George Osborne talked about interest rate increases in the UK yesterday now that the US has, as he put it, taken the lead.
Why has he done that when, as he acknowledged yesterday, the wheels are falling off the world economy? Three reasons.
First, to pretend the UK is different.
Second, to pretend he's in charge (after all, it's not even his decision, in theory - although he can impose on the Bank if England if he wants to).
Third, to pretend we're getting back to normal.
Do you remember that old story about the swan looking so serene as it floats along whilst underneath it's paddling like fury? George Osborne is trying to look serene. Underneath I suspect he realises he's already drifting downstream uncontrollably. But he's got to pretend otherwise.
That's what this talk of interest rates is all about then: cover as the economy descends into chaos in the exact opposite direction of that George Osborne would like to suggest we are going in.
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There wasn’t compelling evidence for a rate rise in the US let alone here but I fear that’s where the ‘narrative’ is (for whatever reason – trying to avoid indulging conspiracy theories) and so a rate rise is inevitable. But only because the financial class won’t shut up about one. Not because the data supports it.
The rate rise is not ‘inevitable’ – talk of a rate rise is inevitable. That’s different. The rate rise itself may not even eventuate.
(On 2nd thoughts)the rate rise may eventually but probably not in the near term.
I’ll be keeping an eye on oil for a while.
I noted an interesting page on a website today:
http://ourfiniteworld.com/2016/01/07/2016-oil-limits-and-the-end-of-the-debt-supercycle/
It may well be that the economy is, shortly, going to be out of control….as if it is already?
As has happened in the past: Economic tragedy tends to lead to warfare.
Very interesting stuff, JohnM, and a convincing argument I thought. Point 9 of the conclusion deserves highlighting: ‘All in all, 2016 looks likely to be a much worse year than 2008 from a financial perspective. The problems will look similar to those that might have happened in 2008, but didn’t thanks to government intervention. This time, governments appear to be mostly out of approaches to fix the problems.’
Hence PQE
It is the only new game in town
What I don’t understand is this – matured bonds in the QE program are still being rolled over and the QE program is still effectively active. It is not being unwound, it is being maintained.
That is the continuation of an expansionary measure. An interest rate rise is a contractionary measure. There is no apparent sense or consistent direction in doing both at the same time.
Convention has it that the central bank does not raise the rate unless inflation is above target (or pushing strongly in that direction). A decisive break with that convention would require an urgent and compelling argument. The more that you think about this rate-rise speculation, the more it sounds like a load of old bollocks.
An explicitly contractionary measure…
Really, I have no comment to add. Anyone reading here knows that this is wilfully damaging economic policy: all that remains is to speculate why.
Come, come now folks.
We know why by now don’t we?.
This is nothing but the creation of a ‘market’ that will destabilise current markets and assets (and indeed the economy) leading such assets to be acquired below their normal asset value by other market actors.
If you make things worse, you can tell people anything that will promise to make it better – including further privatisation of public assets , reductions in social security and Government regulation.
This is nothing but Osbourne and Co colluding with big business to divvy up state assets (and no doubt some private assets and businesses too).
Why make things genuinely better when the chaos and uncertainty you are creating creates new opportunities for the profiteering financial sector and fulfils your political idiotology which is to negate the role of the state?
I’m sorry if I sound cynical but honestly believe that this is what is happening. It is as others have pointed out ‘disaster capitalism’ in the raw.
Hmmm….in the torygraph:
“The Department for Communities and Local Government says the average house price in England has passed £200,000 for the first time. How do we all afford it? The Royal Bank of Scotland reveals it has relaxed its lending criteria and will consider offering 52-year mortgages to 18-year-olds. Northern Rock says it will lend 5.9 times a borrower’s salary”
Seems great, 6X salary mortgage loan; what could go wrong with that?
And, just above the bit above (I know):
“In another high tide mark for the booming London market, the Candy brothers let slip that they want £84 million for each of the four penthouses at One Hyde Park, which will be equipped with bullet-proof windows”
Hopefully they will also be equipped with armour plating and efficient fire protection!