Fixed Rate Borrowing

Dear Members,

One of our Ambassadors, forgive me I can’t remember who, pointed out that banks are borrowing on the money market effectively at fixed rates, at 1/4% over base. Then lending at 7% or more which is not good.

BUT this is 7% variable and can only go up from here, unless we move into negative interests rates which is a whole different ball game.

What classical economics tells us is that when you turn on the printing presses, that creates inflation and you get inflation back under control by hiking interest rates. Remember the 1980’s My mortgage hit 28% for a few days. Add on 7 you are looking at 35%. The other side to this is the Where will the inflation come from arguement. However common sense tells us that you cannot just go on printing money, without it having an effect. Eventually it will hit with a massive dose of inflation, and associated high interest rates.

What is inflation? Very simply The value of the £ in your pocket. If you take all of a countries assets and divide it by the units it is broken up into, you get a value – £1. If you increse the units available, and reduce the value of the assets, because they all go bust, then the Value of £1 is reduced. It simply buys less. Your savings are worth less etc. That is inflation.

So WHY are the banks not offerring Fixed rate Loans? Answers on a Post card

 

Nick

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