Should I welcome an interest rate rise?

MG

I hope this might be of interest as a talking point.

My wife and I were discussing our situation the other day and we came to the conclusion that we would be better off with interest rates high. Why? Well we both have good jobs, not fantastic, but well paid and because of our qualifications they are robust against a recession. We have good personal financing discipline and no lifestyle-funding debt.

We concluded that others are riding the crest of the boom and many are also funding their lifestyle from very cheap debt, while we are not. Our theory was that an interest rise would catch out a lot of people who are highly indebted. Furthermore, a recession would hit certain sections of workers harder than us. (Our discussion started while discussing how a construction worker could afford a huge house). Given our stable position, our position relative to others in society would actually improve with an interest rate rise.

Thoughts?

K!LL!@N

You might even pick up a cheap house when the banks start foreclosing. :rolleyes:

Killian

Sleipnir

I used to live in a standard 2 year old 3 bed semi in Lucan, basically your bog-standard first home. Used to see a lot of really nice cars in the driveways
and wondered why someone who owns an Audi TT and a convertible BMW lives
in the same kind of house? They weren't company cars.

So I was talking to a neighbour who is a mortgage provider and he said that
people are remotgaging to buy expensive cars and other luxury item.
He said that some people do it every year.
How I laugh at these people's short-sightedness. A 50,000 euro car
and you want to be paying it off via your mortgage over 30 years?

Not smart at all.

spongebob

Living within your means is not unfashionable or stupid.

Some shortsighted people will go to the wall when interest rates rise but you will also be amazed at how much will get written of by the banks and how the chronically indebted will be bounce back again . One of the ironies of living within your means is that you have a very meagre credit record .....seeing as you get no loans you dont get offered any either.

As someone with no debt other than a mortgage I get bugger all junk mail offering me the opportunity to get myselft deeper in debt, if I was drowning in it I would get the junk mail offering it every week .....probably .

M

MG

There doesn't seem to be any dissenters from the view that certain people (probably such as myself) would gain from an interest rate rise. Someone looking to upgrade their house with a recession proof income (in so far as is possible) and little or no lifestyle debts would move up the scale of relative wealth with a interest rate rise.

My only fear is that banks would write off swathes of bad debts and in the end the financially responsible would end up paying for the irresponsible. Still I'd rather be the way I am and be able to watch Eddie Hobbs "Show me the money" with a gobsmacked look on my face that other people can be so bad with money.

jay567

Just a minor note, alot of the people in the construction industry made serious money since the begining of the celtic tiger. So much so that they may already have set themselves up to become inflation proof.

antoinolachtnai

I think that you are taking high but shaky moral ground. It sounds a bit like you would like to see someone else having bad fortune, and you are thinking that this might give you a chance to gain something. You are wrong.

You would not gain anything if interest rates hiked. Foreclosures and bad debt are very bad for the whole economy, not just the people who get effected directly. If there is foreclosure, the value of your property will go down. There could also be redundancies and layoffs. Your comfy well-paid job might be effected too.

You seem to think that economics is a zero-sum gain and in order for you to 'move up', someone else has to 'move down'. This is simply not true.

The banks are businesses. They aren't moral guardians. If they decide to write off debt because it's easier than trying to collect it, that's their own business. If you don't want to 'end up paying for the irresponsible', sell your house and pay off your mortgage and all your loans now, and buy non-perishable commodities.

jd

With high interest rates people's spending will go down, and employment will probably fall. The government's tax take may fall. I'd guess then a few things may happen
1) Your tax rate may increase
2) Government spending on services and infrastructure may be curtailed.

delly

The way I see it is that if there is an interest rate hike, it will simply give you a chance to quote the 'i told you so line', and still remain comfortable while others are getting nailed to the wall.

I don't see how this can make much improvements to your quality of life, if its good enough already.

Sleipnir

jd wrote:

With high interest rates people's spending will go down, and employment will probably fall. The government's tax take may fall. I'd guess then a few things may happen
1) Your tax rate may increase
2) Government spending on services and infrastructure may be curtailed.

That's a pretty bleak outlook on the situation.
It would largely depend on how much of a increase you're talking about.
It will probably go up 2%-4% next year and if people can't handle an increase like that, they should never have been given a mortgage in the first place.

I'm not saying it won't have any effect, it most certainly will, but it won' be double figures again that's for sure.

MG

I think the best way to deal with these points is to restate the case. In any market you compete with others for scarce goods and services. My wealth is relative to that of those with whom I compete with for those goods and services. Under the assumption I made that my income is “robust against a recession”, we can say that my income is fixed. Of the other I am competing with, there may be those with fixed and variable incomes. Those with variable incomes are more susceptible to economic trends. In a boom they will earn more, in a recession their income suffers. Now add to this the very fashionable element of debt. There is nothing wrong with the right amount of debt. But look around you. How any people are funding expensive lifestyle with their visa card? It’s frightening how indebted some people are. These people are inflating their income with debt. That can’t go on forever, that is a certainty.

Now in relative terms, my fixed income is lagging behind those with variable income and those who have artificially boosted their income. The catalyst for trouble is an interest rate rise. That will made debt more expensive and probably worsen the economy. Those on variable income or with a high level of indebtedness will be worst affected. Will I be affected on my fixed income? Sure, but not to the same extent as the others. My relative wealth will more than likely increase.

A recession would not affect everyone in the same way just as a boom does not either. My position, and I’m sure many others too, is that I have not gained excessively from the boom but nor would I lose excessively in a recession.

This is not about moral highground or “I told you so-ism”. Nor is it “it’s about bums on seats”, “it’s all about supply and demand”, “a rising tide lifts all boats”, clichéd bar room economics. It’s a fair assessment of a real situation. There are certain people who would gain from a recession.

jd

MG wrote:

It’s a fair assessment of a real situation. There are certain people who would gain from a recession.

I wonder what you mean by "gain". If what is important to you is that you are better off than x% of people (for high values of x), maybe so.
You could of course sell up, and move to Poland, where "x" would be a lot higher.