CliveH Posted May 22, 2012 Share Posted May 22, 2012 This is an interesting one given the recent rise in interest rates deemed necessary by the Banks :-S despite BoE BR being at an all time low at 0.5%. What can we expect then? - a BoE BR @ 0.25%? and yet more QE? - whilst the Banks make up reasons for higher rates for consumers? .................................................................. IMF urges UK to cut interest rates 22 May 2012 | 10:57 Katie Holliday - Investment Week Categories: Investment | Economics / Markets Topics: Imf | Oecd The International Monetary Fund (IMF), headed by Christine Lagarde, has urged the UK to consider introducing more quantitative easing and cut interest rates. The advice followed an annual assessment of the UK government's plan to cut its deficit, deemed "essential" by the IMF, according to the BBC. The IMF praised the UK for making "substantial progress" towards a more sustainable budgetary position and reducing fiscal risks. It alluded to the UK's "global importance" and said its economic policies had helped build capital buffers and strengthen domestic regulation. However, the assessment warned that, although monetary stimulus has benefitted the economy, the overall outlook remains weak. The body urged the Bank of England to reassess whether to cut rates below 0.5%. The IMF also warned on several downside risks impacting the UK economy, including the eurozone crisis, but also the rebalancing of growth between the public and private sector. The IMF's forecast for UK growth in 2013 is 2%, higher than most independent UK economists who see growth of around 1.6%. The body's assessment follows the Organisation for Economic Co-operation & Development's warning on a contraction in UK household finances over the next 18 months as incomes rise more than inflation. The international think-tank forecast the UK would only grow by 0.5% this year, down from 0.7%, and below the IMF's forecast of 0.8% for 2012. It forecast 1.9% in 2013, downgraded from November's 2.1% prediction. It warned unemployment would peak at 9% in 2013, and voiced concern over the UK's 20% youth unemployment rate. The OECD's warning on declining real incomes follows the governor of the Bank of England Mervyn King's announcement in February that the squeeze on real incomes had come to an end, the Telegraph reports. The think-tank blamed the squeeze on households on the weak economic outlook, but said growth should start to gain pace in the second half of this year. Link to comment Share on other sites More sharing options...
Guest pelmetman Posted May 22, 2012 Share Posted May 22, 2012 Well she does seem to be better than old Dominic.............. who seemed to think IMF stood for....... I'm f**king anything that moves.......................... (lol) (lol) (lol) (lol) Link to comment Share on other sites More sharing options...
nowtelse2do Posted May 22, 2012 Share Posted May 22, 2012 That's interesting Clive, The head of the IMF is French just like the last one was. I suppose it would help by cutting the £10 billion extra that's been pledged for the euro which they are going to need, plus any extras that we have given, you know a few billion to Ireland, and probable some more to other eurozone countries Did she mention anything about her new President of her country pledging to bring the pension age down to 60 for the French workers or anything about our workers having to work longer than 65 meaning a lot of people who will have paid into the system will have died before receiving anything. It shocking when I think of a lot of friends and acquaintance's I know who have died before pension age and also a lot who died within 3yrs of taking their pension after 65. Looks strange that she comes out with this on the day that our inflation rate has come down. I think she sees her country in more trouble than is being said and we are a good diversion. Saying all that we still have a lot of hurdles in front of us for quite awhile yet. Dave Link to comment Share on other sites More sharing options...
Guest pelmetman Posted May 22, 2012 Share Posted May 22, 2012 Read today children can expect to work until they're 77 8-)...................mind you they probably won't start work if they are lucky until they're 25.........and if they're not lucky 50 (lol) (lol) (lol) (lol) Link to comment Share on other sites More sharing options...
Guest pelmetman Posted May 23, 2012 Share Posted May 23, 2012 Just an observation Clive.......but I assume Germany can borrow at zero % then lend the money to Greece at a much higher rate?.............Nice earner for Germany......at the moment >:-)........no wonder they don't want Greece to leave the euro (lol) (lol) (lol) Just thinking ahead to if the euro zone did go knockers up............then looking on the positive side ;-).........and all the PIGS follow suit.............then the bonus will be that they'll all devalue......and wow will Spain be cheap then :-D.............I suppose I should have some sympathy for the banks.....and the politicians......not a jot...bring it on (lol) (lol) (lol) (lol) Link to comment Share on other sites More sharing options...
malc d Posted May 23, 2012 Share Posted May 23, 2012 Seems odd to me that the more difficulty countries have in paying their debts, the more interest they get charged. :-( Link to comment Share on other sites More sharing options...
Guest pelmetman Posted May 23, 2012 Share Posted May 23, 2012 malc d - 2012-05-23 5:07 PM Seems odd to me that the more difficulty countries have in paying their debts, the more interest they get charged. :-( Exactly.......Its only the politicians and banks that want to maintain the status quo............but they have the most to lose.........I reckon the vast majority of Greeks will do better out off the euro.......although watching a documentary the other day.......it seems most Greeks would like to keep it :-S Link to comment Share on other sites More sharing options...
CliveH Posted May 24, 2012 Author Share Posted May 24, 2012 The same rules apply to countries as people. If you have a bad credit history and you want a loan/mortgage, the lender rates you as a higher default risk and therefore applies a higher rate of interest. As for Greece, they want to stay in th Euro because with Germany dishing out billions of euos to them - frankly who in Greece would not want that happy state to continue given that their economy is on its knees and if it hd to borrow the money it needs to pay its Public Sector in Euros then it would be bankrupt in a week? But coming out of the Euro would be best for Greece in the long run. Drachma mk 2 would be so low that it could pay its public sector - they would simply have to be Drachma Mk 2 millionaires to buy a VW Golf. Not a concept Germany likes. Greece should never have been allowed to join as it did not meet the criteria. BUT Germany wanted the Euro as a politcal rather than economic goal and so allowed basket case economies to fiddle the entry rules. On joining Greece then continued to fiddle the books until its debt became so large no one could ignore it. Therefore Germany and Euro la la land is dealing with the reality the Euro currency sceptics cited as "the big issue" decades ago. The bigger issue is that if Greece leaves and then (most likely) joins the countries that only peg their currencies to the Euro and can change this according to their economic needs (all counties wanting to join the Euro have to do this so there are a number of the old Eastern bloc countries in this position) then the other PIGS could well see that as a way out of their difficulties and do the same. Germany does not want this as it would mean their exports become uncompetative and so is prepared to throw money at the "problem" rather than actualy DEAL with it. As for what is going to happen - who knows? - we are in uncharted territory here. My recommendation to those travelling to the Eurozone - especially the PIGS should not rely on ATM's, (likely to be the first things to close if the Euro comes under serious strain due to a possible break-away) and should not take Euro TC's but US $ ones and have a wodge of low denomination US $'s as back up in case it hits the fan. I would also have some Sterling - but the £ is likely to fall as well as we are so close to the Euro. Obviously the worry is that holiday makers will become a target for the toe-rags if it gets known that they are likely to carry a harder currency than the declining Euro. So that lay-by may look a nice place for an overnight but you may be safer in a proper camp-site. I hope it does all blow over and all of the above is not required - but with the IMF saying we in the UK need even lower interest rates and the Eurozone countries themselves admitting that it would be wise to plan for a Greek exit from the Eurozone - I think we would be daft if we ourselves just carried on as we have always done. Dorset looks more attractive than ever 8-) Link to comment Share on other sites More sharing options...
BGD Posted May 24, 2012 Share Posted May 24, 2012 malc d - 2012-05-23 5:07 PM Seems odd to me that the more difficulty countries have in paying their debts, the more interest they get charged. :-( OK. Bit of a complex waffle coming up; 'cos it's a complex issue. But it may help undertanding It'snot really that they get charged more interest; it is that they have to OFFER a higher rate of return on the Bonds (Gilts) that they are trying to sell to investors in the international financial markets, to get enough investors to buy those Bonds. A Bond is, in simple terms just an IOU written by a Government....they are offered for sale by that Government as a way of raising money ( borrowing it) to pay for Public Sector spending if/when there isn't enough tax money coming in to cover all that spending. Bonds are usually offered for a fixed period of time ( eg 1 year, 5 year etc), and offer a fixed rate of interest to the Bond-holder when the debt comes due for repayment by that Government. So if you bought a 10 year, 6.85% return Bond for 10,000 pounds, you're money is tied up for the full ten years (there is a complex market for trading such bonds, but that's outside the scope of this post); then at the end of the 10 years you exchange that Bond for your 10,000 back, plus the 6.85% interest too. Well, at least you do that IF the Government/country still exists and still honours the repayment of those IOU's when they fall due. If there is increased doubt that such payback might not happen, then the Government concerned has to keep offering higher and higher rates of pay-back interest in order to tempt Bond buyers. That is what "Sovereign Debt" is. It is the amount of money that a Government owes. And that is the core problem with Greece. Weirdly, the money that it owes on all the Bonds that it has taken out to help pay for Public Sector spending is actuall MILES less than ( for example) the UK....the UK has just about the highest level of Bond debts in Europe....which all has to be paid back in the years/decades to come. The problem is that, whilst on a month-to-month basis, the UK and most other countries in debt are able to "service" that debt, by paying off Bonds to investors as they fall due for redemption; in Greece they haven't any longer got the cash to do so. It's NOT that they owe more money than other countries in debt. It is that their economy has gone off a cliff; is in massive recession, and the Government is getting so much less in tax receipts, and spending out so much on it's Public Sector, that increasing numbers of people believe that they are going to default on existing Bond repayments in the weeks/months to come. The EU "bailout fund" is a sort of super-loan which has been/is being offered to Greece in several instalments, and part of which must be used by Greece to help pay back their "Sovereign debt" (Bonds) as they fall due for repayment. Problem now is that the situation has spiralled: the worse the financial situation gets for Greece, the more investors decide not to buy any further Bonds from their Government, so the higher the rate of interest that Government must offer to tempt investors; investors pull out of factories/shops etc, people earn less, thus pay less taxes, more become unemployed thus costing the economy rather than contributing to it, so the deeper the spending cuts that the Govt has to promise the EU, and then the less the Greek population supports such austerity measures.....so the Govt fell, and the pro and anti austerity camps are so far apart that it seems impossible now to form any sort of coherent Govt. in the second round of general elections to be held on 17th June It now looks very likely to me that Greece will fail to elect a Govt with the determination to implement all the austerity measures which the EU say they must if they are to have any more of the EU Bailout Fund payments. Thus the Greek Govt will be forced to default on it's Bond debt repayments, as it simply doesn't have the cash itself. It will go bankrupt. Bond holders will lose most or all of the money that the Greek Government had promised to repay them. That will include your pension fund, your ISA, your bank, etc in the UK, as almost all corporate investors have a part of their funds in Bonds...which have traditionally been seen as the very safest type of investment ('cos Countries never go bust do they?). Greece will then also crash out of Euro-land, and have to introduce their own independent currency (eg New Drachma), which would then float against the euro and dollar etc (just like the British pound). Actually of course it won't, it will drop like a stone, as no-one will want Drachmas.....you won't be able to buy hardly anything with them; all international businesses, industries, retailers with a presence in Greece will thus suffer cataclysmic losses on that arm of their operations, the assets of which are now measured in Drachmas, and which are thus virtually worthless. So, hyper-inflation takes over: a wheelbarrow of New Drachmas just to buy a loaf of bread. Not a happy place for Europe (which includes the UK) to be headed I think. Link to comment Share on other sites More sharing options...
Guest Peter James Posted May 27, 2012 Share Posted May 27, 2012 BGD - 2012-05-24 10:32 AM malc d - 2012-05-23 5:07 PM Seems odd to me that the more difficulty countries have in paying their debts, the more interest they get charged. :-( OK. Bit of a complex waffle coming up; 'cos it's a complex issue. But it may help undertanding It'snot really that they get charged more interest; it is that they have to OFFER a higher rate of return on the Bonds (Gilts) that they are trying to sell to investors in the international financial markets, to get enough investors to buy those Bonds. A Bond is, in simple terms just an IOU written by a Government....they are offered for sale by that Government as a way of raising money ( borrowing it) to pay for Public Sector spending if/when there isn't enough tax money coming in to cover all that spending. Bonds are usually offered for a fixed period of time ( eg 1 year, 5 year etc), and offer a fixed rate of interest to the Bond-holder when the debt comes due for repayment by that Government. So if you bought a 10 year, 6.85% return Bond for 10,000 pounds, you're money is tied up for the full ten years (there is a complex market for trading such bonds, but that's outside the scope of this post); then at the end of the 10 years you exchange that Bond for your 10,000 back, plus the 6.85% interest too. Well, at least you do that IF the Government/country still exists and still honours the repayment of those IOU's when they fall due. If there is increased doubt that such payback might not happen, then the Government concerned has to keep offering higher and higher rates of pay-back interest in order to tempt Bond buyers. That is what "Sovereign Debt" is. It is the amount of money that a Government owes. And that is the core problem with Greece. Weirdly, the money that it owes on all the Bonds that it has taken out to help pay for Public Sector spending is actuall MILES less than ( for example) the UK....the UK has just about the highest level of Bond debts in Europe....which all has to be paid back in the years/decades to come. The problem is that, whilst on a month-to-month basis, the UK and most other countries in debt are able to "service" that debt, by paying off Bonds to investors as they fall due for redemption; in Greece they haven't any longer got the cash to do so. It's NOT that they owe more money than other countries in debt. It is that their economy has gone off a cliff; is in massive recession, and the Government is getting so much less in tax receipts, and spending out so much on it's Public Sector, that increasing numbers of people believe that they are going to default on existing Bond repayments in the weeks/months to come. The EU "bailout fund" is a sort of super-loan which has been/is being offered to Greece in several instalments, and part of which must be used by Greece to help pay back their "Sovereign debt" (Bonds) as they fall due for repayment. Problem now is that the situation has spiralled: the worse the financial situation gets for Greece, the more investors decide not to buy any further Bonds from their Government, so the higher the rate of interest that Government must offer to tempt investors; investors pull out of factories/shops etc, people earn less, thus pay less taxes, more become unemployed thus costing the economy rather than contributing to it, so the deeper the spending cuts that the Govt has to promise the EU, and then the less the Greek population supports such austerity measures.....so the Govt fell, and the pro and anti austerity camps are so far apart that it seems impossible now to form any sort of coherent Govt. in the second round of general elections to be held on 17th June It now looks very likely to me that Greece will fail to elect a Govt with the determination to implement all the austerity measures which the EU say they must if they are to have any more of the EU Bailout Fund payments. Thus the Greek Govt will be forced to default on it's Bond debt repayments, as it simply doesn't have the cash itself. It will go bankrupt. Bond holders will lose most or all of the money that the Greek Government had promised to repay them. That will include your pension fund, your ISA, your bank, etc in the UK, as almost all corporate investors have a part of their funds in Bonds...which have traditionally been seen as the very safest type of investment ('cos Countries never go bust do they?). Greece will then also crash out of Euro-land, and have to introduce their own independent currency (eg New Drachma), which would then float against the euro and dollar etc (just like the British pound). Actually of course it won't, it will drop like a stone, as no-one will want Drachmas.....you won't be able to buy hardly anything with them; all international businesses, industries, retailers with a presence in Greece will thus suffer cataclysmic losses on that arm of their operations, the assets of which are now measured in Drachmas, and which are thus virtually worthless. So, hyper-inflation takes over: a wheelbarrow of New Drachmas just to buy a loaf of bread. Not a happy place for Europe (which includes the UK) to be headed I think. Thats pretty much how I see it too. When you take all that into account, and the fact that Company Earnings are temporarily boosted by their paying next to nothing in interest on their debts, then you can understand why some people are reluctant to put their money into equities, preferring to lend to the German Government at about 0.06%. Link to comment Share on other sites More sharing options...
Brian Kirby Posted May 27, 2012 Share Posted May 27, 2012 We shall see. However, whatever the outcome, I think the greatest losers by far will be the ordinary Greeks. Those with stacks of cash, I'm pretty sure, will by now have it stashed outside Greece, or will now be shifting it away from Greece. For the man on the Thessaloníki omnibus, no such escape. What may be good for Greece over time - and exit does seem the most probable outcome - will be very, very hard on the man in the street. No wonder tragedy is a Greek word. The youth will, insofar as they can, leave to work elsewhere. The middle aged and elderly, unless practical assistance is given, will face extreme hardship. This past winter saw pensioners unable to heat their homes and struggling to keep themselves fed. If Greece does fall out of the Euro I think some will face genuine starvation, and many more hypothermia. It will be a salutary lesson for Europe to have such levels of poverty at its door. It may be cathartic for the survivors, and result in much wiser government in future, but I fear the interim will be very, very, harsh for the majority, and I doubt that modern democracy can continue to function under such strains. Some form of totalitarian regime seems all too possible. Colonels Mk 2? What then? So, like it or lump it, Germany will have to bend - or I think events will bend it. I think it's only a question of time. Link to comment Share on other sites More sharing options...
Guest pelmetman Posted May 28, 2012 Share Posted May 28, 2012 I'm not so pessimistic about the Greeks if they leave the Euro........they'll have the chance to build a more balanced economy......and will have to start making and growing as much for themseleves as possible, they wont be able to afford stuff from abroad like BMW's ;-) I saw a program where one town had already brought in a battering system :D .......I expect the Rich will move to London and the middle classes wil have to learn how to work with their hands 8-) It will be quite a useful "Watch & Learn" exercise for the West.......... ;-) Link to comment Share on other sites More sharing options...
malc d Posted May 28, 2012 Share Posted May 28, 2012 pelmetman - 2012-05-28 9:48 AM I saw a program where one town had already brought in a battering system :D ...... ) I wouldn't get involved in one of them. Sounds a bit fishy to me. :-| Link to comment Share on other sites More sharing options...
BGD Posted May 28, 2012 Share Posted May 28, 2012 I recall at University many years ago reading of the current 1st World, 2nd World and 3rd world economies, their characteristics, history etc. But I also recall the prophecy of upcoming "4th World" economies in the decades ahead: ex-1st world economies ( essentially the older European economies) who had grown fat, lazy, and uncompetitive, with massively increasing public sector services/expenditures/regulation. These increased costs upon their wealth-creating private sectors, cause that sector to die off; and together cause their collective economic implosion as newer countries no longer need them/want to buy their (comparatively) overpriced goods and services; and their citizens choose to buy more and more of the cheaper goods/services from those other developing 3rd world countries ( eg China, India et al). Economic Implosion of such 1st world countries was predicted to be a very messy business. Very messy indeed. Civil unrest. Riot. Civil War. Collapse of Law and Order. Rise of Warlords etc.... And to leave behind it a country with almost no public sector once again. With almost no companies/industries at all. Where the majority of the population depend upon simple manual skills, agrarian. Back to farming small plots, scratching a living from the land. Where the young, the old, the sick, depend upon family rather than "State" for support. You work just for yourself and your own family (or die) rather than working partly for the State to take from you to give to someone else (or relying on the State to take from those others to support you). Just like the then-prevalent 3rd world countries in fact. I do wonder if the wheel isn't this century going to turn full-circle for many of the old, fat, top-heavy, 1st world countries; and China and the Far East leap ahead of them economically so quickly..... Link to comment Share on other sites More sharing options...
Guest pelmetman Posted May 28, 2012 Share Posted May 28, 2012 malc d - 2012-05-28 10:25 AM pelmetman - 2012-05-28 9:48 AM I saw a program where one town had already brought in a battering system :D ...... ) I wouldn't get involved in one of them. Sounds a bit fishy to me. :-| (lol) (lol) (lol) (lol)...............In my defense Malc I did tripe that on the Kindle.....and the writing is very small and no spell checker :-S Link to comment Share on other sites More sharing options...
malc d Posted May 28, 2012 Share Posted May 28, 2012 pelmetman - 2012-05-28 10:57 AM malc d - 2012-05-28 10:25 AM pelmetman - 2012-05-28 9:48 AM I saw a program where one town had already brought in a battering system :D ...... ) I wouldn't get involved in one of them. Sounds a bit fishy to me. :-| (lol) (lol) (lol) (lol)...............In my defense Malc I did tripe that on the Kindle.....and the writing is very small and no spell checker :-S I wasn't sure if they were setting up some sort of fish market, or possibly even some sort of organised mugging. :-| Link to comment Share on other sites More sharing options...
Guest pelmetman Posted May 28, 2012 Share Posted May 28, 2012 BGD - 2012-05-28 10:43 AM I do wonder if the wheel isn't this century going to turn full-circle for many of the old, fat, top-heavy, 1st world countries; and China and the Far East leap ahead of them economically so quickly..... Don't forget to add into the mix Bruce a massive population explosion and that we are now at or past peak oil production.........I see the Argies have nationalized Repsol..... protectionism is on its way 8-) 8-) 8-) 8-) But hey lets look on the bright side :D..............the suns out and we have a couple of bottles of Ros'e chilling in the fridge for the bbq tonight B-)........... Link to comment Share on other sites More sharing options...
Brian Kirby Posted May 28, 2012 Share Posted May 28, 2012 It occurred to me that Mme Lagarde's comment may not be quite what it looks. I had understood that once interest rates get to present UK levels there is, in essence, no further benefit to be gained from further cutting. Christine Lagarde is no fool, and the IMF is stuffed with economists, so there is little chance this small fact, if fact it is, will have escaped their attention. I think it unlikely in the extreme, despite Sarkozy's crass statement about her appointment being a victory for France, that she would be the slightest influenced by considerations of Franco-British rivalry in her statement. That way lies xenophobia, and with her CV, I doubt she suffers that shortcoming. My bet is that she/the IMF are really sending a message to the UK government that their present policies aren't working. Neither she, nor the IMF as an institution, could say so openly and publicly, for obvious reasons, but the suggestion that the only avenue open to them if they stick to their present policy is one that is known to be non-productive under present circumstances, really says it all. In effect, I think they are saying you could do this, but we all know that won't work, so you really need to change tack. Doubtless, as ever, we shall see! :-) Link to comment Share on other sites More sharing options...
Guest pelmetman Posted May 28, 2012 Share Posted May 28, 2012 Maybe Dominic did see this coming and he and his mates did Bunga bunga parties until the doo doo hit the fan 8-) Link to comment Share on other sites More sharing options...
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