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Hmm, well, don’t you think it’s about time?

And to contextualise this, I make clear that there have not been positive interest rates within the UK financial markets since 2008.

Homeowners are now wholly unaware of what they mean with regard to mortgage payments.

Similarly, very few managers now running UK businesses have any idea what it means to pay net real interest costs upon their borrowing.

The mindset of positive interest rates simply does not now exist.

It does not even exist in banking, where the willingness to pay such rates to savers appears to be almost non-existent.

In that case, what the Bank of England is trying to achieve with its policy is unfathomable.

Positive real interest rates being one of those good things? Given that money today is worth more than money tomorrow, shouldn’t interest rates be positive?

8 thoughts on “Hmm, well, don’t you think it’s about time?”

  1. Nah, Spurph wants everyone to think that money in the future is worth more and so 1% is a perfectly adequate yield on a bond

  2. “Given that money today is worth more than money tomorrow, shouldn’t interest rates be positive?”

    Not if, like Murphy, either you think discounted cash flow is neo-liberal sophistry or you don’t understand it.

  3. Murphy is a stupid liar because the large majority of bosses of UK businesses are not only older than 15 years but have been adults for more than 15 years so have memories of positive interest rates (and a majority of homeowners are likewise).
    Also fixed rate borrowings that started before 2008 remained at their fixed rate after 2008.
    I try not to be unnecessarily rude to Murphy (Allah tells us to pity the afflicted) but sometimes there is no option

  4. I find it difficult to disagree with a single word he’s written. And no, John, memory discount rates are just as steep as cash discount rates. Further back they go, the less they’re valued. There must be two generations of people now who have no experience at operating at positive rates because they weren’t doing then what they are doing now. I’ve been talking with someone’s who’s absolutely aghast at a bank rate that’s less than I started work with & a lot less than some I’ve seen. But he’s been been accustomed to debt being something you want lots of because it’s cheap & gently inflates away whilst asset prices keep rising. His entire business is built on that. He’s ten years younger than me. Few of them can see that it was an artificially constructed period that would inevitably revert to normal. And I can’t see the BoE being able to do the slightest thing about. Whatever it did now would just make the situation worse. So that’s no doubt what they’re planning to do. In the very short term. Long term they won’t have a say in it.

  5. @ bis
    I have no knowledge or experience of your specialist business, but in my specialist business all the bosses are old enough to remember positive interest rates.
    I admit that “memory discount rates” (brilliant phrase – may I borrow it?) exist and will lead to some stupid decisions but a lot of those managers older than my children are avoiding the Wilson-era paradigm of maxing out borrowing to buy anything that will retain “real” value

  6. I’m coming to the end of my mortgage that started at 15% (I think we were 5% over base rate for the first two years, dropping to 4% then 3.5% then 3% as time progressed and the LTV dropped), so the generational knowledge of “proper” interest rates is rapidly disappearing.

  7. John. It was the absence of “wise old heads” got us into the ’08 debacle. You reckon there’ve been some kept on ice for the past 20 years or more? Where? Wrapped in faded copies of the Pink’un in Smithfield Market’s meat lockers? Ready to come to our aid in our hour of need like Arthur from Camelot?

  8. It seems to be one of the basic facts of business. Anyone with any useful experience gets shoved out the door in favour of the bright young things who understand so much more about the modern world which is totally different & which will never repeat the mistakes of the past, oh no.

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