Thursday, 5 July 2007

UK Interest rates up again; but US hold?


Well the expected rise has happened today. From the reaction of the bank it seems likely that 6% will be hit, as I predicted and many poo-pooed (Law of averages is catching up with me, I have to be right sometimes...)

But will it stop at 6%; I am not so sure now. The price of oil is rising fast again and the stock markets never caught their cold. Prices of key raw materials like copper are going up sharply too.

But the main factor as ever remains the money supply, which is simply not being restricted, banks are creating money through debt issuance, as is the government through the high PSBR. More money in circulation means higher inflation and there is no escaping it (yes I am a monetarist).
See Fabian Tassano for an excellent pair of graphs on the difficult US position re money supply too.

This is true for the US too, yet the Fed is holding rates as their housing markets slumps in a way that is much harder to 'achieve' in the UK.

Unfortunately, all is set for a huge overshoot, with rates going up further than needed and a recession to follow that will be deeper than 'necessary.' It can be avoided with a sharp reduction in money supply and careful interest rate management, but hard hats required is the likely scenario.

If I knew when this should happen I would be off spending my millions, that is the big trick, the pattern is clear but the timing is opaque.

17 comments:

Old BE said...

Quote of the day:

The British Chambers of Commerce agreed that the Bank of England should take its time.

"It should allow more time for previous interest rate increases to have their effect before rushing to raise interest rates further, thus inflicting lasting damage on the economy," said the BCC's economic adviser David Kern.

Shame they weren't raised sooner, in retrospect!

Anonymous said...

The rate of inflation is a puzzler as many poorer people experience a higher rate than that defined by the official stats. Because it includes things that they do not buy which are actually falling in price e.g. many white goods especially IT things. It would be interesting to work out a basic survival basket of goods and see the inflation rate on that - my guess? 10 - 12 % or more...

Nick Drew said...

Mutt, it's even more complicated, because your survival basket probably includes gas & electricity (yeah, I know - 'gas in a basket ?!', ho ho), the prices of which soared in 04-06, but have now come crashing down again - so your survival inflation right now might in fact be lower

it's certainly often quite different

Anonymous said...

Mongs in the Government and their lackeys on the monetary committee seem to have forgotten some simple facts about the present housing boom and mortgage debt that people have. A very significant amount are now coming out of their fixed periods, and find they have even bigger amounts to find. The fucking idiots didn't count on this not yet taking effect over the last couple of rises; we now have a significant amount of people who have the double whammy of increased interest rates on top of their fixed period coming to an end, and it will bite very hard.

I think rates will rise further, but the big pain to be felt by the country won't be for months yet. They had their chance to nip it in the bud but were too scared to rock the political boat.

BTW: lead, that metal most people don't hear anything about today, is the single commodity that is going to cause a bang.

The Hitch said...

Hello shotgun you cunt

Mr Slicker The Hitch has predicted this for fucking months , buy gold,
Drugs gold guns and land maybe a boat the UK is about to go fucking tits up.

James Higham said...

I heard 5.85 today but Europe is holding them at 4.0%.

Lord Nazh said...

The US fed rates would be rising much more if the public actually realized that the economy was doing so well.

With the pessimism the public has, a true fed rate-hike would possibly spook the people into bringing their own recession in.

As long as the economy is up and the dollar is down, inflation will not be too bad a problem here.

CityUnslicker said...

Ed - yes the rate reduction last year looks to have been a bad mistake.

CityUnslicker said...

Mutley - it is very difficult. Everyone has their own personal inflation rate in reality, depending on what you spend your income one. The Telegraph have a good calculator which helps you to see what your own rate is.

CityUnslicker said...

Shot - this could well cause a shockl in Sept. As Sept is when most annula bond renewals come up there is often market turbulence and crahses, this may exaccerbate this in 07. We will see.

Why Lead? I am intrigued...

CityUnslicker said...

Hitch - please can you sell me some gold, it is very hard to come by today as all the instituions are buying it up...

CityUnslicker said...

LSD - Did you ralise that is your new moniker sir?!

The £ will go very high; a good time to go abroad....

CityUnslicker said...

LN - The US economy is quite schizophrenic at the moment, housing is a real bust, this has caused massive problems for the hedge funds and banks. Exports are doing quite well, but the net imbalance with imports is huge.

Overall the US may be growing ok , but this is masking some fairly severe long-term problems. However, I have no idea when these will unwind.

Old BE said...

all the instituions are buying it up

Does the Treasury have any left?

Wolfie said...

Yes, yes, yes.

We all know this but like you say - when will the s*** hit the fan?

Way too much money in supply, its so bad that the coming recession will make the 30's look like a street-party.

We can all thank the Yanks for this cock-up again too.

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