1/20/2009

Inflation - A well know fact that the government ignored

Why did it take the government so long to understand that their failure to act promptly a few months ago has actually made the recession worse.

Last April I predicted that the failure to cut interest rates was tying people in to long term fixed rate mortgages (and 80% of people are on fixed rate mortgages) so the government's sudden recent drops in interest rates are only benefiting 20% of mortgage holders, and is therefore having very little impact in providing a fiscal stimulus.

I repeated the point again in July, but still the government were oblivious.

Now we are in a situation where 80% of people are locked in to high mortgage rates for the next 3-5 years, thus making what might have been a short recession in to a long term depression.

And all these problems have been caused in the name of fighting inflation, which everyone knew would soon drop once the recession started. You only have to look at the precedent of the mini credit crunch Japan suffered a few years ago for a real example when inflation turned to deflation, yet our government was blind to this.

Whilst I cannot for one moment follow the Tory line that this worldwide recession is the fault of Gordon Brown, I am of the opinion that all the government action now is necessary in order to make up for their lack of action as the recession started.

4 comments:

North Norfolk Blogger said...

Good points, well made. I'm on a fixed mortgage with another 3 years to run, paying over 4.65%.

Also on a different track, it seems NCC is planning job cuts for frontline staff, see
http://northnorfolkblogger.blogspot.com/

Mark said...

Just over two months ago I went to see my bank manager about starting an ISA and we got chatting about mortgages.

He mentioned that he was just about to sign for a fixed rate deal. This was at a time when it was totally clear from all the media that rates were about to plummet and stay low for a long time. I did my best to persuade him that this was a bad move and he said he would look into it some more.

So if even a bank manager, just before rates were about to start their vertiginous drop could not see it coming, what chance for most of the population?

It's times like that when I am very glad I keep closely abreast of current affairs!

Norfolk Blogger said...

We renewed in August and I persuaded my wife that we should have a tracker mortgage as rates had to drop (for the reasons I gave). I was right and we now safe moe than £100 a month on our mortgage !

If I, a teacher, not an economist could see it, why couldn't Alistair Darling ?

Moggs Tigerpaw said...

Good points.

Yes this recession is not just down to Gordon Brown, but how it hits and hurts the UK probably is and will be.

He is like the captain of a ship that only sailed in fine weather near the coast and didn't keep up with maintenance or repairs.

Our trouble is we are his passengers, not passengers of a captain who had the hull scraped and painted and knows how to weather a storm.

Maybe if he hadn't sold off half the gold reserves at bargain basement prices just when the price bottomed out he might have more cash to play with now.

Maybe if he he had the gumption to tell the EU that he was going to do it anyway he could have dropped VAT by enough for it to have made any actual difference. Instead of just wasting Tax income.

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