Saturday, November 08, 2008

Why the interest rate cut will fail

The panic measure to drop interest rates by 1.5% will spread - well panic.

Those who get some money off the mortgages will save rather than spend - and they wonder how the economic disaster Gordon Brown has created will play out.

The group who were okay, who had savings, are now to lose much of their money as interest rates drop well below inflation. They'll be cutting back too.

Don't expect the consumer market to pick up - the government (for it is really they who are behind the Bank of England move) has shot us in both feet and is now extolling us to dance.

Next up - the general election bribe of tax cuts for votes funded by borrowing ! ( Or so radio 4 was telling me as it had its next fix of Vince Cable this morning - he should ask for a presenters salary ).

Not only are we in deep trouble now - but we now know our future is being destroyed by the self serving, self interested Labour party and its vanity ( or perhaps socialist spite determined to destroy our wealth to enslave us with a socialist state ).

Only the Conservative party or the IMF can sort this mess out.

3 comments:

WhitDawg said...

We often forget about the impact this sort of thing has on savers (since most of us are borrowers).

Great post.

Man in a Shed said...

Whitdawg,

Of course many people save - but they are punished by taxation on their savings ( money they have paid tax on in the first place ), when debt is never taxed.

Now that the world money markets have withdrawn their money ( and that's a separate issue that never seems to get covered in the media ) - the borrowers are more closely matched with the savers.

Personally I've made moves yesterday to apply to buy fixed interest bonds and take part in the Zopa market. From what I see else where there are lots of people doing the same. This is going to be an acute problem for the banks.

Their response will be to raise money in other ways:
1) Far higher arrangement fees and penalties for mortgages.
2) Tracking libor not the base rate for mortagegs.
3) Far higher and harsher bank charges.
4) Higher interest rates on credit cards etc

I'm afraid the UK governments little show of ticking the banks of yesterday was a farce - the money still needs to come from somewhere.

PS Your site looks very interesting !

marksany said...

We're all borrowers now, whether we want to be or not. Including our children and their unborn children.

Thanks Gordon.

WV=inchor