In 2020 the bank rate was 0.75% (I think?) and the inflation rate was 2%. The real interest rate was therefore minus 1.25%.
Today the bank rate is 3.5% and the inflation rate is 11%, meaning the real interest rate is minus 7.5%.
Interest rates are being increased, dramatically and without reason
Smurf³ believes that falling real interest rates are, in fact, an increase in interest rates.
Well done that man, vry well done.
With all due respect Tim real interest rates are only negative if your income is rising in line with inflation.
Since for most us it’s not, I for one would definitely be feeling the pinch if it wasn’t that I’m practically at the end of my mortgage so interest rates are no longer an issue.
“…. I’m practically at the end of my mortgage so interest rates are no longer an issue.”
What about your savings?
Question would be BiND, why would someone have both a mortgage & savings unless what they were paying on the borrowed money was less than what they were earning on the lent money? Apart from access to money, short term.
Arithmetic is easy enough, example:
You have mortgage debt of 120k, with inflation at 10% previously 0%, the real value of that debt drops by 12k or 1000 a month.
Interest rates rise to 5% previously 0% and your monthly payments go up by 500 a month.
You are better off by 500 a month. Even if wage inflation is 7.5% previously 0%, the arithmetic leaves you 250 a month better off.
The winners from -ve real interest rates are people with significant mortgage debts. But if they’re winning, who is losing?
The winners from -ve real interest rates are people with significant mortgage debts. But if they’re winning, who is losing?
Savers. Along it’s been a transfer of wealth from the thrifty to the impecunious or speculators. Take your choice.
bis,
Those with mortgages have pensions and other rainy day savings, at least if they are sensible.
Also, those with with rate mortgages can’t pay down the mortgage much if they have spare cash like we did, as my son and DiL have found out, so they have had to find somewhere for some spare cash they have.
Because it doesn’t fit your troll narrative?
Savers can buy inflation-linked bonds, but it doesn’t help much since they too have a negative real return. The returns on index-linked gilts are even worse than those on conventional gilts.
Because it doesn’t fit your troll narrative?
Are you Menelaus under multiple new guises?
Who is losing?
Everyone (except highly-geared property speculators)!
The economy is distorted, money that should be used to make productive investments is misdirected into property speculation; people buy houses with n+1 (or even n+2) as “an investment” rather than (or even in addition to) houses with n bedrooms to live in so poorer people end up in smaller overcrowded housing; factories have fewer machines so more men are killing themselves slowly doing heavy work in polluted atmospheres that could be done more easily and cheaply by machiones …
The monetary losers are, of course, those who try to be self-supporting and live within their income saving up for big purchases instead of buy now pay later: this is mostly the respectable working class as the middle class usually have large enough amounts to put some of it into equities or property and small businesses whose banks are unwilling to provide large unsecured lonsfor working capital.
Some of you may not remember 1974-9 as well as I do
John77 @ 10.26.
You don’t need memory (‘Lived Experience’?) to remember 1979, you just need to turn the news on.
Wholesale strike action, cold weather, socialist incompetents in power…….