - just priming the pump at any costs for 2010. His 'legacy' to this country is enormous Government and private debt that will take generations to pay back - thanks Gordon.
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Slashing interest rates will only help those with traker mortgages and the banks who will widen their profit margins until they have recoupped their losses. Yet again the thrifty are punished and the wreckless are helped.
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The public purse has protected the savers. So the savers are getting a poor rate of return on money they still have. Boo hoo.
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Finally Robert, a useful article which goes to the heart of the issue.
Anyone reading the Austrian school of economists will realise that one thing is inevitable. A financial bubble will be followed by deleveraging. The main issue is whether policy makers want a long drawn out and deep recession or whether they take it quickly, less deeply and move on afterwards. Lower interest rates for the former, higher interest rates for the later. Which way is Gordon driving things, of course, is towards the former for his desperate hope that he can delay the worse until a Spring 2009 election. The pain later, does he care; by then he will have won an election and won't go down as a non-election winning PM, his only major concern.
Anticipating this, I moved 80% of my pension fund to Euros a year ago. Luck or judgement, I'm not sure. Fortuitous, yes.
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#30 not bad. One year ago I moved all of my savings into Japanese Yen, it is now almost double and probably will be double after todays rate cut. Just about to move it all again though, but definately NOT back to the UK.
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Notwithstanding my previous comments about excessively high returns on "safe" investments discouraging risk capital, the return on "safe" savings that you identify is an issue worthy of serious discussion. It is not clear that we have found a "proper" balance.
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Short the pound.
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Perhaps someone should organize a campaign to have a day where all the savers simultaneously withdraw their money from the banks and deposit it one chosen bank. Perhaps one of the more prudent ones could be chosen as the beneficiary.
That would show the government who's really in charge.
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Domestic savers have virtually never had a decent deal in the UK. This is nothing new. The difference between what you get on deposit and what you pay on borrowing is eyewatering. That is why people put money into the stock market and into property.
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Robert
"Although it's not quite as simple as that"
Yes it is.
The operation on the patient will be very complex, there are likely to be very severe side effects, and the cure will be very expensive and difficult, but the illness really IS that simple.
Too many people borrowed too much, prompted by personal greed and government policy which encouraged this.
They were warned that self-certified mortgages, multiples of 4 or 5 times salary, buy-to-let and all the other devices to stoke up the housing market would end up in a house price crash.
Now the brown stuff has hit the fan, and the savers are subsidising the borrowers as it is politically and economically easier to do this than address the underlying issue.
I confidently predict that 10-15 years in the future much the same will happen again.
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RBS failed to pass on the full 1.5% cut to it's customers with mortgages. (Only cut by 1%)
So did it cut savings rates by only 1%?
Will it do the same again with the next cut?
If you have debt should you really be saving at the moment?
The priority at the moment is to get money back into the Banking system. Should we not be doing this by paying off debt not saving?
The only people saving should be those with no debt. The priority for them is not chasing the best return but making sure their investments are safe. Sit tight wait for the bottom and then move back into equity investments.
The hardest hit will be the expats who rely on a good pound/Euro conversion rate.
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Its time to get that allotment from the council and keep chickens in the garden, financial and social armageddon is approaching.
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Well Pension Funds and their Pensioners have already been punished by the Nationalization of their Banks.
And thus the destruction of the Shares their Pension Fund had invested in.
So why should Depositors enjoy extra protection ?
Their Capital is guaranteed, why should they have any further rights ?
Remember a Pension saved for over twenty thirty years may have been decimated by the Bank Nationalizations.
I think the Depositors are quite lucky to be keeping all their deposits.......
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#44
"No the banks themsleves went out and borrowed the money from someone else to lend onto mortgage holders. Not illegal but, in that case of some of them (Northern Crock, B&B etc) bonkers as they relied on this borrowing totally."
Thanks for that. Perhaps this borrowing should be made illegal or limited to a small risk.
The blogs have lately been bank bashing but I thought (as a layman) a lot of the troubles are due to opaque derivitives, SIV, CDO and other unquantifiable instruments?
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No 15 aka himatno8
Quite right. Sooner or later the slightest
breath of wind will blow down the Banking House of Cards. Nationalisation wouldn't delay the inevitable for ever but it might just give time for the building of a more equitable and durable financial structure.
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Absolutely right Robert. The section of the community dependent on its pension/savings is simply being hammered at present. That's a growing proportion of the population and too few in the driving seat seem to recognise this or care.
Further when is the inexorable devaluation of our currency going to cease. That has implications for our imports, the price of oil which will surely rise in due course, let alone those who, in good faith, booked what is often a much needed and deserved holiday abroad.
When the £ gets to 1 Euro shall we join and stop the devaluation further? One wonders if there is an actual intention behind it.
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The dilemma here is how to get the system back in balance hurting the least number of people and getting the UK economy on a more stable footing going forward.
There are several million people living in houses that aren’t worth what they paid for them with mortgages they cannot move elsewhere.
There are other mortgage holders with tracker rates who are quids in paying very low amounts for their properties.
There are savers who are being bailed out by tax payers and prudent banks for earning high returns on their savings in overseas banks which did very little for our economy.
There are people who have done very well our of the last 10 years with big pension pots, huge bonuses often held outside the UK.
The ‘fair thing’ to do would be for those who have done too well out of the current mess to pay more in either tax or interest so that those who have suffered due to bank greed or poor regulation get some relief to get themselves back on track.
Savers also need to realise that with inflation expectations almost zero for the next 12 months, that they can’t still expect to earn 6% and expect their children and neighbours to pay 7%+ interest on their mortgages.
There are a lot of lucky mortgage customers out there who will be paying 2-3% on their mortgages if the rate is cut today by 1%. So savers can’t expect to earn more than 1-2% returns otherwise the banking system breaks down or those who have no choice about moving their mortgage end up paying even more, compounding the unfairness.
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Of course, most pensioners won't be able to save again for their Pension.
Unless they have a time machine and a very long life span!
So when their savings are gone (ie the Shares are wiped out) so are they.
State dependancy all round !
When the economy picks up it may be possible for Savers to receive higher Interest Rates.
Of course all of this is over shadowed by the high rate of Inflation, mine is running at ten percent at the moment.
The best stimulus package would be to give all the Public Sector workers a ten percent pay rise.
They would spend some of that in the shops and in businesses who in turn would spend it elsewhere, helping to give the whole economy a big push.
The current Gov't does not seem to understand these most basic and obvious techniques for Demand management.
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what is the possibility that government's plans to allow deferred interest payments on mortgages might lead to a rush from the banks to get the current crop of repossessions through?
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Ridiculous pay restraint on the Public Sector helped to bring on this recession perhaps the Gov't wanted this to take place?
Food for thought.
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I'm in the process of withdrawing the max allowed £30,000 from NS&I Premium bonds, as the effective rate of interest has changed from 'minimal', to 'insulting'.
This was my house deposit which i saved up instead of buying a stupidly priced mortgage last year, and as a reward for my prudence, i'm seeing that although house prices are dropping, mortgages for new buyers are more expensive than ever, and savings rates are abysmal.
All the fuss about deflation in the news is just a smokescreen to allow inflation in my opinion - with the currency dropping and the price of essentials increasing, my savings are being eroded away, along with all the debt as i suspect is intended.
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So what happened to fractional reserve banking then? It is quite possible to pay more interest on your capital than you charge for your lending products, in fact this is exactly what RBS / Lloyds / HBOS are already doing. They sold preference shares carrying a 12% yes TWELVE PERCENT coupon. So who did they sell the pref shares to? GB & AD that's who. Wonder what they will do with all that interest?
Do you think they cannot or will not give a better rate to savers? If they just eat into some of those 6 figure and 7 figure salaries they could pay decent interest perhaps?
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Deflation? Where? Energy price deflation is not being passed on. And OPEC will move to restrict supply.
As the pound continues to plumet imports become more expensive. And we import everything.
Only house prices are deflating, and Broon is doing his best to restoke this bubble.
In the meantime savings rates are 3% and will get slashed today. And inflation is 4%.
Inflation will really take off next year and savers savings will be eroded. But so will all that debt, and that is the Labour plan.
As a saver its all over.
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Can anyone explain to me why a flat base rate is applied to borrowers and savers?
Surely it would make more sense for banks to have split rates, so a base rate cut could be applied to borrowers to help them in hard times, while a higher rate could apply to savers, because they need the help too.
As someone who is self-employed, and whose only debt is less than £500 on my credit card, I am not really looking forward to the coming months and years.
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If the government became a major player in the housing market (as in Singapore) than the link between interest rates and the needs of home buyers would be less strong.
It would give the government much more control of the housing sector without resorting to financial instruments. In good times the government could make a profit from its property dealings and use it for pensions and other large outgoings.
This should benefit those with savings in the banks.
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Another problem :
1. Bank's invest in Fixed Income products to yield a regular return in the same way interest is paid back to depositors
2. Some fixed income products are Mortgage Backed Securities which are no longer constant and secure investments
3. There are no proper asset classifications to distinguish MBS securities and other fixed income products, so its not possible to identify the full exposure of MBS securities.
4. To further complicate matters fixed income product are traded in the open market like stocks.
4. If there are a lot of people on the market trying to get a return interest is lowered
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This comment was removed because the moderators found it broke the House Rules.
Bah! Humbug!!
So now all savers are 'thrifty' and all borrowers are 'feckless' are they?
All these 'thrifty' people who've lent their money to the 'feckless' must have been hoping that the 'feckless' would work hard and keep the 'thrifty' in high levels of 'unearned income' (interest) for the rest of their lives.
Well wake up thrifty people! Not all people who borrow are feckless and not all people who don't are thrifty. It's a system, and mostly it works ok; it just got overheated by the 'thrifty' lending more than they should to the 'feckless'. Doesn't mean that all savers are 'thrifty' or all borrowers 'feckless'!
Let's hear it for the feckless - they make the world go round!! Merry Xmas, Scrooge.
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Yesterday I had an email from my bank to say savings rates were reduced blah blah but specifically said that overdraft rates would not reduce.
We need to understand that banks are businesses who see too much risk in the current over borrowing of both personal and government and KNOW that this is BAD news for everyone.
Brown needs to remember the very old 'cash is king' sentiment.
Like a terminal company needing receivership to bring a sorry state to its end, so private borrowing needs bankruptcy or it's variations to draw a line under a bad situation since at some point, currently looking like a 2009 erection, all this negative stuff will be MUCH worse.
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Yes Robert, BUT, the banks are increasing their margins aren't they. So neither borrowers or savers will benefit by the full amount of reductions.
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I couldn't agree more with Roberts leader.
My wife and I have been prudent all our working lives. Never borrowing more than we could readily afford, to provide for our children and our own comforts, instilling the same principles in our children, while many neighbours with everything, ended up with C.C.J.'s, or repossessions. Having both retired this year we looked forward to enjoying our investments. Having escaped a collapsing Icelandic bank by a whisker I now find our savings rate cut by two thirds in the last month, much higher than the Bank of England reduction. I am now spending more and more time searching out better rates.
The only question now is, was it better to enjoy the good life you couldn't afford then, rather than watch the banks eating up your savings now!
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#59
Most of those that “have” savings “have not” had new cars, flat screen televisions, holidays abroad etc.
Conversely most of those that “have not” savings “have” had the new cars, flat screen televisions, holidays abroad etc.
For the latter group to pick the pockets of the former is immoral.
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Maybe this Gov think there are a higher percentage of Tory voters in the 'Savers'
Don't look for anything more complicated please, it's not there!
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The 'feckless borrower' and 'prudent saver' argument is common sense but it ignores the fact that we have a fractional reserve system which is not based on common sense and most money was created by people taking on debt.
If someone invents a cure for cancer or builds an iPhone or 300M people enter the labour force in China it does not create a penny of new money - but if someone takes out a mortgage to buy a house or buys an iPhone on a credit card there is more cash in the system than there was before. If you have £100k in your bank account to fund your retirement then about £90K of it only exists because other people have borrowed. You would not have your savings if it wasn't for the borrowers.
The only way the 'feckless' can actually pay back their debts is if the 'prudent' start spending money rather than hording it. The first step towards this is interest rates so low that the prudent need to live off their capital rather than the interest on it.
Arguably the psychology, backed by government guarantees, that putting money in the bank or bonds is safe and good but buying stocks and shares is gambling and bad is one of the major problems with our system. It distorts the market by rewarding investment in sterile assets like property, deposit accounts and govt bonds and penalising investment in technology and manufacturing which actually increase 'wealth' by solving practical problems.
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Does an interest rate cut not fly in the face of market forces?
Market forces apply to savings/borrowing too. A shortage of savers and excess of borrowers should cause market forces to push interest rates higher. The government is trying to push them lower. Surely to do this, Brown is going to have to pump billions into the system somewhere and it will all collapse anyway!?
Personally, I think Brown fighting the natural correction of market forces like this is analogous to King Knute trying to hold back the tide.
I think the lesson we will learn is that government cannot and should not try to artificially manipulate interest rates - the market should decide them instead.
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I'm not sure if I speak for a minority or a majority but the current econamic situation, for me personally, is a godsend. I and my wife have good jobs, made possible in part by getting a good education, have and an average sized mortgage and pay our credit card bill at the end of each month. We have cars but don't do a great deal of miles and have not stacked up huge debts backed up by the over-inflated valuation of our house. Interest rate cuts, cheap commodities and retailers biting my hand off for my business. There is a God!
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I did what I thought was right for my early retirement. I saved, which is making very little interest, invested in ISAs that lost money over 8 years, have a few shares which are worth very little.
I blame myself to a certain extent for taking notice of the so called experts, but I blame the irresponsible borrowers, lenders and governments even more.
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HEY THERE GORDY
Just to let you know we (my business)
is currently keeping all our funds circa
400 million out of the UK,you latest policies
of devaluation of Sterling has earned us
over 80 million.
We only release funds into the UK banking
system,on a weekly basis to fund our bill
payments.
CHEERS MATE KEEP UP THE GOOD WORK
TRASHING WHATS LEFT.
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With sterling collapsing and the government printing presses busily at work, inflation is guaranteed.
With the entire world economy sliding down the toilet, a slump, not a recession, is building.
We therefore having the makings of stagflation, the most dreadful of all economic beasts other than Weimar-style hyperinflation.
And today the stock market is rising.
This is total madness.
Anyone with the smallest amount of sense should be heading into the nearest big town to spend their savings on gold sovereigns.
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AKING NEWS...BREAKING NEWS..BREAKING NEWS...BREAKING NEWS..BRE
The symbol for the pound sterling appears as a 'blank square' £ in some bloggers' messages . Is this on your site only, RP ? Or SHOULD this become general BBC policy ?
Do you or they know something the rest of us do not ?
The Sterling Symbol is not only defiled by OUR Gov't but by YOUR internet space.
How loyal are you to the BoE?
Bring back the likes of Eddie George and send Mervyn King off to a different panto.
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I suppose we have to wait for BoE rate to be nought percent before it is realised that it is largely irrelevant to the management of a modern technology economy.
After all we got here by being largely dependent on changes to the base rate as the primary means of economic management.
Wether it is to achieve stability in the economy or as important to progress rapidly to sustainability in use and production of energy the state will have to actively manage and control the economy at the macro level across the broad areas of activity.
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Simple - higher savings rates for retirees or say over 50's and lower rates for others !
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T'was, I think, Micawber, who said if expenditure exceeded income, the result would be misery. Misery is upon us, but how unwise to punish the thrifty whose savings oiled the wheels of commerce.
The current approach to the crisis is to attempt to sheild anyone adversely effected from reality, at any cost to anyone, with no thought of the consequences. Follow this policy and when we are all impoverished, by personal improvidence or by having to fund unsustainable State expenditure, and every person seeks financial assistance from the State, the answer will be "Sorry, we're bankrupt".
There is no dielimma: reward savers or banks will go bust, and the State (us, the unemployed, non-tax-paying public) will not be able to bail them out!
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How about the HSBC approach - last two interest rate cuts (200 basis points) have been passed on to savers in full whereas borrowers have only benefited by a reduction of 81 basis points - I wonder if lining the pockets of HSBC was what the Govt and BoE had in mind when they embarked on the aggressive reduction in rates?
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Savers need someone to represent them in these times.
Take the mortgage assistance.
I assume that if I lost my job and had substantial savings I wouldn't get any help. My prudence would be punished. If I had no savings, I would get help. That is, if I had overstretched myself, maybe drawn equity to buy a big car or a foreign holiday - I would be treated as a better citizen than if I had saved for the future.
For a number of years we've been told to ensure we have savings for retirement a potential loss of work.
Now these savings are attrracting no interest. The prudent are once again being punished because the government, the regulators and the banks let credit go out of control and for what? To buy cheap rubbish from China and to make houses too expensive. This misallocation of credit has brought no benefit to the long term health of the UK and is now threatening those who were hooked on credit, those who were prudent, the economy and the long term financial health of the UK.
Prudence was once a watchword for Gordon Brown. He also said he wouldn't let house prices get out of control (1997 budget). It seems that he forgot all of this in the pursuit of power and politics. All of the measures he's taking now are about staying in power to align himself with those who weren't prudent.
What can savers do? Ultimately, if banks aren't giving interest, premium bonds aren't paying out, we may as well not have cash in the bank or, if we do, put the money into a bank that hasn't played games.
If prudent savers want to be treated as well as the feckless, they'll need to start using their money for political effect.
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#17
Make your own mind up by all means but I think you will find RPI will fall drastically over the coming months with the cut in interest rates even making negative RPI a possibility, now I already own some of these inflation linked bonds and am busily checking out the documentation to see if there is a floor on the interest paid.
Robert
At last someone has put the dilemma in simple words although reading through some of the comments here its still a bit too complicated for some.
Some who quote interest rates as the only factor in any borrowing or investing are taking too simplistic an approach, some quote the high rates on credit cards but are only too willing to claim money back from the card companies when retailers let them down and those now complaining about the low interest rates on bank deposits forget that these have now been made virtually risk free, the phrase something for nothing springs to mind.
People don’t like it but banks also have costs to pay, there is a cost in running your current account or your deposit account for that matter, what people don’t realise is that in the past some of these costs have been subsidised by the banks dealings in the various markets, ordinary peoples accounts have been the least profitable (if profitable at all) of any banks business.
For those moaning about the weak pound, how much has the strength of the pound damaged us over the last few years in outflows of cash, how many chose to holiday abroad, shop abroad or invest in property abroad just because the pound was strong, if it were not for the fact that this is a global problem today’s weakness would not be a bad thing as the capital gain on the currency movement would now encourage people to cash in their foreign investment and reinvest in the uk.
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This cut is supposed to help re-start spendin but for large purchases such as cars, even if finance is available (which has often not been the case) the interest rate is usually governed by FHB (Finance House Base Rate) this will not move in response for at least another month and then will not reflect the whole cut.
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Yes investors suffer. I was made redundant after 30 odd years conveyancing in two firms of solicitors (one actually because my latter firm took over the former). Having watched most mortgagees throw money at house buyers over the last several years,and not for the first time in several boom and bust cycles(are there any conveyancers out there who did not shake their heads at Northern Rock's lending policy?) am I right to thinking that the government is encouraging the same thing to happen again ie demanding that banks etc lend again. Surely we have learnt that the housing market is NOT a wise rock (sorry) to build the economy on????
Job Centre Plus. Filled in a form asking for help on Job Interviews (only had two in my life both in 1974!!) but was told "it was just a form we were told to get people to fill in.
Oh well.
Just hope my savings and what little interest I will now receive keeps me in bread, milk, tea, and heat. My Job Seekers allowance is £32.15 a week so maybe I should cut out either the milk or heat. Any suggestions?
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Lots of replies awaiting moderation so apologies if any one has already made these comments or asked the same questions.
As I see it:
Interest rates fall
Sterling falls against other currencies
Savers need better returns
Exports become more competitive
Therefore:
Find a way to channel savings into export sales.
Encourage the export of manufactured goods.
Real returns generated by manufacturing
Is this a plausible outcome?
What would be needed to effect it?
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Post 67,
I think you will find a lot of people have been shorting sterling for quite some time.
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# 80
I quite agree with you. GB and Ally D have been much too generous in terms of pay rises for the public sector, not to mention the creation of so many non-jobs as well.
I trust you also share the view that index-linked final salary pension schemes also need to be scrapped for public sector workers too?
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Ah well.
The Pound is in trouble whatever happens now.
And the Evil Bankers aren't there to manipulate the Pound higher.
I've asked before, but what does Britain export ?
Exports are what we need to pay our way in the world.
And that means manufacturing industry to create the goods being exported.
Thats where we differ from Japan, we do not have a strong manufacturing base.
Of course a lower exchnage rate will give Britain more chance to export, but only if the exporters exist.
So would the Political Parties like to say their policy to rebuild Britains manufacturing base ?
A convincing Policy would earn them lots of Votes I'm sure.
Or do they just feel that sitting on their hands will work ?
I must say I suspect it won't.
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Looking from the outside, I saw this coming, maybe not as hard and fast as this but I could see it.
I live in Germany these days and have been amazed every time I return on hols at the figures and growth in the property market, friends being given 110% mortages etc, it had to end some time.
Here there is an 11% savings ratio, one of the highest anywhere, and now if you've money to invest (deposits) the banks have gone off the deep end raising interest rates for savers trying to attract captial.
Unfortunately, the ECB will lower interest rates again and the interest rates will drop for savers too, but at least most savers will be no worse off in terms of interest as they were 6 months ago.
It must be in the interests of the banks to reward savers and secure capital, this should be enshired in law anyway, that a bank must have a minimum percentage of what it lends in available captial, and all risks have to be included in the balance sheets.
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RE: #56 Jolo13
How thoughtful of you. I suppuse you are one of the lucky few who isn't currently mired in debt, living on the breadline, worried about losing their job, or heading toward negative equity because of the downturn in the property markets.
Certainly I sympathise with anyone who has savings and who relies on the interest to help supplement their income -- I'm in the same position myself. But don't you think that raising interest rates at the moment with so many people up to their eyes in the sticky stuff would bankrupt a lot of them? Granted, with a lower interest rate, you can't buy as much with the interest on your savings, but at least you still have those savings to fall back on.
I for one would rather see the interest rates fall than many thousands lose their homes and jobs.
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sorry robert, but this time i think your analysis is way off the mark.
first of all, the run on banks' funding in the interbank market (a liquidity crisis) was only a SYMPTOM of the real problem, which was the probable insolvency of our entire banking system. banks borrow short term and lend long term all day long - that is their business model. a run on a bank only happens when its short-term lenders think that the bank is insolvent.
as you know, insolvency means that the value of the banks assets (immediate sale value, where they are funded short-term, hold-to-term value if they are funded long-term) is insufficient to repay all its debts. naturally, if you have lent the bank money by making a short-term deposit, and one day you wake up and decide the bank is insolvent, you will immediately withdraw that deposit (unless it is guaranteed by the government, in which case you only care about the government's solvency).
so the real question is why did international money market lenders think our banks were probably insolvent? the answer is precisely that the banks had lent too much money to mortgage borrowers and companies, creating an enormous credit bubble (of which the housing bubble was only one aspect). once the credit bubble popped, everyone could see that a recession was coming, house prices (collateral for mortgages) were tumbling, and all of the people that the banks had lent money to (individuals and companies alike) were going to have trouble repaying.
in the current recession, there is actually no problem now for banks to attract individual depositors (as opposed to international money market depositors). these individual depositors are guaranteed by the government. more importantly, as everyone can see there is a recession, individual members of the public are now likely to become much more cautious and start saving (or repaying debts) with a vengence, meaning more money going into bank deposits (or being used to repay mortgages, which has a similar effect on the banks' funding gap). so the funding gap currently being filled by the government will get closed in the next 1-2 years, PROVIDED HOWEVER THAT THE ECONOMY CAN BE PULLED OUT OF A RECESSION.
now we come on to the real macroeconomic problem, which is that people (and companies) will be saving TOO MUCH. banks also are wanting to save more (by rationing credit and by charging a wider margin between deposit rates and lending rates, and btw i doubt very many banks will be raising their deposit rates). but saving more means spending less, which means that the economy falls off a cliff. as keynes pointed out in the 30s, falling spending means falling prices and falling earning, which means more problems repaying debts, which means more layoffs and bankruptcies, which means falling spending. it is a deflationary death spiral.
one ironic outcome of this deflationary spiral is that the value of savings / debt repayments can actually fall even though (and in fact precisely because) people are trying to save / repay debt more. why? in simple terms, when people choose to save, they save a percentage of their earnings. but this means the amount they actually manage to save (in the medium term) depends on how much they earn. and how much they earn depends on how much everyone else is spending (i.e. how much everyone else is choosing not to save). so when everyone starts saving at the same time, earnings collapse and the actual value of savings can actually fall. this is keynes' "paradox of thrift".
hence the need to cut rates. despite the state of banks' balance sheets, it is absolutely vital that the bank of england does what it can to stem the incoming tide of savings by penalising people for hoarding cash. only this way can the deflationary recession be curtailed and the economy stabilised, at which point it will be correct to gradually raise rates again.
let me finish by offering an analogy: if you are driving too fast and your car skids, the last thing you want to do is hit the breaks and turn back the way you were going. instead, you hit the gas, turn into the skid, regain control, and only then guide your car in the right direction and bring its speed down in a controlled manner. right now our economy is skidding.
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AT LAST - someone has noticed that there is a massive unfairness happening at the moment, which is absent from government-speak; absent from the media; and the wonderful Robert Peston has noticed .... what about the plight of older people living on their savings at this time ... it is truly grim. The complete silence on this makes it worse. I think Gordon Brown should be required to read Peston's blogs, and the posts, so he gets this issue into his vocabulary again - there are people who SAVE and are prudent, and there are OLDER people who do not have the option to work. 50% of women do not even receive a full state pension - far from it. A forgotten group being affected by this recession thanks to spend, spend, spend economics.
THANK YOU ROBERT PESTON!
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I think the heads of this Chancellor and the last Chancellor should roll for this (metaphorically speaking, before big brother brown sends the police around).
We get into a financial crisis by not saving and spending tomorrows money today, and hey, we reach a point when you can't get anymore money from tomorrow and can't spend the moeny you've already spent today.
It was a budget less than four years ago when Brown was declaring he'd been in charge of the UK economy for the longest period of growth in economic history.
He was happy to be "credited" with that, why is he trying to postpone (and worsen) the inevitable crash that it would accompany?
I'm a responsible borrower, and it REALLY ANNOYS ME that people like the BBC's case study last night of a BMW driving hard-pressed idiot who was paid 5 times what I get loses his job and the government underwrites £30k of his mortgage.
LET THE GREEDY FALL FLAT ON THEIR FACES.
PUT UP INTEREST RATES (not down!)
DO NOT BAIL OUT BANKS OR INDIVIDUALS.
I am a saver, and a capitalist, but firmly believe that these institutions have lost all sense of responsibility for their actions and need to feel the consequences.
Why is the former head of Northern Rock STILL being paid £60k a month?
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Some years ago I inquired about my eligibility for pension credit and was told that my savings disqualified me. I said, 'If I go out and spend my savings on a Jaguar will I then qualify?' the reply was, 'I wouldn't advise that.' Why not, I wonder?
The government's fuel allowance, Christmas gift and the £60 extra don't cover the drop in my income for savings interest.
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I took out a mortgage on a modest dwelling in 1977, and spent 30 years repaying it at interest rates higher than they are today, sometimes a lot higher. During that time my family also managed to live within our means, not taking out any other loans and always paying off monthly credit card bills in full.
Now that I am a pensioner, I find my savings are being rapidly devalued, all because the economy has been driven by a system which discouraged thrift and applauded greed, and is still sympathetic towards both the avaricious people who bought bigger houses than they needed, and the equally acquisitive buy-to-let brigade eager to exploit those less fortunate than themselves while jumping on the money-for-nothing bandwagon.
When Tory Thatcher legislated against the unions because they abused their power, one hoped that a future Labour government would then bring under control the much greedier and more corrupt financial sector. Instead, they allowed the banks even greater freedom, a move which made the present situation inevitable.
Greed is driven by insecurity, insecurity results from fear of material deprivation and from government policies which breed mistrust. When greed was sanctioned and society denied by Thatcher, it triggered an epidemic of every man for himself.
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I,m moving my cash abroad as the high rate fixed bonds expire oever the next few years.Why should I prop up Browns mismanagement of the economy and the people who didnt bother to save when times were good.
No wonder there has been a huge exit of deposit money over the past 8 weeks many people like me must be trying to find a better home for their hard earnt and saved cash than the UK.
If Brown isnt careful he wil find that and a huge exit from savings and the destruction of sterling will ensure that his already mismanagement of our economy will be worse than he imagines.
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I have £50k in a bank account in the UK earning base rate interest.
£50k is a lot of money to me.
May I ask, what would you learned people do with it now?
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I am old school and was brought up on the ideals of only borrow when you have to, pay off debts soonest and save for the future.
So, our Govt rewards these thrifty ideals by taxing me 40% on the interest on my savings and using this money towards bailing out people that have adopted the attitude of borrow as much as they can now and pay later (or never in some cases)
Strange old world?
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Yes, the thrifty will be penalised. The Govt wants to restore the high level of (unsustainable ) borrowing in order to avoid a bigger recession so that presumably it can win the next election. What most people seem to have missed is that it is not just the level of credit which was the problem but also the structure. And that has resulted in an economic structure which is not sustainable. Structural change has to occur and how will that happen without a recession to sort out the wheat from the chaff? This policy is going nowhere (except in terms of short term political advantage) and the people who will bear the cost are taxpayers and the thrifty (especially pensioners who rely on savings interest to bolster their inadequate pensions).
Ity may sound hard but we DO need a recession since there is no other way in a market economy to adjust output and consumption patterns. Markets don't have feelings and Govts don't have the know how or the wherewithall.
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Why use silly emotionally charged expressions like "Why punish savers?"?
Come on Robert, you are one of the few bright lights in the BBC's business and economics team. Please keep it that way.
Rob Slack
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Is it time that The Thieves of Gogarburn changed the name of their company?
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111 JayPee28bpr
"I trust you also share the view that index-linked final salary pension schemes also need to be scrapped for public sector workers too?"
A friend told me of a NHS administrator retiring at 57 on GBP 30,000 pension. He could live for 30 years costing almost a million. One person!
It clearly cannot go on.
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I do worry that if Brown keeps going we could up like Iceland, completely bankrupt as employment is declining and while he is cutting VAT he is putting 2p on petrol to recover the loss, however if noone has a job, tax receipts will decline so he cannot fund the payments on public borrowing.
Therefore you will end up with the public accounts in the same state as a lot of families, then what do we do?
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If the interest rate on savings drops below 1% the return on savings would not balance the risk of a bank defaulting. There is a real risk that people will keep their money in cash under the bed, hence giving the banks more trouble. There is also a consequence that since savers feel let down by the government they will use their cash on the black market and save on tax.
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#111
"I quite agree with you. GB and Ally D have been much too generous in terms of pay rises for the public sector, not to mention the creation of so many non-jobs as well."
You owe me a new monitor as I just spat my tea over guffawing at your description of my last pay rise as "over generous" - I work in the public sector and got 1.8% and that was delayed by 6 months whilst they argued the toss.
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I am reminded of the definition of a Socialist.
"One who will share half his sixpence in exchange for half your shilling"
This is what GB and the ugly glove-puppet are doing to savers now.
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#1 - No, there is not less risk under your bed. Aside from the £50k official guarantees, we have already seen that the Government is not prepared to let anyone lose their deposits, even if they are greater than £50k (London Scottish Bank). People are taking their money out and stuffing it under their mattresses but I bet many of these people would not be covered by their home insurance if someone came in and stole that money.
The reason Northern Rock had to be nationalised was poor LIQUIDITY - not exposure to the wholesale markets (though that didn't help and the two are intrinsically linked). What sent Northern Rock through the floor was media commentators telling people to take their money out and lack of decisive action from the government or any regulator to assuage their fears.
I notice Robert hasn't yet run a blog on the massive profits the Government stands to make on its INVESTMENT in the banks. At yesterday's close, it had a paper profit of £320 million on its RBS ordinary shares and of course a healthy 12% return on £5bn of preference shares.
Am I now watching the banks bail out the Government? It's a nice position to be in if you're GB - sitting on a healthy profit and still having the banks look like the bad guys. UK economy grew well over the last 10 years, as did the rest of the world, but when the times got tough, the UK economy seems to have suffered more than any other "premier league" economy.
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If you are fortunate enough to be a saver, then perhaps it's time to look outside the box at other forms of investment. You could buy physical gold, for example. After Christmas things are only going to get worse, and the Pound, USD and Euro are going to take a punishing. People will start rushing to old school forms of save haven.
I think the government should spend less money propping up failing businesses and more time investing in the future, such as heavy public infrastructure.
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"Why should savers be punished with interest rate cut?"
It's not "rocket science" is it Mr Preston? If everyone of us saved our money rather than spend it , then the World would quivkly grind to a halt, wouldn't it?
Why should we have to pamper to these people with arms shorter than their pockets that don't like spending money?
Spend it or invest it properly for heavens sake.
It's a sad day when someone with a few bob becomes anguished and allegedly impoverished simply because interest rates have been cut by a MASSIVE 2 percentage points.
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The system in the UK has for a long time rewarded failure and punished success e.g. leave school with no qualifications, become a client of the welfare state, take it easy for 40 years then collect a state pension; or, work hard at school, get a decent job, be taxed into the ground to support the system, then have an impoversihed retirement. Every week I tell my children to emigrate ASAP - why should they pay for Brown's socialist wastefulness ?
We need 20 years of over-rewarding the prudent and punishing the wastrels to compensate for the last 10 years of Labour disaster i.e. food vouchers and 40 hours a week pavement-scrubbing for claimants, dormatories for the pregnant teenagers, all criminal sentences to include a requirement to gain qualifications, a million redundancies in the public sector, an end to final-salary pensions for the public sector (plus work to 70 to collect it), zero taxes on saving and VAT on all consumption, greatly reduced income taxes, capital-gain tax on housing gains.
It won't happen, of course - the client state is now too big, and the parasite is going to kill its host. Remember, all Labour governments end in financial disaster.
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My experience over the years has been that when real interest rates drop, banks compensate savers in other ways. If one has been a good customer of a bank for years, the bank wants to keep and enhance the relationship, so it offers special flexibility on credit card limits, provides investment advice, acts as a broker on request, will help locate property one might wish to buy, etc. In one case my bank gave me a substantial bridge loan for a few days with no paperwork at all, and no interest:-- just made out a tellers check for the needed amount. The bank can, if it wishes, write letters of reference or recommendation for the customer to foreign officials, suggest business opportunities, whatever. A good banking relationship involves more than interest payments on savings.
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I suppose in Britain today I am Mr Average I have always worked hard and saved a little money for retirement along with adding extra (AVC) towards my pension, struggled to get two children through University.
I find it more and more frustrating to understand why we are told to save for our retirement to find the government is then going to claw back our pension in taxes and devalue our pensions’ and savings because of other’s greed.
I have worked hard for many years in the country I did love and yet find myself bailing out greedy banks and a vast number of people living above their incomes.
Like a good citizen I save toward my retirement and yet find my savings diminished as the bank rate drops, this to help the country’s debt problem. On top of this, the government are trying to get people to spend more to get us out of debt which in turn is only making the debt mountain worse.
What sort of message is this giving to the youngsters to save for retirement? It’s totally unfair on Mr Average. When they retire the majority of these youngsters will end up as Mr & Mr’s Average.
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#114
yes i am not mired it debt, yes i do not have a huge mortgage, yes i am nowhere near the breadline yes i am nowhere near being in negative equity.........However it is nothing to do with luck...it is called living within ones means, if i want something i save up for it, refusing to pay some credit card company 15% interest, i have worked for over thirty years, never received a penny in benefits, paid lots of tax and now i have to bail out those who took on mortgages they cannot afford....maybe i should have trusted to luck, put all my money on a horse, lost it all and then relied on others to look after me! I forget who said it but, when told he was lucky said..."yes and the harder i work the luckier i get!
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Robert is right, the banks lending was more than they received in savings - but why was this? I believe it was do to the fact that they have been offering such poor interest rates, in other words, we were not encouraged to save with them.
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Aren't the vast majority of mortgage borrowers either on fixed rates and therefore won't be affected by interest rate cuts; or on trackers, most of which I believe don't follow bank rates if they fall below the current 3%? So only the small proportion of borrowers on SVR mortgages will benefit from today's likely cut - far fewer I'm sure than there are savers who'll lose out.
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----"At 08:44am on 04 Dec 2008, Derek53 wrote:"
"And I must say that with inflation still high, and interests rates still plummeting,"
Why do people write such utter twaddle?
Inflation has not been high for many years. All this talk of high inflation based on recent rises in CPI/RPI is utter nonsense. They were price rises, NOT inflation. To some extent I blame the BBC, for constantly referring to such price rises as inflation. It is dangerous nonsense. When people believe the price rises really are inflation they start to look for wage rises to match. Especially the selfish numbheaded loonions. That may trigger an inflationary process.
Nominal interest rates may be falling but with deflation (or at least very low inflation) expected, real interest rates (in spending value terms) are falling more slowly. "Plummeting" is a tabloid term that appeals to the great unwashed.
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RE Middle Class Mortgage Deferral.
So now many of us have to cover the cost
of all those BMW/MERCS/ASTONS/JAGS ETC
GORDON???
YOU CALL THIS FISCAL PRUDENCE??
I call it LEGAL theft!
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Firstly, thanks for explaining how the country got into this mess.
That's the first time I've seen an explanation avoiding the use of the words "hedge" and "fund" for the likes of me - one whose understanding of economics peaked with an O Level in Commerce.
Any cut in savings rates won't bother me; I will just use my savings to pick up the slack left when I fixed my mortgage for three years back in September. You remember that... when inflation was out of control, and there were warnings of interest rate hikes.
If a week is a long time in politics, it seems to be an era in economics.
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there seems to be a lot presumption that all families with mortgages have been reckless with there borrowing and have bought cars and holidays etc..
i work - my wife looks after our children and does part time work when possible
our fuel bills / taxburden etc have all gone up over the last few years - i work in the private sector and haven't had a pay rise for the last 2 years - after bills etc we struggle to have any cash to spend on ourselves or our children
an interest rate cut would help me - it is obviously dependant for others on what deal they are on and when there term comes to an end - my current deal runs out in feburary and i could in theory be paying around £200.00 per less a month in mortgage payments
if there are 10's of 1000's of people like me in the next few months then the benefit of additional money at the end of the month is surely good for the economy as working people with mortgages will have more disposable income
the rate cuts are certanily doing more for me than a 2.5% cut in vat
and if the working man has more disposable income at the end of the month as there mortgage payments are reduced surely this would be more of a stimulus to the economy than bringing forward the child benefit increase - i think with 2 chilldren this ammounts to £1.85 per week - what on earth do the government think this will do to help families with children who dont have access to the JOHN LEWIS LIST
the current and inwaiting politicians are so far removed from what it is like to be an honest hardworking family that they punish us with stealth taxes at every turn then use us in there speeches to try and show what caring politicians they are
party politics is finished - each problem needs to be sorted on its own merits not with a red or blue hue regardless
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As usual the nail has been hit fairly and squarely on the head. The issues listed are precisely the reason why I have already removed all of my savings from RBS, HBOS and others. Quite frankly these were organisations that have demonstrated an inability to look after money. Their offers of paltry rates of interest at a time of collective hand-wringing about why they cannot raise capital led me to find alternative locations to save my money.
As a saver and also single, I am acutely aware that the government is not interested in me - all we here about now is providing more credit for "hard working families" who overstretched themselves. It is a shame that neither the government or banks have seen fit to support "hard working single savers" who might have been able to provide additional liquidity at this time.
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My partner and I have worked hard over the last decade or so, have no debts or mortgage. Two years ago we set up our own business (and incidentially would get a very good rate on the business deposit account if there was any money in it). We are just about getting by and are still working hard, just not earning what we were. We had put a fair amount of savings into an monthly income account so at least whilst the business was getting up and running we would have a little (and I mean little income), now that income has been slashed. My parents too are in the same situation.
We are really fed up with the government with their lack of ability to manage finance (as are so many others). Why when we have managed our finances well are we being punished to support those who cannot manage their finances (I thought the government wanted people to save). The government's behaviour seems to support the attitude of spending outside your ability to pay, its givign out the wrong message.
We do sypathise with those will big loans and it must be dreadful to loose your home. We just hope that everyone will learn from this (no-one seemed to learn from the recession in the 90's did they!)
We will cope, we will have to tighten our belts and be canny with our pennies and continue to build the business which will be OK, but in future I might be very tempted to loan myself to the hilt with the knowledge that the government and tax payers will bail me out... that will help won't it if we all did that!
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This Government is punishing savers by taxing interest on savings where the rates are less than inflation and restricting the amounts that can be saved tax free.
They also claim to be the party of social justice but where is the help for those retiring or forced to retire in the private sector who have seen their pension pots savaged by the fall in the stock market when the public sector worker can retire on a guaranteed pension linked to their final salary paid for by the wealth created by the private sector
This inequity needs to be addressed
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Hello
As one who derives the majority of his income from my savings I am naturally disappointed and yes........angry at this constant attack on my standard of living.
Very little is ever mentioned about the impact on savers of this ill-thought out non-stop reduction of interest rates..... the news is all about the reduction in mortgage payments. Up until a few months ago we all considered a fall in house prices to be a good thing (first time buyers etc etc) now the mantra is about halting the slide!
My own income will drop by some 50% over the next 12 months. Yet I do the right thing. I save/invest however it seems to me that I really don't count as I'm considered inactive in terms of the economy.
A panic situation has developed at the Bank of England. Why do we need further interest rate reductions? Why, after having reduced them just a month ago, are we now lowering them again......what is the evidence that there will be any positive impact on the economy?
We must be seen to be doing something has become the mantra.
Apart from the personal impact I fear the additional damage to the £ as the outpouring of money continues. My own savings are likely to follow together with myself. I may as well spend my money somewhere in the world than lend it to the State/banks for next to no return.
Welcome to the socialist utopia......state run banks, monetary madness etc etc. Does anyone now believe that there is ANY kind of plan driving this financial policy......apart from Gordy's desire to win an election victory?
Regards
amazingtristar
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121:
Euros, Swiss Francs or Yen.
But a bumpy ride everywhere.
Globally interest rates are falling.
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Some body asked what to do with their
50K?
Take it out ,buy a safe, and put it in the
safe.
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Or buy property.
Interest Rates are historically very low, and demand is still very high.
Property Rental would offer a high return.
Property is a long term investment however.
Ten years at least.
Good Luck.
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I am getting more and more angry by the day, for years I did everything right.
I never took a loan including a mortgage.
I had a credit card which I payed the balance off each month if I used it.
I have been saving to buy my own home outright, doing without holidays, plasma TV, little bleeping gadits (I don’t even own a mobile phone) and a 14-year-old car I keep running.
I don’t have children yet as we wanted to be financially secure before then.
Poured money into my pension so I could retire at 60, and as of last month it’s getting towards worthless and my dreams of retiring at 60 are now shattered.
I moved my saving offshore last month and now I am glad I did.
Now here is my reward for real prudence and financial responsibility
Financially shafted & abused because I don’t fit labours core voter model.
I am now expected to fund the bill in a couple years time via higher taxes so this government (who promoted this for years) can bail out the 'must have it now mob' by ppl like me pay for it.
This includes
Banks who acted criminally with our money
Funding reckless ppls life style choices in the form of election bribes.
Companies that lived off credit and did not put money aside.
The worse of the bunch ppl that borrowed too much and failed to plan for the worse, and now cannot repay it.
The very ppl that should be punished for their stupidity and not ppl like me.
We talked last night and mulled over the idea of moving abroad, it was a shock that I actually started to consider it.
I used to read all those right I am leaving the UK comments on the HYS and actually laughed at them.
Robert I love reading these blogs but its clear that these policies by this government is driving a wedge between certain groups of the uk population - and the groups that getting hit are single ppl, married ppl with no kids, savers and small business owners to name a few.
Its time someone spoke up for them in this crises.
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There are still a few good fixed rates on offer.
BOS were (still are?) offering 6% AER fixed for a year. 4 withdrawals allowed and further deposits attract same fixed rates. Min 2k. Branch applications
A further 2 feel-good factors here.
* As inflation decreases/possible deflation sets in. these fixed rates give an increasing relative return.
* You are helping to improve the bank's balance sheet and prop up the banking system!
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Tts a double whammy for me.
I did not borrow too much money because it would have been irresponsible. Now I think its good to be irresponsible under this government. Because all my savings are not giving me any returns but all those irresponsible borrowers are getting bailed out by the government. Falling pound is also not helping as the money I was saving to invest abroad is not its worth any more. So moral of the story is do not be responsible and save.
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RP> [banks will] only be able to afford to reduce savings rates by less than 1%, if [they] were to cut lending rates by less than 1%.
Wrong. This assumes that there is no fat in the banks that can be used to make up the 1% from somewhere else, an assumption that is clearly wrong.
The 1% could come from, say, firing a few useless managers. Then they can liquidate some assets - a few football teams and some nice flash skyscrapers, perhaps - reduce salaries across the board by, say, 75%, replace all their gold-leaf stationery with plain-jane paper, etc.
Did these people ever actually run a business? I guess they were too busy ripping people off to learn the basics. It's called management.
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After Christmas things are only going to get worse, and the Pound, USD and Euro are going to take a punishing. People will start rushing to old school forms of save haven.
*************************
Not true, gold is not a great investment, the peaks and troughs do not make it stable enough for a serious investment.
Why should the Euro suffer more than the Dollar, OK the GBP might take a short term hiding, but look at Bush's devaluation of the Dollar to stave off the Euro. This is a great chance for UK exports, shame a great deal of the exports are stuff that is imported.
If only Mrs Thatcher hadn't.............................
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Perhaps it is high time that Politicians went and did a days work. In the real world. As Mr Curzon explains, anyone with half a mind is working now in the global economy. Hence if the UK is to survive the next few years, then it must compete with other economies.
The spin and incompetence from the Executive is now a total disgrace. Yesterday a minister admitted on the radio that she should not have quoted "real" figures for how many would be helped by the mortgage "holiday".... so why don't they stick to policy that they can sell competently to the populace?
They are ALL fiddling whilst Rome burns.
Capitalism is a game of winners and losers..... at present the UK is losing. This will continue whilst Parliament finds it more interesting to bicker and feed us sound bites. Even those who believed the spin are now realising that the present situation of UK PLC is that of a totally bankrupt business. Italy still hasn't recovered from its own "Empiric" destruction. Quack Broone to the rescue! Not.
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The encouragement to save, whether in money savings or pension funds, has been decimated by Brown. He berates oil companies over pump prices yet slices 60% in tax etc etc.
Now we are to buy, buy, buy to see the UK economy rise from the pit, allegedly. For those under 30, we had a slogan "Buy British" years ago and that surely is the only way to help the UK, not filling our boots with goodies manufactured in far east sweat shops. Try "buy british" as a web search and you get a US based, ex-pat web site! Scope here for a small business entrepreneur .... if only a bank would lend me the dosh. That truely could be a British job for a British person.
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Economic crises, What economic crises? During the state opening of parliament I observed row after row of ermine clad, un- elected, unaccountable, unrepresentative individuals, no doubt legitimately on the public purse, attended by every shade of flunkey known to humankind, some appeared to resemble pantomime clowns. I am informed that the attendance allowance of the Noble Lords is equivalent to a person working a full week on the mimimum wage.What a waste of public money. Next time anyone seriously thinks we live in a democracy, they could, perhaps give a little thought to the points above.
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Why not?
Currently there are people more in need of the money. People who have savings in the first place can't be that worse off, the fact that they have savings at all in this day and age means they are in a better position then those struggling.
The high costs of living are not just based on people spending more than they receive, the fact of life these days is that all greedy companies, oil companies, taxation, high costs of food and housing have forced people into this credit problem. In the 70s only my father worked and he was a able to afford a 3 bedroom house on just his manual job. these days I earn probably about 5 time more than my father but cannot afford to even by my own home!
Stop blaming the people who are having the problems, blame the greedy oil companies, blame the greedy government, blame the greedy utility companies...its those that have lined their pockets at the expense of the citizen!
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#136 Ardworker
"Like a good citizen I save toward my retirement and yet find my savings diminished as the bank rate drops, this to help the country's debt problem."
If the rate drops, your savings are not diminished. The return on them drops.
You did read the small print 'can go up as well as down'?
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NR was ultimately nationalised because of the £20b depositors' run on the bank which was caused by its naming and shaming by the incompetent BoE (which did not discretely fulfil its role as LOLR for the relatively small potential wholesale shortfall of about £2b), and the failure of the Government to immediately guarantee all customer deposits, further eroding confidence.
This event was a major contributor to the global destruction of confidence - the first run on a British bank, which had been regarded as the world's best banking system, in 160 years, which was repeated shown and reported around the world.
King remains in place accruing his very lucrative government backed final salary pension, despite having also subsequently demonstrated the BoE's incompetence in other areas such as being behind the curve in reducing interest rates and in underestimating the likelihood of recession.
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For me the story is that the banks used to borrow 700 billion from the wholesale markets each year. The government is trying to fill some of that hole and if it tries to continue too long it will eventually get to the point that it cannot borrow any more money. How many governments can all borrow all at the same time and would you say the UK is more credit worthy than say Germany.
The government could force the banks to run themselves at a loss, but since they were subsidizing the amount of tax we had to pay then that money just comes out of our pockets anyway as we are forced to pay more tax to compensate for the loss of taxes from the banks.
The answer has to be that long term we through the banks stop borrowing from wholesale markets and start borrowing from savers. Consumers and business understand this adjustment is necessary and want it to be quick and as painless as possible. Government misguidedly seems to want to slow things down, to control the adjustment, to make sure they don’t look bad in the eyes of the electorate.
Lets be honest our pensions and savings are being stolen from under our noses.
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#96 I´ve no idea whether you speak for a minority or not - I guess it depends on how many loonies there are.
Don´t you know that mobs don´t march they run.
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The banks are already ripping savers and borrowers off.
Savers are getting 50% of the rates typically charged to borrowers at 8.9% and upwards rather than the 1 or 2% margin in the past.
Fees are increased too. For a £3000 overdraft on my business account with RBS I was asked to pay £200 in fees or nearly 7% of the sum to be borrowed and then plus interest. Profit upfront indeed.
The banks need to remember that they don't have any thing to play with without our money. If the continue to charge rdiculously they will also attract competition from outside.
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94. tom_edinburgh wrote:
"If you have 100k in your bank account to fund your retirement then about 90K of it only exists because other people have borrowed. You would not have your savings if it wasn't for the borrowers."
It seems you misunderstand Fractional Reserve Banking. If I put 100k cash in a bank and nobody borrowed any of it then it would just sit there in the bank vault until I said I wanted it back. Naturally, the bank would not gain anything from having a pile of paper sat in a safe, so they would charge me for looking after my money.
What FRB does is allow the bank to lend out some, say 90k and charge interest to the borrower. If the bank charges the borrower say 10%, then in one year they pay 9k interest. Therefore, the bank can pay me up to 9% interest in this case. (Typically they would pay me about 4% and keep most of the interest themselves!)
Therefore, if it was not for borrowers, then the savers would not get any interest on their savings. However, the money does still exists.
The problem comes when the borrows default and do not pay back the money. The bank still owes the money to the saver so they have to make up the lost money from the interest from other borrowers. If too many borrowers default then the bank has to charge more interest on the other borrowers to stay solvent. That is what is happening now.
Brown is trying to force the market the other way, but it will all end in tears. (Not for Brown though - he will retire on a massive state pension courtesy of us!)
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95. Simon
Allowing 'the market' to do its worst is what got us here in the first place.
As all UK banks are effectively propped up by the implicit and explicit govt guarantees, there is little need for them to pay more than the government does to borrow money.
Short-term gilts yield 1.5-2%.
So govt-backed banks need only pay 2% for their cash.
This is market forces at work.
98. Alexander
Congratulations on your shrewd investing policy (so far).
Weak sterling (v the Euro) is exactly what we need at present.
Makes the UK the most likely beneficiary within the EU when global corporations are decinding where to invest.
Makes imports from Europe more expensive-good for domestic producers.
Makes exports cheaper- good for exporters.
If sterling was still 1.5 to the Euro, we'd get well and truly forked by this crisis.
Weak pound v Euro is bad for the Eurozone, not us. (unless you're an expat, but I've often wondered why we pay pensioners to live in Spain, where they contribute zilch to our economy, apart from buying the Spanish editions of the Sun and Mail- where they can read in the sunshine how bad things are over here...)
I'd advise you to repatriate some of your millions anyway, because the pound's current unpopularity will end abruptly when the hedge-fund boys have had enough and move on to the next target. You can ask George Osbourne when this is likely to happen. Some of his ex-friends are those you should thank for your profits.
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And what about those of us who, approaching the end of mortgage term, signed up for a new fixed rate on an interest only loan.
Would I now be paying £250 a month or less rather than £500?
Plus, I paid £1000 for the privilege of that loan.
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#27
Good point, but Brown didn't really keep a lid on PSBR either. In his usual mendacious fashion he (very deliberately and knowingly) just shifted a load Enron-style off balance-sheet in the form of PFI. This didn't stop the government lecturing others for such smoke-and-mirrors, of course ...
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At last. You have nearly answered the question that has bothered me from the beginning of this crisis : ' Where has all the cash gone ?'
My remaining query is : ' Where are the people who withdrew their cash from the UK market keeping it now - as this seems pretty much like a global problem. ?'
Anybody help ?.
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Comments have rightly been made about the impact on the poor old saver, who is being completely screwed by Long John Brown, his first mate Darling,and the grasping pirate bankers.
However, no-one has yet commented on a far more serious issue i.e what happens to pension annuity rates if interest rates disappear. Presumably anyone retiring any time soon with a personal pension will not get a pension at all !
This is far more important than not receiving a return on their investments potentially.
It is impossible to buy a pension if the Retirement Fund will not receive any income from being invested, as the payment would erode the capital which is not allowed.
The whole system is predicated on the basis of positive interest rates. If there are none then it just doesn't work. Pension shortfalls will simply be infinite.
Can I still get on the Public sector gravy train please? I want to get a job where I am in no danger of being made unemployed, get paid more than someone lucky enough to have a job in the private sector, and get a totally unfundable pension at the end of it. Excellent. All praise to Comrade Gordon!!!
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How does Gordon Brown get away with claiming "low national debt" when he speaks in public. It is ridiculous in the current situation.
It also seems to have taken almost a generation to again manage to forget the tax and spend habits of Labour in the past. History taeches us about the future - if only we could ensure it was remembered from one generation to the next effectively.
Labour's blatant vote buying, of which mortgage support is yet another stream, is an affront to democracy. That is quite apart from the insult to the Queen carried out yesterday. It is also an affront to those of us who have worked diligently, paid our way, saved when possible under an ever increasing tax bureaucratic burden.
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"Welcome to the socialist utopia......state run banks, monetary madness etc etc. Does anyone now believe that there is ANY kind of plan driving this financial policy......apart from Gordy's desire to win an election victory?"
Well that's not going to happen - Labour are likely to get a defeat of "historic" proportions at the next elections - this blog is a place for predictions (stock market below 2000 anyone?) I predict that they may even end up as the 3rd party after the next election in Tory 1 party state!
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As someone who has been prudent, paid off my mortgage and saved for a private pension, I am outside of Brown's Client State, and paying for it. Frankly, I wonder why I bothered now when I could have been feckless and left it to the state to look after me.
Those of you who think Brown is some sort of economic maestro would do well to pull your heads of out your bottoms. All he wants is to tie as many of us into the state as he can (witness Glenrothes - 30% unemployed, 30% public sector workers - they were never going to do anything but vote Labour), so we are bounden unto him
Tax credits instead of sensible tax thresholds tells us all we need to know. If someone got rid of him, they would do the country a huge service.
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Vyssotsky #135
I really must take issue with this post. Bank employees are a complete shower in my experience and I would avoid any investment advice from them like to plague.
Consider this: if the brightest, most talented and highly regarded employees of banks are quite as incompetent as they have now been shown to be, how stupid are the ones at the branches, at the bottom of the food chain?
My latest business banking manager called me up the other day to introduce himself and said "I see your turnover this year is GBPx" - what he was actually looking at was the throughput on the account, not my turnover - and you suggest I take advice from muppets like these? They can't even do their jobs, never mind advise me on mine. They have no business experience, so how can the spot "opportunities"...
How about writing letters? My dad receives a foreign pension and the foreign pension authority wanted a form signing to confirm his ID etc. Do you think the bank where he has been banking for the last 40 years and into which the pension was being paid would sign and stamp the form? Would they hell.
Let them go to the wall, debts and all and let's use the PO instead. Banks are not too big to fail. The quicker they fail the better. Then we can rebuild.
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"we have entered a new economic paradigm that requires a new approach to liquidity in the broader economy."
There are no new economic paradigms. It is the belief that there are that causes these problems.
Tulips are worth thousands.
.coms are the new economy that cannot fail.
House prices will always rise.
You can increase your debt forever.
Its the same on the way down. It is still the same game that is played the fundamentals don't change.
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Let's paint a scenario.
What if some chappy retires at 50 with a nice public sector pension. Before retirement 5 BTL's are "acquired" with a total of 1 million pound in morgages.
The view when "acquiring" the BTL's is "When you buy a BTL you never actually own the house". From this we can perhaps deduce 5 100% morgages were taken out with the rents servicing those morgages but not paying back any interest. It would then be hoped profits would be forthcoming from any rise house prices when sold.
Now envisage the situation where this happy chappy is sitting at home with his nice public sector pension and the taxman paying for his morgages - perhaps because his wife loses her job.
Fair? I think not.
We all now the world is not fair but we are now falling rapidly into the ridiculous.
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Its not a dilemma.
Its scandalous.
I'm really very annoyed (witness post 49, which was moderated) about the way that PRUDENT savers are now being penalised because of irresponsible lenders mistakes.
The problems have got nothing to do with us savers really, but anybody who's now forced to live off savings and the interest accrued on them being squeezed.
And no doubt we'll be squeezed even further, when VAT has to be increased to more than 17.5%, because the national debt has gone beyond the "optimistic" £118bn it's currently predicted to be. I would not be surprised to see VATA increase to 20% or 22.5% over the next few years...
The people who caused all these economic problems (the borrowers and lenders) should be bearing the burden. Not the responsible, prudent savers.
The most sickening thing every month, is the repeated calls from the people who have caused the problems, by borrowing/lending too much, for interest rates to be cut by large amounts. Its not 0.25% any more. Rates are being cut by a third.
Its about time somebody said no. Rates should stay where they are or be raised...
If anybody wants to borrow my money now that we are in this mess, they should really be paying me more, not less. 10% instead of 1%. That would cure the problems long-term, as people would be forced to live within their means...
Over to you Mervyn...
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As for my representative in parliament - he should be paid by the Labopur party and not by the taxpayer as he carries out labout policy and does nothing to effectively represent me.
Perhaps if MP's pay, including a performance bonus, were set locally oit would encourage them to listen to us and not continually tow the party line. Their might then be real debate in the houses of parliament instead of grandstanding and rubber stamping.
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131.
A paper profit of 320m on our RBS shares is peanuts for what we risked in order to save them from bankruptcy. There's no way the govt. should sell the shares back until they're worth at least 2 quid each, so that we the taxpayers make £100 billion for what we risked to save RBS.
Yes, that will do nicely as a start, but first the credit crunch must be nailed, so that RBS etc make profits, and we get to sell our stake at 2 quid a share. Then, prudent savers such as myself go back to enjoying decent rates of interest.
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Hello
Whils we are talking about The Queen's Speach...did anyone see Prince Philip give his own opinion of the contents.
Twice, just to be sure he made his point, he mimed picking the speech up and throwing it away!
Make Philip P.M. Gordy might make a decent Sergeant at Arms.
Regards
cg0
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How can an individual who has brought this countries finances to its knees claim that he is saving it?
And why do some people believe him!!
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The FSCS has just returned £2.6bn+ to UK savers who now need to find a new home for this money. The banks seem to lacking in initiative as I cannot detect any attempt on their parts to attract this money.
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# 112
A good start towards rebuilding the UK's manufacturing capacity would be as follows.
1. Sack all the non-workers currently on public sector payrolls.
2. Put them to work in manufacturing businesses, eg mills in the north west of England. Pay them Chinese rates of pay. Actually if possible pay them Vietnamese rates of pay: about 99% less than they are being paid now and they'd actually be doing something with at least a chance of being useful (unlike now)
The above also benefits the majority of people, in that it would get rid of the public sector pension millstone around the private sector's collective neck.
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#160
No, you're not right - savings go down even in the "no risk" banking system when interest rates fall below inflation.
Ardworker makes a good point - it's hard enough to have money left over at the end of the month when *essentials* are rising faster than luxury goods. But when savings interest rates fall, then the saver is lending money to the bank, only to get back less purchasing power in a year's time than he has now.
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I have invested money over the last 12 years in the stock market through a Halifax ISA and now have something which is worth 40% less than the amount of money I've invested. but the fund is still solvent.
Had I invested it instead in a bankrupt Icelandic bank the government would have ensured that I had not lost a penny!
Where the rhyme or reason in that? This government is protecting against failure and while it does so, it will encourage failure.
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Hello
I note that Barclays reduced their savings rates overnight (last night) by around 1%, presumably in advance of the expected BoE reduction today.
TVW
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It has already occurred to me that if interest rates for savers fall to 1% or less I would be better off withdrawing all my savings and buying Premium Bonds.
How would this benefit the banks, who need my money, or small businesses, to whom my money would be lent, or the wider economy?
But I have to look after Number One and if thats the best move for ME then that is what I will do. Daft isnt it?
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#88
I agree, however, there are risky savers and careful borrowers. Those that saved in high yielding (ie risky) Icelandic bank accounts should not be bailed out to the same extent of someone saving in a low risk building society.
On the flip side, a careful borrower, ie prime mortgager with high equity (more than 40%)should be helped out more than a low equity (less than 40%) mortgage borrower.
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You did read the small print 'can go up as well as down'?
*****************
Tad cynical isn't it?
What's gone down is not the reasonable saver, it's the unreasonable (arrogant) money markets, gambling with money in a game without rules (except the one, the taxpayer will bail you out).
Trouble is, the banks and brokers don't want any regulation or interference when everything is (on the surface) is going nicely, but when it hits the fan, it's the govt to the rescue (whopee).
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I think it's time to cut out all the middle men
(1) My salary used to go through 3 agencies (2 for a 10% cut and 1 for a 15% cut) and then HMRC for a 40% (IR35) cut and then the CSA for a 20% cut.
(2) If you have solvency problems advisors charge £5,000, trustees £25,000 and statutory interest accrues at 8%. BTW advisors and trustees accrue costs for doing no work.
(3) It's like Divorce Lawyers charged £35,000 to get nowhere in Court over 2 years and I achieved a lot more representing myself by shouting at the judges.
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Normal savers can not prop up the banks with their savings, what is needed is to encourage the mega-earners to reinvest in the UK economy.
Steadily over the past 20 years the top earners have been taxed more and more and have thus been leavign the country and putting their money into institutions in Monaco, Switzerland and the Carribean.
Perhaps the government should be cutting deals with these mega-earners to tax them far less a percentage in exchange for moving their money back into UK banks.
At the moment we get neither tax nor capital from this money earned by UK people, a deal would alllow us all to benefit.
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We assume that people will act rationale and put their money where they can get the best returns - which at the moment looks like the stock market.
After that they will go overseas - or back into the house market.
The governemnt needs to get interest rates up to at least the 4% mark to balance things up.
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"Yet by cutting interest rates the Bank of England is - in a way - punishing the thrifty and rewarding the feckless.
Although it's not quite as simple as that, because even the thrifty would be in the doo-doo if we plunged into the deepest, darkest recession.
It's certainly not as simple as to suggest that the prudent may in fact be better off by being disadvantaged. In any case, don't you think that as the innocent victims of this crisis they should have some say, despite being numerically in a minority?
Maybe they would say that the only way to stop idiotic behaviour in adults is to allow the full consequences of idiocy to be felt. Perhaps the overall effect of short-term pampering of the irresponsible mainstream is to cement into the national psyche that not-growing-up is an acceptable lifestyle option.
Doubtless I'll be accused of heartlessness, but actually I think that those who are being heartless are those who seek always to insulate people from their own negligence. Yes, families should not be allowed to starve, but the crunch message that needs to be got across is that society's prosperity requires adults to have the attitudes and thought processes of adults, not to think that there's an option to remain in the land of childish immediacy and simplisticism.
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Great post, Robert, and excellent simple explanation of exactly how we got into this mess.
One question - that £700bn which has mostly come from outside the UK (from China, plus the Gulf states?..... in fact an analysis of where from would be excellent, please .....) needs to be repaid, which will take us as a country some time. Presumably it must be in GBP?, hence any devaluation in the currency will not affect the sum either way (....it's not denominated in USD is it?.... meaning as our currency devalues it gets larger and larger?).
Secondly, glad also that you make a distinction between large businesses and small businesses - the latter generally being run more conservatively (net cash positive) than the former.
Maybe there is an angle here on why if this debacle works through as it should it will end up being beneficial to the UK and it goes like this.....
Small companies always have had a hard time growing beyond a certain size and hitting the big time (and I speak from personal experience here), in that once they appear on a larger companies radar screen this larger company will go for them and use their market position/dominance etc to compete (this would normally mean the larger company reducing the price of its own products to stuff the smaller guy - predatory pricing etc etc). You could argue, therefore, that the larger companies have used their access to artificially cheap money (i.e. high debt levels or gearing) to set artifically low prices in the market place, to protect their position.
If, therefore, these highly geared larger companies do indeed go to the wall, then one effect will be to reestablish 'correct' prices in the market place, and make it easier for the smaller companies (who you could argue are more innovative) to compete and sell their products.
(The Pub Cos and the brewing industry might be an excellent example of this in the UK - just take a look at some of the Pub Cos debt levels!!!)
Sounds hard, I know, and one would want to help those employees thrown out of a job who have been innocent bystanders within these large companies that have taken on stupid debt levels, but this does show why the idea of propping them up would act against long term economic growth, and in a sense it would be a good thing for the economy as a whole for some of these large Co's to fail, for it's clear that by helping the larger guys you prevent the smaller guys with better ideas from having a go.
Meaning.... re interest levels.... yes Mr Banker, reduce them for individuals having a tough time with mortgages to minimise levels of individual hardship, but please price loans to large companies at rates that properly reflect the risk, so you can keep on paying savers overall a decent rate.
(.......if the large companies start whining that with such high interest rates they are not going to be able to invest 'for the good of the economy' tell them.... ***** tough. They had their chance to invest, but chose not to, instead taking on debt to be able to return cash to their shareholders!)
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Thanks Gordon and Mervyn. My gold hoardings are increasing in value everytime you announce another harebrained scheme.
I do feel sorry for people not savvy enough to get out of sterling, though.
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This is a very circular argument, but ultimately there seems little option but to cut rates further. The difficulty is that our banks operate in an asset backed world and are not going to start lending again until they have more confidence in asset values. By cutting the risk free return that they can earn on their cash, then this encourages banks to lend to each other more my increasing the relative attraction of lending money via the interbank market. This, in turn, brings sterling LIBOR down, and helps free up the mortgage market. The plight of those who rely upon savings income if very unfortunate, but possibly starts to make the equity market more attractive as savers are drawn towards some of the attractive dividend yields now on offer.
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As a saver,I believe that I along with other savers are being punished.
Better to let the incompetent banks/businesses fail,it would be a hard blow but then all our pain would be short n sharp.
Perhaps then all,from the smallest business to the largest would learn simple economics and cut their cloth accordingly in future.
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Does Mr Peston get paid to write this juvenile economic drivel. He goes on at great length and says nothing more than trite banalities. Why does anyone listen to him?
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Not sure what the point of RP's blog is today.
Maybe if he'd watched a bit of commercial telly recently he'd have seen the ads being run by all and sundry over recent weeks. Just about every bank you can name was offering 6% fixed for 12 months (prior to the cut from 4.5% to 3%, I admit. However, the fact is you can still get 100-150bp over Bank Rate for longer-term deposits, so I'm not sure what everyone is moaning about.
Must be a slow news day for RP.
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The problem is that the banks are the ones that create money, rather than the Government. They lend the money they create along with an interest bearing debt. The Government should be creating the money itself and spend it into existence.
There is a video series about this matter at moneymyths.org.uk that explains this far better than I can.
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It would not surprise me to see a
NATIONALISATION of savings by this
FECKLESS STUPID BUNCH OF NAVEL GAZING
SYCOPHANTS.
GORDY IF YOU WANT 6 million plus out of
WORK to MICROMANAGE??
KEEP UP THE GOOD WORK!
YOU ARE RIGHT ON TARGET.
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Everyone agrees that our woes are the result of too much borrowing and too little saving. So what does the BoE do, encouraged by the government? It reduces its interest rate to an absurd level to encourage borrowing and discourage saving - exactly the opposite of what is needed. It is very dispiriting to realise that those in charge of our economy have such a weak grasp of basic economic principles. They are trying to blow up a bubble that has already burst.
Meanwhile, my mortgage has reduced by £17 per month whilst my pension fund is falling in value by about £1,000 a week.
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172 Scouse. I would be delighted if you can furnish me with a list of socialists that have been running, British and American Banks, Insurance Companies, Car Manufacturers, Hedge Funds,etc. I look forward to hearing from you.
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Point 1. GB has one focus amongst all this chaos, winning the next election.
Point 2. The independence of the BoE is a myth. The MPC are being told what to do by GB/AD in order to satisfy point 1.
Point 3. This government will continue to use state intervention to attempt to prop up the housing market for the next 18 months so as to acheive point 1.
Point 4. Brown will stop at nothing to acheive point 1 and trample over everyone and everything to get there. He will then try to spin his way out of the mess with the usual mix of cherry picked statistics and doublespeak.
Point 5. All attempts by the government will fail and everyone will suffer much more than if markets were allowed to correct by themselves.
Point 6. We will look back this time as one of the the darkest periods of our nations history.
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#179 – I was not suggesting the government sell the shares immediately since it is fairly obvious that if they did, the sheer volume on the market would suppress the price to the point that they made a significant loss. I was simply pointing out that the £20bn “handout” to RBS was not a handout at all – it was an investment (I think a very lucrative one) in order to allow the bank to meet the new capital criteria pushed through a few months ago.
Agreed, RBS needs to be making profits before any “paper profit” is realised but a 12% return on the preference shares and the potential capital gains / dividends (effectively tax free since the tax goes straight back to HMRC anyway) hardly amounts to throwing money away. In terms of when to sell, the answer would be gradually (to avoid flooding the market); at a profit (have to make some sort of return) and as soon as possible (since high proportion of government ownership risks uncommercial decisions and bank being less attractive to investors. It seems to me that the less shares the gov’t owns, the greater the potential for profit on its remaining shares.
The other point to consider is that the sooner the government sell the shares, the sooner the press will have to stop printing populist drivel and misinforming the public.
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#112
From Wikipedia (assuming it is accurate) a list of top exporting countries - values are in million $
1 Germany 1,354,000 2007 est.
2 People's Republic of China 1,220,000 2007 est.
3 United States 1,148,000 2007 est.
4 Japan 678,100 2007 est.
5 France 546,000 2007 est.
6 Italy 502,400 2007 est.
7 Netherlands 456,800 2007 est.
8 United Kingdom 442,200 2007 est
So our exporters have not all dried up.
The problem is the opposite - imports
1 United States 1,968,000 2007 est.
2 Germany 1,075,000 2007 est.
3 China 904,600 2007 est.
4 United Kingdom 621,400 2007 est.
Note the two countries worst placed for the recession are the two with the greatest difference.
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By reducing interest rates to way below the inflation rate, the Bank of England is effectively trying to get savers to subsidise borrowers. They are penalising the thrifty and rewarding the spendthrift. I appreciate the Bank's current dilemma, but how does it and the government plan to encourage and reward savers in the future and discourage unwise and excessive borrowing?
With below inflation interest rates and this government's means tested benefits regime, where is the incentive for people to save for their future?
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I have had to retire early -ill-health- and 60% of my income was interest based.
Guess my position now. Moving house was not in my plan. But then there are others losing them.
Those who borrowed way above their limits have stolen my last years. To the greedy and immoral - thanks.
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for those that think its bad now, just wait until the retail xmas figures are published and then a wave of job losses are announced in January!
As George W put it, "This suckers going down!"
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As someone about to be made redundant and who doesn't have a mortgage and who does have savings I'm about to be hit by the double wammy of a) seeing my job go as a result of other people borrowing too much and b) get a minimal return on the money I am going to have to live off... to help the same people from losing their homes and to encourage further lending.
Egg cut the interest rate on my ISA account this week by 1.5% in line with the reduction on the base rate... though actually they emailed me to tell me about the reduction on 1st December and retrospectively applied the cut back to 14th November. Annoyed, and feeling particularly petulant, I emailed to ask when they were going to reduce their credit card interest by a similar amount.. cue email back saying their rates were determined due to my particular circumstance, well I've had that card with them for something like 7 years now and not once since application have they asked me what my circumstances are. The world's gone mad - cheap credit got us in this mess and now we might be about to get the cheapest borrowing rates in the last 50 years to stimulate more spending
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As you say, it is savers and investors who are suffering. Those of the grey vote are being ignored. Mostly they have saved for their old age, have put aside enough to keep them comfortable above the state pension. They are not going to be eligible for any state help. They cannot "cash in" their biggest asset - their mortgage free home - because it is unmarketable at the moment. Those who are not on final salary pensions are the most vulnerable. They are not going to be able to work their way out of the problem, and yet they have not caused the problem. It is like allowing vandals who have caused damage and chaos not only getting off "scot free" but giving them a reward for their bad behaviour.
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If you're a saver - congratulations - however you're not some form of greater being.
Likewise, if you're a borrower you're not an enemy of the state.
A very simplistic polarisation that's really unhelpful in the current climate.
Not all borrowers are reckless - in many ways if done sensibly borrowed money will be paid back after being spent to purchase homes, home improvements, automotive etc. We all (individuals, businesses, economy as a whole) benefit. i'd rather be like that than still have my first pay packet tucked away in some dusty corner somewhere.
it's right to attempt to come out of this crisis with a balance and to stimulate sensible borrowing, spending and provide return on savings and investments.
if all we do is protect savers - then we're in trouble.
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Buy Gold boys and Girls, buy gold.
Crash Gordon will destroy your savings and there's no point buying houses just now as they are still headed for 20% more devaluation.
Oh, and pity the poor sods faced with the dilemma of repossession now, or Crash's idea that they rack up more deferred debt over the next two years on a house that will then be 20% well valuable.
Nice one Crash, tricking people into holding depreciating assets again!!
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#203
Sorry I didn't make myself clear, I was quoting an earlier post on a possible view of the future and adding my own opinion of a possibility in the next election.
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# 126
I agree, and what makes it even more alarming is that few, if any, of the public sector schemes are funded. In other words, there's no separate investment fund earning the returns to pay public sector pensions as they become due. They are simply paid out of current tax receipts.
Let's contrast that with private sector workers. Let's even leave aside the fact that most now only get defined contribution pensions, and hence individuals' take the investment risk. Final salary schemes in the private sector are almost certainly in extreme stress post-market crashes, and these still represent the bulk of private sector pensions saving and will do so for a consdierable period of time. However, a "typical" UK scheme has 40-60% invested in equities so, with a 40%+ fall in global equities in recent months, the "typical" scheme will have declined in value by 16-24%. Can the sponsoring companies make good these losses (remember many schemes were already in deficit)? Will schemes be in breach of their basic solvency levels when they report this year? I don't the answer to that in the UK, but it is certainly something concerining the Irish governmemt, where it is rumoured that 90% of schemes will report non-compliance with the equivalent requirement in Ireland this year.
So, we now have a situation where it isn't just a case that the private sector saves for its own pensions and pays the public sector's current pensions as well. We now have a situation where the private sector's pensions have been very severely compromised, but private sector workers continue to have to provide final salary index-linked pensions to the (growing) public sector, even though their own retirement earnings may well fall well short of expectations after recent market events.
Like you say, it can't go on. The depressing bit, though, is who will have the balls to call time on it? Not GB. He's always been close to the Unions, the bulk of whose members are now in the public sector. Do you think "Dave" will go for it? No chance.
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"Waste certainly does occur, particularly in the public sector, but i think you will find that most small to medium sized businesses account for every penny of their expensively borrowed money and generally put it to very good use."
This certainly is not my experience of small/medium businesses. The overriding essential seems to be the maintenance of the status-symbol gap between the controllers of the business and the workforce.
How often in difficult times do you see the 80k salary reduced to 50k, the A6 swapped for a Fiesta, the trophy-secretary's 2 hours useful work per week incorporated into someone else's job, second-class train travel no longer beneath dignity, family members in non-jobs told to look elsewhere?
Not very often, I'd suggest.
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166. MunichMadrid7980 wrote:
"Allowing 'the market' to do its worst is what got us here in the first place.
...
Short-term gilts yield 1.5-2%.
So govt-backed banks need only pay 2% for their cash."
So where is the money supposed to come from? If you have a money market where the money is traded between savers and borrowers then you have currency that actually means something.
If, as Brown wants to do, the government says lend more money and charge less interest then where will the money come from? Savers will not be interested in lower returns for higher risks so they will go elsewhere.
The ONLY place the money can come from is a printing press ... just like in Zimbabwe!
Something has to give, and it is better to take the pain and let the market correct sooner rather than later. It is a bit like the choice between amputating a gangrenous foot now, or waiting and amputating the whole leg later.
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2% ????
Watch the Pound devalue.
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Let the feckless hang! The best lessons in life are the painful ones to learn. It's their over-borrowing that helped property prices boom in the first place, pushing them out of the reach of those more responsible.
If they fear or suffer repossession now, they'll remember it for their future decades and booms in the housing market. This boom went on too long; Gordon put an end to boom and bust by constantly fuelling the former. We were all settled down at the start of a nice and gentle, cyclical, house price crash in August 2005 before Mervyn was overruled into an interest rate cut on the "independent" MPC. Who appoints many of those sitting on it? Gordon.
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# 129
And when was the last time anyone in the public sector ever had to worry about redundancy? Erm, never. Even Thatcher didn't tackle the overstaffing in the public sector. If you want better pay rises, become more productive. All the evidence shows that public sector productivity has declined over the last 10 years. Hardly a surprise when looking at the job descriptions for most of the non-jobs that have been created in the public sector over that period.
Incidentally, many private sector workers who still have jobs in 2009 will be taking pay cuts, so be grateful you got 1.8% last year and will almost certainly have a job in 2009. I suspect you're not going to get much sympathy about "only" getting 1.8% from the people who actually pay your salary, ie the taxpayers in the private sector.
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The voice of sanity!
I do agree with the general thrust of your article, but think you are considerably underestimating the extent of the mess, i.e. by ignoring the credit default swaps, which account for about £500 trillion or so; the likelihood of millions of people here going in to long-term negative equity and losing their homes - in spite fo the Government's ridiculous ideas to stop repossessions - with the housing market crashing by 50-70% - and if Japan is anything to go by their market crashed by as much as 85% and nearly 20 years later are not even 50% of the value they were at the time of the crash.
The long and the short of it is, the Government and the City seem to want to have their cake and eat it - i.e. a state run capitalist system - a contradiction in terms - where the knowingly reckless and foolhardy are bailed out at the expense of the sensible.
This system is doomed to failure and so, alas, are we all.
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I'm a saver and I don't feel punished. Why not?
Well, instead of spending every penny I had when credit was loose, I saved up for things. As the interest rate climbed, because the the Bank of England was trying to fight inflation, saved more and earnt higher interest rates.
Now the interest rate is dropping to deal with (possible) deflation and (current) recession. This makes savings less attractive. However - and here's the important point - the things that I was saving for are now cheaper.
In the past month, I have got 20% off a new wardrobe of suits (saving me about £300) and new oak bedroom furniture at half price. And the discounts are getting better.
So savers, stop whinging. You may not be making as much interest in the bank, but you won't need as much to buy the things you are saving for - unless you're planning to go abroad and need foreign currency, that is.
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In the last couple of months I have tried to understand more about commerce, money, finance and economy. Thanks to Robert, commentators and bloggers for adding to my understandings. The more I learn the more depressed, puzzled and astonished I am.
How did 60 million people and government who are so good in fancy talks, managed to have more debt than the foreign currency reserve of China accumulated by 1 billion people? Ditto for many countries (eg. Iceland, USA ...). Have we all been swindled over the years and decades like the king and the people in the emperor's new clothes?
Do not wholesale markets and money managers keep their money in banks? So there is really no shortage of money ???
Size seem to be important in getting a very good returns with lower risks. £billion (eg in Barclays) gets 14% for 10 years+sweeteners+kickbacks, but £1000 gets very little or now even less. But both small and big, domestic and foreign funds are directly and indirectly guaranteed by the government. Why not just guarantee savings of the little guys and let the banks fail and be taken over by the wholesale market operators? Mortgages borrowers and small businesses faces that risk.
Instead of lending to retail banks, wholesale money market can probably get a much better future return by holding back the money even longer and buy up distressed assets and companies in the subsequent firesale and bargain for concessions and guarantees from governments.
Are the £31 billion bonuses paid over the last 4 years, to those at least partially responsible for the £600 billion hole, still in the UK banking system or have they fled?
Yes, why punish savers? Most savers are small. Unlike the big guys demestic and foreign, we have very limited choice as to where we can put our savings and the returns we can get.
My impressions from the last few month and distant memories of past scandels (eg. Enron) and crisis is ...
"The feckless, the ruthless and the greedy continue to benefit from the plights of the innocent, the weak, and the trusting at the expense of the prudent, the modest and the hardworking."
I hope I am wrong.
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# 121
# 148
# 150
Keep in mind that advice is coming from someone who thinks all our problems will be solved by giving the public sector a 10% pay rise.
I'll leave you to judge whether his investment advice is any better.
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Savers? Careful here. You are actually talking about moneylenders.
Building Societies and Banks are not branches of the Church of England. They are businesses setup to allow money lenders to gain interest from borrowers. The only asset is the debt of others.
Saving in general terms is, of course, "good". The ideal is to end ones life with a neutral or positive personal balance sheet - not dependent on others. There are some stages in ones life when outgoings can be less than income. This may be at a time when assets are greater than liabilities, but not necessarily.
The excess of outgoings over income can be "saved" - for future expenditure when income is less, or for future debt reduction.
The way to invest these savings is the key - history has shown us that electing to invest in a single asset type is high risk - whether it is gold, cash in a tin box, debt of others, tulip bulbs, shares or property. Loss of wealth comes from many sources, reducing asset values , such as the effects of supply and demand, inflation, changes in taxation and currency depreciation.
Saving in a bank or building society is as vulnerable to value depreciation as are shares or other volatile assets: The 25% fall in sterling in the last four months has reduced the value of UK deposits by 25% in world terms. While "real" inflation has been estimated at anything up to four times the official CPI rate.
Lenders (ie. savers) are now having to compete with the UK Government for the borrowers' debts and interest payments. The Gov is charging less than inflation and will for many years to come (as high underlying inflation is around the corner). It has assumed control of a number of banks and is able to reduce the borrowing rates directly. So, savings rates across the market will fall to reflect this.
The fact is the reflation and money printing has already happened, money is being devalued. The major world economies cannot afford to raise interest rates above real inflation in the medium term. The only way the debt from the unprecedented reflation, which extends to many trillions of $s and £s, is going to be "paid back" is by tax and inflation. Tax alone will never do it - it is politically unacceptable, most of it is paid by the indebted working population who currently outnumber the debt-free non-working population. Bank deposits will fall in value in real terms in the next ten years. Interest rates will only rise above underlying inflation once the risk of deflation is over and the credit crisis debt and increase in the money supply has been incorporaed into the system.
Deflation destroys future wealth creation - future tax revenues are decimated and the economy grinds to a halt. Then the inevitable concludion is hyper-inflation as Governments print money to pay debt and salaries. So that is bad for everyone.
At the end of the day the Government has to support wealth generators and that means supporting companies and indivudals in debt. Anyone who thinks they can sit back and just make easy money by lending to others is about to get poorer.
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As usual you make a lot of sense. Prudence is being punished for leaving Mr Brown at alter.
There is a bigger story to be told though. Someone should report on the praticalities and marked differences of kick stating the economy from either a slump or a deflationary environment.
It is time for the Bank and the Treasury to make up their minds which situation is more likely because whilst throwing money at the economy is the most effective solution how it is done is markedly different.
The tansmition costs of putting money to productive use come in to play when rates are low. Asking a bank to pass on rate cuts below a certain rate means it actually costs the bank money to put it into your hand! How likely is that to happen?
If nominal growth is close to zero, interest rates are close to zero and expected inflation close to zero wher is the incentive to put money to productive use let alone save it? Rabbits and headlights come to mind!
This leads to the real problem to potentially face the Government - how do you sell bonds to the tune of annual GNP to a market place that knows both the income and the capital will be worth less tomorrow?
Quantatative easing here we come ......
Zero rates or even negative rates serve no logical purpose in this environment.
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#3 "To hell with the pensioners. They all vote Tory and they'll be dead soon."
Then again, there's the other side of the coin. If the pensioners are under pressure, they will start eating into their savings and "release the value of their property" !! So when they die, there will be little or no property for the heirs to inherit !!
Good luck to the greedy so-and-sos who expect a windfall when granny pops it !!
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The sham continues with GORDY being
GENEROUS with Other Peoples Money.
2% is a SICK TWISTED JOKE.
What price PRUDENCE.
Less than Lavatory Paper!!!!
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# 170
The rates we're talking about here are short term rates. Annuities are fixed relative to long term rates (10-30 years). If anything, these are likely to rise over the next 1-2 years, as the market perceives the current big increase in government debt to be inflationary. That may be the case in particular if BoE moves to "alternative" methods of monetary easing, eg printing money as well as interest rate cuts.
So annuity rates are likely to improve in the next year or two, though there is a short term blip downwards at present, as everyone has shunned risk of any sort and bought government debt.
An increase in annuity rates isn't necessarily good news. If inflation does, indeed, rise from 2010 onwards, then the higher annuity payment simply compensates for higher prices. The pension isn't worth any more in real terms.
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So the people that have lived within their means and have savings for a rainy day will start taking their money out of Sterling and exacerbate the decline of Sterling and prolong the recession?
If interest rates are held at a sensible rate, then there would be pain in the shortrun but the recovery will surely be quicker.
A more prolonged recession means a double whammy on public finances; supporting those without work, whilst less people working means less revenue for the treasury.
If this recession doesn't recover by end of 2009 (as they seem to be banking on) then where is the end in sight...just a downward spiral....The rest of my working life paying off the national debt with higher tax but with underfunded public services.
Where's the incentive for the sensible hard working majority?
I am wondering where to put my cash/where to move to in the world.
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No204 jcr You may, or may not of noticed that political parties exist in order to win elections.
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What's a pension plan, is it not possible to count on the equity in property like they do in america, (not taking into account legal charges lawyers, creditors & former spouses are claiming), when you die what happens to your pension?
ps 190 is still awaiting moderation
there may be some shrinkage in the linkage or fire in the wire type of problems
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This isn't strictly borrowing-related, but I feel it shines a very revealing light on the mentality of the government's financial staff.
You see, if you really want to shoot yourself in the foot, all you have to do is end up permanently disabled with your own, private, unemployment insurance.
(Unless, of course, you were somehow able to afford an insurance package that would pay your full salary for the rest of your life. )
For instance, if you have an unemployment insurance scheme that pays you EXACTLY what you would have received in jobseekers allowance or income support, you suddenly become disqualified from receiving a LOT of benefits which you would have received without question, had you not been stupid enough to try to save the government some money.
This isn't supposition, by the way. That is word-for-word what the good folks at the local jobcentre told me. They even went as far as to suggest that I terminate my private insurance, because I would be better off without it.
If that doesn't tell you something is seriously wrong with the beancounters in government, then nothing will.
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Robert
To take the argument one stage further savers have been losing out for many years because the flood of wholesale money from abroad has depressed savings rates in the UK. As you correctly point out Norther rock et al grew by borrowing "cheap" money" AND lending it out again to mortgage borrowers at market leading (low) rates. That is why they were able to grow so fast. At the same time as the banks were growing overly dependant upon wholesale funding the personal savings %age was falling from around 6-8% to zero in recent years. Savers were offered relatively low rates because an alternative (cheap) form of funding existed in the wholesale markets. Gordon Brown claimed that the new economy, for which he claimed the credit, had abolished boom and bust. Now international commentators say that the recession in the UK will be worse than in the other industrialised economies. Why do people see G Brown as the man to lead us out of this mess - since its down to him that we're in it in the first place.
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Keep in mind that advice is coming from someone who thinks all our problems will be solved by giving the public sector a 10% pay rise.
Nothing wrong with that. As long as we pay for it by firing 20% of them.
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Mr. Peston, I would like to know what your interpretation of the current economic crisis would be in terms of the criticisms of fractional reserve banking systems that have been levelled by protest pieces such as 'Zeitgeist: Addendum' and 'Money As Debt' (both a google hit away), given that the BoE and the Treasury function in much the same capactity as the Federal Reserve of the U.S.
Obviously, these are very subjective and un-peer reviewed articles but their importance cannot be discarded on such grounds. After all, Michel Foucault played hard and fast with the 'facts' while his ideas surpassed the evidence they were based upon.
Surely this entire system needs to be considered, rather than the undesirable effects of its operation dealt with as we continue to turn a blind, public eye.
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# 195
Not sure where you're getting your market data from, but gold has been falling steadily for weeks now. It will continue to do so whilst markets see a risk of deflation.
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Through good and bad times, I've managed to save something every year.
I've been foolish and lived within my means.
Now I'm going on a savings strike. The banks shall not have it at this price and I'm resolved not to spend it as HMG wants.
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#151 - I so agree with what you say
RP's comments do outline the problems facing the present government and the people - but these problems were caused by GB himself and the previous PM and any future announcements of 'cures' for the state we are in is just going to exacerbate the situation - this 'crash' is going to, and will happen - I think it's the only cure - let the weak go to the wall and the survivors will be able to grow stronger. Or is it, no one wants to be the one's that hit the wall ? Also the house prices rose because they were being used for pensions which encouraged buy-to-let - hey there are so many variables of why this happened when its only one really - goverment policies.
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So when interest rate are at 2% and inflation is at 4.8% (Ha Ha).
What does one do? Personally I say borrow as much as can and have a great time for even the prudent will be bankrupt soon...........
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Most of the excessive borrowing was for house purchase and was a consequence of the house price bubble, which made people feel they had to get on the housing ladder as soon as possible and accept a high level of indebtedness. It was not just fecklessness.
The bubble should have been pricked many years ago. A land value tax payable even on unused sites, would discourage builders and others keeping land banks, waiting for the price to go up before building houses.
The interest rates available to savers were exceptionally good in the UK, better than in Germany where all the great savers apparently live. So it is not just interest rates which determine whether people save.
Paying off a mortgage is a form of saving. Many people use the equity built up to fund their retirement. If you are paying a large UK mortgage you may not have funds for additional saving.
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Once again your off, labelling all borrowers as "feckless". This is really unacceptable from someone in your position and is simply a dumbing down which jars with the accurate reporting of fact.
As for banks being "committed to passing on interest rate cuts to small business" that is simply not universally true. I attempted to renegotiate the final year of a three year business loan last week with Barclays only to be told it would cost a large arrangement fee and a rate of interest 2% higher than the one I currently have.
I would also take issue with you suggesting that 1% less in interest is "slashing" retirement income. Surely all this really means is that those individuals need to start using some of their built up capital to support their income?
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#29 "At the moment to my eyes at least taking actions such as joining the Eurozone, and behaving more like the thrifty Belgians seems very attractive."
There is no need to join the Eurozone to behave more thriftily !! Just do it and get a more savings-friendly government in power !!
It seems that more and more people are coming round to the realisation that Gormless Gordon hasn't a clue about real economics, despite his rhetoric and bluster and his boundless cheek to ask all the other world leaders to follow *his* example of borrowing more to spend more !!
Every one of his current *moves* have been for political expediency and are disastrous to the economy in their own way !!
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#131
You don't give any valid reasons, why should we trust HMG? Because Gordon's got darling dimples? 'cause Jacqui Smith quivers wonderfully when stressed out and seems to want to cry? This is a party which has just admitted to paranoia, sending the anti-terrorist police in hot carte-blanche pursuit of the Opposition. If you can't trust them to respect Parliament, then you certainly can't trust them to respect legislation, nor their own guarantees. We're back in the Middle Ages politically, folks, and it's time we started to realise the fact.
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What interest? My HSBC current account now gives NO interest. The letter said customers didn't value the 0.1% interest so they did away with it. Yes I didn't think the £1 a year interest was valuable but I'd still prefer it in my account than theirs. If they have done this to a million accounts thats a million pounds more profits for the bank.
My partner has a small business and his high interest instant reserve account is now 2% rather than the original 4.6% (I expect this will go down in line with todays cut as it did last time). However, if we want to borrow to buy a new van etc the loan interest rate won't have changed - it didn't after the last cut!
If the banks don't pass on the cut to borrowers they shouldn't pass it on to savers.
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#225
No you are right - it is as you say, unfortunately - the bonuses are 'off shore'
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This comment was removed because the moderators found it broke the House Rules.
This is not about 'right and wrong' this is about trying to win the election, the banks play with other people's money and so does the pm.
You do not have to put your cash in a bank, you can buy shares,stocks,gold etc.
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If only banks lent to us on the same terms they borrowed from each other.
Some chance.
It's irrespopnsible lending and greed that created this mess. People can only borrow what someone is prepared to lend, so if the belt had ben tightened earlier then this might not have occured.
Bankers have taken millions of our money in dividends, bonuses and other incentives without doing anything for it.
LIBOR also has a lot to answer for. If banks are already paying over 1% above base before they even lend to us, money is already more expensive than it needs to be
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183. At 11:33am on 04 Dec 2008, JayPee28bpr wrote:
"" # 112
A good start towards rebuilding the UK's manufacturing capacity would be as follows.
1. Sack all the non-workers currently on public sector payrolls.
2. Put them to work in manufacturing businesses, eg mills in the north west of England. Pay them Chinese rates of pay. Actually if possible pay them Vietnamese rates of pay: [and so on...] ""
Well you'll need to employ some of the public service workers to assist in the rounding up of intellectuals and glasses-wearers.
Would you like a forge in every garden so that we can start melting down our cutlery and doorknobs to maintain the greatness of the state as well?
We're in a bad enough state as it is. Don't start giving Gordon Brown any ideas.
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As usual, there is complete ignorance of what "money" is - by the public and the press.
Money, or to be more precise, currency, does not exist by a decree of a government, even if a government prints paper certificates. Money is not a commodity either, even if the first forms of money - coins - were made of gold. Money is the invention and sole domain of entrepreneurs and capitalists - all a government can do is establish something you can pay taxes with, implement systems of taxation, and spend tax revenue.
Whether the government chooses to offer a low interest rate to savers or a high interest rate to borrowers, all it is doing is trading in currency "futures". It's only income is taxation - it is the taxpayer who ultimately pays the higher interest rates offered to savers.
Capitalism means that everyone, not just the government, trades in "futures". The problem with the UK is that far too many people were trading in currency "futures" on an inflated currency, or trading in commodity "futures" on foreign owned commodities, or on property "futures" with inflated property values. Thus the "credit" crisis - when the value of the imported oil commodity went up, the "real value" of the dollar went down, and overvalued US house mortgages defaulted.
What the UK needs instead is more trading on British made goods and services, or on "futures" based on real, not speculative, investment in the UK private "production" sector.
If savers want higher interest rates, they should invest in British companies foolish enough to take on the lower wage advantage of India and China, smart enough to compensate for this advantage, and desperate enough to have to borrow at higher interest rates than the government offers.
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As long as savings rates are > 0% there is no point hiding it under the mattres, true It may jsut have to be moved out of the country to get that.
But since I have been saving up to buy a house, everything is almost going just right.
Bit annoyed at not taking one of the guaranteed 7% fixed rate 1 year bonds my Buiklding society was offering 3 months ago though.
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Property is very risky, my friend Alan had to give house to his ex-wife, given the risks involved, property should be very very cheap.
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Why doesnt the government just print some money? Its not like they've got to worry about inflation, and it would help with the whole PSBR thing. Just a few billion. And if eveyone is afraid that it would spook the markets then all the Western Governments could do it. Might even get people buying a few more green cars.
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Impaled on the horns - the BoE thinks its okay to raise rates to make families poorer when it suits them, but when budgets are stressed falling interest rates are ineffective at economic stimulation. And interbank lending is only stimulated by the truck loads of free cash.
The City mantra of rate cuts to stimulate lending/spending and commentators saying it will stimulate house prices is all madness and what led to this storm in the first place. The people managing the UK economy have no adequate response: their beautiful image of Capitalism has created an economic Frankenstein which is going to destroy.
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I couldn't agree more,my colleagues and I have all lost large amounts of value from our company savings plan as the stock market has fallen. The people who have saved the most have lost the most !!
We were all urged by both companies and government in the late 1980's and early 90's to invest in AVC etc. These have been a disaster we would have been far better putting the money into a cash savings account. Lots of commission was earned and we are all extremely unhappy about the bad advice we were given by people we trusted. Never again will we trust financial people.
I don't think we are alone as we are typical middle Englanders
Parslew.
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The intention of the interest rate cut is presumably to stimulate spending, though it might not as it just allows borrowers to pay down debt in case it gets worse.
In any event what are they going to spend it on? Most manufactured goods are imported anyway.
Is this just an attempt to head off deflation - though will it even work and if it does could it lead to greater inflation, which to some extent the Government would welcome as they can pay their own massive borrowings from inflated pounds.
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My savings are safe! Why? Because I've removed them from the bank, the bank that paid me very low interest and also took 20% tax from that interest. There's no point in saving now 2% less 20% tax is 1.6% and the money is not even safe! So enjoy your tax payers largesse cos you won't be using mine anymore!
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Of course savers spend money too.
Except now, with a reduction in interest rates, savers may decide that they need to save more to ensure that they maintain a decent nest egg [after all savers are people who think about the future]. Of course if bank interest rates are low, that saving need not necessarily be with banks.
If savers save more because they need to maintain their nest egg, and if borrowers save more because they need to reduce debt, who will be spending?
Isn't that what happened in Japan when they had zero interest rates? A collapse in demand?
This interest rate drop may fuel a depression rather than ease it. Rather than a short sharp shock we may be in for a long and nasty depression.
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131: 3671276
What country are are you living in? Look, some advice here: tell your mates in your party (and I think you know which party I'm on about here) to cut out this endless blog scamming that you do. Some of us are sick and tired of New Labour party hacks like yourself slipping into blogs like this and posting rubbish like this. Your party is bankrupting our country simply to increase its chances of winning the next election: full stop.
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some people have been giving highly exotic reasons for this or that commodity losing value in the markets.
The reason why gold and the like are losing value is because everybody is having to sell almost anything that others will buy to pay off their creditors - that is it.
deleveraging means just that.
but the real thing that makes me mad is the way that the BBC must always have a reason for every specific market movement. As if the markets are such a finely tuned barometer of value and worth. If they were so finely tuned and accurate we would not have $600T worth of derivatives hanging over the whole world's economy like the sword of Damocles. Get real - the markets are a best guess at best and in these times peoples guesses are wildly inaccurate to say the least.
The markets are so volatile because no-one in the entire world can work out the value of anything because no-one can work out any liabilities because every large failing bank or company is deemed too big to fail is propped up by government.
Quagmire anyone?
BBC stop making simplistic comments to everone regarding market movements - tell it as it is. The public needs to know
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36% fall in car sales November 2008
compared to November 2007.
NOW THATS WHAT I CALL A SLUMP!
GORDY WHAT DO YOU CALL IT??
ANSWER PLEASE. . .. . . YES OR NO?
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I recently attended a networking meeting for small business owners. Not one was very concerned about another cut in interest rates what they all wanted was more availability of funds, especially consumer credit i.e. mortgages, car loans etc. for their customers. In fact most present would have been happy with interest rates at 4.5% if it meant the banks had been more willing to lend.
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Banks are not passing on rate cuts, e.g. I've a standard variable rate with Abbey of 5.44% as my BOE base rate tracker has finished. I've not seen the 2% cut and very much doubt the 1% will be passed on. The banks do not tell the truth, as they do not pass on rate cuts to all customers.
There is still a wide difference between BOE and bank lending rates.
On the flip side Banks are very quick to cut rates to savers.
Both mortgage holders and savers lose out. whilst banks continue to take advantage and take advantage with our own money.
It's a national disgrace.
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To everyone saying that you need borrowers to give the savers a return-
yes, you do need both, but some savers still spend money. I'd buy a house myself, but I need a huge deposit to get one now. We don't all horde our money away. I just want the chance to have what the people I'm paying taxes to help out have.
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I am taking my money out and pushing it under the bed.
First they use my money to lend relentlessly.
They I get punished for providing it to them.
I am not going to let my money be used any more.
The measly 2% is not worth this.
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No230 alex. It is, to say the least, rather simplistic to blame Mr Brown for the Global Crises. You may like to consider the points below.
1- For 30years the people in the UK have voted for governments that believed in unfettered free markets, including the present government.
2- Privatisation and deregulation have been the order of the day.
3- Intervention was anathama to the idealogues.
4- We have the result, world economic chaos.
5- All predicted by the philosophers philosopher.
Do you agree with any of the points above?
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isn't this the same paradox that the banks who made all the mistakes and ruined many small businesses (either directly or indirectly) got saved because that was in the national interest, but the businesses collapsed thanks to the new market conditions created by the banking system's failings?
life, it sucks
All I can hope is that inflation does not rise and negate my savings even more - then that would be a kick as those with mortgages would get help and become asset-wealthy while those with actual cash get screwed
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#164
By paying the up front charge of 7% you gave them the fractional reserve necessary to create the money they lent you. Note that they created the money – great business if you can get it!
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Its a high risk gamble and a pretty desperate move for votes in the next election . To penalise savers is scraping the bottom of the barrel .
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Today's base rate reduction to 2% takes us into uncharted waters and its purpose is not wholly clear.
In principle, lower interest rates should aim to reduce costs to businesses and individuals and in particular stimulate further borrowing, in all to encourage consumption and growth. By contrast high interest rates have in the past been used to reduce borrowing, control demand and thereby manage inflationary pressures.
However, the challenge now is that there is a lack of propensity to lend (to business or the individual) as the major suppliers of funds have become risk averse. So lowering interest rates may not deal with the major economic challenge we face. That is the means by which those who have funds are able, through banking intermediaries, to lend cash to those who need it and thereby make a return on it.
As we saw recently in relation to mortgages, greater equity participation is now the prime requirement for any lending. Low interest rates do not change risk profiles for lenders. That remains the biggest challenge.
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Labour will probably do what they did in the 1970s by allowing a large increase in the money supply to cause inflation. This will reduce public and private debt quickly at the expense of savers and the thrifty. Irresponsible lending and debt creation is rewarded. My grandfather's savings for his old age were wiped out in the 1970s when we had inflation of 20% or more per year and we seem to be going in that direction again due to massive economic mismanagement.
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193 i totally agree. Being one of the prudent that has expected this situation to occur for a long time, with some savings and no debts whatsoever. I am aghast (to put it mildly) that I'm going to suffer financially, probably for the rest of my life, for the greedy feckless behaviour of those that have not-growing-up as an acceptable lifestyle option. That includes the government. I pay my taxes and do everything by the book and now am being made to feel stupid for behaving responsibly.
How does that make me feel. Initially very angry and resentful that my prudence is going to be penalised. My democratic lever of waiting until the next election is a joke. To vote for what? What utter lies and deceit Gordon Brown has spun and is still spinning. The Tories are as bad if not worse in my experience and are coming out with no alternatives at the moment. They are scarily weak just when we need a good opposition.
I'm hunkering down, making sure I've got enough food in the house for a while. Networking with friends and neighbours to be better prepared should we have to become more self reliant. Fearing there may be social unrest around the corner.
One thing is for sure, the more I read (this blog and comments are very useful thanks all) the more I realise that the UK is in a particularly precarious position. To those like 198 I urge you to pull your head out of somewhere and at least make a suggestion!
Unfortunately I don't think there is a solution without a massive shakedown, which does seem inevitable, however long those in power try and stave it off. The ship is irrevocably holed and sinking fast. patching can only be temporary. Different structures and systems need to be developed that are less greedy and therefore more sustainable. Such a long way to go.
I heard yesterday that the Lebanon is benefiting from their prudence and preparation for the worst case scenario, by a massive inflowing of cash. Shame that those in the UK that have been prudent can't be rewarded similarly, rather than having to pay for the behaviour of the greedy feckless. Really not happy about that!!!
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Dear Robert,
The BOE sets interest rates for the future, not the past. The problem going forward is deflation not inflation. In other words the purchasing power of the pound in your pocket is increasing not decreasing and as a consequence that part of interest on your savings that compensates you for the decrease in the purchasing power of your savings is no longer necessary, hence the reduction in the BOE base rate.
Still why let the facts get in the way of a good yarn!
The standard of your journalism needs a lot to be desired. Throughout this unfolding crisis you have continually “sexed up” financial information into news. The nature and tone of your reporting is wholly incompatible with a subject that requires data be set in context and delivered in a calm measured tone, rather than playing to your audience. A cursory glance through the respondents to your blog shows clearly that your words are a having a significant psychological effect. The sense of panic and despair is almost tangible.
The sad thing is there is plenty of misconception or misunderstanding that a decent journalist could go some way to alleviating, in particular the origins of the credit crunch, the similarities and differences between the relative positions of the USA and the UK. This lies at the heart of our problems and the solutions to them.
This country is undoubtedly facing a serious crisis but it is as nothing compared to what previous generations have faced. We need to pull together and face whatever the future throws at us. It is not the end of the world and we can deal with it.
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GORDY ??? BIZARRE OR WHAT
I am told I am referred to on The Labour
Party blog, as "a person who know's what
he's on about"
THE OFFICE IS IN HOOTS AS ARE THE
WAREHOUSES.
SO GORDY??
WHAT ARE YOU ON ABOUT??
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A lot of you are going to dislike this and good.
There have been a huge number of highly paid, so called experts working in the man made field of money.
For best part of a decade these people have taken between very good and ridiculous sums of money, now the chips were down it seems we may have paid peanut and used monkeys and got the same result.
I cannot understand why people listen to pundits, they are either spouting the obvious or taking a shot in the dark, it is a joke, I am a saver and have thought the way money is being given out by the banks is a joke, but look at it, the banks thrusting money on people, the risk agencies giving AAA ratings to companies that fold at the slightest hurdle. In my humble opinion, investigate the lot of them, I imagine the banks would be awash with criminal records!! Have now swung the opposite way and noone can borrow on anything, it is a joke, a very sick joke, in which we the general public are paying for a load of overprivilidged p***ts to continue as before.
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I am fed up with hearing how "we" are to blame as if the whole population moved with a deliberate and collective single conscience to borrow massively and under-save. Robert throws in the alternative of it being the fault of the banks almost as an afterthought but they ARE to blame, they are the institutions who presumably have had the borrowing/saving ratio at their fingertips and yet still mailed me and most of the rest of the adult population countless offers of 0% APR credit cards from banks I have never had an account with, huge loans on the mortgage for any purpose etc. One person taking a loan out isn't to blame for the fact that there aren't people elsewhere in the country saving the same amount with the bank to balance the books, it is the fault of the bank for operating such a mad business model, allowing increased lending without ensuring deposits are coming in to cover it, or relying almost entirely on gambling on money markets as an alternative.
As an accountant I receive a lot of reference requests from mortgage companies for my self-employed clients and until the "crunch" frequently the only questions were "do I know this person?" and "are they self-employed?", they didn't ask to confirm profit or income figures let alone see annual accounts! The banks have acted like a person lending their life savings to complete strangers they meet in the street in the hope they might be able to pay it back and that meanwhile their bet on the 3.30 at Kempton Park will come in and cover tomorrow's bills. So stop this ridiculous blaming of consumers for taking advantage of finance "bargains" and for not checking first that their neighbours are saving enough to cover the bank's exposure and simply lay the blame where it belongs, at the reckless, short-sighted, share-price driven lending institutions.
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I agree with other comments here. HSBC may not have been part-nationalised, but it doesn't mean they can ignore any of the Government's attempts to help the public.
Despite all the interest rate cuts I am worse off. I have savings, but I also have a mortgage, which is larger than my savings, surprise, surprise.
Every time the interest rates are cut, I receive an immediate message telling me my savings rate has been cut in line with interest rates.
Do I receive a similar message relating to my mortgage or business loan interest.... of course not. This is now 3% in cuts that haven't been passed on to HSBC variable rate customers.
Absolutely scandalous - as soon as I can, I'm transferring my business and personal accounts to a bank with a longer term perspective - I hope others follow suit.
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#140
I was a little disappointed that you consider me one of the great unwashed, but if you can smell me from where you are, I willingly accede.
I still disagree with your argument, and I use the word argument advisedly. Inflation, relative to my salary increases and my savings interest rates is indeed high now. You talk of deflation, but it's not here today.
And a fall in interest rates from 5% to 2% is a fall of 60%, and I stand my ground in calling that plumetting. Not that I was trying to be a drama queen, I just choose my words with a certain degree of thought.
My point, which was lost when you started talking about absolute quantities, is that Inflation at 4.5% *relative* to savings interest in a bank or building society of perhaps 3% means that saving for growth, rather than simply acuumulating money to buy goods, is a fools game right now. And a few months ago, when inflation was 2.9% and a good UK savings account would yield 5%, it was very sensible to provision for the future.
I take your point about the difference between a price index and inflation, but along with most people here, I use my money to buy things.
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It's a dilemma right enough.
It's like gambling on a slot machine.
Keep feeding the money in pull the levers and hope you can hit the jackpot.
But it's certainly no way to handle a crisis in the economy.
So desperate have this government become they are now gambling on all or nothing.
Highly dangerous strategy with only one outcome.
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At an interest rate of 2%, anyone with money is just parking it somewhere the burglars can't get at it.
My plan is to buy a stash of gold sovereigns and count them by candlelight every night.
I may cackle as I do so.
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Not surprising there are so many comments on this one! It's all very well reducing interest rates to help home owners but what about those who might be renting. Don't they also deserve to be looked after or do we in the UK still look upon tenants as second class citizens? I resisted taking out a huge mortgage, sold my place and have been renting instead. So with interest rates now severley reduced the cost of renting has significantly increased AND my savings are being depleted with inflation.
Should i now invest my money overseas instead of in the UK banking economy?!
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220.
Talking your book?
It's not a supermini hedge-fund you're talking about, your 400mill?
Tread carefully with forex markets, they're as fond of irrational exuberance on the way down as well as up.
Only downside of low pound is all those Europeans coming over here, buying our plasma tvs. Send them back, it's the only language they understand.
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Ace. So the savers get whacked again.
All this is showing me is that I need to move my savings from one of the more solid and sensible building societies to something that will pay me a decent return- after today's announcement, something outside the UK. It's worthless leaving it where it is as inflation is now higher than my savings rate. This means that (if people have any sense) UK banks are likely to have less capital in the future, compounding their problems and reducing lending further.
This is part of the idiot's solution of supporting the housing market in the hope that prices won't continue to fall. A waste of money- they're going down at least another 10%. Only an idiot or someone who can afford to tough out their losses for the next 3-4 years (before they start going up again) would do this. I don't see it is unreasonable that borrowers should have to foot the bill for their borrowing.
Even worse, we're now committed to supporting the value of houses for those who are in financial difficulties. Could there ever be a clearer case of good money being thrown after bad?
The value of sterling continues to plummet- unfortunate gven that consumption is expected to rescue the economy.
Time to get your money out of the UK, folks...
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# 221
It isn't the foot that's gangreous its the heart.
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So the Government is hitting older savers yet again. Gordon Brown just could not care less.
When we got married 35 years ago we worked hard to save enough money to put a substantial deposit on our first house, got a mortgage which was within our limits (even if one of us was out of work) and managed without any luxuries (such as sofa, dining table, TV, holidays etc) until we had saved the cash to buy them.
We worked hard to pay off the mortgage, build up our own businesses and to save for and contribute to pension funds for our retirement.
Having just reached retirement at sixty I now find that our house has dropped dramatically in value, our savings accounts are paying very little interest and our pension fund has dropped dramatically. We are one of the many prudent older couples that are paying for the feckless way in which this Government has allowed people to borrow money without encouraging saving.
I can see that it will get worse for us in future but the Government doesn't care. It knows that we will not vote Labour at the next election and probably won't live a long healthy life in our poorly heated home.
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Some sense at last! The banks are just going to act as all sensible victorian mothers did. They will only loosen the purse strings when there is more coming in than is going out, which is really what everybody should be doing at this time.
I no longer trust anyone who says 'it is different this time and therefore we can do things differently now'. Borrowing our way out of trouble seems to be double logic, as it is overborrowing that got us into this mess in the first place
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219. Simon
Only a tiny fraction of the banks' funding comes from domestic savers.
Most comes from international money-market funds and the BOE itself.
The BOE will now pump money into banks at 2%. Money-market funds are going to have to be happy with 2% too. Eurozone rates will be 2%, or lower, next month too.
This situation will persist whilst a fear of a global deflationary spiral stalks investors- better +2% than zilch, which is where rates are in JPY and US (soon).
Short term, sterling depreciates, because investors normally demand a premium interest rate over the Euro.
Med and Long term, sterling appreciates, as UK emerges from recession quicker than Eurozone.
The advantage we have is that much of our personal debt is mortgage-based, so that rate cuts, if passed on (as they have begun to have been) get to our pockets quicker than eg Germans, who are typically still paying the same rent on a property which has a lower value than a year ago. Our system is also fairer- why should wealthy landlords milk tenants every month? If we hold our houses for 30 years we'll beat inflation, sure as hell.
It's not all doom n gloom for us, medium term, no matter what those who talk our economy down say. Most of them have a vested monetary or political reason to do so.
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Could someone tell me the maximum multiple of full deposit cover can be lent by a bank? Someone told me in Oz it use to be about 7x.
If this is so, then under the present conditions, with prudent lending, surely the savers should receive a high interest.
I am a bit of bush whacker on finance but I have made a few million manufacturing and exporting, unlike the paper pushers in the financial institutions who manipulate the stock exchange etc.
I am wondering about moving to Monaco and avoiding taxes but if I do I feel I should be rewarded like some of Britain's great financiers and get a Knighthood for my trouble.
On second thoughts - I could move back to Oz.
I need advice and proof that someone has read my comment. Tell me what to do!
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As I have said on a number of previous posts.
You must get prople saving as the wholesale lenders have given up on us. Tax free interest might help but not the pathetic effort Darling has just offered.
Channel that saving by incentives into areas of investment that will give us a financial benefit as a country.
Allow the businesses that invest in the chosen area real benefits, not a kicking
DO NOT just chuck money at the population who will spend it in a wastefull way and there will be nothing to show for it except more debt
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Surely part of the effectiveness of cutting interest rates is precisely to act as a disincentive to save and to instead spend.
#43
a succint list but I would add the auditors. Where were they in all this? just taking the fees and showing their faces presumably.
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I agree with many previous writers who put the blame firmly at the door of Gordon Brown. It was he that discouraged savings by cutting back on PEPS and Tessas, substituting the badly thought out ISAa. Then of course he removed the tax credits for Pensions.
Only the Government has the full picture as far as the economy is concerned and they could see that lending was completely out of hand for years. Of course they did nothing abot it because it helped the overall growth in the economy, and they always want the best soundbite, even when the foundations are wobbling.
Lets also not forget that we have a huge debt on PFI projects that will be a burden to be paid off by our grandkids as well as the next generation. Brown's Enron-style accounting deluded him and his blinkered followers into thinking that he had mastered the economy, but he'll go down in history as the worst chancellor since the war. I almost feel sorry for Darling, he's on a hiding to nothing. But not as sorry as those people struggling with a mountain of debt.
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Get out of sterling before it crashes; invest savings in a decently run country, bring savings back in when sanity resumes in the UK but before the exchange rate moves against you.
If G. Brown wants to finance his deficit he had better offer higher interest rates than this or no-one will lend to the British government.
The economy has been shut down, borrowers are unable to borrow as there is little liquidity available and savers who are now keping the economy going will stop as they will have no money spare. A perfect recipe for a decade long slump - the twits ( sorry, well meaning but wrong) powers that be could not have done a worse job and they were trying!
Money must be worth something. They have engineered that money (i.e. savings) costs savers money in real terms a negative interest rate this is insane and the hight of lunacy. If you have sterling savings flee now!
Only when interest rates recover to a real 6 to 8 per-cent will the slump/depression be over - my guess not before 2015/2017 (my guess was 2012 before today's error.)
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This comment was removed because the moderators found it broke the House Rules.
big banker says
"we are not punishing savers, we are only squeezing them a little bit more..
.. where do banks get their dosh from?
.. that's right the same marks or tricks that governments get their dosh from
.. if we go down you go down too"
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I have a very low income, but no debts, no credit cards, no mortgage and ... but I do have some money in savings, put away for my retirement when I might just need it. Prudence, you might even call it! A bit of income from my savings would be nice, but no, my interest rate goes down and down. The value of what I have in a pension fund is apparently going down too. Is prudence now a bad word, I wonder?
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I agree, those who have been very prudent are now being punished:
My small business has cash in the bank and no debts, but I now will earn next to nothing saving that money;
My competitors, stuffed with debts, are now to be saved by the Government, rather than be snuffed out and let me step up;
I practically own my semi, but with a joint income of over £100K my wife and I have no prospect of moving to a bigger house as the prices in Edinburgh inflated vastly beyond our income, even although we are in the top 5% of earners;
The people living in the big houses with massive mortgages are now to be saved, given extra time to get their finances in order!
The natural order has been upset in the last decade. We prudent classes have been left squeezed out of opportunities, and no prospect of that order being restored. The Government is now introducing measures to save people who overspent, who over indulged, and to save businesses that are wracked by debt, borrowing to make payroll.
We are in an almighty pickle: with interest rates hitting the floor, we are not in a technical recession, we are in a depression, an abyss that might last a decade. All these so called measures to kick start the economy mean the situation will be delayed from correction to everyone's detriment.
I can offer an anology from nature. When a population of rabbits increases dramatically so do the predators, e.g. foxes. At some point the rapid increase of both predator and prey collapses dramatically. The financial rabbits are the cheap mortgages, loans and every low priced item on offer in the last 10 years. The foxes are those persons and businesses who stocked up on the cheap credit. Now that the financial rabbits are gone, the foxes must also perish. For someone (the Government) to come along and feed the foxes with frozen rabbit meat is to interfere with financial nature. To try and prevent the bust that naturally follows boom is playing GOD and it will not work. One can expect the foxes to turn on those doing the feeding when the frozen rabit meat runs out.
The credit crunch is a bit like that metorite that hit earth at the end of the Cretaceous Period. That metorite wiped out the unviable dinasaurs and one consequence was the arival of the mammals who took over and evetually evolved into Man. The Government is trying to cover up the impact and divert the debris from the impact: in doing so they are artificially prolonging the reign of the dinosaurs, they are perverting the natural consequences, and that will not succeed.
I conclude we are in a depression, not a recession. Some one at Westminster ought to realise that with interest rates now at 2% well below the long term average of 6%, they are wedged up the proverbial s**t creek without so much as a cocktail stick let alone a paddle.
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#263 – would be grateful if you could elaborate as I am not quite sure what your issue is. Not that it is any of your business, nor that it entitles me any more or less to an opinion, I have never voted Labour in my life, nor have my parents.
Suggest you take the time to come up with a reasoned argument so as to facilitate debate rather than resorting to name calling.
I should clarify at this point that I am not a fan of Gordon at all but I rather suspect that in terms of trying to encourage spending to buy us out of a recession you would have seen similar policies if there were a Tory government in power. Looking back to the previous recession, I seem to remember there was a sharp increase in Government debt.
I look forward to a more reasoned response which might enable some sort of sensible discussion.
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I'm not sure why a bank would want to pay savers much more than 2.5% seeing as they can borrow from the Bank of England at 0.5% over base rate.
Pretty much all of my cash is with Natwest earning horrible rates of interest (between 0% on the current account, 1.5% before tax on my savings and up to about 2.8% on the ISA).
Time to open an index linked NSI bond and get some money overseas methinks.
Longer term, plan has to be move out of this country and simply walk away from the massive debts this labour government has run up on my behalf.
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it's like a big bank robbery from the inside by the stupid and incompetent
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What I cannot understand is the logic behind this story.
Why would you have savings when you have a debt to service? A bank manager explained this to me once when discussing the fact I had a savings account and a credit card with an outstanding balance at the time.
The interest on borrowing will always be higher than on savings - so it makes sense to concentrate on reducing the debt first.
This is why I have always put any spare cash I have into paying off my mortgage.
As for those who are truly debt free - well they should be invested in long term fixed rate products, not the poxy variable savings rate at the bank.
It's simple mathematics - and you IFA should be telling you that.
Please note I am talking specifically about savings and not cash. Cash is of course important for short term purchases regardless of your debt / credit situation.
Also, if you are in a net credit position - then you should take your money out of the bank and start investing it. Stocks, shares, property, all undervalued - it's all out there at bargain prices. The return you will get over the next 5 years will beat any savings rate for the last 10!
If you don't do it - some rich man will.
(Please note - this does not constitute financial advice)
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There is nothing to add here, the majority or posters are right......
This is more a vote of confidence than a comment btw
PS - still hearing GB blame the world, seems we had the perfect ecomony and have been dragged down by the rest!
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Well said. The reality is that the economy will not be rebalanced until we cut consumption to a level that can be funded by our own savings and output. I do not see how interest rate cuts help with this.
The balance of payments is an important indicator. The huge deficits of recent years are an exact measure of the extent to which we have been dependent on foreign savings to pay for our consumption. Gordon Brown's policy is still to pursue the same policy on the basis that the balance of payments does not matter. It does. We must reduce consumption and borrowing until the deficit is eliminated. Then we can start trying to pay it all back....
Saving needs to be encouraged not penalised. A critical step is for the Government to reduce its borrowing and stop wasting money on stupid cuts in VAT or paying people's mortgages for them.
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Bravesouter 270
Sorry but i do blame BROWN for the situation the UK is in.
The Explosion of Public Spending.
The Explosion of personal credit.
The B of E & The FSA did not regulate
ie use the rule book/do their jobs.
The constant ignoring of ALL the warnings
i could write a 200 plus page essay. .
THE BLAME LIES IN DOWNING STREET.
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i have a relation who works in a bank - she has a grand sounding "sales" title but is in fact a cashier.
For the last 6-12 months they have been giving out nothing but brand new notes. They always used to give out some new notes along with used notes but now it is ALL new.
We always knew Crash Gordon was going to inflate the debt away by printing more money. Here is the proof - don't take my word for it, ask people you know who work in banks
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Obviously all you 'savers with no debt' were born well before the 1980s.
You've obviously done very well to have managed to buy a house, car and clothing without ever needing to borrow a penny from anyone.
I'd like to see anyone born from 1980 onwards manage to put themselves through university (and I include those doing medical courses, engineering, teaching etc), buy a house (say a 3 bed terrace) and a car (nothing extravagent, lets say a Corsa) and have no debt to show for it.
Not all borrowers are feckless, these are the basics in life which my generation need to borrow to pay for.
Don't lump all debtors in the same bracket
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Robert, when rich people go to parties do they talk about how they should exploit the poor even more?
You'll probably say that you have no knowledge of circumstances that should preclude them from discussing things that would give rise to any such conflict - but you are catching your self out by defending them
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With apologies to the Band Queen and their former lead singer (I've made a few alterations)
Flash GORDY a ahhhhhh...... saviour of the universe flash GORDY ...........................he’ll save everyone of us. Flash GORDY he’s a miracle flash GORDY, king of the impossible he’s for everyone of us stand for everyone of us he save with a mighty hand every man every woman every child he’s a mighty flash just a ........
I think we are all hurting are we not ?
Savers
Borrowers
Taxpayers who have seen their NI shoot up over the last few years
Those who buy petrol because we have to travel
Those with stock market investments (wether in pension plans, ISAs or plain certificates)
Those who have been to the supermarket recently and seen the price of bread, milk etc rise over the last year.
Well everyone we do not have to spend a lot of money to have a good Xmas. A chicken or turkey, sprouts and a pudding help. So does having a monopoly or Cluedo set already in the house. Try not to sit around too much though get out for a walk or two, not heating the house saves masses on the bills. If you cant stand that why not go "window shopping" inside the big stores on boxing day. You will need to pack the monopoly money, pens and paper so you can all account for the money you would like to spend and a flask of hot ribena for refreshment whilst sitting inside the nice warm shopping centre on the free bench. Leave the purse/wallet/credit cards at home!!!!!
IN the longer term 72 is right dig up the garden, get an allotment etc
PS 77 Most tracker mortgages have a min percentage in their small print of the contract, so many people are either close to that now or might have already have reached it anyway. That is reductions are not always passed on.
Yes I agree that savings rates are very low, but we have been promised defaltion next year along with falling salaries, falling house prices etc etc
In the season of good cheer lets be thankful for the fact that we are still alive, and we have an NHS still and an election will be apon us soon. I am sure that you will all go to the polls and express your opinions there.
MERRY XMAS EVERYONE
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#270 - bravesouter.
I do agree with your points - however what your post does is show who really runs the country.
Sure the people vote - but more people didn't vote than voted for the winners in the last election.
That tells me the people already decided they are not happy with the free market ideals of every government in the last 30 years.
The rich men of this country (and the world) decide who gets to govern and what they do when they get into power. The push for de-regulation comes from the fat cat bankers - not from the people.
The only way this will change is when the poor are dying on the streets in large numbers - then maybe some social conciences will be pricked.
This is the fine balance of Capitalism - slog your workhorse close to death to get the most out of him, but be careful not to overdo it or he may rise up against you, refuse to work or die, leaving you with no means to produce.
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#130 sosraboc - "I am reminded of the definition of a Socialist. - One who will share half his sixpence in exchange for half your shilling- "
That is either the depths of cynicism or the the definition of a scrounger - a Socialist is
"One who will share half his shilling in exchange for half your sixpence"
... as one day he may no longer be able to earn a shilling.
By the way ... alexandercurzon - you are going for a new form of haiku aren't you? with your kigo being "GORDY" or "clunking fist" - impressive poetry - don't always agree however ...
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#279
Agree, except there's no sense in expecting anything else. That's why we have governments, to govern..... er...... isn't it?
Gordon?
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Get capital into the banks or help the hard pressed? I suggest the objective is to help the hard pressed AND to put in place a disincentive for saving. If people don't save, they can really only do two other things with any"spare" money; reduce their debts or spend it in the high street - both of these are good things in the current climate.
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#163 armagedion-something-or-other.
What? From what I can see, the people losing money are people who opted for quick-fire, low rate, shortterm deals on overpriced houses. They now need a new deal and, lo and behold, for once the deals aren't there because the Mortgage economy has folded in on itself. The houses are worth less than they owe (just in case you don't know, this is called Negative Equity) and they struggle. People on long-term mortgages who are quite happy where they are are fine, quids in in fact. It's not nice to say it out loud but these are the facts.
The Banks need to start lending to each other to free up the Mortgage Market, HomeOwners/Buyers need to take up Mortgages to steady the housing market. Vicious circle but one that will be righted in time.
Not every normal person on the street is finding it hard at the moment (unless, of course, they lose their job which is another matter). Low Interest Rates, low High Street Prices, Low Petrol Prices. Gas/Electric has gone up but can you really, seriously, tell me that these increases alone will stop you buying Christmas Presents this year.
Why should the banks immediately pass on this rate reduction to the armies of 'bad-borrowers' when the Banks need to right themselves?
Retirement though, well that's a whole different kettle of fish......low Interest Rates on people living on savings is not good but these people aren't contributing to the Economy so regularly as Middle Class mortgage holders so they won't get any help. God forbid we'd look after our own.
Discuss....
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There is no getting away from the fact that we're all going to have to take a bite of the sh.t sandwich regardless of whether your a saver or borrower...
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"65. At 11:23am on 04 Dec 2008, simonmw3 wrote:
What FRB does is allow the bank to lend out some, say 90k and charge interest to the borrower. If the bank charges the borrower say 10%, then in one year they pay 9k interest. Therefore, the bank can pay me up to 9% interest in this case. (Typically they would pay me about 4% and keep most of the interest themselves!)"
Actually... What the bank does is simply create a credit entry of 90K (closer to 97k in the UK) for the borrower. The saver's 100k sits in the bank vault until the 97k credit entry is deposited in another bank and the second bank calls for the reserve.
Each round of lending therefore increases the amount of credit money which exists. Yay!!! Credit fueled inflationary boom times are here!
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Pretty soon the only ones paying decent interest will be the tax payer, since I don't imagine that Gordon the Golem's borrowing binge will be on interest rates of 2%.
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#2
"I think we're being a bit hard on the banks and individuals here."
You are joking. While savers were putting savings aside for a " rainy " day ,some banking individuals were on a "working " junket staying at the best five star hotel Venice could offer. Thats where all the money went , propping up profligate lifestyles for those that most certainly wouldn't pay for it out of their own money .
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286 munichmadrid
Its our excess working capital built up over
20 plus years,we have to have a spread of
currency to trade.
The hedge funds are struggling to cover,i
just happened to buy into US dollars at
the right moment.
Theres no point in using UK banks other
than for paying bills in the UK and receipt
of payments from UK customers.
BROWN HAS BUST THE WHEEL. . .
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#98
Alexander Curzon has been playing Monopoly again...
"Put your toys away Alex and come and have some Tea. And stop going on Daddy's laptop. Naughty Boy"
Too many CAPital letters for me.........
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Savers are losers.
Shareholders are losers.
Pensions are losers.
Employees are losers.
Employers are losers.
Homeowners are losers.
Taxpayers are losers.
EVERYONE LOSES IN THIS SLUMP....except fat-cat bankers of course, who caused the whole thing.
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All the B of E have done today is PROVE
Sterling is not the currency to hold.
Clap your Hands For Herr Brun.
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#286
"our" plasma TVs? Didn't you realise we don't have any, they're all Chinese ones just being marketed through here!
God, you really don't understand the mess we're in, do you?
I bet you think a low pound will help all our manufacturers export, don't you? (hint: we don't have any, they're all foreign multinationals who repatriate their profits).
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Please - can the BBC give us some more information about Credit Default Swaps and the implications they have for the wider economy.
Why do I have to get the following information about UK debt risk from other websites. Are you not a NEWS channel:-
The cost of protecting against default by the United Kingdom now stands at 105 basis points, up from a close of 99bp on Tuesday....To truly comprehend the explosion in the UK’s CDS spreads one just has to remember that at the start of February 2008 five-year contracts were trading at a respectable 8bp.
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165. an example:
Prudent Mrs. A puts £100K in her bank account. The bank lends £90K to Profligate Mr. B to buy a house and keeps 10K. Prudent Mr. C who sold the house gets the bank's £90K and puts it in his bank account.
The result is there is now £190K in prudent people's accounts in the bank where before there was only £100K. £90K of positive balance has been created by debt. This system keeps going on as the bank then lends out Prudent Person C's £90K. With 100% efficiency and a reserve rate of 10% there would be 10x as much 'debt' money as original government created 'fiat' money in the system. So as I said if you are a prudent person with £100K of savings in your account in the bank then £90K of your 'savings' only exist because other people have borrowed.
There is a pretty clear explanation of this on the Wikipedia page for fractional reserve banking. An extra twist is that because the 'savings' are backed by goverment guarantees and don't get destroyed if the borrowers default the state takes the risk while the 'prudent' get the interest. This is an incentive to seek out the best interest rates which will often come from the riskiest banks.
This system is all fine until lots more people want to repay loans than want new loans. At that point the feedback loop which created the money goes into reverse and the 'prudent' discover nobody is buying their products or assets or paying them interest so they need to spend their savings.
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did you ever tell people they were borrowing too much, or are you playing clever with the benefit of hindsight?
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Some of the narrow mindedness on here is incredible and laying the cause of the 'Global' financial crisis is becoming a bit obsessive and somewhat creepy.
Yeah you're ONLY gonna get 2% FOR A LIMITED period but things will recover. What's so 'heroic' about the action of sticking £100 in the bank and getting x% for nowt slapped on top. Good on you for being in the position to invest - but your still getting summit back for nowt really at the end of the day.
in times of a Global Crisis to be inconsolable about an interest rate cut is well. . . . a bit selfish is it not?
In terms of all those nasty borrowers and that nasty 'Gordy' - (Are you reading this Gordy Are You?? Are You????)
Did 'Gordy' introduce 'Right to Buy' in 1980?
Would 'Right to Buy' have worked without a Mortgage market?
Is this not part of the root of the current problem?
Have consecutive Governments carried these policies on?
Is this crisis UK (and Gordy caused) only?
Would things really have been better under that othe shower of wasters than they are with this shower of wasters?
look at the big picture people and not at the top line of the bank balance at the end of your nose.
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POST 296 john from hendon
100%
Do you want to take Darlings JOB PLZ?
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Dear mods,
Over an hour without clearing some postings, skipping others - amateurs.
Why do a job at all, if you are going to do it badly? How about you let someone who can handle the work do it instead?
Are we surprised our economy is toast, when we can't even run a chat conference?
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Excuse me whilst I put on my stuck record again.
The politicians (with the BoE, of course) are thrashing about trying to delay the inevitable. When the inevitable (crash) comes, we're going to be falling from such a height that the economic and, indeed, social mess is going to be shocking.
It's my understanding that at the highest levels of some of the world's biggest banks there's barely contained chaos/panic at the unfolding situation and the unravelling of the system that we're going to witness soon enough.
Check out the CDS situation across the big European banks and you'll get some idea of the leviathan that will soon be breaking surface. Deutsche Bank's liabilities at 2,000 billion euros is 80% of Germany's GDP. Too big to fail; too big to save. Just like Mr Peston's interest rate dilemma above.
Pass me my tin helmet.
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#294
The role of an auditor is to ensure that companies 'play by the rules'.
Don't blame the referee when the rules are wrong.
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And none of us should forget that most of our banks have technically LOST every single penny of their depositors money, so perhaps we should be grateful that we've got any savings left at all.
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Except for small savers and people on tracker mortgages, Bank Rate has largely become a showcase rate. It has very little to do with the rates of interest most people and small businesses actually pay.
As for inflation/deflation, it would be useful to measure it by the money supply (cash plus credit), with changes in price levels as a symptom and not a definition. With the large-scale evaporation of credit, the mind boggles at the rate of deflation on the money supply measure. The symptoms will no doubt follow in due course.
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#219
"It's not all doom'n gloom for us" Simon.
It is for Mr Brown. Give a man a rope , and sooner or later he will hang himself.
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Gordon Brown and his Government of utter dimwits are undoubtedly very, very stupid for being completely incapable of handling the nation's finances sensibly since 1997. But how did the recession really come about ?
It was the banks of course !
They have a collective, unconscious collusion - the banking system. With all it's rules and collectively agreed systems and methodology it spiralled out of the realms of honest morality into pure fraud. Banks abused their position of privilege which allows them to 'manufacture' new money without limit.
They competed savagely with each other to magick out of thin air ever increasing amounts of cash because the more money they conjured into existence, the more they could lend and the more money they could make for their greedy, selfish selves.
All this money had to be lent out. It cannot be 'manufactured' unless it is loaned. So ever increasingly dodgy wheezes were invented by banks to make the money go round faster and faster because every time the pile of dosh passed through their hands, they could take a hefty cut and put in their own pockets. Good wheeze hey ?
Once they set this merry go round in motion it had to go round faster and faster to stop the whole fraudulent lie falling apart - precisely the same as all the other similar criminal frauds of the past. The criminal fraternity coined the word 'churning' to describe it.
The banks dreamt up a myriad different ways they could trap even the most prudent members of the public into using larger and larger amounts of borrowed money. The banks also ratcheted up all their charges as they realised the public were just a herd of sheep that would soon get used to the outrageous charges that would have been inconceivable at any other time in recorded history.
I mean just look at the complete joke that is the credit card system. The banks have somehow succeeded in persuading most of the population into thinking there is some mysteriously good reason for routinely using credit cards for some or all of all money transactions. The banks know this will result in many credit card users being trapped into what can only be described as vicious, extortionate charges.
That is the only purpose the banks had in mind when they created the credit card system. It was designed purely so they could build up a mountain of debt that people could not afford to pay off immediately. That would result in all those 'penalty' clauses in the small print that would allow the banks to sanctimoniously declare the credit card user had 'broken' the 'rules' and 'terms and conditions' 'agreed' with the user now 'allowed' the banks to make charges that really only amount to carefully crafted theft.
It is called 'conversion' by lawyers and it is a criminal offence to acquire other people's property by means of this kind of deliberate deception.
This latest wheeze of paying cash savers considerably less interest than the rate of inflation is just another variety of the fraudulent crime of deliberate 'conversion'. Specifically designed to take your money and pay you, say, two percent for saving it with a bank; then lending your money (along with ten times that amount of magically manufactured 'new' money) to your neighbour who pays the bank, say, eight per cent (if he's lucky) on a loan.
So, let's just work this out shall we ? The bank pays you two percent, lends about ten times the amount you have saved at eight per cent - that's a total of eighty per cent for all of you dullards at maths - the bank makes eighty percent from your savings but pays the saver just two per cent - well below the rate of inflation !
So the actual real value of the savers' money steadily shrinks, while the banks just get fatter and fatter. Oh to be a banker, you just can't help getting richer and richer; both in recessions and boom times. You have the population by the jugular in both cases.
How stupid can we savers get ? Obviously, the banks could pay the saver well over the rate of inflation and still be left with a hugely profitable chunk of the eighty per cent they make quoted in this example.
Of course it is only be contriving to keep ordinary, financially unsavvy people, ignorant of how finance really works that has enabled these nasty fraudsters to get away with the breathtakingly criminal behaviour they have.
Think about it ! They have actually destroyed the entire Global economy in a matter of weeks. Millions of people losing jobs and having their lives ruined.
Many even being hurled out of their homes onto the streets and into extreme poverty and deprivation. All because banks are greedy, self seeking and just plain immoral and nasty.
Even the most highly educated people like news readers and Government Ministers routinely say they don't understand the weird financial 'derivatives' and even bankers themselves fail to understand it all. Most people seem to cheerfully admit to simply not being able to understand how economics work.
They don't. That is why we are in such a mess - by allowing the banks to be the sole means of controlling the economy; incompetently !
Isn’t it about time we did something about controlling the excesses of this evil banking system ?
Obviously they lack the simple morality to control their greed themselves !
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"Part of the reason we're in such an economic mess is that, over the past few years, we (that's individuals and businesses, in this case) borrowed considerably more than we saved".
And the other part of the reason we're in such an economic mess is that, over the past few years, the government borrowed considerably more than it saved.
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I've just had a nice letter from my bank telling me that they are there to support me and my business during the current economic uncertainty. Ah, isn't that nice of them.
But do they really think I don't know who got us into the current economic uncertainty in the first place?
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Prudence Prudence Prudence Prudence
My wife and I followed the "message" of Chancellor Brown.
We have some income from private pensions and some savings that were meant to TOP UP our income to a level where we would not need to worry or depend on anyone else.
At least, we thought we were following his advice, but obviously what Prudence meant was "spend and borrow like there is no tomorrow and let some other poor b****r pick up the tab". And, the most profligate spender--The Labour Government of course--who have bankrupted the country in a decade of mis-management!!!!!!!!!!!!!!!!
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Don't worry, folks. When things get this bad you can always rely on western governments to stumble upon some reason to get involved in a major war in order to kick start their economies again, not to mention introducing a whole lot of controlling and restrictive legislation.
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To much consentration is given to borrowers on interest rates, since it is they who put us in this financial position in the first place. Borrowing more than their incomes will allow with Bank over lending.
As a pensioner I rely on my interest to supplement my pension. At 2%, who is going to bail out the likes of me?
Rustybones
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@ 239 SheffieldStudent
Consider the system?
hear! hear!
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291. MunichMadrid7980 wrote:
"Only a tiny fraction of the banks' funding comes from domestic savers.
Most comes from international money-market funds and the BOE itself."
You still have not said where the money ultimately comes from. E.g. where do the money market funds get it from?
Either it is savers somewhere, possible abroad, or the money is just printed/made up somewhere.
Does it matter whether it is domestic savers or foreign investors. At the end of the day, they all have a global market to invest their money in, and they do not have to pick the UK.
Furthermore, the international money market funds have decided to stop lending to UK banks. Presumably this is because they know what they are doing, and no longer see the risk of the UK market as being worth the returns. They are not willing to risk loosing their money.
However, what Brown is doing, is taking over from the money markets and continuing to pump money in when everybody else (i.e. those who actually have the money) had decided that this is a bad idea. The main difference with Brown, is he really does not care because it is not his money. He is willing to saddle the UK taxpayer with debt equivalent to the annual GDP if it will make things look rosy for enough months to win a General Election. To hell with the long term consequences.
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Too much consentration is given to borrowers on interest rates, since it is they who put us in this financial position in the first place. Borrowing more than their incomes will allow with Bank over lending.
As a pensioner I rely on my interest to supplement my pension. At 2%, who is going to bail out the likes of me?
Rustybones
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# 278
Presumably everyone's in hoots because someone seems to think you know what you're on about. Did you post the comment yourself?
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#261
"My savings are safe! Why? Because I've removed them from the bank, the bank that paid me very low interest and also took 20% tax from that interest. There's no point in saving now 2% less 20% tax is 1.6% and the money is not even safe! So enjoy your tax payers largesse cos you won't be using mine anymore!"
Then you are a bit of a fool.
There is a 50k GBP guarantee on bank deposits and you would earn 1.6% on it.
If you have over 50k you could have split it between institutions and had the guarantee and earnt the small percentage interest.
You are currently earning 0% and if your house is robbed you will be lucky to get over a few hundred pounds from your insurance.
Who's a clever boy.
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I assume U9461192 has the means never to reach 60 plus years or he/she would also be going to hell.
I have never voted Tory in my life and callous remarks such as 'they will all be dead soon' are also objectionable, especially in view of my recent family losses. Just hope this individual avoids old age and the rigours thereof; it surely comes to everyone else given time. Just hope too that he/she never faces bereavement and the pain that ensues. Perhaps the person should adopt the name Peter Pan.
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Mattblogger 1234. POST322
Hav'nt played Monopoly for years ,fancy a
GAME?
Certain people SHOULD pass GO; GO TO
JAIL and stay there.
But Daddy Brun says i cant say WHO.
If I do my POST will BE DELETED.
Psst PASS THE HONEY MUMMY.
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#308 zardozetc
"For the last 6-12 months they have been giving out nothing but brand new notes. They always used to give out some new notes along with used notes but now it is ALL new. We always knew Crash Gordon was going to inflate the debt away by printing more money."
... here we go again - a little knowledge is a dangerous thing ...
Cash is handed back through cash centres as frequently as possible as it significantly reduces the charges for cash handling levied by the Bank of England. Old notes are taken back by the BoE and destroyed from time to time. It is in the interests of the banks to do this as cash holdings are charged for by the BoE under its cash handling charges.
Also - It is the demand for ATM fit notes and the need to dispose of surplus less than ATM fit banknotes, that has been behind the driver in raising the need to constantly replace banknotes (with fresh printed ones) and the corresponding rise in the cost of cash to the banks ...
So ... Whoops! no conspiracy ....
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Time to bring in the receivers.
UK plc needs to be run by a team of sober accountants. They would make us deleverage and move to a sustainable debt position. I fear brown is unwittingly pooring petrol on the fire.
Cash is king!!
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#277 "In other words *the purchasing power of the pound in your pocket is increasing not decreasing* and as a consequence that part of interest on your savings that compensates you for the decrease in the purchasing power of your savings is no longer necessary, hence the reduction in the BOE base rate."
Excuse me but can you run that pass me again ??
When I changed my pounds into Euros for my trip to France earlier this year, I got 1.6 Euros to the pound. I just did the same thing and I got 1.2 Euros to the pound. Since the price of things in France has *NOT* gone down at all, how did the pound in my pocket *increase* in value, as you said ??
In the words of the famous Mr. Spock, "It does not compute, Captain !!"
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As this is a high quality site I hesitate to dip my toe in, but here goes.
One consequence of the recession and ever decreasing Bank Rate is the fall in the Pound against the $ and the €, by more than 20% I understand. Is nobody worried about the consequence this has on our Balance of Trade which with the Eurozone is over £40bn a year in deficit. Presumably this will now be c £50bn. Is this yet more money we shall have to borrow to balance the books? With tax hike consequencies to follow?
Or does it not work like this?
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Offers FOR THE BEST POST to SUM UP
THE 11 plus Years OF NEW LABOUR.
A ticket to the NEXT labour Party Conflab.
POST AWAY TO GET YOUR PRIZE PLZ??
I MUST NOT USE MY DADS COMPUTER.
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POST 346 JAY>>>>>
NO it wasnt ME.
A colleague found it on a name search for me.
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I'm fed up with our esteemed Prime Minister being referred as Crash Gordon.That makes him seem almost seem like the super hero he clearly thinks he is.
Can I suggest a different epithet?
SHAFT
No explanation required I think!
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307 alex, I wonder if you can confirm that you think that the problems we have at the moment have nothing to do with the global financial system, the behaviour of the banks, the role of the World Bank and the International Monetary Fund? I have noticed that you are not a fan of Mr Brown.
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folk should worry about the implications of post 326, whats going to happen.
Gordon : Awe right lads, hows it going
De La Rue : We've started our run, we estimate we can make 2 Billion a day
Gordon : Take a billion of that and invest in a new press, we need 4 billion a day
De La Rue : No sweat gordo, you know it makes sense!
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I would absolutely love to be able to save, even £10 a month! All my salary, and a little more, goes on paying my mortgage and the associated household bills, plus I need to eat, so groceries, too. There is nothing left at the end of the month to put away. I am not feckless, every penny is accounted for - I'd love to be able to be feckless!
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Our society protects the reckless at the cost of the sensible and the careful.
This is a model that is reaching breaking point and the government is stealing our savings by devaluing the pound.
I think its time to move all my savings into a yen account and watch the pound drif into oblivion.
Mr Brown you should hang your head in shame.
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327. tom_edinburgh:
I think the crux of your argument is that if the saver has 100k, then in a FRB banking system, only 10k of that money actually corresponds to money issued by the treasury - the other 90k being "created" by FRB before the saver even got it.
From your original post, I was under the impression that you were saying the 100k was 100% "real" before the deposit and somehow became 10k after deposit in a bank.
Regarding risk: the main problem in finance. and wider society today, is that no one ever takes the responsibility that comes with it. Hence, no need to mitigate the risks and be sensible.
I too am aware of FRB and have watched Money Masters etc on the Internet. At first I was convinced, but not any more. Basically, a banking system could not work any differently. IMHO, the problems are caused by artificially manipulating markets, e.g. the government forcing an interest rate and "social lending". The savers and borrower should set their own interest rates in a free market, e.g. Austrian School. Also, people (individuals, bankers, politicians etc.) should face the consequences of their actions - not just laissez-faire when it suits them.
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Remember that a reduction in rates from 5% to 3% is a drop of 40%, and that 3% to 2% equates to a 33% drop. So this month's cut is almost as significant as last month's.
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#350 As an addendum to your "ATM fit notes", there was a time when notes taken out of Eurozone ATM were tested positive for traces of cocaine !!
And, unless the previous commenter like notes that smell like sewage (like those in some countries I could name but wouldn't), the Bank of England regularly destroys "well used" notes after a very careful audit of the individual serial numbers on each note to be destroyed !!
This also has the effect of pinpointing forgeries that have serial numbers of the destroyed notes !!
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Not all banks across the world have been highly leveraged.
Not all counties across the world had a reckless de-regulated financial market.
Not all banks across the world were tied Credit Default Swaps or Toxic Sub-Prime lending.
Right now, you can get 5.75% AER by putting your money in ICICI Bank.
ICICI Bank and the State Bank of India are able to offer these levels of rates as UK operated banks in the UK.
They are able to do that because they have been prudent with their lending and have a much higher capital base.
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First thanks to subprime mess and greed and stock market crash I lost 50% of my investment in shares. Now to rescue to ailing banks who were responsible for all these I get less interest on my savings. I do not have any mortgage nor did I have more than one property. It was a mistake not to invest in properties - I would have paid less in mortgage and still would be getting the rent which is going up.
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Did someone say they're sick of me being called Crash Gordon?
"No more boom and bust."
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In response to tom-edinburgh's comment: Was it not Mr Brown's problem that it was all Spend, Spend, Spend (Boom) and then No reserve (Bust). In fact, it is Mr Brown who has encouraged us to save for our futures - ISAs etc. If we spend our capital now then we will have to rely more on the state for financial assistance in our elderly years. The savers are having a hard time at the moment just as much as people with mortgages. The buliding societys and banks have got to remember though that the savers will put there money where the highest interest rates are - so it is in their interest to give the saver the best deal possible. Mr preston has done right to highlight our plight.
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Just a passing point, but with all this bile being directed at the allegedly feckless, I'd just point out that my personal experience of housebuying (back in 1992 and 1997) was that it remained affordable then to singles and couples going for modest properties ... now that I'm 40something, a common theme of conversation among my peers is 'I couldn't afford my own house if I had to buy it now'...
In the last dozen years or so, while the consensus has been vehemently pro-home ownership, the disparity between younger, low-paid people seeking accommodation and the price of accommodation has widened dramatically ... which has been partly to blame for the situation of 125% mortgages, 40 year mortgages, people borrowing in multiples of way over 3 x gross earnings etc
Should you stay at home with your folks forever? Live on a sink estate next door to a sociopath? Pay rent money to a BTL landlord and enrich his bank balance? Or stretch yourself to buy a house/flat by taking advantage of a 'product' from a financial services company? Many people did the latter. The more recently they did it, the more likely they paid way over the odds to get on the housing ladder and are now looking at immobility and negative equity. Feckless? I don't really think so.
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"Yet by cutting interest rates the Bank of England is - in a way - punishing the thrifty and rewarding the feckless."
For once Pesto hits the nail right on the noggin.
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post 357 bravesouter
G.B. strutted the WORLD Lecturing
everybody re FISCAL PRUDENCE etc etc.
USA has been bust for years unable to
balance budgets.
We could have avoided the worst of this
MESS now WE will take the BRUNT along
with the U.S. OF A.
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You know I really have to laugh at some of the snobs running down the Public Sector.
These are people who would never work for the low pay and conditions received by most Public Sector workers.
And these are the first people to scream if their isn't a Policeman, or a Doctor, or a Social Worker around when they happen to want one.
The Private Sector, the Banks are Private by the way, has failed.
The British economy is in big trouble, and artificial pay restraint on both Public and Private sector workers has helped bring it about.
But then you cannot pick and choose your Inflation.
You cannot Inflate House prices, and only Inflate private sector Directors pay, and top Bankers pay. We are seeing the result of that kind of thinking now.
The best way to inject demand into the economy is to give all the hardworking, dedicated Public Sector workers a big fat ten percent pay rise, which they can spend in the struggling Privaet sector shops and businesses!
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Spoiled by misuse of "principle" as an adjective.
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352
The Euro and Pound are two different currencies and they float against each other. I dont see your point!
The BOE sets rates for the UK. The deflation I refered to relates to the UK. The article by Robert Peston relates to the UK. Why are you talking about the Euro.
It''s a moot point but I doubt you got 1.6 Euros to the Pound any time this year.
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Our name for HIM would be subject to
IMMEDIATE DELETION Shame because
we all have a good laugh at home & work
nearly everyday. . .
The there's MANDY DARLING SMITH BLEARS
ETC etc e t c
Spitting Image PLZ come back. . .
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Life is considerably more interesting than you seem to suggest, but no less paradoxical.
My wife and I have lived modestly all our working lives, saving 10% of our income. We have never gone hungry, and have been entirely content.
We have recently retired, and are faced with difficult choices. Our disposable income has increased. We no longer need to save, have paid the mortgage, do not pay National Insurance contributions, and receive both occupational and State pensions. All for doing nothing. The problem we face is that we are still content. We do not want all those luxury goods that we have learned to do without, having discovered that nothing beats going down to your allotment and messing around with bits of string.
Do we now have to learn to become discontented so that we buy things to cheer us up?
It is a funny old world.
David Butland
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An unusually good blog post, perhaps Robert has had a chance to read the comments his usual fare attracts?
There is a trillion pounds in deposits and their owners have to be considered in policy responses. If depositors cease to be compensated for their voluntary contribution to bank capital, they will take their money elsewhere and possibly make a political issue of it. With the banking industry undercapitalised, a disincentive to save means more government funding, borrowing and taxation later on. All very messy, and all avoidable if the interests of those with capital to lend are weighed against the interests of those in debt.
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POST 376 100%
Yes we will TAKE IT AWAY (the money)
UK BANKS are now MERELY PAYMENT
FACILITATORS thats their only function. ..
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Re: 376
Yes I agree.
I do look forward to a book appearing one day, where some of these posts are used to illustrate the development of the crisis and what people really thought at the time it was all happening...
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370 alex. I note with interest that you have avoided answering the question.
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There is no choice about punishing savers. Putting up interest rates in a bad economy means more people will be unable to keep up with the interest payments. If the borrowers default then logically as a saver you should lose your money (which the bank has lent out) but because of the deposit protection scheme the govt should protect you. However, the only place the govt will get the money to protect savers deposits is by borrowing or printing it.
Its arguable there should be different interest rate policies for different kinds of loan: low rates for existing borrowers and export businesses with expansion potential and high rates for new mortgage lending and consumer loans.
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#371
"low paid" - you're out of date mate.
Private Sector work = lower pay, crap pension and job insecurity now.
A 10% increase to the Public sector is fine by me so long as, just as in the private, they make at least 20% efficiency improvement to pay for it.
PS low paid Doctors? Are you for real???? lol
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375 David - Aristotle would have been delighted to hear your comments. I hope you and your wife have a very long and happy retirement.
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Sorry I refer to 375.
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Ah the average Public Sector worker is on less than 16000 pounds a year.
Doctors are an exception of course.
Still compared to the Company Directors I know and have known, Pound for Pound Public Sector employees work far harder for far less !
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Post 379 bravesouter
Sorry
IMF & World Bank
Both these institutions Warned Brown
All the Banks??
Brown/Bank of England/FSA Failed to ensure
the operations in the UK were contolled.
Banks outside UK who to BLAME obviously
not GB but he chose not to challenge
trading practices ,so part blame. . .
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I really must get some nice non executive Directorships!
Top up my Private sector mismanaged pension plan.
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Perhaps it's about time that the way banks operate is told very publicly, say on Panarama.
People need to know that when you deposit money in a bank, they lend it to someone else.
People need to know that if everyone tried to withdraw their money at the same time, the bank would go bust.
People need to know that banks bank on not having to meet their commitments.
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# 337 MUDSHIRES
your views on investments going forward?
Since this 'deleveraging' will make the same phantom money you refer to basically 'go away', what's a good place to keep my money?
How soon will the govt printing money and plugging the losses create hyper-inflation, or will it at all?
How long will the deflation last and how severe will price falls be?
I do agree with the gist of your comments, but its not just the banks, its the people in charge generally who shaft the financially illiterate. Policiticains, regulators, bankers and stupid borrowers.
Ultimately the banks are just ppl, greedy ppl pandering to the greed of other said greedy ppl.
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#351
Cash is king!!
You're absolutely right ! That is the "City's " mantra, and its one that everybody should be aware of . Helps explain an awful lot !
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#375
It's people like you who have put this country in the mess it is!!
I suggest you do your patriotic duty and get down the the bank tomorrow, borrow some money and nip off to buy some expensive Chinese imported consumer goods to kick-start the economy.
The nerve of some people coming on here!!
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#321 Curzon
You do make some good points but to continuously blame Broon for what is a global crisis affecting every single country in the world without justifying why is a bit of an own goal.
Do you really think that had Brown been more prudent the UK would have avoided this mess? If so, at what cost? What would the last 16 years have been like?
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The goverment ars rushing aroud like headless chickens without a clue what to do.
Their action in reuducing interest rates will only make matters worse.
The finance sector is one of the major employers in the country and rates should be higher to encourage foreign investment not lower as this will drive them away and devalue the pound.
Are the government that stupid or have they a hidden agenda, early election .
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post 391
I put the Blame there mainly because he went round the world bragging he had fixed all.
Once it all came to bits he blamed everyone
else ie the YANKS.
I personally as you may have noticed thought the whole Econony was a sham for
8/9 years.
Ive personally challenged the Banks time and time again they all behaved like lemmings falling off a cliff.
Lending both personal & public is and has been out of control since 2000,the writing has been on the wall since then.
YES HE IS RESPONSIBLE SO IS THE B of E.
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post 391 dknotty
WHAT COST??
The bill will take at best 30 years to pay.
The last 11 years?
Same social problems
Same unemployment if not MORE
Poverty i see no change
Further deskilling of the workforce . . .
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387 "People need to know that when you deposit money in a bank, they lend it to someone else."
In fact, they lend out 10x what you have deposited - and if they lend part of it to other banks, that bank can also lend out 10x what they've borrowed - and so on. This is the basis of Fractional Reserve Banking and what's causing the current global meltdown.
There is no solution: the system WILL fail.
Scared yet?
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Yes 347
My savings in RBS were not covered by GBs insurance either, so much for safety.. Now I use my cash to speculate on currency and yes I do have a safe safe. My local banks are currently offering 11% seems they're looking for some cash too.
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382
Thanks for the response, braveSouter, but you have avoided answering the question.
Never mind Aristotle, do we have to start to want things that you can perfectly well do without?
What is the point of all this consumption? As I half understand what people are saying, it is so that other people can make things for you to go and buy. It seems to be better that you become rapidly discontented with them, so that you can then go out and buy something else.
It all doesn't obviously make much sense.
PS I'm 100% in favour of not being cold or hungry or in discomfort, and in splashing out on the odd nickerbocker glory.
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#391, "I saw other people doing it" is not a defence. Brown had a choice and he brought the mania here. We could have had a modestly growing economy, no great windfall of any sort, but at least the country would now have a future that did not portend a return to inter-war levels of malnutrition.
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okay so lets return to sanity and be positive.
Raise a tax on the pension benefits of all the bankers whether retired or otherwise, where the bank has or will receive state benefit. Remove all bonus schemes and tax those paid out in last 5 years.
Create a new miras for mortgages.
Return UK to a manufacturing economy by imposing import tax on all items imported which we already manufacture in UK.
Squash the hopeless Government agencies.
Raise a new tax on all those in prison or their dependants to pay for their upkeep.
Remove benefits from all that have not worked for more than 3 months.Refuse UK entry to all except in case of deepest need where we do not have expertese. Cancel PFI agreements. Raise interest rates to benefit the savers who supply money to institution. Lets get it all done now...
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308 zardoz3006
"Giving out all new notes" etc
You don't think that could have anything to do with the notes being updated? I too used to get old and new £20 notes but the old ones are being taken out of circulation, takes a year or too to fully do that
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If i was to build a wall incorrectly and said "most of the other brickies done it like that". i would be sacked
If i was caught speeding and said "everyone else was" id still get the fine
If i joined in a riot and got caught i would go to court
The list could go on and on.
How that smug ladylpace can accuse the tories of making miss-judgements on the current economy and then claim ignorance [which isnt a valid excuse in any part of our society] For the mess, makes me want to vomit
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391 dknotty
Unfortunately saying this is a global crisis is not the answer - yes, it is a global issue, it was inescapable - but to solely blame it on that is tripe, and that is exactly what gordon brown was saying - saying this was in no way britain's (i.e his) fault, britain was best placed to weather the storm, and britain will lead the world
now as independent reports say Britain is in the worst position out of the G7, having no surplus (like Germany and co, even Australia) with which to rely on in a downturn Gordon has for some reason stopped saying all this
The worldwide crisis was not his/our fault (though we have our share of the blame) - but we were very badly prepared for it, and that was his responsibility - and he then misled us about it
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what is unbelievable is that this government that should be impeached and thrown in the tower for what they have done to the country are still within a few points in the polls......just what do they have to do to stop people voting for them?
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387. At 6:01pm on 04 Dec 2008, rejectedreject wrote:
Perhaps it's about time that the way banks operate is told very publicly, say on Panarama.
---
Try Eastenders or strictly come dancing - shows like Panorama are watched by intelligent people, and there have been a lot of shows exposing what has happened with the financial sector in lay terms (see Bremner, Bird and Fortune) - unfortunately most people don't care to watch good documentaries, you need to shove it in their faces if you really want to tell them
(queen's christmas message?)
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Thanks Robert, for talking sense and pointing out some basic truths that have not been stated nearly as clearly so far.
However, you still understate the fact British consumers are in the red to a tune of 700bn following a decade-long borrowing-orgy and that these negative savings of more than 10000 GBP per capita are not normal but unique, unprecedented and outrageous.
It is important to make clear that despite this fact, almost everybody near Mr Brown, Mr King and Mr Darling seems to suggest that even more personal debt would be nice for the British economy and that this should be achieved by cutting rates (quite counterintuitive I think) . To say the least, this point of view makes me sick!
Would you agree with my conclusion that it looks as if the government is determined to turn the UK into a European Zimbabwe, with hyperinflation and willing consumers that spend every penny immediately, before its value evaporates?
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"395. At 7:21pm on 04 Dec 2008, the_fatcat wrote:
387 "People need to know that when you deposit money in a bank, they lend it to someone else."
In fact, they lend out 10x what you have deposited "
No. In America the reserve ratio is about 10%. In the UK it is about 3% and the EU, about 2%.
So in America they can loan out about 10x.
In the UK they can loan out about 30x
and in the EU they can loan out about 50x
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Isn't it obvious?
If Brown reduces bank interest rates to zero, and pays 1% borrowing off us to pay for his ludicrous government borrowing, he can stave off this country's bankruptcy until the Tories win the next general election.
Simple.
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This blog mirrors the discussions we have had at home. Savers have not been just been neglected in preference to debt creators, they have been the lepers of the monetary system for decades. There is no incentive to save, not even now when the government needs savers. There has to be something more than lip service to the issue.
At the moment, not only are tax payers (us)supporting the banking system but we are getting a clear message that sensible domestic fiscal behaviour is not to be encouraged. We are in a double bind. On the one hand we have to be frugal to pay our bills, and there is a whispering campaign about saving, on the other hand, the loud and clear message is, spend, spend, spend.
Yes, a dilemma indeed, but only if you have scruples.
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We have been living in a consumer society. As long as we kept consuming then all was OK. The bankers and other hangers on made their living off the margins made every time a consumer took out a loan.
But now the consumers cannot afford - or be allowed - to take loans out. And what is worse they are having to pay back their existing loans.
End result: less consumption, fewer loans, less money for the hangers on.
The big question is "How do we get ourselves back into a consumer society?"
We have already played several of our best hands. Increased the school leaving age. Almost universal take up of further education. And now most universities have "Incubators" further extending the time folk stay away from having to get a proper job.
Just as well. There are no proper jobs anymore!
All the proper jobs in basic industries have been exported to places where the standard of living is lower.
And the savers' money has been instrumental in exporting those jobs. In order for the bankers to make a living they had to put that money to work in places where it would get the best returns. And that is not here.
So perhaps the savers should be punished. It is their fault!
They gave good hard earned money to bankers who used it to bring the system down.
They should have just spent it.
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I understand how the system works and why it needs savers and why savers need to be financially rewarded with interest.
But at the same time I can't help believing there is something completely wrong with a system that 'gives' money to people who already have money.
A person who can afford to put a million pounds into savings, is being 'given' something like a thousand pounds a 'week' for doing absolutely 'nothing' other than 'already' being rich enough to have a million pounds to save in the first place!......and a thousand pounds a week is a lot of money for doing absolutely nothing. Imagine just how much is being 'given' to all the Billionaires!!
I think a far better system would be to have a ceiling on the 'amount' of savings that earns any interest.
That might actually help to spread the money out a bit more and put an end to this situation where I believe it's something like 10% of people own 90% of 'all' the money in the economy. After all ...how much money can any human being really need???
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For those of you complaining about the credit expansion you need to realize it was done in order to allow for globalization to continue. It was done so we would swallow it by allowing for "free trade" also known as market arbitrage. One Corporate world united in trade.
Our society would have gone into deflation about 10 years ago if they hadn't opened the credit spigot. It is going into deflation now in obvious fashion in the US.
The reason is obvious. We added 3 billion people to the work force who live off a few dollars a day. That means the weight is downward on wages. Our societies work force should have been gutted in the US in 2001 by free trade. Instead they kept things going a bit longer by credit expansion. The only people who have the wages in the US that are left are older generation with lots of experience that are necessary. In the next 15 years though there will be no need nor any upward latter, only a downward slam into poverty.
One way or the other this recession or more likely depression WILL happen. You can not have this sort of deflationary force upon wages without a consequence. Now the capitalists will receive exactly what their salivating mouths water over daily when they look to China and exploited market arbitrage. They will have a good 25 years of massive wage pressure downward if not out right poverty all over the world to exploit. And they will make sure you pay them to stay in power while you best be grateful for the trickle down they throw your way.
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#410 wrote: "A person who can afford to put a million pounds into savings, is being 'given' something like a thousand pounds a 'week' for doing absolutely 'nothing' other than 'already' being rich enough to have a million pou