Central bank poker – who has the best hand?

Focusing on the Bank of England situation, why is there no choice but to increase interest rates?

The government may not admit this but through mass job cuts in the public sector, consumer demand/confidence inevitably will suffer. So as long as the coalition pursue this policy the demand side of the economy will make it very difficult to pass on the cost of increases in raw materials. Inflation is also at artifically high levels due to the increases in VAT which drop out of the equation after a year anyway.

I was watching bloomberg this morning, and there was a comment about sterling being perceived as a semi safe haven. This is because there is a plan in place to make sure we dont become the next greece.

I know which side of the euro zone I want to be at the moment. It may not seem great in the UK right now, but wait and see what unravels in Europe, its going to be a blood bath.

What effect does this have on the individual ? A Frenchman, for example, places his savings in a bank account, receives 1.5% interest and loses 2¨2% to inflation.

Is the total pie reducing or is he subsidising the extravagant losses of the big players?

As ever the saver no matter what country subsidises the profligate. It was ever thus.

To my mind, The Fed is "All in" it has no chips left, Ben B is just trying to bluff his way through. BoE cannot win with the cards it has, so would be well advised not to bet anymore chips. The only way EU can win is if all the member states hand over their cards to Berlin. Can't see it happening. The Germans are not going to sweat their guts out in factories in order to enable Greek shipping magnates to relax on their yachts. Looks to me that China will pick up the pot.

If there are supposedly 3 savers for every 2 borrowers and if only a fraction of borrowers are potentially impacted by higher interest rates (likely to miss payments), then why not increase interest rates?

An increase would boost confidence in savers, who would be willing to spend the "interest" rather than conserve capital as now (except for essential purchases).

Net net I suspect that the country would get a boost.

Does China really have the money? Unlike the other "players" there is no sure way of checking. Figures have been and will be massaged. Will we all muddle through or is fiat currency doomed. History says yes.

As HotRod said, the Fed is all in.

Problem is that it's only got an Ace and a 9 in its hand so is desperately hoping to wing it with a matching Ace in the flop or, by some miracle, a streaky straight.

ECB still has a few levers (although QE would be a pain technically since it can't go straight to the printing presses like sovereign central banks).

Berlin seizing control would have given it Aces; but the dysfunctionality of its neighbours means it only has a pair of 9s and has to hope its 'muddling' hand can make it through the huge risk that it will be exposed.

The ECB can still raise, at least. But it knows the Fed will be there to the end for the reveal so this is a very dodgy strategy.

UK looks pretty stodgy.

It might have started with a pair of 2s but the flop has revealed another 2 so it might just do the improbable and wing it with Three of a Kind.

BoE cannot raise rates now, though. It would kill off yer man in the street, cause his house to be reposessed and exacerbate the austerity.

History might show that this begrudging double-act (Government and BoE) actually worked out to be the best method: Austerity + loose monetary policy.

Then again, I do have a tracker mortgage so might not be as objective as I could...

Raising interest rates now would kill the uk economy. People are taking pay cuts and freezes and only surviving due to mortgage payments being lower. An increase in interest rates will further reduce peoples disposable income and risk more people defaulting on mortgages and loans.

An increase in interest does not assist the people on Benefits, most people who own a house must have some sort of income which is taxed, to increase interest rates you are increasing the tax on the productive people in the economy, although to class Government employees as productive is unrealistic as they are just part of the tax burden.

The Govt. needs to reduce direct Tax on the private sector in order to stimulate the economy, this would include persons employed in the private sector, Maybe Cameron realizes a strong private sector is the only way for sustainable growth, a strong government sector is just an increased tax burden.

People employed in the Govt. sector should have earnings capped at £100,000pa, if you have the skills and intelligence to earn more than this you should be in the private sector generating wealth for the country.

I fail to fully understand Anonymous1's logic, a bit of self interested rationalisation.

My point is more about the split between the mortgage rate charged and the interest gained. This is a 'tax' to prop up bank losses by shaving the people who produce the wealth. My investments have taken a hit two years ago and are now taking the second whack as the longer term problems bite.

Intervention is a disaster. The rollercoaster ride on the back of Greek bailouts is horrendous, been going on for far too long, and shows no sign of resolving. We'd have picked up the pieces by now, but instead we're spending good money after bad. It's not even as if we're bailing out the Greeks - we're bailing out the twits who lent them money. The Euro is bigger than Greece; a default by Greece is more similar to a large corporate bankruptcy, rather than a proper default of a sovereign nation. Don't feel sorry for France for lending so much to Greece, they're the ones who broke the Euro's deficit rules in the first place.

I always hate it when I hear of Britain leaping into the fore to save the world. As sure as eggs are eggs, we'll find that fools rush in where angels fear to tread.