Taxi Driver Online

But presumably you mean there's no recession yet because it hasn't met the technical definition of two quarters of negative economic growth?

Well that doesn't mean the economy isn't slowing down, all it means is that the figures aren't in yet, and they're a good bit behind with them because of the way GDP is defined and measured.

Say the economy fell off a cliff in July and lots of people lost jobs. The rises in July umemployment figures would probably be reported in August.

However, because the drop in output happened in July it would only be reported in the third quarter GDP figures (July-Sept), so the figures reported in late summer would be the second quarter GDP figures (April-June) so they wouldn't show any drop.

Also, because you need two quarters of negative economic growth to meet the technical definition of recession, the fourth quarter figures (Oct-Dec) would have to be negative, and it would be into the next year until it could actually be claimed that there's a recession.

The problem is basically the way the figures are reported - if GDP was reported monthly as per unemployment figures then they would probably both go in the wrong direction together.

After all, GDP measures things like factory output, so if factories stop working then GDP will drop.

I think unemployment and GDP are what are called 'lagging indicators', in that they only show what has happened after the event, thus they aren't good at demonstrating current economic conditions. The particular problem with comparing unemployment with GDP is that they're both lagging, but one is a lot more lagging than the other!




I think both low interest rates and lax lending were relevant - low interest rates made houses more expensive because the more affordable mortgages made people borrow more, but when times get hard they can't afford the repayments and the whole thing comes crashing down.

In general terms too low interest rates make the ecomomy overheat and this causes inflation, so rates are jacked up to cool things down a bit. Of course, we've seen huge house price inflation, but the powers that be are more interested in retail price inflation, which was kept down by imported goods like clothes from cheap labour sources like China. Thus we saw bubbles in house and oil prices, which weren't acted upon, and by the time energy prices fed through to the inflation and interest rates were raised it was all a bit too late and the oil and property bubbles were bursting.

So now they're talking about deflation and needing zero per cent interest rates to reflated the economy.

The trick is to keep interest rates at the right level to stop the economy overheating on the one hand, or making the economy stagnate on the other hand, but clearly it's not that easy

No end to 'boom and bust' just yet

You made some good and interesting points in your post overall, but if the lending guidelines for mortgages were adhered to of years ago i.e 2 1/4 times your income then the housing market would have been steady instead of getting out of control. It was not be the fact that the interest rates were low that caused it, what spurred the market on was easy money caused by poor banking/building society greed/decisions, if they had retained the old lending criteria then only those with the salary to match could buy a house - all interest rates do is make it easier for those who can afford it in the first place.

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if you cannot be yourself, then who can you be.

I think you're right to highlight imprudent lending, but stricter lending criteria hasn't prevented defaults and bankruptcies and suchlike in previous recessions, nor will it in future.

There are clearly lots of factors in play, but I don't think you can dismiss interest rates entirely, after all they're probably the key instrument for fine-tuning the economy.

Have a read of this leader from yesterday's Times, in fact the whole leader is worth a read (link below)



http://www.timesonline.co.uk/tol/commen ... 042273.ece

It may very well be from the "Times" but seeing as everyone else has got it wrong I think that they themselves are also on the wrong track.

Interest rates can be as low as you like but it still comes down to affordability, e.g you can loan 100k to someone on 100k a year but what they have been doing is lending 100k to someone on 20k and there lays the problem. The more they loaned, the more the profit line on paper was showing and allegedly getting bigger, but you have only to look at the write downs to realise that no company could actually take those kind of hits and still be in business - they were basically paper/asset profits designed to make the banks/building socs look good so that they could justify paying themselves obscene bonuses - in my eyes it was fraudulent accounting.

This problem that we now have has been brought about by a poor lending criteria - not low interest rates, low interest rates if applied correctly allow you to service your/my debt more easily.

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if you cannot be yourself, then who can you be.

So you're the only one who's got it right?

Interesting



But to that extent lower interest rates just raise property prices, so the buyer is no better off.

And if the problem was just lending criteria then why were there other asset price bubbles other than property?

It's hardly just the Times that hold the view, for example the Guardian's economic editor recently wrote:



http://www.guardian.co.uk/commentisfree ... -useconomy

Going back to the right wing, a report this week from the Centre for Policy Studies said much the same thing, and emphasised that the inflation target was the wrong one - ie it didn't look at house prices, thus leading to lax monetary policy, which in turn fuelled the house price bubble.

If you read my post in total I said everyone else got it wrong which is a fact - I did not say that I was the only one who got it right.

What I have done is to express an opinion - you have not got to be a genius to work it out and I will say it again - low interest rates on there own do not cause recessions.

If as already stated I lend 100k monies to a guy/girl on 20K then the slightest tweak of interest in an upward spiral is going to put them in trouble. What you have failed to grasp is that with responsible lending it would and should have been worked out on a what if basis - but they did not have any credible lending criteria like they did in the seventies i.e 2 1/4 times your income and once times your wife, as such if you did not meet those terms then you did not get a mortgage.

They also gave out money like confetti over the years on credit cards to such a reckless extent that people who could not afford it ran up 50K debts, this was from 0% up to double figure interest rates - so you cannot claim that low interest rates were the overall cause

Of course if you are going to believe all these geniuses climbing out of the wardrobe who just happen to write for newspapers, then there is no help for you - where was this apparent knowledge before it happened, and how come no one knows where it is going or where it is going to end - I repeat low interest rates are not the cause, other countries have had lower rates than ours for years and their people are not working the same ridiculous hours as ours and they also have a better standard of living.

P.S The same newspapers that you quote are big on giving out information on the the "Stock Market," have you seen the state of the "Stock markets!" as ever they do not know what they are talking about - I rest my case.

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if you cannot be yourself, then who can you be.

I took out my first mortgage in 1979. The criteria used to calculate how much we could borrow was 3 1/2 times our joint income. I had not long finished my apprenticeship at British Leyland and I was earning £98 per week. My wife had not long left school, she was 17 and her dad had to sign the mortgage papers for her, she was earning around £30 per week giving us an annual joint income of £6,650 so we could have had a mortgage of over £23,000. We were buying a brand new town house with 2 bedrooms and central heating for £12,500. We had to put down a deposit of £1,500 and had a mortgage for £11,000. And we still don't know how the hell we made the payments! Interest rates were at about 8% but at one time they hit 15% but you did get tax relief on the interest.
Ah those were the days.

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Grandad,
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Excuse my ignorance, but if you're saying it's a fact that everyone else got it wrong, then by implication you must be the only one who got it right. Or was everyone else wrong but you were just wrong in a different way



Ah, so you've changed your mind - earlier you said several times that interest rates had nothing to do with it, now you're implying that they are a factor.

Earlier you said:

"Interest rates can be as low as you like but it still comes down to affordability..."

"This problem that we now have has been brought about by a poor lending criteria - not low interest rates..."

and

"It was not be the fact that the interest rates were low that caused it..."

and

"The low interest rates in themselves are not a reason or part of it..."





Err, how could I "fail to grasp" the point about poor lending when earlier I said:

"I think both low interest rates and lax lending were relevant..."

and

"I think you're right to highlight imprudent lending..."





Well the level of interest rates don't really say much - Japan had zero interest rates for years but the economy stagnated for years.

As for the "apparent knowledge before it happened", well there's constant debate about interest rates (since the Bank of England's monetary policy committee meets once a month to decide on them) in the business pages and elsewhere, there's constant debate about how policy should be decided (ie by reference merely to inflation or a wider remit regarding economic growth) and what the measure of inflation should be (which links to the MPC's remit).

I'm hardly a daily reader of the business pages, but I'm aware that there's been a debate for years about whether things like house prices should be considered when setting interest rates, or whether it should just look at retail prices, which is what it does just now, and to that extent was the reason rates were set too low in relation to house prices - retail price inflation was kept low by cheap imported clothes and the like, thus interest rates could be kept low, which in turn led to a house price bubble (along with the lax lending) and eventually bubbles burst and the whole thing came tumbling down.

Likewise, I well recall controversy about earnings multiples and the size of deposits on mortgages when I got my mortgate nearly 20 years ago, so it's hardly a new debate. Concern about the use of complex financial instruments is hardly new either - remember Enron, for example?

Thus it's not simply the case that no one warned about the dangers, the problem is that the warnings weren't heeded.



That seems a bit like saying that if a paper reports on the Iraq war then it's all their fault - I don't really get your point.

The truth of the matter is that you are acting just like the papers you read.

1) You twist the story to suit.

2) You do not get my point because you will argue anything to death even if you are wrong - just not to be seen wrong in the eyes of others.

AND FINALLY

3) The "Bank of England" today has dropped the interest rate by an unprecedented 1 1/2%, so I guess on your theory, we are never going to recover because we now have possibly the lowest base rate that we have ever seen and what the wise men ( BOE) have done in your eyes is totally the opposite to what you would have done. So I guess that I am not on my own or the only one that might be right, but the fact remains is that all before it has failed.

Just to qualify my posts so there is no misunderstanding, I do not believe low interest rates were the cause of the credit crunch but I do believe that it was caused by a poor lending criteria. If you look through my posts you will see that I did not backtrack on anything or contradict myself.

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if you cannot be yourself, then who can you be.

But yesterday you did acknowledge that low interest rates were a factor, just that they weren't the only factor, which is what I've been saying all along.

only according to HC's.....

Is it just me that thinks a cut of 1.5% in the base rate smells of panic?

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http://wingsoverscotland.com/ http://www.newsnetscotland.com/

I am thinking of asking TDO if we can have this in Braille as you seem to have great difficulty in reading the posts or perhaps you should take a trip to Spec Savers.

I have been consistent at all times and (the posts are there for all to see) in saying that interest rates/low interest rates do not cause inflation - plain and simple. As to why you cannot get your head around that I am at a loss, and also very much the same as to why you make claims and twist posts that I apparently said which again are not there.

You have to move away from thinking that it is because of " Poor lending & Low interest rates" because that is not what I am saying or arguing about - they are separate, but for your sins you seem to think that it is both.

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if you cannot be yourself, then who can you be.

So the 1.5% reduction in base rate.

Is that,

a) A good decision that will help out folks in trouble, or

b) Evidence of exactly how much in the s*** we are?

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IDFIMH