So a couple of weeks ago the Bank of England reduced interest rates lower than ever to 0.25%.
They hope this is going to stimulate the economy. It isn’t. At least, as Mary Dejevsky pointed out in the Guardian a couple of weeks ago ever-lower interest rates have failed; so why should they work now?
Anyone with a mortgage has never had it so good. They are paying peanuts in interest. Meanwhile those of us who paid off our mortgagees years ago and are now the much vilified savers are being shafted — savings interest is struggling to match inflation.
The banks seem to have forgotten that people like me, the savers, are an essential part of their business. Without our money coming in, they don’t have money to lend. They need us, just as they need the pension funds etc.
But all the banks have ever done is shaft my generation. When we started our mortgage in 1981 we were paying 14.5% interest on it; within six months that was 17.5%. And we were being encouraged to save for our retirement — which we did as much as we could. That was barely sustainable; and totally unsustainable compared with today’s rates. We were being priced out. No wonder the bubble burst and people ended up in negative equity and the banking sector with a merry-go-round of toxic debt.
Having saved, against the odds, we are now being shafted for having done so by not getting a decent return on our investments. We’d almost be as well off with our investments in the Bank of Mattress. And we’re supposed to feel happy about this; go out and spend our money; make the economy grow and recover.
Sorry but why the f*** should I? That money you want me to spend has to support me for maybe another 20 (or more) years. If you aren’t going to give me a decent return on investing it, then I’m going to hold onto it for dear life and milk as much as I can from all of it.
On the same day as Mary Dejevsky’s piece, Simon Jenkins wrote (also in the Guardian):
Want to avoid recession? Then shower UK households with cash.
Just give people the money. Give them cash, dole it out, increase benefits, slash VAT, hand it to those most likely to spend it: the poor. Put £1,000 into every debit account. Whatever you do, don’t give it to banks. They will just hoard it or use it to boost house prices.
Britain is suffering from a classic liquidity trap. There is insufficient demand. Yet all the Bank of England [has done is] wring its hands, blame Brexit and go on digging the same old holes.
They are labelled lower interest rates, quantitative easing and more cash for banks. Those policies have been in place for some seven years. They have failed … Not one commentator … thought cutting interest rates to 0.25% would make any difference to the threat of recession.
And again …
In the present climate, there is not the slightest risk of inflation — the traditional hazard of monetary expansion: £1,000 “printed” and moved from the Bank into every household account would still cost less (at £30bn) than Hinkley Point or HS2 … There could be vouchers, scrappage schemes, Christmas bonuses and, horror of horrors, cash for the undeserving poor. Why not try it? All else has failed.
Yes, and out of the change from cancelling HS2 you could probably give every university student a decent maintenance grant and/or scrap student fees!
It’s a novel idea. Raising saving rates would be another. For indeed all else has failed.
It’s time for a new and different approach.
It might even be a vote-catcher!