I discussed inflation and unemployment on Radio 2 this lunchtime.
My opponent's arguments were not just annoying, they showed considerable indifference to the needs of people in this country. So I let out my frustration by turning on the webcam:
PS I know it cuts off short - sorry - but it's only by a few words and I haven't got time to re-record them
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Sorry, but I have to disagree with your starting position.
Our economy is frankly based on a fantasy. To suggest that inflation is preferable to facing reality is churlish.
If people have borrowed within their means, then the effects of a controlled increase in interest rates will be absorbed.
Spending will go down, however that spending is currently based on the unsustainable policy of zero interest rates!!! We have to rebalance. The bond market will soon bring us to task when we try to auction our Gilts in a few years.
The people that took on massive leveraged debt in the belief that the UK had somehow reached a new paradigm or that the end of boom and bust was here will be in trouble. So be it.
Extend and pretend is a sure-fire way of following Greece, Portugal, Ireland, Spain and the US down the drain.
The pain of the required deflationary period is NOTHING compared to the harm zero interest rates are causing the UK economy.
Oh no, let’s live in fear of the invisible bond vigilantes!
Let me tell you something – they only exist in your imagination. They’re not even under your bed. We can live with these interest rates for as long as we like – because the gov’t is the best return in town, even at this price. That’s why business is lending them the money. It can’t make as much. It doesn’t know how to make that much.
Long term low rates are vital – as Keynes pointed out
Mr Murphy,
Let me tell YOU something. The bond vigilantes are alive and well and wrecking families in Greece, Ireland and Portugal.
You must be joking if you think you can BLACKMAIL anyone with sentiments such as, “Don’t raise interest rates, or the kids get it”. I thought that sort of bullying social fascism died decades ago.
I have kids and I take responsibility for them. I don’t expect the rest of society to do it for me AT THE EXPENSE OF OTHER PEOPLE’S CHILDREN AND USING OTHER PEOPLE’S MONEY. Instead, I saved *first*. It’s the finest reason to save anyone can ever have.
Right now, prudent families are being CHEATED out of a return on their savings and their kids are having their future–particularly their education–STOLEN from them at the expense of lunatics who leveraged someone else’s savings to lend way beyond their means and morons who believed (and continue to believe) that risk does not exist.
If you were a true Keynesian, you’d have been shouting, “Raise interest rates” from the rooftops for most of the last decade as deflation exported from the Far East washed over these shores.
WERE YOU? I couldn’t hear you.
Now we’ve got 5% inflation going into a decade of boomer retirement.
Can you imagine what that’s going to be like with annuities priced as they are? You talk about higher interest rates limiting spending but wait until you see what grey-haired people and a generation of unemployed graduates in £30K of debt want to spend.
Normally I would delete comments of this sort.
I included if for one good reason. You clearly do not understand Keynes. If you did you would know that he was a great fan of very long-term very low interest rates, so your commentary is entirely misplaced. There is no merit to high interest rates and economy: they only redistribute wealth upwards. Maybe that is your aim. It is not mine.
low interest rates encourage investment, the creation of wealth, and so growth for the benefit of all.
Richard – I think Keynes may have supported very low REAL interest rates. He was not a proponent of NEGATIVE real interest rates, was he?
I wonder how you arrive at the view that irresponsible borrowers should to be helped, even when that help damages those who have directly lost out as a result of the borrower’s actions. By preventing repossessions via low interest rates, those who lost out first time around are again being hard done by. It seems to be completely unfair.
Doers your callousness have no bounds?
Thanks for the reasoned response.
My point is that there are plenty of people whos standard of living is being eroded by low rates in the same manner in which others’ standard of living would be eroded by high rates. To rephrase the original question, why should one group take priority over another, and (to expand) assuming it is decided that one group should take priority, how do you arrive at which it ought to be?
Well let us start with those who should not suffer.
Let’s begin with children. I don’t think we can blame them. But throwing people with high mortgage ratios out of their homes, most of whom will be young, many of whom have young children, means that children will suffer. Families will break up. The cost to society will be enormous. The children’s lives will be blighted. Their parents may separate. Their education will be disrupted. They may well be moved a long way from their grandparents.
That’s why I will have no truck with those who say that those who borrowed because of a reasonable desire to buy their own home to house their children should now be punished because they were sold a product that they cannot, in respect pay for, through no fault of their own.
So who can pay? Well let’s start with bankers who produced these products and missold them. Let’s move on to banks. Let’s move on to those who lend them the money to lend on, called the wealthy. What about them? Wasn’t it their greed that gave rise to this?
Suffer not the little children I think one person once said, and he went on to overthrow the tables of the moneychangers and I agree with his priorities.
I believe the quote is, “Suffer the little children to come unto me.” Suffer in the sense of ‘allow’ so you’ve misconstrued the Biblical message somewhat.
How do you know?
Do you honestly think he meant otherwise?
Honestly, yes. You can judge for yourself by consulting all the available English translations of this passage here:
http://bible.cc/matthew/19-14.htm
Then let’s try Luke chapter 4 where Jesus declared at the outset of his ministry in Nazareth that he came to declare good news for the poor, and announced a Jubilee—the freedom from debt. if you can distort that to suggest that he was supporting bankers as opposed to those who suffered from their mis-selling then you are suffering from some considerable delusions
I think it was the peerless Michael Rowbotham that said jacking up interest rates was (paraphrasing) rather akin to peeling an apple with a sledgehammer!
Putting up interest rates doesn’t really stop inflation….it only puts it off for a while. We are in a recession (in spite of what the government would have you believe).
Making borrowing more expensive and making our competitors exports look more attractive when we are in a recession is stupidity bordering on insanity! Thankfully, the BoE have shown some common sense for now and have left interests rates alone.
Believe me…if you think things are bad now, put up interest rates and see how much worse things get!
Richard,
I liked the video blog, good medium, more please.
I can feel for people with savings vs ‘irresponsible’ borrowers riding the housing bubble but fixing the national economy is bigger than these interest groups.
Relatively both groups have lost out.
As we all know, the real villains of the financial collapse, the bankers, have just taken their short term bonuses and retired. Where is the justice in that?
The banks are blameless.
So says the Jersey government regulator …
Children are already suffering. Families are already breaking up.
The house price bubble continues to cause immense damage to those who were prudent, saved for a house, only to see prices rise beyond what they could afford.
So now they rent, with the ever-present threat of having to relocate every 6 months at a landlord’s whim. Do you think that is conducive to a stable family life? Do you not think this puts enormous pressure on a family?
You say you are concerned about children. It seems you only care about one group of children, whilst completely ignoring another.
Your call for low interest rates is simply delaying the market from correcting, as it will surely do.
I make no pretence that is an ideal situation. Of course it is not. Again, putting up interest rates will simply destabilise the rental housing market as well, and that can only make it even harder for people to maintain family life. Your cure is much worse than your complaint. There is no panacea here. Please don’t suggest that I am offering one. I’m simply suggesting the best of the worst outcomes. I live in the real world. I wish other commentators who did the same.
As the suggesting by the way that low interest rates are simply delaying the market from correcting: that is absurd: first of all the mocking its rates at whatever level it likes. They are not legally pitched against bank base rate. Second, there is absolutely no evidence that bank base rates of form at this point in time. The government can borrow all at once without difficulty. It has no reason to offer a higher interest rate. That is a sure sign that things are right.
Mr Murphy,
You don’t live anywhere near the real world–you deny the existence of bond vigilantes when Greek 2 year notes today yield about 24%.
Utter nonsense
Greece has real risk – imposed by Euro, IMF, no chance of growth, 30% tax evasion and more
The so called bond vigilantes will impose the same price on us
Garbage
We don’t have those risks – we’d have eben lower risk without Osborne
You are politely talking BS
Simply Brilliant! I am so thrilled this is produced as a written piece, the webcast was great.