In Liz We Truss
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craner
Beast of Burden
Deleted, sorry
IdleRich
IdleRich
To be honest I was so fucking drunk when I came in yesterday and wrote that I'm suprised it actually came out in legible Engliish.
IdleRich
IdleRich
But it affects other things too. Like I said a few pages back, if the interest rate on the pound is higher than the euro (say) then it makes sense to borrow euros at the low rate, turn them into pounds and then lend them at the high rate. So the bigger the difference is between them the more you are going to get people buying pounds with their euros and in theory the pound will rise against the euro.
BUT
If the interest rate in the UK rises then that means that it hurts everyone who is in debt. If you have a variable rate mortgage and the rate rises then your mortgage payments go up every month. So some people can't afford to pay that and they lose their house. Other debts become more onerous too. So is it worth paying that price to slow inflation?
Also of course if the pound rises it helps importers but hurts exporters, so there is that balance to get right too. And there is also the fact that if interest rates are high then people will tend to hang on to their money instead of spending it, so it might decrease investment and speculation.
What if you have a variable rate mortgage and you also have a business that imports materials from abroad... do you want interest rates to go up or down? Do you want a high pound or a low one? What is the optimal interest rate?
And how do you find the optimal interest rate for a country filled with all kinds of people in all kinds of positions?
yyaldrin
in je ogen waait de wind
so is that what is happening in the usa as well now? that people in debt are getting into problems now?
woops
is not like other people
legend
IdleRich
IdleRich
Well it's always happening everywhere to some extent, it's just that if interest rates raise then you are going to move further along that scale towards the bad end, while at the same time tending to strengthen the currency and reduce inflation hopefully. So it's just where you are happy on those two scales. Although of course it's an inexact science. The central bank or whoever can normally set the actual interest rate sure, but they can't necessarily say for certain how many borrowers it will hurt and how badly. And also of course they can't guarantee what the rate of inflation will be... in fact, they will only be able to measure it retrospectively and see what it was after they changed the interest rate. And there are other factors which can change it too so it's very hard to judge how successful they were in moving towards their inflation target, and if they did move towards it they won't necessarily know how much of it was down to their actions and how much was caused by other stuff.
To me it seems that there is an awful lot of guesswork involved in this at every single stage. You do something and for a while you don't even know what is happening, then a bit later you do get a measure of a load of different variables such as inflation and unemployment and spending and house repossessions and so on, and you can see how they changed around the time you did whatever you did - and you also need to look at what else occurred at that time to try and pull apart how much of what happened was directly down to what you did and how much was down to other events.
And because of all that it's rare that the government makes a decision and immediately gets very clear unequivocal feedback on specifically that decision. Normally the government announces a policy and all their friends lie about how good it is and the opposition put out statements explaining why it's a disaster, but as a rule it's months before either side is proven right and there are so many other variables that each side can plausibly claim that what they said did come to pass but the definitive proof is hidden by other events.
So, in a sense, you might say that Truss and Kwarteng are quite lucky to get such a rapid response from the market to their mini-budget, although they might not consider themselves lucky to be really quickly and clearly told "What the fuck are you doing you absolute fucking cretins, this is an utterly terrible idea that every single person with half a brain or half a heart hates and which is totally impossible for you to even attempt to justify. Now fuck off before you do any more damage"
Oh, and back to the original point, there is the question of whether you want to strengthen your currency - and if so how much? Cos if the currency is highly valued then you can buy stuff from other countries easily, and it's nice if you go on holiday - but people will find your country hard to buy from and they will find your exports expensive so they may look elsewhere. And tourists will find your country expensive and maybe not go there on holiday, or spend less when they do. So again there is that trade off.
Also there is an unspoken assumption that inflation is always bad... yet, if you have large debts (which probably a lot of us do here - accrued due to living a feckless and irresponsible lifestyle) then inflation can reduce them, even make them go away. You know when you hear about countries that have hyperinflation - in the morning a loaf of bread costs one pound but in the evening it costs a million pounds and next day it costs a billion pounds - how come they never mention the winners?
Like imagine if you owed someone ten million pounds and you had no way out, you were thinking to yourself that you would never pay that off, never get out from under it and your whole life you would be owing more than you could ever hope to make, you would be paying enormous amounts of interest and the debt would still be increasing... and then along comes hyperinflation and suddenly your debt, which used to be enough to buy fifty houses is now the value of a loaf of bread. You'd think that there would have to be a few people in that position who would be celebrating the crashing economy and destroyed currency right? But you never hear about them for some reason.