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Post by Deleted on Aug 5, 2023 10:34:33 GMT
Inflation is very high so as usual interest rate rises are the tool of choice to bring it down. This in blunt terms is supposed to work by taking more money out of peoples pockets so they have less to spend, thereby weakening demand which reduces inflationary pressures. The extra money being taken out of peoples' pockets ends up greatly boosting bank profits to little public good.
This is a very blunt and ill targeted tool to suppress demand, because it impacts only those paying mortgages and indirectly private tenants too, when landlords pass on increased costs in the form of higher rents. None of this has any impact at all on those who have already paid off their mortgages, those living in social housing, and indeed anyone not paying a mortgage or private rent. So this barely touches the rich unless they have invested in property to let, in which case they tend to pass such costs onto their tenants anyway. So the burden is mostly falling on often struggling working age people, and thus is intended to dampen demand by reducing the spending power of only some of the people. And even then it is not fully effective immediately even with these because many are on fixed term mortgages so the impact is delayed, thereby intrinsically limiting it's ability to dampen demand in the short term.
It seems to me that the goal of dampening demand by reducing the spending power of the public - which is what rate rises are intended to do - could be more effectively, more quickly, and much more fairly achieved by temporary tax increases instead. A VAT type tax would be a bad tax to use however since it would also increase inflation by forcing up prices. But instead of crucifying mortgage payers and private tenants, why not put in place a temporary and ring fenced 3 to 5p in the pound levy on all incomes above the basic rate threshold? This would spread the pain more widely and fairly whilst exempting the very poorest, with the rest of us paying according to our means, the more we earn the more we pay, the less we earn the less we pay. (Incidentally, as a social tenant I am wholly unaffected by the interest rate rises but would pay a little more under my above proposal, so there is absolutely no self interest in my idea).
I would suggest that such a temporary levy (until inflation comes down) be ring fenced and used exclusively to pay off part of the national debt by law, and be legally barred from other funding purposes otherwise it would tend to become permanent. This levy could be called the Anti-inflation Levy, to be set at whatever level is necessary and should be zero when inflation is low.
Thus the impact is spread more widely and fairly, is more immediate in its effects, and the monies taken from us are used to pay down part of the national debt rather then merely boosting bank profits.
If we have to make people poorer to suppress demand and thereby reduce inflation, would not this be a fairer, more effective, and more constructive way of doing it?
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Post by Orac on Aug 5, 2023 10:43:01 GMT
Inflation is caused by a change in the relationship between money and goods / services. People will tend to pay down debt (or not have it) when there is high interest rates.
Unfortunately, you appear to be using demand side 'economics' and so communication about economics is going to be a bit uphill
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Post by Deleted on Aug 5, 2023 11:20:47 GMT
Inflation is caused by a change in the relationship between money and goods / services. People will tend to pay down debt (or not have it) when there is high interest rates. Unfortunately, you appear to be using demand side 'economics' and so communication about economics is going to be a bit uphill Inflation is caused by many factors but a big one is always an excess of demand over supply. Another is too much money being in circulation. In my experience, most people with debt tend to pay off whatever they can afford to, and higher interest rates merely reduces their ability to pay off some of the capital. Most personal debt outside of mortgages and car purchases tends to take the form of credit card debt or personal loans and the interest on these has never been particularly low. Many people in debt have gotten there out of necessity and interest rate rises merely increase their debt repayments. Again they work by reducing the spending power of those with debts of any kind, which are often the hard working and struggling ones. I have never known someone with a significant debt, fail to pay off what he or she can just because the interest rate is not as high as it might be (because it is rarely if ever low). It is undoubtedly the case that interest rate rises are designed to weaken demand by reducing spending but it is a poorly targeted tool, with a built in delayed reaction where mortgages are concerned. I have already demonstrated in what ways a variable Anti-inflation Levy would be fairer, more immediate in its effects, and more constructive in terms of where the money goes. You have yet to refute any of this. Inflation is primarily caused by an excess of demand over supply, and too much money in circulation - too much money being printed, or labour shortages, commodity shortages, or supliers of essential primary products such as oil or gas restricting supplies and/or hiking prices. Much of the inflation in the 1970s was at source caused by massive increases in the price of oil. And energy price increases are a factor today. Though in this country, housing shortages are a pretty serious home grown factor. Our ability to reduce inflation resulting from situations beyond our borders is limited no matter what tools we use. To the extent that home grown factors are involved, inflation can only be reduced by restricting demand or boosting supply. Interest rate rises are designed to achieve the former. Ways to achieve the latter tend all too often to be inflationary in themselves. I put it to you again that an Anti-inflation Levy of the kind I have suggested would do this more quickly, more effectively, more fairly, and with a more productive use for the monies raised than merely an interest rate rise. |
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Post by Orac on Aug 5, 2023 11:28:22 GMT
Inflation is caused by a change in the relationship between money and goods / services. People will tend to pay down debt (or not have it) when there is high interest rates. Unfortunately, you appear to be using demand side 'economics' and so communication about economics is going to be a bit uphill Inflation is caused by many factors but a big one is always an excess of demand over supply. Another is too much money being in circulation. In my experience, most people with debt tend to pay off whatever they can afford to, and higher interest rates merely reduces their ability to pay off some of the capital. Most personal debt outside of mortgages and car purchases tends to take the form of credit card debt or personal loans and the interest on these has never been particularly low. Many people in debt have gotten there out of necessity and interest rate rises merely increase their debt repayments. "excess of demand over supply" is the same statement as "Goods are scarcer (becoming more scarce) than money". People will tend to pay down debt with high interest rates (obviously, if they can) because the debt costs them more. With low interest rates, people do not tend to pay they debt they could repay because very often it isn't in their interests (ignore the pun) to do so. |
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Post by Deleted on Aug 5, 2023 11:59:18 GMT
Inflation is caused by many factors but a big one is always an excess of demand over supply. Another is too much money being in circulation. In my experience, most people with debt tend to pay off whatever they can afford to, and higher interest rates merely reduces their ability to pay off some of the capital. Most personal debt outside of mortgages and car purchases tends to take the form of credit card debt or personal loans and the interest on these has never been particularly low. Many people in debt have gotten there out of necessity and interest rate rises merely increase their debt repayments. "excess of demand over supply" is the same statement as "Goods are scarcer (becoming more scarce) than money". People will tend to pay down debt with high interest rates (obviously, if they can) because the debt costs them more. With low interest rates, people do not tend to pay they debt they could repay because very often it isn't in their interests (ignore the pun) to do so. Interest rates for most loans and credit cards have never been so low that it is not in people's interests to pay off what they can. I myself have a loan with 18 months left to run but it is at a fixed rate so headline rate interest rises have zero effect upon me. Many personal loan rates are like this. A small tax increase would reduce my spending more than any headline interest rate rise ever could. With interest rate rises the burden is being spread very narrowly and unfairly, and your point about some people spending less and paying off more of their debt with higher interest rates are just examples of some of the ones being narrowly hit by this blunt instrument. An Anti-inflation Levy on incomes, ringfenced for national debt repayment, would be more effective, fairer, quicker, and a more useful outcome for the monies raised. Your point about people just trying to pay off more of their debt rather than spending is simply an example of some of the narrow base immediately affected by this blunt instrument and in no way demonstrates that my proposal wouldn't do the same thing much more fairly and effectively. |
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Post by Orac on Aug 5, 2023 12:07:15 GMT
"excess of demand over supply" is the same statement as "Goods are scarcer (becoming more scarce) than money". People will tend to pay down debt with high interest rates (obviously, if they can) because the debt costs them more. With low interest rates, people do not tend to pay they debt they could repay because very often it isn't in their interests (ignore the pun) to do so. Interest rates for most loans and credit cards have never been so low that it is not in people's interests to pay off what they can. Yes they have. There is little point in using anecdotes here. Paying down a debt is like any other expenditure and it is evaluated like any other and compared with the advantages over other spending. Obviously, if the debt costs more, that balance changes. |
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Post by Deleted on Aug 5, 2023 20:42:18 GMT
Interest rates for most loans and credit cards have never been so low that it is not in people's interests to pay off what they can. Yes they have. There is little point in using anecdotes here. Paying down a debt is like any other expenditure and it is evaluated like any other and compared with the advantages over other spending. Obviously, if the debt costs more, that balance changes. I do not believe you frankly when you say that interest on credit cards and personal loans have at some point been so low that it is not worth paying it off. And besides, you have still failed to address my central contention that interest rate rises are a blunt tool that hits some disproportionately and others not at all and has a delayed impact in many cases. Much the same thing could be done much more fairly and be immediately effective with an Anti-Inflation Levy on incomes, with the proceeds productively paying off national debt instead of swelling bank profits. You have failed utterly to demonstrate how this is not a better idea nor how interest rate rises work better when I have explained how they do not. |
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Post by Orac on Aug 6, 2023 7:24:56 GMT
Yes they have. There is little point in using anecdotes here. Paying down a debt is like any other expenditure and it is evaluated like any other and compared with the advantages over other spending. Obviously, if the debt costs more, that balance changes. I do not believe you frankly when you say that interest on credit cards and personal loans have at some point been so low that it is not worth paying it off. And besides, you have still failed to address my central contention that interest rate rises are a blunt tool that hits some disproportionately and others not at all and has a delayed impact in many cases. Much the same thing could be done much more fairly and be immediately effective with an Anti-Inflation Levy on incomes, with the proceeds productively paying off national debt instead of swelling bank profits. You have failed utterly to demonstrate how this is not a better idea nor how interest rate rises work better when I have explained how they do not. I didn't use the words 'not worth paying it off', that's a straw-man you have presented despite my clarifications. Changing the price of a debt changes the relative importance of paying the debt off or (conversely) the relative attractiveness of being in debt. What you appear to be arguing here is that it doesn't - which is clearly nonsense. I think the argument for interest rate rises is that the price falls on those who made the decision to go into debt, rather than falling on everyone. If you keep forcing everyone to bail this behavior out when things go wrong, then you create a stronger incentive to get into debt. In fact, if you keep doing this, the incentive becomes irresistible because only a mug not to go into debt knowing that by being careful he will be forced to pay anyway. |
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Post by sheepy on Aug 6, 2023 7:34:22 GMT
Inflation is very high so as usual interest rate rises are the tool of choice to bring it down. This in blunt terms is supposed to work by taking more money out of peoples pockets so they have less to spend, thereby weakening demand which reduces inflationary pressures. The extra money being taken out of peoples' pockets ends up greatly boosting bank profits to little public good. This is a very blunt and ill targeted tool to suppress demand, because it impacts only those paying mortgages and indirectly private tenants too, when landlords pass on increased costs in the form of higher rents. None of this has any impact at all on those who have already paid off their mortgages, those living in social housing, and indeed anyone not paying a mortgage or private rent. So this barely touches the rich unless they have invested in property to let, in which case they tend to pass such costs onto their tenants anyway. So the burden is mostly falling on often struggling working age people, and thus is intended to dampen demand by reducing the spending power of only some of the people. And even then it is not fully effective immediately even with these because many are on fixed term mortgages so the impact is delayed, thereby intrinsically limiting it's ability to dampen demand in the short term. It seems to me that the goal of dampening demand by reducing the spending power of the public - which is what rate rises are intended to do - could be more effectively, more quickly, and much more fairly achieved by temporary tax increases instead. A VAT type tax would be a bad tax to use however since it would also increase inflation by forcing up prices. But instead of crucifying mortgage payers and private tenants, why not put in place a temporary and ring fenced 3 to 5p in the pound levy on all incomes above the basic rate threshold? This would spread the pain more widely and fairly whilst exempting the very poorest, with the rest of us paying according to our means, the more we earn the more we pay, the less we earn the less we pay. (Incidentally, as a social tenant I am wholly unaffected by the interest rate rises but would pay a little more under my above proposal, so there is absolutely no self interest in my idea). I would suggest that such a temporary levy (until inflation comes down) be ring fenced and used exclusively to pay off part of the national debt by law, and be legally barred from other funding purposes otherwise it would tend to become permanent. This levy could be called the Anti-inflation Levy, to be set at whatever level is necessary and should be zero when inflation is low. Thus the impact is spread more widely and fairly, is more immediate in its effects, and the monies taken from us are used to pay down part of the national debt rather then merely boosting bank profits. If we have to make people poorer to suppress demand and thereby reduce inflation, would not this be a fairer, more effective, and more constructive way of doing it? But on the other hand you were all told at the start of covid this would be the outcome if you carried on in the way you did. A war was just the icing on the cake. |
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Post by Deleted on Aug 6, 2023 18:01:20 GMT
I do not believe you frankly when you say that interest on credit cards and personal loans have at some point been so low that it is not worth paying it off. And besides, you have still failed to address my central contention that interest rate rises are a blunt tool that hits some disproportionately and others not at all and has a delayed impact in many cases. Much the same thing could be done much more fairly and be immediately effective with an Anti-Inflation Levy on incomes, with the proceeds productively paying off national debt instead of swelling bank profits. You have failed utterly to demonstrate how this is not a better idea nor how interest rate rises work better when I have explained how they do not. I didn't use the words 'not worth paying it off', that's a straw-man you have presented despite my clarifications. Changing the price of a debt changes the relative importance of paying the debt off or (conversely) the relative attractiveness of being in debt. What you appear to be arguing here is that it doesn't - which is clearly nonsense. I think the argument for interest rate rises is that the price falls on those who made the decision to go into debt, rather than falling on everyone. If you keep forcing everyone to bail this behavior out when things go wrong, then you create a stronger incentive to get into debt. In fact, if you keep doing this, the incentive becomes irresistible because only a mug not to go into debt knowing that by being careful he will be forced to pay anyway. My argument is not about incentivising or disincentivising debt. It is about the fairest and most effective way of reducing inflation, and an Anti-inflation Levy of the kind I have described would work more immediately and more fairly. You seem to think that it is people's own fault for having a mortgage and are speaking as if you see rate rises as a punishment for that and any other kind of debt. That is not the purpose of rate rises. The purpose is to reduce inflation for the ultimate benefit of all of us, and my proposal would do that more quickly, more effectively, and more fairly. Presumably you have no mortgage any longer and thus want others to pay, so hammering borrowers suits you fine. But of course your income is thereby unaffected, so you continue to spend as freely as you ever did, which is why a fiscal restraint policy such as rate rises are less than wholly effective. Because it does nothing to restrain the spending power of those without any borrowings. You also seem to be assuming that inflation is exclusively caused by individuals going into debt, so making them alone responsible for the pain of reducing inflation is therefore fair. In actual fact, inflation is fuelled by many factors, not all of them home grown, and mostly deriving from national or international shortages of commodities combined with high demand, as well as here in the UK the problem of labour shortages and housing shortages, none of which are the exclusive fault of borrowers but of all of us. It is therefore reasonable that we all pay a price if we can to get things back on track - including you and me - and not just a particular subsection. Spreading the pain more widely and fairly would be more effective, more rapid, more likely to work, with the proceeds of our temporary sacrifices serving a more productive purpose than inflating bank profits. You have also failed to demonstrate why my idea is not a more effective and fairer way to reduce inflation, merely cited the supposed fact that targeting borrowers alone is somehow fairer in spite of it being obviously less effective for all the reasons laid out in my OP. That is absolute rubbish unless you can demonstrate how individual borrowers alone are exclusively to blame for inflation. |
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Post by Orac on Aug 6, 2023 18:34:06 GMT
I didn't use the words 'not worth paying it off', that's a straw-man you have presented despite my clarifications. Changing the price of a debt changes the relative importance of paying the debt off or (conversely) the relative attractiveness of being in debt. What you appear to be arguing here is that it doesn't - which is clearly nonsense. I think the argument for interest rate rises is that the price falls on those who made the decision to go into debt, rather than falling on everyone. If you keep forcing everyone to bail this behavior out when things go wrong, then you create a stronger incentive to get into debt. In fact, if you keep doing this, the incentive becomes irresistible because only a mug not to go into debt knowing that by being careful he will be forced to pay anyway. My argument is not about incentivising or disincentivising debt. It is about the fairest and most effective way of reducing inflation, and an Anti-inflation Levy of the kind I have described would work more immediately and more fairly. it wouldn't act more effectively because it wouldn't disincentivis-ise debt. It also wouldn't be fairer because those in debt would effectively get everyone else to pay for their risks, and yet, keep the benefits. Not only would it not disincentiv-ise debt, it would encourage it strongly (the opposite of what you want to do). |
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Post by Deleted on Aug 6, 2023 18:56:15 GMT
My argument is not about incentivising or disincentivising debt. It is about the fairest and most effective way of reducing inflation, and an Anti-inflation Levy of the kind I have described would work more immediately and more fairly. it wouldn't act more effectively because it wouldn't disincentivis-ise debt. It also wouldn't be fairer because those in debt would effectively get everyone else to pay for their risks, and yet, keep the benefits. Not only would it not disincentiv-ise debt, it would encourage it strongly (the opposite of what you want to do). You assume that debt alone is exclusively responsible for inflation, which I have already explained is not the case. Disincentivising debt would not solve the inflation problem if debt is not itself the primary cause. Inflation is largely due to commodity, housing, and labour shortages and not debt, for which we are all culpable, not simply mortgage payers and other borrowers. And an Anti-inflation Levy would not serve to pay off anyone's individual debts. It would be used to help pay off some of the national debt as an alternative to it sitting there doing nothing, but that is not the same thing. When you talk of disincentivising debt of course, you are mostly talking of disincentivising mortgages, which is where most personal debt lies, punishing people for aspiring to own a home, when this is not the primary driver of inflation in any case. And again, the purpose of rate rises is not to disincentivise borrowing but to lower inflation by taking money out of some peoples pockets and giving it to the banks. Using tax as a means to do this is far more effective, far fairer, with the monies levied being used far more productively. And there is absolutely no reason why this should massively incentivise debts. Most forms of debt come with interest rates well into double figures already, and mortgages which might not do so are generally regarded as a positive in this country. Again, you are talking as if the purpose of interest rate rises is to disincentivise debt. It is not. It is to reduce inflation by reducing demand. And this can be done more quickly and fairly and effectively by a temporary income based levy on all earnings above the basic rate threshold. Hitting borrowers and mortgage payers alone does relatively little to diminish demand because it only targets some people, and even many of these not immediately. Spreading the diminishing of demand across much more of the economy would self evidently be more effective and fairer. Borrowers alone, after all, are not solely responsible for inflation - we all are - so it is intrinsically unfair to target them alone as well as intrinsically less effective. You seem to be totally misunderstanding the purpose here. It is not to punish borrowing. It is to reduce demand and thus rein back inflation. My idea would do that more effectively, fairly, and quickly. But no doubt you will come back at me with some more crap about the need to disincentivise borrowing, missing the point completely. I think pulling out my own teeth might be more rewarding |
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Post by Orac on Aug 6, 2023 19:58:45 GMT
it wouldn't act more effectively because it wouldn't disincentivis-ise debt. It also wouldn't be fairer because those in debt would effectively get everyone else to pay for their risks, and yet, keep the benefits. Not only would it not disincentiv-ise debt, it would encourage it strongly (the opposite of what you want to do). You assume that debt alone is exclusively responsible for inflation, which I have already explained is not the case. Disincentivising debt would not solve the inflation problem if debt is not itself the primary cause. Inflation is largely due to commodity, housing, and labour shortages and not debt, for which we are all culpable, not simply mortgage payers and other borrowers. I'm not assuming this. I am not engaging that part of the discussion because it is silly . Inflation is a change in the relationship between the scarcity of goods and the scarcity of money. You might search for root causes, but only some of this is under your control and saying that goods are too scarce is just a different way of saying that money is too un-scarce. There is an imbalance is between expectation and reality and , unless you intend to bend reality by (say) magically increasing productivity, you should adjust expectations. It's not a matter of culpability. The time price of money is just another price built out of the expectations of both the lender and the borrower. What you propose to do is save the borrower from his own decision if something goes wrong with his evaluation - this massively encourages borrowing, indeed even reckless borrowing and it does so at the expense of those who did not borrow or do not have a debt. Do you see how this twists things? |
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Post by johnofgwent on Aug 6, 2023 21:15:54 GMT
In answer to the thread title, ‘because its the only thing they can do even when its f*******g useless
When Maggie told her brilliant chancellor to shadow the mark and sent the country into chaos, nobody had fixed term fixed rate mortgages. Apart from bankers. As a result a 0.25% hike caused havoc and the rise from 8.5% to 17.5% emptied housing estates and saw the rise of the repo man.
Today, the bank of england have only the same weapon but it has no effect on many who are on a fixed rate and wont feel the pain for another two or three months
But the bank, oblivious of this, carry on hiking
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Post by Deleted on Aug 6, 2023 21:57:47 GMT
You assume that debt alone is exclusively responsible for inflation, which I have already explained is not the case. Disincentivising debt would not solve the inflation problem if debt is not itself the primary cause. Inflation is largely due to commodity, housing, and labour shortages and not debt, for which we are all culpable, not simply mortgage payers and other borrowers. I'm not assuming this. I am not engaging that part of the discussion because it is silly . Inflation is a change in the relationship between the scarcity of goods and the scarcity of money. You might search for root causes, but only some of this is under your control and saying that goods are too scarce is just a different way of saying that money is too un-scarce. There is an imbalance is between expectation and reality and , unless you intend to bend reality by (say) magically increasing productivity, you should adjust expectations. It's not a matter of culpability. The time price of money is just another price built out of the expectations of both the lender and the borrower. What you propose to do is save the borrower from his own decision if something goes wrong with his evaluation - this massively encourages borrowing, indeed even reckless borrowing and it does so at the expense of those who did not borrow or do not have a debt. Do you see how this twists things? And you appear to be equating an intent to punish borrowers - when there is none - with the real intent of reducing demand as a way of lowering inflation. A temporary Anti-inflation Levy on income would do the latter more effectively because it would rein back spending power on a much broader range of people, much more immediately, with those with the greatest and thus most inflationary spending power paying the most, the proceeds of such being put to far better use than boosting bank profits. And the only thing that would seriously "massively encourage" unnecessary borrowing is zero or near zero interest rates which do not exist and never have. Most non-mortgage borrowing has levels of interest well into double figures. I know this from the purchase of my car. But the rate is fixed by contract so interest rate rises do sod all to increase the cost of my debt. Which is another example of how ineffective it is in reducing the spending power of borrowers. We are limited somewhat in our ability to reduce inflation because much of it is not home grown. That which is - related mostly to labour and housing shortages, and rising import costs - we can do something about by suppressing demand, thereby reducing upward pressure on prices. But the more effectively you suppress demand the more effective this will be....and a percentage levy on all income above the basic rate would supress demand far more widely than an interest rate rise that only affects some borrowers, and many of those after a prolonged delay. You do not have to be an economic genius to understand that the former will do the job more quickly and effectively than the latter, getting our economy back on course much more quickly. But a loaded agenda based upon self interest does appear to be helpful in the inability to understand this obvious fact. |
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