Thursday, July 05, 2007 :
Are Mervyn King and the MPC in fact terrorists?
Part of my reaction to Islamic terrorists threatening to blow and/or actually blowing things and people up is the same as my reaction to the Bank of England threatening to put and/or actually putting interest rates up:
what the hell do you people actually want me/us to do?
Labels: economics, UK politics, war on terror
Comments:
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Stop frivolously spunking all your cash and driving the economy and give it to your mortgage provider you plonker.
But I have no realistic option to repay the mortgage borrowings upon which this is going to bite, so what's the incentive? What am I supposed to do; sell the flat and live in a B&B? And it seems to me that there's no point anyway in trying to drive down house prices by seeking to force people who have a single perfectly modest small flat to exit the property market by making home ownership less affordable in the short-term via interest rates. If that worked, such people would then immediately join the ranks of the people for whose benefit it was supposedly desirable to drive down house prices in the first place. So that can't be it.
Because the amount that I pay on the mortgage - which I have no realistic option but to keep paying - dwarfs any amounts I might be able to save, the idea that an interest rate increase will encourage me to save rather than spending in the market is also clearly false. Nor do I suspect that I am going to seek to cut spending (and thereby driving up the prices of supposedly scarce goods) to any significant degree. The more likely result is that I am forced to save slightly less until the mortgage repayment comes back down again. So that can't be it either.
I suppose that if I was inclined to take on consumer credit to spend in the market, I would now be less inclined to do so. That must be it, then.
However, all of this would seem to favour an argument that mortgage interest rates ought to be required to be set long-term (don't know how you would stop people abusing this), outside of short-term manipulation of consumer credit interest rates, because otherwise mortages are disproportionally hit by attempts to cool or heat the consumer economy. The extra mortgage money would be better being required to be invested into pensions (if the Government is serious about its concern for making greater provision for our old age) or at least taken in taxes and spent on the NHS or something.
Because the amount that I pay on the mortgage - which I have no realistic option but to keep paying - dwarfs any amounts I might be able to save, the idea that an interest rate increase will encourage me to save rather than spending in the market is also clearly false. Nor do I suspect that I am going to seek to cut spending (and thereby driving up the prices of supposedly scarce goods) to any significant degree. The more likely result is that I am forced to save slightly less until the mortgage repayment comes back down again. So that can't be it either.
I suppose that if I was inclined to take on consumer credit to spend in the market, I would now be less inclined to do so. That must be it, then.
However, all of this would seem to favour an argument that mortgage interest rates ought to be required to be set long-term (don't know how you would stop people abusing this), outside of short-term manipulation of consumer credit interest rates, because otherwise mortages are disproportionally hit by attempts to cool or heat the consumer economy. The extra mortgage money would be better being required to be invested into pensions (if the Government is serious about its concern for making greater provision for our old age) or at least taken in taxes and spent on the NHS or something.
Maybe I don't know what I'm on about, but I see that the Government is reaching similar conclusions regarding the desirability of long-term fixed rate finance for residential property.
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