Cyprus-Forum.com

[Maximus]

What about inflation. We have now had 13 months of increases to interest rates and Inflation still remain high and core inflation is increasing and higher than our competitors. So clearly interest rate hikes are not having an effect. What can be done about Inflation. The government seems to be helpless and leave it all to the Bank of Swines or supposed future growth will has not been more than 2% a year for decades.

So what is the solution?

its not instant, it takes time.

I predict a high interest rate environment for the next 3-5 years just to stabilize and bring inflation down to acceptable levels.

[Lordo]

This makes interesting read. So much for the banks to make a killing for people to buy a home.

https://www.theguardian.com/commentisfree/2023/jun/18/millions-are-facing-soaring-mortgage-rates-how-did-we-leave-them-so-vulnerable

Britain needs to borrow from Franklin D Roosevelt’s New Deal – and on the same scale. American mortgage rates have climbed nearly as rapidly as ours – but over 80% of them are fixed for between 15 and 30 years, insulating the vast majority of borrowers from the impact of rising short-term interest rates.

Why? The US mortgage market used to be like ours – but the New Deal reshaped it. Roosevelt invented a cluster of public agencies that either directly lent to home-buyers with fixed rates for up to 30 years, or, like the FNMA (“Fannie Mae”) or the FHLMC (“Freddie Mac”), backstopped the whole system so that private mortgage providers could refinance existing mortgages or offer new ones on better terms. Thus, the US government effectively offers a mortgage guarantee and a world of risk sharing and widely available fixed-rate 10-, 20- and 30-year mortgages.

As to interest rates being this high for a few years will cause a lot of people to lose their homes.

[cyprusgrump]

What about inflation. We have now had 13 months of increases to interest rates and Inflation still remain high and core inflation is increasing and higher than our competitors. So clearly interest rate hikes are not having an effect. What can be done about Inflation. The government seems to be helpless and leave it all to the Bank of Swines or supposed future growth will has not been more than 2% a year for decades.

So what is the solution?

After years of ridiculously low interest rates the BoE raised the rates far too slowly and cautiously.

If inflation is ~8% at the moment then the interest rate is still effectively negative - i.e. if you put £100 in the bank it will be worth less when you take it out than when you put it in. Not exactly an encouragement to save.

The media hysteria about interest rates is ridiculous, I remember being heavily in negative equity in ~1990 when interest rates were much higher... We managed...

[Londonrake]

I remember being heavily in negative equity in ~1990 when interest rates were much higher... We managed...

Lordo seems to be in a different league though. He has a property portfolio. So mortgage increases probably have a whole different meaning to him.

“End of the World” stories for buy-to-let have been an almost weekly feature of late.

[Robin Hood]

The whole world is rejoicing because justice is being served on a platter to defeat this evil that you support.

Youb are a very bent and sad purson. One wonders how you can even sleep at night or live with yourself.

For 14 months you have been egging on an illegal invasion and supporting the murder of hundreds of thousands of Ukrainians in their own homeland.

heppy recolution and coup day old chum! there has never been a sweeter coup in living memory.

A typical response! You can;t put up a counter argument with any credibility ..... so you change the subject, to another subject you also know very little about.

[cyprusgrump]

I remember being heavily in negative equity in ~1990 when interest rates were much higher... We managed...

Lordo seems to be in a different league though. He has a property portfolio. So mortgage increases probably have a whole different meaning to him.

“End of the World” stories for buy-to-let have been an almost weekly feature of late.

Well, if he assumed low interest rates would last forever and overextended himself he is a very silly boy...

[Lordo]

Oh dear me, ignorance is spreading like wildfire. When you assume, you make an ass of yourself. You know very little about me. When I post I do not post for myself, I post for what the people are going to suffer.

This situation is connected to interest rates but it has nothing to do with over reaching ones self. Certainly low interest rates encouraged house price to go astronomically high and government has decided to sit by and watch it. So you can see the people who bought in the last 10 years had no other choice but to pay the market price for a home.

You do not have to worry about me, I did my buying back in the 80s when house prices were 3 times the annual salary not like recently when it is 10+ times. But interest rates will cause a fall in the house prices and increase in debt which means there could be hundreds of thousands of people who will lose their homes. You do not seem to have any thought for the suffering of your own compatriots. Selfishness seems to be just as spread it seems.

The issue with Inflation is that government today claims the best way to deal with inflation is interest rates rise. Now does this mean there are other ways and they are not willing to try them?

If you have a headache and you go to your doctor right. Chopping your head of will certainly cure your headache but it is not something you would choose right.

If indeed it is true that the only weapon for curing inflation is interest rates and the government has no control over it, then why the hell are they claiming they will halve inflation?

So the question is back again. Is there any other way of controlling inflation other than interest rates.

What types of inflation are there and which ones apply now?

Demand-pull inflation – aggregate demand growing faster than aggregate supply (growth too rapid)
Certainly not this one today. Growth is around 0.3% or less

Cost-push inflation – For example, higher oil prices feeding through into higher costs.
Yep this is happening today with higher energy costs. How the hell will interest rise help with this situation. I can see the energy companies running for the hills with fear and dropping their prices.

Devaluation – increasing cost of imported goods, and also the boost to domestic demand.
Certainly not this one as people are struggling to put food on the table and are having to visit food banks. Although the imported goods prices have gone up on account of brexit.

Rising wages – higher wages increase firms costs and increase consumers’ disposable income to spend more.
Most certainly no this one as this is quite the reverse. The wages on average have dropped up to 30% since 2010.

Expectations of inflation – High inflation expectations causes workers to demand wage increases and firms to push up prices.
Certainly no this one either, this is the reverse too. It is not the expectation of inflation but actual inflation which is driving for higher wages demands but everybody is getting less than inflation wage increases so this is not it either.

So the main culprit is energy prices and food prices actually going higher than the rate of inflation.

Interestingly France Electricity is nationalised and they only had 4% increase in energy and the germans nationalised their energy industry soon after Ukraine crisis.

What is the answer?

[Lordo]

Here is an interesting question.

If a firm pays 10% increase to the workers, how much would this increase their product prices?

[cyprusgrump]

Oh dear me, ignorance is spreading like wildfire. When you assume, you make an ass of yourself. You know very little about me. When I post I do not post for myself, I post for what the people are going to suffer.

This situation is connected to interest rates but it has nothing to do with over reaching ones self. Certainly low interest rates encouraged house price to go astronomically high and government has decided to sit by and watch it. So you can see the people who bought in the last 10 years had no other choice but to pay the market price for a home.

You do not have to worry about me, I did my buying back in the 80s when house prices were 3 times the annual salary not like recently when it is 10+ times. But interest rates will cause a fall in the house prices and increase in debt which means there could be hundreds of thousands of people who will lose their homes. You do not seem to have any thought for the suffering of your own compatriots. Selfishness seems to be just as spread it seems.

The issue with Inflation is that government today claims the best way to deal with inflation is interest rates rise. Now does this mean there are other ways and they are not willing to try them?

If you have a headache and you go to your doctor right. Chopping your head of will certainly cure your headache but it is not something you would choose right.

If indeed it is true that the only weapon for curing inflation is interest rates and the government has no control over it, then why the hell are they claiming they will halve inflation?

So the question is back again. Is there any other way of controlling inflation other than interest rates.

What types of inflation are there and which ones apply now?

Demand-pull inflation – aggregate demand growing faster than aggregate supply (growth too rapid)
Certainly not this one today. Growth is around 0.3% or less

Cost-push inflation – For example, higher oil prices feeding through into higher costs.
Yep this is happening today with higher energy costs. How the hell will interest rise help with this situation. I can see the energy companies running for the hills with fear and dropping their prices.

Devaluation – increasing cost of imported goods, and also the boost to domestic demand.
Certainly not this one as people are struggling to put food on the table and are having to visit food banks. Although the imported goods prices have gone up on account of brexit.

Rising wages – higher wages increase firms costs and increase consumers’ disposable income to spend more.
Most certainly no this one as this is quite the reverse. The wages on average have dropped up to 30% since 2010.

Expectations of inflation – High inflation expectations causes workers to demand wage increases and firms to push up prices.
Certainly no this one either, this is the reverse too. It is not the expectation of inflation but actual inflation which is driving for higher wages demands but everybody is getting less than inflation wage increases so this is not it either.

So the main culprit is energy prices and food prices actually going higher than the rate of inflation.

Interestingly France Electricity is nationalised and they only had 4% increase in energy and the germans nationalised their energy industry soon after Ukraine crisis.

What is the answer?

You missed off...

Ruinous QE
Lockdowns
Net zero
Profligate/uncontrolled immigration policies

But of course you agree with all of those...

What is the answer?

Cut spending.

[Maximus]

Was just about to say the same thing,

Bordo is very selective and not objective with his analysis of inflation because he supports and advocates for things that create inflation and compound the mortgage problem with rising house prices.

When you support uncontrolled mass immigration and claim everyone arriving by boat is a refugee and can stay, you are creating demand-pull inflation. If anyone can go anywhere they choose by claiming to be a refugee, aggregate demand in the economy for housing (which ads to the mortgage issue), and goods and services increases. In many cases, it is not being paid for by the "refugees" themselves, it is an extra cost saddled to the tax payer.

Rising wages is also another culprit of inflation that Bordo overlooks. When you pay people more money to do jobs that are not intended to pay people a living wage, or you want to "steal" from the corporations and socialise the profits to pay people more, you create inflation.

The answer is quite simple, restrict the money supply, increase interest rates to encourage savings and don't artificially inflate your population too quickly. Especially with too many people that need accommodation and "wages" for free.