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politicalbetting.com » Blog Archive » The politics of interest rates: New YouGov poll finds more saying a rise would make them better off than worse off
With the possiblility of interest rates increasing in 2014 the Times is leading on polling that suggests that more pople would benefit than would lose out.
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But maybe they can keep house prices up by spending the taxes on subsidies. That should make some of the UKIP defectors feel better at least.
But when the economy always also seems to rely on cheap credit what choice is there?
I have been predicting an increase in interest rates in 2014 for the best part of a year. With growth accelerating and unemployment falling so quickly it just seems inevitable to me. It would also be a good thing in 1066 terms because it would show that the economy is finally starting to recover and return to some sort of normality.
It will also be important to make sure that any potential bubble in house prices does not get out of hand and that we don't end up with consumption being driven by easy credit. All in all it is difficult to see a downside. Possibly a concern that the pound might rise enough to reduce a needed increase in exports.
Finally, we still have one of the highest consumer debt to GDP ratios in the world, and The BOE is probably still concerned that this might cause problems.
Against that, raising interest rates would be fabulous for the profitability of Lloyd's, RBS, etc., and would make sale of these stakes much easier.
I will be surprised if we do not see a couple of increases up to maybe 1.5% by the end of the year.
Personally I can't bloody wait, having droned on in the wilderness for years about the negative effects of low rates.
Those with personal pensions can ride this out, at least for a time, by not buying their annuities and riding the increase in the market. Those companies that still have final salary pension liabilities have had a much bigger problem and I have no doubt that this has been a major drag on investment. It is not impossible that modest increases in base rates that reduce pension deficits might actually increase investment by our larger companies rather than reduce them.
As you point out even with any foreseeable increases (in a 12 month window at least) will still leave us with a negative base rate even if most borrowers pay quite a bit more.
I hope you all had a good Christmas.
That's an interesting finding, the the 60+ stat is particularly noteworthy. I wonder, though, whether that would be enough to prise loose the grey vote that has drifted UKIP's way. Better life expectancy (on average) in the South may also mean more blue votes in areas that are already blue.
On an entirely unrelated note I quite liked (although I didn't agree with all of it) this piece on Buffy the Vampire Slayer and the lack of strong female characters today: http://www.bbc.co.uk/news/entertainment-arts-25494967
I think the times headline is incredibly meaningless otherwise
Though those are probably LAB voters anyway... Oh - And the Gov't doesn't have direct control on this issue as RCS points .
Times should have lead with the Baghdad church bombings
Did Mr Hodges pen this one up
Thanks to oldnat and avery for the interesting exchange on national myth (in the more or less positive sense) in the last thread (also GeoffM for the link to the impressive alternate history site). It is, I think, generally true that national identification is gradually weakening with the marked decline of nation vs nation wars (obviously a welcome trend in itself whatever its side-effects) to make people rally round the flag.
But it's not being accompanied by enthusiasm for the sort of loose confederal democratic UN that I might identify with, but with a retreat into individualism. British nationalism and Scottish nationalism are IMO likely to be both in long-term decline.
They just won a majority in a system specifically designed to significantly reduce the chances of anyone doing so, and next year the Scots are having a referendum on independence!
Saying Scottish nationalism in decline is like saying English cricket has never been better.
British nationalism is in decline for various factors, not least Labour's inept, lopsided and indefensible brand of devolution, and the nonsensical approach to multi-culturalism which means we now have universities struggling to decide whether or not gender segregation is ok.
Of course there's no enthusiasm for the UN. It's a talking shop. The EU is a cabal of meddlesome bureaucrats, the modern equivalent of a Persian emperor's court of eunuchs.
Low real interest rates, have helped debtors like HMG with lower debt servicing costs, but screwed savers. Can't please everyone.
Won't revive the smoking ruins of the final salary system, battered into extinction by longevity and utterly ill thought through govt regulation ( yes that's the 2004 Act mainly, but it's not the sole idiocy). Still Government and the State will have to wrestle with the fallout from that in the 2020's and beyond as millions will not be able to retire at anything like 65, and will be demanding benefits.
It would have been okay for interest rates to rise but Ossie has now created many new property owners on 5% deposits,it is unclear whether there will be major defaults as incomes are falling in real terms.
Plus, there is a greater risk of default with your AA- rated building society, than with your AAA UK government bonds
Far better than a Christmas cracker joke. If I worked aboard a mining ship in the far future I would spend a good 3 minutes doing the salute your wit deserves.
A phoney headline for a phoney day: the term Boxing Day is surely an anomaly in this day and age. After all, how many of us give their servants a present (box), today.
As for the headline itself, rates will have to rise as a matter of economic self interest and it will help savers, ( are their many now? ) to put by a bit more for a rainy day.
And talking about rain.................................. !!!!
@EiT Clobbering the housing market is only an issue when you want to sell. Additionally, the rise in total financing costs is likely to be lower than the headline rise (say BoEBR moves from 0.5% to 4%, then I would assume that borrowing rates would move from about 3% to 5.5% as spreads come in). But someone who can only afford a mortgage at 0.5% base rates would be ill-advised to be buying a house anyway.
@DavidL the discount rates used to calculate pension liabilities is a very good point. One of the fiercest arguments in the last few years (the sort of thing that turns Neil on) is what the right long-term discount rate should be. Historically they used the 10 year gilt rate, but question is whether this is sub-normal or not. The longer that sub-normal has lasted, the tougher it is to argue this is not the new-normal. Combine with the regulators insistence that pension liability mismatches be filled within 10 years this has been a significant drain on cash for companies, diverting funds that could otherwise have been used for investment.
@welshowl Unless you have multiple accounts, you are likely to max out at several thousand pounds at that kind of rate. I don't think the government will be that worried if you decide not to lend it to them instead.
(p.s. rcs1000, wider net interest margins would be luvverly. Even if only to cover the ever increasing cost of regulation and levies. How the innocent suffer!)
On that question, one key group is the retired UKIPpers. We know that they've done well out of the over-60/65 bracket and we know that that segment is most likely to vote. However, would rate rises bring them back to the government fold or would they bank the increase and protest anyway?
The other group is that of the floating mortgage-holders: typically 30- or 40-somethings with families who believe they would be adversely impacted. In the short term, that wouldn't necessarily be the case as fixed-term, fixed-rate deals have been popular though even if rate rises didn't impact immediately, a rise in base rates would clearly signal increased repayments down the line (and of course, some fixed-term mortgages will expire almost immediately after a rise anyway).
How would it impact their vote? It's difficult to say because it's more complex than "increased outgoings = opposition to the government". My hunch is that it will play best for whichever party is seen as most competent on the economy, though of course a rate rise may be a factor in that too - there is a huge amount of feedback throughout all the components. People will stick with a government even when times are tough providing they believe the alternative is sufficiently worse and a renewed focus on the economy will increase the salience of the economic question.
Complicating that question though are the time-worn issues of coalition, the rise of fourth parties and the Scottish referendum. To what extent will the parties in government receive credit for actions taken in coalition? To what extent is the UKIP surge a protest against politics as usual and to what extent would the need for proven competence work against them? To what extent would increases in the BoE affect the Scottish debate given the White Paper's notion of keeping Sterling and the BoE determining interest rates?
Simple answers are for simple people. The impact of rate rises will be highly complex and will depend to no small extent on the reasons people believe as to why they've come about: is it a return to business as normal (i.e. crisis solved) or is it a new and different problem - or a mix of both.
And it doesn't matter if there are a few others in the house under 75.
As for pensions and their regulation: one of the biggest silent ( largely ) domestic cock ups post WW2. There are about 6800 final salary schemes still but only about 13%, I think,remain open to new members ( how many of those are public sector I wonder?). Meaning the system is having its last rites drawn out over time. Steve Webb to be fair ( L Dem pensions minister ) has woken up to this recently and is trying to do final salary CPR with some modest proposals in the right direction, but he's ten years too late and has turned up to the Great Fire of London with a tiny leaky bucket. Delusional to think having been shafted once by the system companies are going sign up to his idea of final salary lite now.
Banks want a situation where they borrow from you at 1%, and lend at 5%. They don't want a situation where they borrow from you at 0.5%, and lend it out at 2.5%, because everyone is paying base rate linked rates.
Look at the Japanese banks if you want to see what happens when rates are kept at a very low level for a very long time.
But there is also a case for arguing that Scottish nationalism is now a whole different beastie anyway from Mr Cameron's Britnationalism. The clue may be that the N in SNP stands for national rather than nationalist.
What has struck me almost more than the positiveness of the indy side vs the relentlessly acrid negativity of the unionist side is the difference in their attitude to nationalist stuff. Look, for instance, at the key events. The launch of the White Paper was almost postnationalist. Very managerial, almost technocratic, very forward looking, small efficient modern European nation, not a historical chip on either shoulder.
In contrast the unionist side have been waving the flag, yhe odd occasion at Wimbledon aside. They are the ones who mention Braveheart, they are the ones who were obsessed with the fact that 2014 happens to be the septencentenary of Bannockburn and screaming that the referendum be brought forward to 2013 on those grounds, till someone pointed out that Flodden was in 1513! And when that nice Mr Cameron deigned to allow us to have our referendum in the Edinburgh Agreement, he was inter aliis arguing that we Scots must remain in the union just because Scottish regiments landed on D-Day. As I commented to a French colleague at the time, I was surprised he didn't mention Waterloo as well.
I've mentioned before how striking it is Mr C should launch the celebration of the kick-off of the Great War in Glasgow of all places, given its political sensitivity there and the scepticism with which he will be received locally - I have now checked back and found the British Futures survey which showed precisely this, summarised here.
http://www.heraldscotland.com/news/home-news/why-glasgow-men-do-not-want-to-celebrate-wwi.21772579
http://www.britishfuture.org/wp-content/uploads/2013/08/BRF_Declaration-of-war-report_P2_Web-1.pdf (p. 9 refers in particular)
It will be very interesting to see what happens when he goes over the top, so to speak ...
[deleted reference to extreme political sensitivity in Glasgow - because so many folk don't know their history - but it does remain tied up with Red Clydeside etc]
So we know a lot more about what would happen if we vote Yes than if we vote No - which I find an astounding situation.
That said, I do maintain it's easier to be positive about a Yes than a No as a general principle. "Yes, we can" is always more upbeat than "No, we can't." Plus, the question is effectively status quo versus change. Yes will always try and make the change more positive and delightful, and No will always try and make the change riskier and more dangerous.
It comes across as just looking to take a bit of time off and/or have a long weekend at a point that is most enjoyable for the strikers. I understand the need to preserve income (given I believe that you don't get paid when you strike) but isn't there a risk that you don't hurt the management, don't advance your cause and just look a little silly to the general public?
I bow to your greater knowledge of 1666 fire fighting techniques. Maybe " turned up with an air rifle to stop a tank" might've been better?
Seriously though I really believe we've been dreadfully failed by politicians of all stripes failing to talk to the electorate like adults on this one. The movement of the state pension age is a decent start back to sanity, and to be fair Steve Webb has made noises company schemes in future might be able to do similar but it's all too little too late. Why sign up to a volatile open ended debt with attached political risk ( will a Govt in say the 2020's or 30's decide to "improve" the system?) stretching out decades when you can simply, as a company, take the default money purchase option?
Its really not about having a bit of time off, as most of us picket during the strikes. The timing is actually very well thought out. The employers have to provide a minimum fire cover, as layed out by government guidelines. If we went on strike on a Wednesday morning at say, 10 o'clock, that'd be easy to cover- there are enough strike breaking officers to do that, and us going on strike is actually cheaper for the brigade, in as much they don't pay any wages or pension contributions.
If we go out the doors for a few hours at the weekend, that creates a problem, as the officers don't want to work weekends or very early mornings. The employers then have to up their game to get people to break the strike. Officers and anyone willing to work the Christmas and New years Eve strikes are being paid between 750 quid and a grand to break the strike, according to what brigade you work for.
That just stiffens our resolve. It's not going to be a pleasant time in the Fire Service for the next few years.
Manipulate share prices to the detriment of others and it's called fraud, manipulate interbank interest rates and it's called a scandal, manipulate long term pension discount rates by printing limitless cash, creating an artificial black hole that companies have to fill by law pronto and it's called QE.
"So we know a lot more about what would happen if we vote Yes than if we vote No - which I find an astounding situation."
However, we do know the "mythology" (and I don't use that in a pejorative sense - every country projects a set of memes that they use to create a unifying set of attitudes) that the UK and Scotland use.
My original question is why the UK has chosen the myths that it has, and specifically why WWI?
1. The "UK" in your phrase is just the Coalition Gmt and it is latching onto something convenient for 2014 - it can't celebrate Flodden as it is the wrong year (though the Coalition did make one or two illadvised noises) and the wrong side won at Bannockburn, which is pre-1707 anyway, and WW2 might have been better (the odd occasion like the St Valery disaster aside) as it was evidently a just war - at least in the nature of the enemy. But the dates are wrong, as the 70th anniversary of D-Day doesn't score, so that leaves 1914 ...
2. The "UK" in your phrase is regarded as so many million families whose grandparents and g-grandparents/uncles etc. fought and often died on the Somme etc and brought their PTSD home. Many families must be acutely aware of that.
3. The Great War is interesting in terms of regional vs national politics - the regiments, more precisely battalions, which fought were intensely local even within the regional regimental recruiting system - Accrington Pals, the Hearts football team, the battalions from Ireland which died on the Somme (and I suppose also you could add the Imperial units such as the ANZACs and the Indian Army). And all in one national (sensu UK) effort. And alliance with the USA on top. What's not to like for a modern Unionist? /comtinued on next
4. The GW was a time when regional politics were suppressed (in the wider sense of quietening down). Home Rule for Ireland was a crucial issue in 1914 - it was only the outbreak of the war which headed off civil war in Ireland following the open mutiny of UK army officers, and the arming of the Irish insurgents on both sides - okay, the civil war started after 1918 following the 1916 rising in Dublin and its mishandling - but for a while London could more or less forget about nasty Home Rule stuff. Scotland was also very much demanding Home Rule though without the risk of armed insurrection, but the declaration of war put paid to that. Maybe Mr Cameron is relating to that. Same can be said for class (Labour Party) and gender (suffragette) politics, as well.
I really, really cannot see that the GW is really a UK founding myth (as opposed to, say, Australia) - WW1 was so futile in its attrition that it seems a positive argument against the UK (not that I would use it as such today, unless someone is unwise enough to use it as an argument for the UK in 21st century politics) - but perhaps it is too much of a family event for me, or perhaps I have not caught up to speed with the UK Gmt message yet, so this is an area where I may yet have to stand corrected. Trafalgar and the Royal Navy, and Spitfires and Biggin Hill 1940 all seem to ring far more bells for me.
Sorry for going on - but it is a very interesting point you make. I may as well menton while at it that I am currently as it happens rereading John Ellis 'The social history of the machine gun' and am astounded yet again by the slowness of the military establishment to adapt to the need for MGs and to react to their implications. Or to address the issue of attacking field fortifications and artillery-proof bunkers developed by, of all people, the Maori (James Belich 'The New Zealand Wars' being another recent read). Another very interesting read has been the new book on the Quintinshill troop train disaster where corporate manslaughter by transporting squaddies in ancient wooden coaches under wartime pressures was covered up (book is better than its marketing-speak title).
http://www.amazon.co.uk/Britains-Worst-Rail-Disaster-Quintinshill/dp/1781590990
When you have a credit boom - like the massive one 1998-2008 - you get inflated house prices and the banks holding trillions of dollars worth of mortgage assets founded on those inflated house prices. When the bust comes - which it always does every time the banks create these massive boom-bust cycles - those mortgage assets become toxic.
(To illustrate the point imagine a bank holds a million mortgage assets each worth a million dollars before the bust but only 1/2 million after. The bank suddenly has a 500 billion black hole. The toxicity is this sudden drop in value and not just of those assets themselves but all the assets they are security for. The whole house of cards comes down in one go - hence why all the banks went bust at once in 2008.)
However the banks didn't go bust because they own the political class. Instead everyone pretended those assets didn't lose their value and the various governments began the process of transferring those toxic mortgage assets to the public via the central banks while keeping the inflated house prices as close to their peak level as possible with zero interest rates. Only when all the toxic mortgage assets have been transferred to the public can the interest rates go up and house prices go down because only then will the public take the loss not the banks.
The whole of the last five years has been a slow process of the various western governments transferring trillions in bankster gambling debts to the public.
So while the asset value of pension investments in shares and bonds has been inflated by low interest rates, when the time comes to buy an annuity, the annual pension it generates is lower than if there were high interest rates.
At a recent House of Lords Committee, the Governor of the B of E said that when it's time to tighten money supply to curb the risk of inflation going above target, he expected the Monetary Policy Committee to increase the Bank Rate rather than reverse QE by selling off gilts thatv the Bank has accumulated.
He gave his reasons as
1. The market is used to increasing Bank Rate but reversing QE will be new and it's hard to predict the response, and
2. By changing the Bank Rate may be able to influence short term interest rates higher without impacting longer term interest rates and so help business investment. Reversing QE could increase long term interest rates.
So even when the B of E stops stimulating the economy, thry are still going to try to keep longer term interest rates lower than otherwise, which means individuals and businesses having to continue to contribute more into a pension scheme to purchase annuities.
Of course worst of all for pensioners would be if interest rates are only high because inflation is high. High inflation is a killer for pensions. Even inflation linked annuities/pensions have a cap of 5% pa (or some recently at 3% pa)
In my view the equilibrium steady state (Goldilocks?) is for medium term interest rates set at 3% above inflation at 2%. So around 5% for 5 year gilts, less for shorter term periods and more for longer term periods.
edit: via lowered house prices putting their mortgage assets underwater (or more underwater)
But here's the joy. The bank will repossess your home, and sell it. They will charge you for all this (and will continue to accrue interest against you) even after they've reposessed, and until the day the house is sold. If the amount raised at sale is less than the mortgage, then the difference will be converted into an unsecured personal loan, charged at perhaps 12% per annum. If you default on this, they can chase you into bankruptcy and take the rest of your possessions.
Unemployment in the UK is fairly low and is falling. Most houses are worth considerably more than their mortgage.
A modest rise in interest rates would cause disposable income to fall slightly in most homes. However, it is unlikely to tip banks over the edge, as the banks' net interest margins would improve quite considerably. I would wager you (and anyone else) that banks' profitability will rise (in the UK, in Europe, or in the US) as interest rates rise.
(It's also worth remembering that banks are massively less leveraged than they were in the past. RBS has tier one capital of around 3% going into the crisis. It's now around 10%. And that's after tens of billions of bad loans have been written off. As an aside, the Irish housing market is beginning to recover, which is also a potentially massive positive for the UK banks.)
I am not convinced by the argument that WW1 generals did not understand the machine gun and other modern weapons. In 1914 we had two machine guns per battallion, by 1916 we had a machine gun corps specialising in these weapons eventually numbering 160 000. Similarly in 1914 we had no combat aircraft, by 1918. We had an RAF with 2000 combat aeroplanes. Arguably this was the fastest development of military tactics to technology that our armed forces ever had.
I can recommend one book on the GW which is unusual in being written by a ordinary soldier rather than officer, and demonstrating the progression of tactics and real life in the trenches. Far better than Blackadder.
http://www.amazon.co.uk/gp/aw/d/0304352586?vs=1
1. The banks have written off more than one trillion dollars of bad loans. In Spain in 2013 alone, the banks recognised €210bn of bad loans.
2. The banks have raised hundreds of billions of dollars (or pounds or Euros) of new capital.
3. ZIRP has allowed inflation to chip away at the value of those loans.
The consequence of this is that private sector debt-to-GDP has come in a huge extent in most countries in the last four years. (See; http://data.worldbank.org/indicator/FS.AST.PRVT.GD.ZS)
Ireland has gone from 230% of GDP to 185% in the last four years (and 2013 will be better yet). The UK has gone from 210% to 176%. The US has done less deleveraging (196% to 184%), but its banks are generally pretty solvent (now).
2/Traditional-Danish-pasties-threatened-by-EU-cinnamon-ban.html
Point taken re tech evolution - quite right, with tanks as DavidL says, and their armoured spinoffs selfpropelled artillery and supply and personnel carriers, strategic bombing, early warning methods, artillery tactics and specialist ground attack aircraft and so on. - all came to fruition n 1939-41. I had in mind the earlier years, and should have said so.
My equivalent Blackadder antidote was Dunn 'The war the infantry knew' - he was a medic in the same unit as IIRC Graves and Sassoon the poets. But many thanks for the recommednation. Will seek out Coppard, much appreciated.
http://www.telegraph.co.uk/news/worldnews/europe/eu/10538172/Traditional-Danish-pasties-threatened-by-EU-cinnamon-ban.html
They won't disappear; hopefully people will now bake them at home and sell them tax-free to neighbours and friends. Shops will suffer and people will be irritated and a whole new class of cinnamon-criminal will be created, but our EU masters don't care about that.
Not sure what the King George has told us about the Gold Cup. There are those who think SILVINIANCO CONTI would have won if he'd stood up but I'm not convinced. CUE CARD didn't get home on the slower ground today and I can't have him for Cheltenham on this evidence.
The Lexus on Saturday looks a more informative race for Cheltenham.
Interest rate rises may not be optimal for the Tories.
Only 12% of the earth's population can solve this in 30 seconds...
Say the opposite of these words:
1: Always
2: Coming
3: From
4: Take
5: Me
6: Down
Backed that at 12/1
Also backed City to win 5-3 and 6-2 at 250/1 each.
Thus this will guarantee a nil nil draw, which is available at 22/1
On constituencies which are marginal, it should also be considered whether there are relatively more or fewer people who would be positively affected by rising interest rates. If somewhere has double the national average of mortgage holders but thrice the average of pensioners then rising rates would be a net plus.
I see that you still have this regrettable habit of introducing facts into PB discussions.
Of course, had the Kalmar Union still existed, the Swedes would have had their coumarin levels determined in Copenhagen. Had Cnut's Empire still existed, cinnamon rolls in London would have been similarly specified elsewhere.
Is the 12% based on some estimate of the proportion of the world's population that can read the question?
Two of my colleagues are now in their late 60s and another in his early 70s and they are still offshore pulling 21 14 hour shifts in a row including night shifts. Times change and I am afraid the public sector needs to catch up with the rest of the country when it comes to pensions and retirement expectations.
Great to see you again.
The question is to do with this
http://tinyurl.com/2hh5ou
Thanks for the link. But I thought you had given up the use of mind-altering substances? :-)
http://www.youtube.com/watch?v=3KANI2dpXLw
Well, if you insist on watching PMQs, you only have yourself to blame!
Cameron’s personal support among gay people hits 46% - Miliband on 37% and Clegg just 17%. Striking @pinknews polling pinknews.co.uk/2013/12/26/pin…
NOTE FIELDWORK WAS 21st-22nd of November
CON 24% LAB 32% LD 8% UKIP 25% GRE 6% Others 6%
http://survation.com/2013/12/an-updated-look-at-european-parliament-voting-intention-labour-maintain-their-polling-lead-in-2013/
There are lots of people out there doing jobs just as important and just as tough as those done by public sector workers who have none of their protection nor the ability to retire at a lower age in spite of the fact their jobs are tougher both physically and mentally. I am afraid this special pleading by certain groups who think they are more deserving than the rest of the population is something that needs to be challenged at every turn.
Love Survation's Scottish cross break! - BNP virtually only exists in Scotland, according to this Survation Poll for the Daily Star. At 12% they come 4th after Con 30%, SNP 28%, Lab 20%. (And, of course, I know that cross breaks are meaningless - even from a decent pollster for a decent papr!)