Wot if World Interets Rates double to 10%? > Forum

Unanswered

Active Topics

Forums

Forums > General Discussion > General Discussion

Subject: Wot if World Interets Rates double to 10%?

Prev Next

You are not authorized to post a reply.

Author

Messages

lazen

Activist

Posts:296

07/07/2008 12:52 PM	Alert
Factor in a big rise in rates Worldwide? Money is a commodity. THE shortest commodity in demand. If theres a shortage the price of money (ie Interest Rates)rises Wot if a worldwide hike occurs say to 10% ie double present. If the UK did not follow suit then the £ would crash bigtime. What effect would a doubling of current UK rates have I wonder? Do you think the slick property dealers have throught about this?

chefdave

Activist

Posts:477

07/07/2008 2:12 PM	Alert
At the moment South africa's base rate is already 12%, Australia's is 7.25% and new Zealand's is 8.25%. When compared to the Yen, dollar and Euro our base rate is higher than all three, the U.S and the EU however are clearly in a situation similar to ourselves in that they are caught up between a mountain of personal debt whilst simultaneously looking recession straight in the eyes, which makes effective monetry policy an impossibility. During 'normal times' if the U.S were to raise their base rate to 10% at the very least I would expect to severly puncture the commodity bubble as investors (finally) find a suitable safe home for their investments. This would strengthen the dollar as it becomes an attractive currency and the £ would weaken against it, unless we followed suit. The point is though that even with a base rate at 5% mortgage rates are creeping up regardless, rates of 7-8% seem to be increasingly common - something which is going to come as a terrible shock to many that have bought over the past few years - and so your 'imaginary event' Lazen is in actual fact becoming a reality. The question about what would happen if all the major players raised to 10% is very interesting in terms of currency flucuations if it weren't for the debt. If it did happen I would expect financial collapse in the U.S and the U.K, serious divisions and a possible split over the Euro - look at how much of a fuss was kicked up over the recent 0.25% rise - mass repossessions leading to rioting and general lawlessness and probably the end of the world as we know it! :) These things are already happened but on a slightly slower scale.

Asteve

Activist

Posts:930

08/07/2008 10:07 PM	Alert
You're on the ball about the distinction between central bank rates and retail rates. This is crucial in the context of establishing the impact on the economy in general. I would like to point out, however, that if the US were to raise their rate to 10%, this would be a five-fold increase... One might think that a large discrepancy between the base rate of currencies would lead to a devaluing in the context of foreign exchange - but there are other factors at play. As an example of what happens when a currency has a rate dramatically lower than the rest of the world, look at Japan post 1990... where, to this day, there is a sizeable "carry trade" where holders of Japanese assets borrow against them and invest abroad where yields are far higher. This has done little harm to Japan - and the ill effects were relatively easily absorbed by the rest of the world.

plainservice

Concerned Citizen

Posts:93

10/07/2008 3:56 PM	Alert
During 'normal times' if the U.S were to raise their base rate to 10% at the very least I would expect to severly puncture the commodity bubble as investors (finally) find a suitable safe home for their investments. This would strengthen the dollar as it becomes an attractive currency and the £ would weaken against it, unless we followed suit. A lot of third world countries have high interest rates, but it does not mean that people rush in and buy those currencies. And the US does not need to raise rates. Just look at the Petrol price, it has shot up, so that means people have to buy more US$. Anyways, rates at 10%+ would crush the US economy.

You are not authorized to post a reply.

Forums > General Discussion > General Discussion > Wot if World Interets Rates double to 10%?

ActiveForums 3.6