Interest rates on UK 10-year gilts and US ten-year Treasuries hit levels last seen before the 2008 global financial crisis yesterday:
The UK rate, as noted above, was 4.727 per cent.
The apparent market betting is that inflation can be beaten and recession can simultaneously be avoided if base and guidance rates are increased again.
There are three assumptions that make that logic work.
The first is that interest rate rises work to bring down inflation.
The second is that interest rates can remain high after inflation falls.
The third is that in a high interest-rate economy where real interest rates are higher than the rate of inflation - which is something unknown since 2008 - we can apparently avoid a recession. That, apparently, is because although interest will still be sucking the lifeblood out of people's capacity to spend whilst increasing inequality, so reducing multiplier effects, there will, supposedly, be enough spare income to keep the economy buoyant.
All three of these assumptions are totally absurd. None is true.
Inflation is not being cut by increasing interest rates: inflation is being cut by the fall in global commodity prices.
In addition, interest rates cannot remain high if inflation falls - and other market makers, like mortgage lenders, are already indicating their awareness of that fact and the reality that current rates are unsustainable by beginning to reduce the mortgage interest rates they are demanding.
Third, there is no way that the fragile economies in which we now live can sustain positive real interest rates and grow, whatever money market makers might like to think. Positive real interest rates will simultaneously cut consumption, government spending and investment, which are three of the four components of GDP growth (the other being net exports).
Markets are living in a fantasy world right now. The risk of a lot of things falling apart very rapidly if this fantasy worldview is not shattered remains high.
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As far as I am concerned you are absolutely right.
High interest rates are a rentier charter and nothing else and at worst look like a cunning plan to get hold of other people’s assets (housing for example) as cheaply as possible.
This class war you speak of also shows the disjuncture between capital and business, when it is businesses choosing to pay higher wages – not always higher wage claims by workers.
That little inconvenient fact leads us onto things like BREXIT and austerity (that closed down a lot vocational sections in schools, where children could have learnt trades, and explains labour shortages).
Nothing but a commons committee enquiry will satisfy me in order to uncover the depravity of Tory rule since 2010.
Thinking about this depravity, I can only explain it as revenge on British society by the Tories for having the temerity of kicking them out in 1997, such is the glee and over enthusiastic nature of their economic vandalism.
Unless of course it is the design.
Surely, mass unemployment, mass repossessions, small business failures & increased poverty will create the environment for anarcho-capitalists to clean up & bring about neo-feudalism & oligarchy?
You can see the evidence in the figures the top ten richest families in the U.K. have seen their wealth quadruple in the last 13 years whilst real wages have been falling.
@Chris Price – have you got a link which shows the top 10 richest families in the UK in 2010? It would be interesting to see how many of them are still in the top 10 now.
“Markets are living in a fantasy world right now.”
If I may?
“Policy makers, the BoE & gov are living in a fantasy world, & always have”.
(markets being a parasitical extension of this)
The “markets living in a fantasy world” has been true for centuries for the reasons explained in this Randall Wray 2010 article and that’s leaving aside the ELR/JG proposal:-
“4. The problem with a monetary economy (you can call it capitalism if you like) is that from inception imposition of taxes creates unemployment (those looking for money to pay taxes). We scale this up to our modern almost fully monetized economy (you need money just to eat, watch TV, play on cell phones, etc) and we get everyone looking for money (and not just to pay taxes). It is sheer folly to then force the private sector to solve the unemployment problem created by the government’s tax. The private sector alone will never (never has) provide full employment. ELR/JG is a logical and empirical necessity to support the private sector. It is a complement not a substitute for private sector employment.”
https://realprogressives.org/towards-a-libertarian-austrian-modern-money-theory/
If as a society you want to cooperate in order to deal with whatever problems arise the use of money is clearly beneficial but so few in society today recognise the necessity of tax as a condition for using money. This is a huge yawning gap in most individual’s ability to understand the life they are leading. That and as Wray tells us market fundamentalism never will create full employment for those who want it! Free market capitalism should be regarded as a compliment to life not dogmatically asserted as the be all and end all and that is why there’s a growing discernment that Thatcherism is coming to the end of its experiment on us!
The usual taxes cause unemployment crap.
Sorry, but it’s just not true.
Unless you’re a market fundamentalist, of course.
Unfortunately, things falling apart is what it takes for the fantasy to be shattered.
It is a sombre irony to note that out in the big, bad global world, beyond the reach of the BoE or UK tabloid neuroticism, China is now facing deflation (CPI, -0.3%).
Plus a potential banking crisis
They may well be ahead of us.
As we know, should it wish to do so, the BOE could lower the interest rate to whatever figure it wanted and keep it there. To what extent could the UK buck the global trend?
It could, and may well win by doing so