Posted on 09/27/2022 4:29:04 AM PDT by semimojo
The British bond and currency markets have been in turmoil since Finance Minister Kwasi Kwarteng announced his “mini-budget” on Friday.
The yield on the U.K. 10-year gilt soared to levels not seen since 2008 on Monday, while the British pound plummeted to an all-time low against the dollar.
Markets have begun pricing in a base rate rise to as high as 6% for next year, from 2.25% currently, raising concerns among mortgage lenders and borrowers.
Inflation fears were accelerated by the market moves, which indicated that the Bank of England would have to continue to hike interest rates to fight rising prices. The central bank said it would not shy away from this as it aimed to bring inflation back to 2% and was watching developments closely.
(Excerpt) Read more at cnbc.com ...
6% is only about a half of the rate on our first mortgage. Been there done that and survived.
The rates are normalizing, seeking the mean
Countries that are deeply in debt are going really pay a price as interest rates rise and normalize.
The USA national debt is slightly over 30 trillion dollars with no sign of slowing down, as interest rates rise the cost of servicing that debt will become mind boggling.
The lending market works when there is certainty. If everyone knows rates will be at a certain level - high or low - lenders will lend and borrowers will borrow. Its when there is uncertainty in the market that it grinds to a halt. Commercial real estate lenders have stopped lending in certain regions of the US until there is more certainty on rates. One example - when you get a commercial floating rate loan, many lenders require, and borrowers want, a rate cap (which essentially is a forward transaction in the market or other derivative). Rate caps have doubled in price over the past couple months. If you add an extra $500,000 to your borrowing cost for a mid-sized commercial loan, it doesn’t make sense, especially if you think that the cost reflects market uncertainty rather than a true reflection of rates.
Good point. I think lots of people don’t believe the UK’s current fiscal plan is sustainable.
Yeah...our first mortgage was an 8.5%, 30 year VA loan (with the 1% VA funding fee). Not as bad as your 12%, but still teaches one perspective. We eventually refinanced down to 4.5%, 15 year with no PMI. I’d still buy another house.
My first mortgage was 8.25%.
>>>>Countries that are deeply in debt are going really pay a price as interest rates rise and normalize.
The USA national debt is slightly over 30 trillion dollars with no sign of slowing down, as interest rates rise the cost of servicing that debt will become mind boggling.<<<<
You forget we are on the Japanese model now. Japan started to “buy” it’s own debt after their terrible recession in the 90s. The rest of the west watched in anticipation to see what would happen. Japan did not have a crash. Tho it did not have a boom either. And thus America and other countries also “buy” their own debt. See the magic of it is, the govt can sidestep actually paying interest to anyone but itself. I’m no expert on how it actually works. But in the past I think if an auction for debt didn’t sell everything for offer, the treasury dept would buy the remainder.
Yes, print and buy your own debt rather than let price discovery of a true market interest rate occur
Countries certainly can monetize their own debt, it’s not a problem until it becomes one.
On Steve Bqnnon’s War Room, they have talking about this issue, the interest payments this year will be around 400 billion, in 10 years it will be over 1.2 trillion, making it perhaps the largest single expenditure in the Federal Budget.
>>>Countries certainly can monetize their own debt, it’s not a problem until it becomes one.
On Steve Bqnnon’s War Room, they have talking about this issue, the interest payments this year will be around 400 billion, in 10 years it will be over 1.2 trillion, making it perhaps the largest single expenditure in the Federal Budget.<<<<
That just makes the appeal to keep printing money even stronger. Remember the first time in over 40 years when the republicans had the presidency and BOTH CHAMBERS IN CONGRESS during GWB term? The self described compassionate conservative did NOTHING to erase the legacy of the GREAT SOCIETY or the NEW DEAL. In fact he grew government and gave the social security crowd a new prescription drug benefit.
As Steve Bannon says, we have a uniparty. I don’t see these so called leaders having the balls to cut spending. Hence, we will be printing money for as long as we can. They will only stop if the whole thing comes crashing down. IMHO anyways.
I agree, it’s not an issue until it is, we will continue to spend until the capital markets teach us a lesson, if/when we lose the world reserve currency status then the fun begins
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