Thursday, June 17, 2004

Gordon Brown tries a little Greenspanian obfuscation of his own, but he's no Maestro.
Gordon Brown has stepped up Government efforts to dispel fears of an imminent crash in property prices after the Governor of the Bank of England suggested it might be the wrong time to buy a home.

The Chancellor promised to maintain "stability" in the face of the risks facing the global economy, as he sought to clear up comments by Mervyn King earlier this week that sent shock waves through the housing market. . . .

Mr Brown attempted to play down signs that interest rates are on an upward path by claiming that they remained "relatively low".

He said: "That's a matter for the Bank of England, but remember that interest rates now are relatively low compared with what they were in the past and compared to what they were 10, 20, 30, 40 years ago."
Of course, what matters is real interest rates. If interest rates are low but so is inflation, then interest rates really aren't that low.

Currently British CPI is running at 1.5%. That's low, especially compared to the 8.5% rate in June 1991. Today British mortgate rates are at 5.75%. That's a fair bit below 12.95%, where they were in June 1991.

A little math shows that the real current mortgage rate in the UK today is 4.25%; in mid-1991, 4.45%. Suddenly, interest rates don't look so stunningly low.

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