Hands up everyone who thinks we should raise interest rates?
Right now, today?
OK, how much should they rise by? 0.25% maybe, like the ECB has just done? 0.5%? Shake that inflation out of the system?
How about let\’s raise them from the current 0.2/0.25% level straight up to 12.5%. That\’ll be good won\’t it?
No chance of inflation rearing its ugly head at that rate. Won\’t do much for the bascent economic recovery, that\’s true, but as we\’re going to do it in a good cause we should all sign up immediately.
We write to you as the call for a Financial Transaction Tax is now gathering global momentum, and the French government has made it a key priority for their G20 presidency.
This tax is an idea that has come of age. The financial crisis has shown us the dangers of unregulated finance, and the link between the financial sector and society has been broken. It is time to fix this link and for the financial sector to give something back to society.
Even at very low rates of 0.05% or less, this tax could raise hundreds of billions of dollars annually and calm excessive speculation.
So, there\’s this thing called LIBOR. It\’s the rate that banks lend to each other at. Lloyds takes in a little more over the counters than it pays out one day, HSBC the reverse. So Lloyds lends the cash to HSBC so their books balance overnight.
This is quiet a big thing actually. In normal times (ie, not now perhaps) the volume, in sterling and in London alone, is around £20 trillion a year.
Current rates on this are around 0.2, 0.25% on an annual basis. With 250 banking days (is this correct? Or it it 360?) that means that an overnight loan will earn you 0.0008%. So, let\’s add a 0.05% tax to this trade shall we?
I think we\’ve rather changed this market, haven\’t we?
Yes, we have. In fact, what we\’ve done is to make short term interest rates 12.5% (0.05 x 250). Just what we need in a recession eh? Mindbogglingly high real interest rates.
Yes Virginia, there really are 1,000 cretins who are wrong.