Monday, 28 October 2013

Rule one: Don't trust the interest rates

The simplest illustration of how politicians shaft you and look after their friends are low interest rates. It's not even capitalism as they are not following the market but fixed by government, sorry, the Bank of England or EU or Federal Reserve. Whatever the difference is.

But those cheap rates represent the entire illusions of politics. They do the exact opposite of what they say:

1) Thanks to Max Keiser, we now know 2/3 to 3/4 of all the population lose from low interest rates as they lose more (from savings and pensions) than the people with lower mortgage rates. But it doesn't even stop there.

2) Low mortgage rates don't mean you pay less? No?? Why not? Because estate agents look at your means and calculate what you can pay a month. So if you are buying a house when rates are low, then they work out you can pay more on the principle as they look at your monthly income, and (when running ethically) calculate your reasonable outgoings. So you pay less on the interest and they make it up on the price.

3) Then of course low interest rates force money from savings into assets, first of all housing as the most useful and solid long term there is. And when more people think they can afford a house as rates are low they all rush in and buy, increasing demand and prices again. This forms an endless cycle but one day, long before the 25 year term is up, the rates must rise so if you've paid more for the house than you could at higher rates you will find out.

4) Existing owners only get a temporary benefit, as when they sell everything they have saved will usually go on the new house as they have all risen on a false bull market.

5) Only banks and governments actually borrow at base rate and get little more money whatever the rates as they simply make the same spread between borrow and lend regardless of the level. They can use it to speculate with far less risk, and as they pump it into commodities it raises prices further.

6) Currencies are debased by artificially low rates, meaning they are dumped in favour of hard assets in the form of commodities, again driving up prices and as a result inflation.

So only bankers, brokers and governments get an overall profit from low interest rates, and guess who pays for it, everyone else, including you.

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