Off-Topic This can't last forever surely the bubble will burst

Discussion in 'Off-Topic Chat' started by Ichiban, Friday 12th Jul, 2013.

  1. Ichiban Founder Staff Team

    England CJ Leeds
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  2. RobB Expert Advisor ★ ★ ★ ★ ★

    Interest rate goes up, they'll all default on their car loans and mortgages.
     
  3. Ichiban Founder Staff Team

    England CJ Leeds
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    Did we not learn the mistakes from the first meltdown? here we go again.
     
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  4. Doc Expert Advisor ★ ★ ★ ★ ★

    Matt Peterborough
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    Interest rates are at an all time low 0.5%. Not sure what sort of interest deals can be struck on car purchases but things such as credit cards are around 17.5% interest, which is quite a lot above what they used to be, that's what I've seen recently anyway. Mortgages can be obtained for under 5% with a good LTV. SO it looks like secured loans are running at low interest rates compared to unsecured loans I.e. credit cards. Also the bank of England has stated they will not be raising interest rates in the short term I.e. the next few years to try and kick start the economy. Lenders are being far choosier about the loans they extend - less sub prime mortgages. So we shouldn't see a crash again like we did before. BUT house prices and sales are once again increasing as well as car sales at a time when people are still having to tighten their belt because of inflation and if you don't have a good deposit a mortgage can still be hard to obtain. In my opinion there will be another readjustment of prices (not the meltdown we saw before) of houses and cars because it's just not sustainable at a time when everybody is having to cut back on spending to get by. At the minute the well off (who are less affected by cut backs and a stagnant economy) are propping up the car market, but as the squeeze continues they will begin to be hit harder as well and even they will need to start making cut backs.

    That's the way I see it anyway.
     
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  5. RobB Expert Advisor ★ ★ ★ ★ ★

    The Bank of England can say they will keep interest rates low. But unless they have a crystal ball, they can never guarantee or promise that.
    If they could we would never have problems.
     
  6. Doc Expert Advisor ★ ★ ★ ★ ★

    Matt Peterborough
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    You need to look at the bigger picture. The Bank of England like all companies produce forecasts which, through experience, allows them to model the future economy of the country by taking into account other things such as international markets and other world economies. Plus they have an economic policy which sets out their activities, and targets for our future economy, short and long term. It's not a crystal ball but it's as close to one as you're every going to get, so in effect it is a promise. It's deemed to be accurate and reliable enough for international bond markets to trade billions of pounds a day on. So if they say they're going to keep interest rates low then you can be pretty sure that's what they're going to do.

    These 'problems' that you're referring to I assume you mean the economic crash in 2008. That had nothing to do with the Bank of England. That was triggered by sub prime mortgages in America.

    But putting it more simply the Bank of England isn't going to raise interest rates as they need to keep them low to promote economic growth. Raising interest rates now will just kill the little growth we have got.
     
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  7. RobB Expert Advisor ★ ★ ★ ★ ★

    It doesn't make any odds where the problem came from, if they didn't predict it, they can't promise jack.
    If they knew what was going happen next they could prevent any future recession.
    I see no difference between them and weather forecasters.
    Michael Fish anyone?
     
  8. earthsciencer1 Premium Member Club Supporter

    United Kingdom Bob Wetherby
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    The problem is that if the money markets become spooked about the size of the UK debt (I read somewhere that this will be nine times the value of the whole annual UK economy by the next election) then international agencies (and speculators) will stop allowing the UK to borrow money at the current low level of interest rates. This means that, if interest rates increase on future government borrowings, there will be a major spiral and we could find ourselves in a similar situation to Greece/Ireland etc and enter a downturn that could be far worse than what we saw in 2008.

    The government is completely locked in to these low interest rates. If the rates do increase (through market pressures) on mortgages and other loans there will be huge further defaults by borrowers on their up to the hilt credit which is currently affordable only because the rates are so low. Banks and other financial institutions will in turn have massive major problems again. Let's just hope that any evil day of reckoning is postponed for as long as possible.
     
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  9. Doc Expert Advisor ★ ★ ★ ★ ★

    Matt Peterborough
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    They did predict the down turn in the US economy and the increase in sub prime defaults. What they didn't anticipate was the markets reaction to the valuation the banks put on the loans. One minute the markets were using the banks valuation to trade deals on the market. The next day the market suddenly had no confidence in the valuations and considered them worthless. Banks loan books became worthless overnight causing the collapse of Lehman Brothers, which then had a knock-on effect across the world to all other banks. The banks were over leveraged on loans which subsequently became worthless. The banks have now had restrictions put on them as to the extent of their leverage. And they must hold higher cash reserves to cover the loans. So even if the market was to loose confidence in a particular type of product again the banks are now in a far better position to handle such a situation. You don't necessarily need to be able to predict an impending event happening. If you can foresee it as a possibility then you can guard yourself against it's effects which is what the banks have now done.

    Earthsciencer1 for that to happen the UK would have to be down graded to junk status such as with Greece and Ireland and the world markets would have to have no confidence in the UK's plans or abilities to repay it's debts. Greece's problem is they have 40% unemployment and their tax system is practically voluntary so the country wasn't generating enough revenue through taxes to pay the interest on the countries loans. The UK has a credible plan to repay it's debts even thought they are very large. If they were going to get spooked they would have done a long time ago during the height of the crisis. And it's because of these reasons there wouldn't be a major spiral of interest rates. Most of the countries within the EU which have defaulted and needed bailing out from the ECB, and in turn currently have huge interest rates, should never have been allowed to join the EU in the first place. Their figures were seriously massaged to meet the EU's targets for admission so it's no surprise their subsequent default meant their countries nearly collapsed and they're practically owned by the ECB.
     
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  10. rotation Club Member ★ ☆ ☆ ☆ ☆

    If I recall, the current 'boom' was caused by people getting a lump sum for their PPI, and low interest rates? So surely the bubble will burst when there's no PPI left to reclaim, or when people can afford to buy houses again.