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Why interest rates will fall regardless ?
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NoMoreKickingCans
Posted: 23 March 2024 08:15:42(UTC)
#1

Joined: 26/02/2012(UTC)
Posts: 4,470
Just read this...

https://www.telegraph.co.uk/news...britain-into-bankruptcy/

Although it is not explained, I presume these losses accrue because the BoE QE involved buying up bonds when interest rates were low. Now that interest rates are high the value of these bonds has fallen and therefore the BoE has suffered major losses on them which have to be paid for by us (just as we have to pay interest forever on the £400Billion of stupid covid spend).

Given this is the case, surely it is inevitable and certain, that the BoE WILL cut rates substantially in order to recover some of these losses by reinflating the price of bonds ? Inflation would seem to have little to do with it now that it is well below 10%. A combination of inflation at say 4% and interest rates cut to say 3% therefore seems an arguable prospect ?
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Pre Ka
Posted: 23 March 2024 09:31:53(UTC)
#2

Joined: 07/04/2019(UTC)
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inflation will reduce the debt burden so it is in the central banks interest to keep it a little elevated but they do not want to admit that to the masses,
The central banks need to lower interest rates due to the level of debt they hold and due to massive leverage and money and collateral in the repo market, because if that starts to show stress and the central banks do not act quick enough, there will be another financial crisis. You can not have such large amount of fiscal monetary policy for years and then suddenly apply the brakes too hard, this is why the communication for interest rates is that they will come down as the central banks know that if the brakes are applied too hard for too long the whole financial system could come crumbling down.
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NoMoreKickingCans on 23/03/2024(UTC)
Thrugelmir
Posted: 23 March 2024 09:46:03(UTC)
#3

Joined: 01/06/2012(UTC)
Posts: 5,331
Going to take time for the adjustment that borrowing rates around this level are normal.
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Johan De Silva
Posted: 23 March 2024 09:49:31(UTC)
#6

Joined: 22/07/2019(UTC)
Posts: 4,418
Mohamed El-Erian, Allianz chief economic advisor and president of Queens' College, Cambridge, joins 'Squawk Box' to discuss key takeaways from the Fed's interest rate decision, what to make of Fed Chair Powell's commentary, state of the economy...
https://www.youtube.com/watch?v=CeY9l7q-kx8

(I have lots of time for this guy as he is pretty much independent)
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Zach F
Posted: 23 March 2024 10:12:27(UTC)
#4

Joined: 28/12/2020(UTC)
Posts: 192
Thrugelmir;300426 wrote:
Going to take time for the adjustment that borrowing rates around this level are normal.


If only predicting rates was so simple, you can be a rock or a sponge…..
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Rookie Investor
Posted: 23 March 2024 10:32:07(UTC)
#7

Joined: 09/12/2020(UTC)
Posts: 2,087

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Johan De Silva;300428 wrote:
Mohamed El-Erian, Allianz chief economic advisor and president of Queens' College, Cambridge, joins 'Squawk Box' to discuss key takeaways from the Fed's interest rate decision, what to make of Fed Chair Powell's commentary, state of the economy...
https://www.youtube.com/watch?v=CeY9l7q-kx8

(I have lots of time for this guy as he is pretty much independent)


Independent doesn't make him credible or insightful. He has been wrong many times, more recently I remember predicting a recession (as so many did) but turns out everything is moving on along just fine.

It seems many or perhaps all economists are as about as useful as a monkey.

Far better, as investors, to focus on companies where it is much easier (but not easy) to ascertain future prospects.
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5 users thanked Rookie Investor for this post.
Raj K on 23/03/2024(UTC), Guest on 23/03/2024(UTC), Johan De Silva on 23/03/2024(UTC), Sinic on 26/03/2024(UTC), Timbo Wilts on 27/03/2024(UTC)
DIY Investing
Posted: 23 March 2024 10:35:36(UTC)
#10

Joined: 29/09/2018(UTC)
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There is no need to cut interest rates.

UK debt to GDP is irresponsibly high, especially during peace time. But it is not at unprecedented levels.

https://www.statista.com.../282841/debt-as-gdp-uk/

From 1916 to the early 60s, UK government debt as a percentage of GDP was higher than it is now. After the napoleonic wars it was more the double what it is now. And before ‘71 you couldn’t fudge it, you actually had to pay it down!

OK, maybe the treasury will have to cover £130 billion or so in BoE losses. It should do, seeing as the BoE monetised its debt. But that’s nothing. Look at the tax take, it’s increasing by £70bn - £80bn year on year, the chart looks like a bloody moon stonk!

https://www.statista.com...gdom-hmrc-tax-receipts/

We have had to take our medicine, cut spending and pay our debts before, we’ll have to do it again. Current generations aren’t special. Inflation has reminded us that, in reality, we can’t wriggle out of this.
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MBA MBA on 24/03/2024(UTC), kim shillinglaw on 24/04/2024(UTC)
Rookie Investor
Posted: 23 March 2024 10:37:41(UTC)
#11

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NoMoreKickingCans;300419 wrote:
Just read this...

https://www.telegraph.co.uk/news...britain-into-bankruptcy/

Although it is not explained, I presume these losses accrue because the BoE QE involved buying up bonds when interest rates were low. Now that interest rates are high the value of these bonds has fallen and therefore the BoE has suffered major losses on them which have to be paid for by us (just as we have to pay interest forever on the £400Billion of stupid covid spend).

Given this is the case, surely it is inevitable and certain, that the BoE WILL cut rates substantially in order to recover some of these losses by reinflating the price of bonds ? Inflation would seem to have little to do with it now that it is well below 10%. A combination of inflation at say 4% and interest rates cut to say 3% therefore seems an arguable prospect ?


Central banks can't go bankrupt. They have the monopoly in printing currency. Bonds can simply be held to maturity as the losses pull towards par. Even if they sell as part of QT, it doesn't impact the CB as they are not like a corporate or government given their money printing ability.

A bond that is bought close to 0% rates during QE and then sold as part of QT many years later at 5% means that the difference is value is effectively monetized (i.e. net money printed into the private sector). But the CB will never go insolvent (or have liquidity issues), nor does it need money from taxpayers. More like it may prefer it if they didn't want the monetization to occur.
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Sinic on 26/03/2024(UTC)
Pre Ka
Posted: 23 March 2024 11:31:30(UTC)
#12

Joined: 07/04/2019(UTC)
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we should live within our means but that is a political non starter, not going to happen with leadership offered to us as governments. With an ever increasing elderly population and less young workers that is providing us with an ever slowing economy, the governments have no choice but to keep borrowing more and more and mathematics would thus dictate lower inflation and hence lower interest rates.
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Thrugelmir
Posted: 23 March 2024 11:53:55(UTC)
#5

Joined: 01/06/2012(UTC)
Posts: 5,331
Zach F;300431 wrote:
Thrugelmir;300426 wrote:
Going to take time for the adjustment that borrowing rates around this level are normal.


If only predicting rates was so simple, you can be a rock or a sponge…..


Nothing to do with simple. The era of low rates is over. There's nothing magical about to happen. By borrowing rates I'm not referring to base rate either.
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ANDREW FOSTER on 23/03/2024(UTC)
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