Comments on: The Governor of the Bank of England spills the beans http://www.johnredwoodsdiary.com/2007/11/06/the-governor-of-the-bank-of-england-spills-the-beans/ Conservative Party Member of Parliament for Wokingham Fri, 21 Nov 2008 04:00:24 +0000 http://wordpress.org/?v=2.6.2 By: ExPat http://www.johnredwoodsdiary.com/2007/11/06/the-governor-of-the-bank-of-england-spills-the-beans/#comment-11141 ExPat Wed, 07 Nov 2007 15:21:24 +0000 http://www.johnredwoodsdiary.com/2007/11/06/the-governor-of-the-bank-of-england-spills-the-beans/#comment-11141 What does more liquidity mean? Does that mean more cash in the markets? Doesn't that mean more inflation? Sorry if it's astupid question. Reply: yes it means more cash and financial instruments like cash in the markets. That does not necessarily create more inflation if there is not enough cash in the markets to start with. What does more liquidity mean? Does that mean more cash in the markets? Doesn’t that mean more inflation? Sorry if it’s astupid question.

Reply: yes it means more cash and financial instruments like cash in the markets. That does not necessarily create more inflation if there is not enough cash in the markets to start with.

]]> By: Steven_L http://www.johnredwoodsdiary.com/2007/11/06/the-governor-of-the-bank-of-england-spills-the-beans/#comment-11091 Steven_L Wed, 07 Nov 2007 01:41:55 +0000 http://www.johnredwoodsdiary.com/2007/11/06/the-governor-of-the-bank-of-england-spills-the-beans/#comment-11091 Well I'm confused as to how cutting base lending rates increases 'liquidity', I'll admit I don't really understand finance, but I understand base lending rates as the price that the UK pays for money from financial institutions - which seems to have no effect on interbank rates at the moment. I read about this 're-pricing of risk' as assume it is all one in the same to me. The fed cuts in interest rates did not stop Citibank writing down (if that is thet right way of saying it) sub-prime related losses. The Bank of ENgland have offered emergency borrowing at 6.75% and no one wants to take it as it seems to be a stigma. I can't see how if rates are cut so sat 5.25% and emergency borrowing becomes 6.25% (which is similar to interbank 3 month rates) anyone will want to drink from the poisoned chalice for fear of speculation on their shares. In my humble opinion, cutting fuel duty and allowing the consumer to spend more in the economy is the way forward. Reply: Cutting interest rates makes more transactions and purchases affordable - people can borrow more on the same income. As people borrow and spend more so the money they borrow and spend is placed back in the banks as deposits by those who have supplied the goods and services, allowing the banks to lend more. The danger now is that the banks are wanting to keep what cash they have and are nervous of the losses they have recorded, so cutting interest rates may not have the same immediate effect, but it is still a move in the right direction. Keeping interest rates high or allowing market rates to be higher than the MPC rate just increases the pain, and makes more defaults likely as people struggle to pay the interest on their loans. Well I’m confused as to how cutting base lending rates increases ‘liquidity’, I’ll admit I don’t really understand finance, but I understand base lending rates as the price that the UK pays for money from financial institutions - which seems to have no effect on interbank rates at the moment.

I read about this ‘re-pricing of risk’ as assume it is all one in the same to me. The fed cuts in interest rates did not stop Citibank writing down (if that is thet right way of saying it) sub-prime related losses.

The Bank of ENgland have offered emergency borrowing at 6.75% and no one wants to take it as it seems to be a stigma. I can’t see how if rates are cut so sat 5.25% and emergency borrowing becomes 6.25% (which is similar to interbank 3 month rates) anyone will want to drink from the poisoned chalice for fear of speculation on their shares.

In my humble opinion, cutting fuel duty and allowing the consumer to spend more in the economy is the way forward.

Reply: Cutting interest rates makes more transactions and purchases affordable - people can borrow more on the same income. As people borrow and spend more so the money they borrow and spend is placed back in the banks as deposits by those who have supplied the goods and services, allowing the banks to lend more. The danger now is that the banks are wanting to keep what cash they have and are nervous of the losses they have recorded, so cutting interest rates may not have the same immediate effect, but it is still a move in the right direction. Keeping interest rates high or allowing market rates to be higher than the MPC rate just increases the pain, and makes more defaults likely as people struggle to pay the interest on their loans.

]]> By: Tony Makara http://www.johnredwoodsdiary.com/2007/11/06/the-governor-of-the-bank-of-england-spills-the-beans/#comment-11021 Tony Makara Tue, 06 Nov 2007 12:29:22 +0000 http://www.johnredwoodsdiary.com/2007/11/06/the-governor-of-the-bank-of-england-spills-the-beans/#comment-11021 John, with each passing article that you write Alistair Darling shrinks a little bit more. The man is clearly not up to the job of chancellor. The second most important job in the government. My opinion is that Labour dare not reduce interest rates because they know it will release the underlying inflation that they have allowed to build up with their credit-led growth. John, with each passing article that you write Alistair Darling shrinks a little bit more. The man is clearly not up to the job of chancellor. The second most important job in the government. My opinion is that Labour dare not reduce interest rates because they know it will release the underlying inflation that they have allowed to build up with their credit-led growth.

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