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Britain may need 0% interest rate to avoid a depression, leading economist warns

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posted on Oct, 28 2008 @ 05:23 AM
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Britain may need 0% interest rate to avoid a depression, leading economist warns


www.dailymail.co.uk

nterest rates may have to be slashed to zero as Britain battles to avoid a full-blown depression, one of the country's leading economists warns today.

The extraordinary claim from Charles Goodhart, a founding member of the Bank of England's Monetary Policy Committee, came as Gordon Brown signalled that he wants to see further, aggressive cuts in the cost of borrowing.
(visit the link for the full news article)




posted on Oct, 28 2008 @ 05:23 AM
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Well, now they are using the word "depression." Now they are talking about dropping rates to 0%. I am sure other countries are considering the same move. I think that a drop to 0% would scare the markets more than helping the markets.

Then again, I really have no idea what the market would consider to be "good news" these days. Maybe this move will help, but I seriously doubt it.

Things certainly aren't getting any better yet.

www.dailymail.co.uk
(visit the link for the full news article)



posted on Oct, 28 2008 @ 05:25 AM
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ATTN: World.

STOP BORROWING MONEY YOU CAN'T AFFORD TO PAY BACK! Is your "lap of luxury" worth the national economies you're decimating? Better get that new Blackberry...I mean, I already have a mortgage, car loan, insurance payments, energy bills, internet, and cable that I can barely afford...what's another $300 on my credit card? Oh, what's that? LOLconomy crash!



posted on Oct, 28 2008 @ 06:10 AM
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reply to post by Sacreligion
 


en.wikipedia.org...


The zero interest rate policy (ZIRP) is a Keynesian macroeconomics scheme for economies exhibiting slow growth with a very low interest rate, such as contemporary Japan.

Under ZIRP, the central bank maintains a 0% nominal interest rate. The effect of a ZIRP is to encourage investment throughout the economy by making capital purchases more financially attractive. Whether ZIRP succeeds in achieving this goal is a matter of much debate



posted on Oct, 28 2008 @ 06:14 AM
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Did you see the "See Also: Liquidity Trap"?

en.wikipedia.org...

Sounds promising...

My initial post was sarcastically looking at the correlation between individual credit debt and national borrowing debt. It's essentially the same offense just on a different scale. Spending money you don't have for things you don't necessarily need and the debt ends up decimating your living standard in the long run.



posted on Oct, 28 2008 @ 06:17 AM
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reply to post by Pinktip
 


I can understand ZIRP being somewhat useful in economies exhibiting slow growth, as you mention. The economies right now aren't facing slow growth though, they are facing complete collapse. A move like this would be viewed as a desperation move and would not encourage investment throughout the economy.

The banks have shown that they are clinging to all of the bailout money and not passing it on to the consumer. I would imagine the same would be seen with the interest rates. They would try to use it to leverage more profit for themselves and it wouldn't open up investing at all. So we would be left with the credit industry still completely frozen and the fed would have one less option to use to try to stimulate the economy.

I am curious if they will go to this because I am very curious about what the effect will be. I think it will be a very negative effect (I kind of think that is the plan though) but I would love to see it work.



posted on Oct, 28 2008 @ 06:22 AM
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I agree with the point you're making about the desperation move. but then again, anything at this point can be seen as a desperation move. The problem with economic progress is that it inevitably leads to problems the world has yet to face, whether they were orchestrated behind the scenes or not. I'd like to see someone try a move other than giving failing companies an unheard of amount of money, but then again I'm from the camp that feels it's too late and the panicky investors have already been pushed down the slope we saw in the US before the Great Depression.

[edit on 28-10-2008 by Sacreligion]



posted on Oct, 28 2008 @ 06:25 AM
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reply to post by Sacreligion
 


That is true that everything at this point is a desperation move. I would think moves like ZIRP, which would completely eliminate the option of lowering rates to build confidence would be very risky. Once that happens, people will realize that they will HAVE to raise rates again next and that will create more panic.

Who knows though... thank you for the contribution.



posted on Oct, 28 2008 @ 06:53 AM
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I read the report and some of the 'papers' readers comments made me laugh, like it the Bank of Englands fault we're in this mess. For those that don't know me , I actually work for the Bank of England and its not our fault , we're trying to do something about this mess, if you all want someone to blame, blame the Governments and high streets banks and lenders.
The Government waste a lot of money , this is what they're like , they let a soldier live in his car and don't provide a home for him but give an imigrant family a 1.5 million pound house a £75,000 a year in benefits?
£5000 sofa for an office that no one is using.
a £3000 air filter system for a guy in an office 'who has breathing difficulty' who then complains its not upto HIS standard then goes and opens the window?
Let the benefits system be ridden roughshod by thieves and cheats then let the OAPS die of the cold in winter.
The Highstreet banks and lenders are falling over themselves to give you money which you then have to pay back (with interest) so they make even more than they've given you , then when you can't pay back because of your greed for the 'life of luxury' they start reposessing your stuff which is actually their stuff, your stuff bought with their money makes it theirs.
You can't pay back because of all the lenders and banks you have taken from, your not working for yourself but for them by now.
Then when too many people can't pay the repo the stuff then try to sell it to make some money back but again its not enough to cover what they're loaned out, ( My wife had a house repo'd a few years ago before I met her ,the house cost her £50,000 a few years ago but they auctioned it off for £14,000?), then when they've made a loss , and they have made a hell of a loss over a few more houses like the one described earlier then they start to have difficulties, which then leads us to where we are now.

My advice to you all is try to get out of the 'debt-slavery' and if you have to , bite the bullet , get another partime job for a few months , pay off what you can quickly , make sacrifices , don't go out every weekend, make your own food instead of going to a restaurant, just for a few months. pay off your debts and you'll no longer be a slave to the banks and credit card companies.

Plus I think that only the savings accounts wouldn't be affected by the 'zero' rate, the banks know that if they said that savings with 0 % gained will not get any customers , the rate means the 'lending' rate , the banks can give money to someone else but not charge any interest, so they give you £1000 you give them £1000 (not £1000 plus £250 interest for example) , it would be a good idea to kick start the economy again, the main cause of the downfall was actually the lack of trust , you wouldn't give money to someone ( for example) looked like a tramp but said he was rich would you?
The banks and companies had that trouble said they were 'doing well' but in fact were failing ( head in sand syndrome). the banks loaned to these companies , then the other baks and companies went tits up and the lenders couldn't get their money back, the other lenders thought this was the case for every other bank and the whole economy stopped lending incase they weren't going to get their money back which is why all the trouble started. that and the total disregard for saving instead they spent and spent and spent. Thats why some old folk have got a bit of money 'under the matress' , they've saved incase something goes wrong. The banks and lenders should've saved instead of getting greedy and playing the 'hope i get my money back and more' card.
Most of the people today 'live for today' and don't worry about saving for the future. I haven't got any savings but I have decided to pay off my loans and be debt free by the middle of next year.
Here's a clue for you, most credit card companies want you to pay the 'minimum' amount so they can charge you more for longer , your £2000 maxed out credit card (apr 16.9%) costs you £55 @ a month min, its will cost you about £10,000 and take you ( or so I heard - can't remember where I read that) about 7 years to pay that off at that amount if not longer, if they drop the rate from the 2% to a new 1% minimum payment amount it will take you 15 years and cost upto £28,000 , so now then? what do you want for your future?.

[edit on 28/10/08 by DataWraith]



posted on Oct, 28 2008 @ 07:00 AM
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if we're hitting a recession/depression which inevitably brings about high unemployment why is the government bringing out new legislation to get people off incapacity/sickness benefits and back into the workforce. surely if there are no new jobs they should be saving the money spent on the back to work programme for other things.



posted on Oct, 28 2008 @ 07:17 AM
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Is 0% interest the same thing as 'interest-free'?

Truth be told, no society will ever successfully sustain itself if interest is charged on capital loans. Sure, their may be times of plenty and excess, but what goes up, must come down, and things depress.

One has to wonder how they will convince the serfs to pay interest again when this is all over.



posted on Oct, 28 2008 @ 07:17 AM
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I am not a an economist or anything close, so forgive me if I sound ignorant.

If the Bank of England does drop the interest rate to 0%, does that mean mortgages are only paid back at the capital rate, ie the borrowed amount?

If that is the case then anyone who has a steady job should continue paying back their mortgages at the rate they are currently paying and they will then see their mortgage paid off earlier.

I hope that made sense.



posted on Oct, 28 2008 @ 07:20 AM
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reply to post by Wotan
 


I am not an economist either, but I understand it as the banks can borrow money from the fed at 0% but the banks will still loan the money out at interest. Existing loans won't be affected at all. It will be up to the banks if they want to pass on any of the savings to the people, or if they will just keep their rates the same so that they make more profit off of the money that they loan out.



posted on Oct, 28 2008 @ 07:26 AM
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Bugger!

Hmmm. the way that homeowners here in the UK are going into negative equity and re-possessions are rapidly on the rise and a possible 3,000,000 unemployed, a 0% mortgage rate would be most welcome.



posted on Oct, 28 2008 @ 07:26 AM
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That is exactly what they will do. The bailout did the same in the US. The zero interest rates in the UK will benefit banks and promote lending between the large firms, but the individual will still be in the same position they were in before.



posted on Oct, 28 2008 @ 07:33 AM
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The ZERO rate wouldn't even affect the citizenry I don't think. The banks wil still want the money from the rate they've set for your mortgage, The rate wouldn't be dropped for the rest of us, The central banks mainy when they talk about rate reductions are usuallytalking about the big, big, BIG amounts that countries and companies loan to each other, not your piddling little £200,000 mortgage but the billion+ figures .
I doubt the highstreet banks would even drop the rates to zero, sure they might drop the rates from whatever it is now 6% to about 4% to appear like they're trying to 'fit in' with the 'Bank of England' interest rate drop but they'd still want you by the balls. and dropping ALL rates to zero isn't a viable option to them, no point them being in business if they can't make more money out of you than they loan to you is it?
The Banks (*Bank of Englands)'core' purpose for the interest rate before TSHTF is called 2.5 for a reason , we wanted to cut the rate to 2.5 , thats why the MPC ( and the majority are nice people from personal experience and are trying their level best to get the rates down) but we'll just have to see what they come up with now.

* should have made that bit clear sorry

[edit on 28/10/08 by DataWraith]



posted on Oct, 28 2008 @ 07:39 AM
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Thanks for ruining my day guys.

For a moment, I had visions of paying the house off early and taking early retirement



posted on Nov, 6 2008 @ 06:08 AM
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Just to let everyone know that the Bank of England had dropped it's interest rate from 4.5% to 3%. But I doubt that the high street banks and businesses will allow us as Joe Public to see any benefit.

www.bankofengland.co.uk...



posted on Nov, 6 2008 @ 06:40 AM
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reply to post by Sacreligion
 


if thats the case, we should just spend spend spend,and get as much unaffordable credit as possible that we cant pay till these companies go bust then we dont need to pay it back!


(i know, its a bad plan, but i would deffinitelly do that if i had any sort of credit rating!)



posted on Nov, 6 2008 @ 06:44 AM
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reply to post by DataWraith
 


www.express.co.uk...


BANKS were last night accused of profiteering by failing to pass on interest rate cuts to their customers.

But some banks and building societies – including those bailed out with taxpayers’ cash – are already warning that they will not pass on the full cut.



HSBC is leading the `stickiness` call on this latest rate cut saying they wont lower teh rate for borrowing - but have allready done so for savers.

scum.

lets hope when the final judgement on bank charges being illegal is in , then we all get a nice fat refund - the first case was allready won against the banks.



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