It is Obvious

Chris Rick has got altogether too much to say

Eat your heart out Cassandra

Posted by chrisrick13 on June 13, 2014

It is obvious: it does not matter if you are stupid

I wrote yesterday’s blog before the Mansion House speeches by the governor of the BoE and the Chancellor.  Osbourne was certainly being quoted even if he did not make a speech.

The governor has been working hard to reach the levels of incompetence achieved by Mervyn King and pretty well got there yesterday.  He had introduced forward guidance intended to bring stability to markets so that people could take a long-term view and invest, essentially, without risk over that long term.  It is laudable to try to create that environment.  It is also impossible to do.

The governor showed how impossible it is because he had barely set out criteria for an interest rate increase to occur in 2015 at the earliest when circumstances changed and his criteria were met, now, 2 months ago.  He had to change his criteria to something much more fuzzy and removed the ‘forward’ part of his guidance.  Perhaps it should be called backward guidance.

Last night he shortened his guidance period.  Interest rate rises are coming to a place near you…soon.  They are coming because most people on fixed rate loans have expired their term and been forced on to SVR.  This a rate where the banks think of a number, double it and use that for your interest rate, changing it when they feel like it.

Even though banks can borrow money at 0.5% there are not many entities that can borrow from a bank at, say, a 100% markup on that which is 1%.  If you borrow on a credit card it is 18% or more.  My bank offers secured loans at 10%.  So I am not sure what a base rate rise would do to the money that people and businesses in this country pay.  If someone said to me that they would sell me something I wanted for £1 each and I could sell it on for £20 I would a) buy as much as I could b) consider carefully the fate of the geese if I passed on any price rises.  My price rise strategy on a doubling of the price to £2 could be to move from £20 to £21 or £40.  Keeping prices as they are does not come into consideration.

Given how much profit there is inf bank lending with the base rate at 0.5% for over 5 years have you ever thought about just who has paid for the banks to recover?

So today a few people will add to the trickle as they now realise that whatever mortgage they take out today it is going to cost more before the end of the year.  A few of those tricklers will also realise that inflation of around 2% (the number massaged lower than it actually is) and wage inflation at 1% means that they will not be doing many of the things they like doing now at the end of the year.

If you are sitting there smugly with no mortgage and no loans think about who is going to pay for all the people who default on their loans.  If the government is short of money there is no point rounding up all the beggars on the streets of London and tipping them upside down for the coins in their pockets (actually that would bring in a lot more than you would imagine).  Much easier to grab ‘money’ out of bank accounts.  Cyprus was the beta-test for that and the bugs have all been worked out of that process.

I had thought the smart people running the country, and they are smart, had timed it for a win at the next election before a collapse but maybe they have got the timing wrong and the collapse will occur before then.

It is obvious: it does not matter if you are stupid as long as you can find someone more stupid

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