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The banks did nothing to earn this money, and yet they are still paid the Bank of England base interest rate on the total sums they hold. When interest rates were under 1%, as they were from 2009 to 2021, these interest costs were insignificant. Now that the base rate is 5%, the sum paid has soared to more than £40bn a year.

There is no need for the Bank to pay base rate on all these deposits. To ensure the effectiveness of its interest rate policy it needs to pay base rate on some of them. Interest on £200bn should be enough to do this.

Can we see Spud’s model for this? The one where he carefully shows why the BoE differs?

9 thoughts on “Prove it”

  1. Don’t be so f£&king stupid. The sole Models he has knowledge of are those from Hornby.

    Also interesting how despite his Admission many years ago about his ignorance regarding Japan (I think it was a query related to the ongoing problems around indebtedness there) it’s now a model because it has a policy (apparently) he likes.

  2. Since banks don’t by & large have any money, their deposits at the BoE must be their depositors’ money, no? On which they must be paying interest. (I note my current account’s now making me close to 4% pa) I wouldn’t have thought it’d do the banks’ balance sheets much good if the BoE withheld their interest payments.
    As he fails to observe, you don’t get owt for nowt.

  3. Spud is obsessed with nominal 1% a year for every person and institution.
    Which sounds almost reasonable when inflation and interest rates are similar and with him being a self-confessed fantasist. That a right thinking government is just waiting to come forward to save us and which can spend better than people risking their own money.

  4. Which sounds almost reasonable when inflation and interest rates are similar
    It’s not at all reasonable. The time preference rate on money’s generally accepted to be around 5% real. Why would anyone save (defer spending) when their money’s worth the same in a year as it is today? Look what’s happened in the years since ’08. Asset price inflation. None of that’s creation of real value. It’s a fantasy. Now you’re going to watch house prices plummet as people want to sell them but there’s no money to buy them.

  5. I’ve asked work colleagues in a quiz if they would rather have £500 now or £1000 (real,adjusted for inflation in other words) in 5 years time.
    They went 7-1 in favour of having the money now.
    My admittedly brilliant cousin ran a multi million business which offered matched employer pension contributions up to 6% i think. All her managers did not take this up, electing for the default of 1% with matched employer contribution of 1%.
    The excellent ASI have advocated bringing forward some of the pensions compensation in the NHS into current remuneration while adjusting their future pensions down by a higher amount.
    The vast majority of us humans have a massive preference rate for money now rather than deferring to have more later, way more than 5% even. Yet we hate on the people who made a success of investing long term, while ignoring those who failed.
    The UK is doomed e.g. a communist sympathisers came within a few % of taking power in the UK as recently as 2017.

  6. All her managers did not take this up, electing for the default of 1% with matched employer contribution of 1%.
    This is something I just cannot understand Do these people expect to be alive for only 0.4 years after they retire? When I had a long-term full-time job I was putting 25% of my income into my pension scheme, on the fairly resonable rationale that I want to be able to afford to stay alive for as long as possible regardless of others’ inclinations to pay me to work.

  7. “This is something I just cannot understand Do these people expect to be alive for only 0.4 years after they retire? When I had a long-term full-time job I was putting 25% of my income into my pension scheme, on the fairly resonable rationale that I want to be able to afford to stay alive for as long as possible regardless of others’ inclinations to pay me to work.”

    Maybe they have realised that money put into formal pensions is a sitting duck for people like Spud to get their grimy fat fingers on?

  8. @ bis
    When I was young it was deemed to be 3% real, excluding the risk premium; in the Victorian era people bought 2.5% Consols. Apart from that, you’re probably right

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