The Bank of England Monetary Policy Committee will be meeting later today. It will also be releasing the quarterly Inflation report. The general expectation is, that the Bank will raise Interest rates, by a quarter of one percent, to half a percentage point. Let’s hope it does, but don’t hold your breath. They don’t like the idea that the poor have a nest egg to fall back on, and to increase the interest rates would encourage savings, and the poor having a nest egg.
H.M Treasury isn’t against a little bit of inflation, it reduces the National Debt, without the need for the Treasury to do anything, either positive or negative. H.M. Treasury has deliberately encouraged the Interest Rate to remain low, in the belief that raising it, would hit investment.
what a load of Balderdash
I’m afraid I shall have to get technical here and say, what a load of Balderdash. I have continually banged on about the fact that raising interest rates, and more substantially encouraging savings, would increase investment into trade and commerce. It would be especially beneficial to home grown UK businesses, many of which are short of cash when they first start out, individuals don’t have that large nest egg, the Japanese and many other foreigners have.
This has a knock on effect later, as a business tries to expand. It can either remain smaller than it would like and build its own Capital reserves, or try and raise funds for expansion, relative to its current situation, which was probably from a low point to begin with, a small nest egg, means small savings.
At some point there will be a recession, especially if there is a hard #Brexit. This can be made easier, if savings ratios are higher than at present.
people of Britain lack that Nest egg
One of the problems is perception, the perception that recession is always just a hair’s breadth away. It is a load of nonsense of course. And the low savings ratio is due to the UKs continual short term vision, so the people of Britain lack that Nest egg, to fall back on. There is this perception with Politicians that any recession is bad. Well yes it is, so why exacerbate a bad situation by having low savings. Like a larger nest egg, in the form of money, this benefits the poor more than the rich. Past a certain point and high amounts of savings do not really achieve much. But no nest egg, can be devastating, so if a person or family has the cushion of money in the bank, when the real hard times hit, they can get through it, better than those without any savings.
Charles Dickens sums it up succinctly with Mr. Micawber, “Annual income twenty pounds, annual expenditure nineteen pounds nineteen shillings and six pence, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six pence, result misery.”
Those who continually spend everything they earn, are those hardest hit when a downturn in the economy hits, or more important, when a downturn in their own circumstances hits, they have no nest egg to fall back on.
Savings as an institutional idea are loathed by Labour, they are like the late Pools winner, Viv Nicholson, who famously said she was going to Spend, Spend, Spend. And then did precisely that. However there is a little known back story to her life, before she spent a penny of her winnings, she set up a trust fund for her children to get the best education they could. All four of her children, did very well in life. Indeed in a local documentary made in the 1990s, One of her daughter’s rocked up in a top end Mercedes Benz, one of her sons drove a similar car. Viv may have spent, but her kids all saved, and as a result could rejoice.
I have scanned a print I have in my Office, hats cut off alas, but it depicts two Liverpool Cotton traders, and it does sum up very neatly, the effects of lack of a nest egg.
The Chancellor of the Exchequer will shortly be getting on his hind legs and giving his Budget speech.
Japan has lower unemployment
You can be sure savings will be low on the list, it is a disgrace in the UK, that saving is viewed with such contempt. In Japan, they have had 25 years of low and negative growth. Yet despite this, most Japanese have savings, that could see them through at least six months with no income. Many have two to five years of savings, and although the Japanese economy has suffered a severe blow with the earthquake in 2011, which devastated production, they still export more than they import. Japanese setups, still invest in high technology like Robots and Artificial Intelligence, and as a consequence, Japan has lower unemployment then most of the rest of the world. Japan has a very high cost of living, and yet they sell more to the rest of the world than they buy. Why, because they all have a nest egg to fall back on, and so when companies are starting up, there are lots of people falling over themselves to invest a small amount of this nest egg in, a new venture.
Here is the key, because they have such high savings, individuals, even the poor, can spread the risk of their investments. So they have bank savings, they have shares, they have Bonds, and foreign investments. They have the safety net of a nest egg, built up from when they start working.
The UK is heading to lower investment, because we have lower savings. Neither Chancellor Hammond nor the Bank of England Governor Mark Carney, have any intention of helping the poor, by encouraging the idea of the nest egg. And as for Labour they are despicable, they not only despise people saving, they positively demand people spend other peoples money as well, it’s called Socialism.