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Thought shaping

Britain’s banks have given up waiting for the Bank of England and have begun cutting rates.  And predictably, the folks over at Pravda are treating this as a good news story:

“Mortgage lenders have started the year by cutting rates, taking some of the pain out of the cost of a new deal for homeowners.  The UK’s biggest lender, the Halifax, has cut some interest rates by close to one percentage point, with brokers now expecting others to follow suit.”

To be clear, whatever else the banks are cutting rates for, it is most certainly not to ease their borrowers’ pain.  Indeed, inflicting financial “pain” on borrowers is precisely why the Bank of England raised rates to 5.25% to begin with.  The whole point is to force people to stop borrowing, to force others to repay existing debt, and to have thousands of households and businesses driven into bankruptcy as the chosen means of crushing the stock and flow of currency in the economy, and thereby bringing the inflation rate down to the arbitrary target of 2.00%.  Moreover, at face value at least, banks get to make a killing from the much wider spread between interest on loans and interest on savings… even if this means inflicting pain on borrowers.

As it happens, further down the BBC article – where many readers won’t bother reading – we get a hint of why the banks may be getting uneasy about interest rates:

“Some 1.6 million homeowners will see their current fixed-rate deal expire over the next 12 months, the vast majority of whom could see their monthly repayments rise quite sharply.”

A far more likely reason why the banks are getting worried about interest rates is that among the 1.6 million households facing sharp repayment rises are several hundred thousand who face impossible repayments and who will not be repaying their loans.  Nor does the problem end with mortgage arrears and bankruptcies.  Thousands of “zombie” businesses which have used low post-2008 interest rates to service their debts, but which lacked the income to repay them, will also have to roll-over their loans in 2024.  But even if borrowing rates dip below 6.00%, they won’t be able to repay them.

On top of this is an uncalculated mountain of derivatives based upon the anticipated loan repayments.  And, most likely, as we discovered in 2008, there will be a whole “shadow banking” structure which ultimately depends on all of these loans being rolled over and repaid.

In any case, it turns out that the rate cuts the BBC is reporting are very modest:

“Overall, the average rate on a two-year fixed mortgage has only dropped marginally in recent days, to now stand at 5.93%, according to the financial information service Moneyfacts.”

And even these rates are only available to those who already have 40% or more equity in their houses.  There is no respite for the first-time buyers who not only keep the housing market conveyor running, but – in a debt-based economy – ultimately help determine the volume and flow of currency into the economy.

Inverted bond markets – which have preceded every major economic downturn in the post-war economy – have been pointing to a rapid drop in interest rates in the near future.  Something which bankers beginning to worry about bad debt may also be signposting.  But typically with central banks, the Bank of England will only make significant rate cuts after an economic crash has begun.

This is the real story that the BBC should be investigating.  Interest rate cuts are not a good thing.  If the economy was flourishing – which surely even BBC journalists (sic) are aware it isn’t – why would anyone want to cut rates?  In a thriving economy, rates would be higher to attract investors and savers.  In a debt-based economy, it is only when things go badly wrong that rates fall as we saw in 2008 and again during the SARS-CoV-2 world tour.

Interest rates are indeed coming down in 2024.  But by the time they bottom out – most likely going negative, because that’s the last chance of preventing a systemic meltdown – the UK economy will be in a depression from which there is no way out.  And at no stage in that process will a banker or central banker be concerned about the pain they inflicted on ordinary households.

As you made it to the end…

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