Our Changing Globe

Archive for the ‘mortgage rates’ Category

French Critical Of UK Economy, While IMF Warn Of “Gloomy” Global …

thewealthnews.com12/16/11

The French Finance Minister, Francois Baroin, has described the economic situation in the UK as being “very worrying”, while the IMF warn of a “gloomy” global outlook.

UK Economic Data Weakens, GBP to Follow « FXTimes – Forex …

www.fxtimes.com12/15/11

The economic data from the UK this week was a disappointment and may point to further GBP weakness in the coming months as the market fully prices in further quantitative easing from the Bank of England. We review the …

The Good News

The stock market has started the year strongly, and Sterling is up against the dollar and was even rising against against the Euro, until the Chinese bought huge quantities of euro debt
this week.

The Bad News

The threat of inflation is now blindingly apparent and the Bank of England would surely have liked to raise interest rates this week, but what that would that have done to a housing market that’s already heading south; or to those people with other, shorter-term debts, whose price would have become even more suffocating?

For many of them, the day of reckoning has been long postponed, but now it may be just weeks away

The French And Support For The Euro

François Fillon, the very polite, courteous and rather successful French prime minister, went to London this week and seemed to take for granted Great Britain’s continued support of the euro, arguing that its economic future depended upon it, too. He exaggerated of course, but he did so because of the great and in my opinion unjustified fear in France that the game is up for their currency.

"Unjustified"?

Yes, because it’ hard to see why there is this fear since if the euro went under, then the French could simply return to the franc and find themselves able to widen their export markets, because everything would be cheaper.

France’s financial sector, along with Britain’s, would come under heavy pressure because of their exposure to euro debt, but these were risks taken by banks, and they would just have to bear them.

The Banks

In the same way that a Government has no business telling banks what they can pay their staff, it has no business continually bailing them out either.

The UK Government

UK politicians have encouraged the thought over the past couple of months that while things are still very difficult, and hardships inevitable, that the worst is already over, but it’s likely that what they’re really saying is that no more pain will be inflicted in the near future.

Outside Factors

What’s not being mentioned however is that factors beyond their control will soon start to kick in such as;

An external blow to the economy, whether in the shape of the euro ceasing to defy gravity, or simply more bad news from America,

Taxes

UK taxes remain far too high, and are as serious obstacle to recovery and if a recovery has to start from an even lower base, then the obsession with not cutting taxes in case some "rich" person, possibly even an evil banker becomes richer will have to be jettisoned once and for all.

Bankruptcies, Business Failures And Unemployment

Even without external shocks, interest rates must rise, and they’ll cause personal bankruptcies and business failures to rise with them and unemployment will rise too.

House prices will fall, and most likely the stock market too, but the UK cannot postpone indefinitely the final acceptance that it must live within its means.

Growth

Growth is the only way out and it will require the Government stimulating demand and although it won’t be easy, some kind of action is necessary because paralysis is nearly always fatal.

Supply-Side Economics | The CERF Blog

www.clucerf.org1/10/12

As early as the 1950s, Mundell proposed an economic policy program of tight monetary policy to stabilize the value of the currency and low tax rates to stimulate economic activity. During the late … The Reagan Scenario included a sharp drop in inflation, a recession in 1982 due to tight monetary policy, passage of the Kemp Roth tax cuts and an economic boom starting in 1983. … Inflation and interest rates are much lower and tax rates are lower as well. While a high …

The hidden dangers of low interest rates | David Cay Johnston

blogs.reuters.com1/10/12

Low rates also come at a cost, cutting income to older Americans and to pension funds. This forces retirees to eat into principal, may put more pressure on welfare programs for the elderly, and … If rates return to, say, 6.64 percent, the level they were in 2000, one year's interest costs would equal the individual income taxes for all of 2011 plus the first few weeks of 2012. Last week , rates took a step in that direction. The yield on the 10-year bond, a benchmark for other …

President Obama’s recent claim to homeowners, that refinancing their mortgage loans at a lower rate, equates to a tax cut, doesn’t ring true for many tax experts.

Obama said at a recent press conference that the housing plan his administration had launched, had “already contributed to a spike in the number of homeowners who are refinancing their mortgages, which is the equivalent of another tax cut. The main message we want to send today is that there are 7 to 9 million people across the country who right now could be taking advantage of lower mortgage rates and that is money in their pocket”.

What Obama failed to mention however is that unlike the housing boom that led to the current financial crisis, this time, only borrowers with strong credit ratings and stable jobs will be able to save money if they refinance.

Obama’s announcement caused many tax analysts, including Gil Charney, who is an analyst for The Tax Institute at H&R Block to shout “foul”;

“While there could be overall savings by refinancing and lower monthly payments, there also could be reduced tax benefits as less interest is paid. Also refinancing could extend the period before the mortgage is fully paid off, so this might not be desirable for someone who wants to be mortgage-free. Therefore, someone about to make a financial decision should take their complete financial picture into account, not just their tax situation”.

In fairness to Obama, some analysts like Mark Steber, who is vice president of tax resources at Jackson Hewitt Tax Service did express a more supportive viewpoint, “While generally there is no tax advantage to refinancing at a lower rate, an individual can save on the total out of pocket costs each year over the life of the loan. Though a tax bill will actually increase after refinancing, the increase in taxes may be less than half of the total difference in interest paid, so the taxpayer may save more money than their taxes increase, therefore resulting in net savings”.