See the end of the thread for latest views/news.

Also see here;

http://www.consumeractiongroup.co.uk/forum/showthread.php?288237-The-great-interest-rate-ripp-off-part-2

I have a simple question, why should any increase in the cost of borrowing go to the banking sector bottom line, rather than paying off the debt owed? Why is it in the economic interest of the country for the money to go to the banking system rather than reducing the level of personal debt?

I am seeking help in mounting a legal challenge over the legality of using interest rates to control inflation, primarily my objection is that currently the consumer see’s no benefit in any increase in the cost of borrowing I argue this increased cost should be coming off the debt owed by the individual and not funding the bottom line of the banking sector.

I want to challenge the Bank of England in court over the use of interest rates to control inflation, there is no justification in law, economically or morally to simply make borrowing more expensive to control inflation. Therefore the BoE is acting illegally by allowing the banking system to simply take our hard earned money cash to fund the bottom line

£100,000 @ 3.5% APR = £3500 a year in interest July 10 2003

£100,000 @ 5.25% APR = £5250 a year in interest Jan 2007

So far over the past 4 years there has been an inflation busting 50% rise in the cost of borrowing under the guise of controlling inflation. If the interest rate goes to 5.75% as many economists expect this means an inflation busting 65% raise in the cost of borrowing. This would mean for every £100,000 owed approx £5750 will be taken in interest with none of this money going to the debt owed. The banking system is raking in an extra £1750 a year of our money for doing nothing.

Surely if interest rates control inflation a 50% rise over 4 years would have controlled the problem, unless of course they don’t!

1. Interest rates are only fuelling banking sector profits
   
2. Interest rates don’t control inflation
   
3. Increased repayments should go to reducing personal debt levels not banks profits
   
4. Personal lending limits should be set
   
5. Maximum mortgage multiples should be set
   
6. Interest rates don’t combat raising oil prices, energy prices etc...
   
7. Interest rates don’t combat inflation caused by tax raises
   

If you start digging deeper you find that it’s the banking sector helping to fuel inflation by recklessly lending money. The current system does not penalise the banks for reckless lending, if they lend out too much money and cause inflation they are rewarded with higher interest rates which we pay for! It’s the consumer paying for poor banking decisions over lending. The only way banks can increase profits is by lending more money, this is a vicious circle and it’s the consumer who pays the price with inflation and higher borrowing costs.

Inflation isn’t helped by the pressures of the stock market, energy prices, tax raises etc… yet our governor of the Bank of England remains silent, just blames the consumer and makes them pay.

I’ve already contacted the Bank of England and so far they haven’t given me any economic evidence why it’s in the economic interest of the country for the increases in the cost of borrowing to go towards the bottom line rather than paying off debt.

If anyone here can give me the economic argument for this I look forward to reading it.

Please note I have tried to keep this simple and brief, inflation is a complex issue but it’s cannot be control simply by increasing the cost of borrowing and ensuring the consumer pays for it 100% which the current system does.

However I know there isn’t one and I want my overpayments to the bank back AND TAKEN OFF WHAT I OWE ON MY MORTGAGE.

http://petitions.pm.gov.uk/mortgages/ - Deadline to sign up by: 20 May 2007

There currently is a petition here please sign and protest, this petition has not been created by me but I’ve already signed it.

If anyone can help please get in touch, no central bank has ever been taken to court, it's time they where and asked to justify what they are doing. If your fed up help spread the word and join the fight.

BBC NEWS | Business | Interest rates 'must hit 5.75%'

The Bank of England should raise interest rates to 5.75% by June in order to guard against wage-driven inflation, a think tank has warned.

 

While rates are expected to go up from 5.25% to 5.5% next month, the National Institute for Economic and Social Research says a bigger rise is needed.

It points to the fact that the UK's retail price inflation (RPI) rate is currently at a 16-year high of 4.8%.

RPI is the basis for many annual pay deals agreed at this time of the year.

Not that people are fighting for higher wages to meet the higher mortgage repayments then!!!!

BBC NEWS | Business | Bank sees 'sharp' inflation drop

Bank sees 'sharp' inflation drop

 

Bank of England Governor Mervyn King said that there could be a "sharp" decline in the UK's rate of inflation over the next four to six months.

 

Giving testimony to parliament, Mr King said the Bank was determined to bring inflation back within its 2% target.

The Bank also said that the strength of the UK housing market over the past year was a "significant" development.

The comments come as many analysts are predicting that interest rates will increase in May to slow price growth.

Bank pledges better rate guidance

The Bank of England will aim in future to give financial markets a better insight into its economic thinking.

 

The pledge comes amid rising pressure on the central bank, as it marks 10 years of setting the UK's monetary policy independent of the government.

Last month, the Bank was forced to write an unprecedented letter to the Chancellor explaining why inflation had risen by 1% over its target.

Analysts expect rates to be raised to 5.5% at the next meeting on 10 May.

King sees money growth as danger sign-Business-Economics-TimesOnline

Rapid growth in the supply of money and credit in the economy may be a warning signal of inflationary risks, Mervyn King, the Bank of England Governor, conceded last night, in comments that will harden expectations of new interest-rate increases.

 

After an attack on the Bank last month from economists who accused its Monetary Policy Committee (MPC) of paying too little heed to the role of money growth in the recent surge in inflation, Mr King admitted that these factors could signal that base rates had been at the wrong level.

 

 

“It is quite possible for there to be unwarranted money supply shocks . . . The MPC must always be looking for warning signals of this,” he said. “There are times where monetary developments have . . . [proved] a warning sign of inflationary risks.”

 

 

The Governor’s comments, to the Society of Business Economists, came as he defended the MPC’s record amid a recent outbreak of criticism since inflation climbed to a ten-year high of 3.1 per cent, forcing him for the first time to write an explanatory letter to the Chancellor.

For £250,000 a year, your worth every penny Mervyn.

Methinks someone has the wrong end of the stick. The BoE rate is for high-volume lending between major institution. The rate is currently 5.25%, and I challenge you to find a reasonable mortgage at that rate available today. If you want to mount a challenge, perhaps you should challenge the notion that a 25bp rise in the base rate translates to 500bp increase in card rates, while a 25bp cut is not reflected.

hi meagain, but although aimed at a higher level of borrowing, are you suggesting that it does not cause any effect lower down, or financial institutes don't take advantage, I am afraid my mortgage goes up by approx £22 every 1/4% raise, and if as predictited may could see a raise of 1/2%, I agree with mr interest man. why punish me for Mr Browns lack of ability to forcast economic growth?

I must admit Gordon is very effective at drumming up new ways of taking my cash.

hi meagain' date=' but although aimed at a higher level of borrowing, are you suggesting that it does not cause any effect lower down, or financial institutes don't take advantage[/quote']

 

I'm suggesting no such thing, but I am suggesting that the BoE should not be responsible for what, as you correctly say, is a matter of financial institutions taking advantage of it. Much of what the OP says about the idea of not using interest rates to deal with inflation is horrendously misguided and naîve.

 

I am afraid my mortgage goes up by approx £22 every 1/4% raise,

 

That's your problem, and nobody else's. You decided to take out a mortgage knowing that the rate can go up as well as down. Those of us that are closer to the poverty line don't have to worry about such things, unable as we are to afford to even think about buying a house in the first place.

That's your problem, and nobody else's. You decided to take out a mortgage knowing that the rate can go up as well as down. Those of us that are closer to the poverty line don't have to worry about such things, unable as we are to afford to even think about buying a house in the first place.

yes it is my problem, but when i purchased my property some years ago, i did not beleive that people would be stupid enough to vote Labour in.

 

yes it is my problem, but when i purchased my property some years ago, i did not beleive that people would be stupid enough to vote Labour in.

As opposed to the Conservative's brilliant job in the past of getting interest rates up to 15%.

Think before you post.

Ah yes I remember it well, interest rates of 15% and credit card interest of 30% - how times have changed........well perhaps not

Ah yes I remember it well, interest rates of 15% and credit card interest of 30% - how times have changed........well perhaps not

Hey, things have changed massively since then. The base rate is 5.25%, and credit card interest is ... oh.

I rest my case m'lud

I did not vote tory or lib dem or labour, I think they all feel they could do better, but once they are in they have their own personal agenda, as for the interest rate, I fear it is becoming a sort of stealth tax, yes the interest rate flew up in the early 1990's, but it is governed by the BOE, who are suppossed to predict economic changes, and change to suit, it has been clear for a couple of years, that house prices continue to rise, so why did they not kill the trend off with a 1% hike 12 months ago, probably because there is no long term profit in doing so.

Here's the bit you evidently fail to understand. The interest rate is the cost of borrowing. An increase in the rate of interest means your outstanding debt just got more expensive. It also got more expensive for the commercial banks who were borrowing from the BoE. Are you suggesting that next time the cost of wheat shoots up it should not affect the price of bread?

If the price of wheat went up 0.25% and the price of bread went up 15% (at least 1 'bank' has done this in the past 6 months) then, yes I say thats wrong, especially as it means some people will no longer be able to eat bread, going back to the corn laws?

I think to compare the cost of a hike of a few pence on a loaf of bread with a subtantially higher hike on several loans is a little out of perspective. We are not talking people having to buy their bread at Aldi instead of Waitrose, we are talking people losing their homes, marriages, and the goods they have worked hard for as happened a heartbreaking amount in the 80's.

I think to compare the cost of a hike of a few pence on a loaf of bread with a subtantially higher hike on several loans is a little out of perspective.

Not at all. Unless, of course, you're suggesting that increasing the value of all bread in the country by a few million is OK while increasing the value of all debt by a few million is not.

BBC NEWS | Business | UK interest rates raised to 5.5%

The Bank of England has voted to raise interest rates by a quarter of a percentage point to 5.5%.

 

The increase, the first since February, takes the cost of borrowing to its highest level since 2001.

Analysts had widely expected the rise as the bank battles to rein in inflation and cool consumer spending.

Business and employers groups accepted that the latest rise was "necessary", but added caution was needed in future so as not to slow UK growth too much.

"The MPC (Monetary Policy Committee) has to be firm. But it is important not to overreact to transitory developments," the British Chambers of Commerce said.

Yet more money taken from the poor to give to the rich, this stealth tax needs stopping. Why not simply order wage reductions across the board this would have exactly the same effect.

Not at all. Unless, of course, you're suggesting that increasing the value of all bread in the country by a few million is OK while increasing the value of all debt by a few million is not.

No I was referrring to the affect on the average household, I can quite comfortable afford a small hike on a loaf but find the same percentage on all mortgages, loans and CC's a bit harder to swallow.

Yet more money taken from the poor to give to the rich, this stealth tax needs stopping. Why not simply order wage reductions across the board this would have exactly the same effect.

Because your argument has more holes in it than the "45 minutes" dossier.

Why does it have holes in it????

What exactly am I getting for the extra £2000 I'm now having to give to the banks????

What difference would it make to simply have a £2000 wage reduction from my salary???

That would reduce costs, leading to lower prices therefore lowering inflation???

If you can say the above is a simplistic argument then so is using interest rates to control inflation.

Inflation is being caused by the over supply of money which encourages higher prices leading to inflation. The root cause of this is the banks and they are rewarded with high interest rates encouraging them to further lend money. Granted at some point the cost of borrowing will be too prohibitive the main problem being many people have lent large sums against the promise of long term stability which the BoE is charged with and people are now facing the very real prospect of losing there home because of the stupid notion that interest rates control inflation.

If my argument is so full of holes then you can answer the one very simply question:

Why is it in the economic interest of the country for any increase in the cost of borrowing to go towards the banking sector bottom line, be it the banks themselves or the money markers rather than the increase coming off the debt owed by the individual???

Or do you deny that somebody somewhere is making huge sums of money out of these increases?

It's a very simply question yet the Bank of England have failed to answer it so far. Everyone I've asked so far has failed to provide anything like a reasonable response.

I presume you have economic modelling data which can verify and has been published that money is better going to the bottom line rather than off the debt.

Why does it have holes in it????

You're making flawed assumptions. The biggest of which is that you have a better idea of how to run the economy of an industrialised nation than the people that actually do it.

What exactly am I getting for the extra £2000 I'm now having to give to the banks????

Flawed assumption #2: That £2000 goes to your mortgage lender and stays there.

The bank will have borrowed money to back your mortgage. That money will have cost them an additional £2000 (or thereabouts).

That would reduce costs, leading to lower prices therefore lowering inflation???

Flawed assumption #3: Reduced costs will lead to lower prices.

Businesses will happily "absorb" the reduction in costs in order to maintain prices and thereby generate higher profits.

Flawed assumption #4: Everyone will have to pay (£2000/your salary) more as a result of the increased rates.

You have missed out folk that don't have credit cards, don't have loans, and don't own their own home. I'd be pretty annoyed if I had to take a £2000 pay cut to keep someone else's mortgage under control.

If my argument is so full of holes then you can answer the one very simply question:

Your question is heavily loaded, and the argument based on flawed assumptions and false premises (much like the question "When did you stop beating your wife?"). It does not need to be dignified with an answer.

I presume you have economic modelling data which can verify and has been published that money is better going to the bottom line rather than off the debt.

No, but then neither do you, even though you're the one claiming you could do a better job of running the country than the people in charge.

Once more still no answer to the question of why any increase in the cost of borrowing should go to banking sector bottom line (please note that I mean the entire banking system, money markets not just the high street banks) rather than paying off the debt.

If I've borrowed too much money I should be paying it back not having a higher cost of borrowing, which lets face it is a pretty stupid state of affairs and achieves very little apart from improving city profits. Yes it costs the bank more, but are you really trying to say they don't take a cut of any increase???

It's a loaded question is it??? I'm afraid not it's a very simple question surely it can be answered if it's loaded or not, and I'm afraid that's the system.

Do interest rates work, yes in the sense if you put them up high enough you kill the economy. Why not simply put interest rates up to 15% again that will sort out inflation.

You have too much trust in the establishment, just because this has been written thousands of times that the way to control inflation is with interest rate raises doesn't mean it's the best way.

Increasing taxes would reduce inflation as would a decrease in wages.

You make a great point about people with loans etc... paying the price with wage cuts, but you fail to make the next logical step that is inflation is a micro economic problem and NOT A macro economic one. Why am I paying for the idiots down London who've driven up house prices??? What your really saying is that interest rates should be set regionally, but this brings you back to do interest rates work??? Also what about the people without loans driving inflation up as they have spare cash!!!! How do you fix that with interest rates???

Perhaps you can answer what possible association there is between oil price and interest rates???? The recent inflation pressure can be said to be caused by energy prices, the great the Mervyn the dim offered this as the excuse to the chancellor which was a clear admission that interest rates don't work. Yet I'm paying the price for something that's way out of national control.

Again in your reply you've completely failed to say what possible there is to me as individual to paying more for borrowing money.

Perhaps when thousands off families are homeless you'll be happy.

I'm not making assumptions, inflation is a complex problem and can't be covered in a few sentences.

Once more still no answer to the question of why any increase in the cost of borrowing should go to banking sector bottom line (please note that I mean the entire banking system, money markets not just the high street banks) rather than paying off the debt.

Have you stopped beating your wife yet?

You have too much trust in the establishment, just because this has been written thousands of times that the way to control inflation is with interest rate raises doesn't mean it's the best way.

So shut up and make a ton of money writing a book on it already.

What your really saying is that interest rates should be set regionally, but this brings you back to do interest rates work???

What I'm really saying is shut up and do something worthwhile with your rant (such as the aforementioned million-pound book deal), as opposed to trolling message boards.

The bottom line on interest: You want money, you don't have money, the bank gives you money, you pay them for it. End of story.

Again in your reply you've completely failed to say what possible there is to me as individual to paying more for borrowing money.

How about "not borrowing money"?

So you still can't give a answer???

The great depression of the 1930s interest rates didn't fix nor stop it.

The inflation and oil economic pressures of the 1970's didn't get stopped or prevented by the great minds of the industrialised countries.

You also mean the great minds who decided to gerrymander with the housing market to get votes in the 80's by not allowing councils to rebuild new housing stock when they had to sell to renters causing the present house price inflation.

You also mean the great minds that spent billions trying beat the markets to prevent ERM expulsion and that put interest rates up from 10% to 15% in one day but then only put them back to 12% (note not 10%).

I would suggest you get a history book and have a look at what the great minds of the industrialised economies have achieved you will see that it's just boom/bust boom/bust hardly a great sign that interest rates work or are even effective. If interest rates where the holy grail of economics you would not get such vicious cycles.

Or perhaps I should just be like you and accept the status quo and never question just accept what the great minds are telling us and keep handing over my hard earned cash.

So you still can't give a answer???

Have you stopped beating your wife yet, yes or no? It's a simple enough question.