One of the things modern monetary policy wants us to do is to spend more of our money instead of saving it (bring our consumption forward) and to rebalance our portfolios towards riskier assets (defined as the ones that one way or another have a hope of boosting growth).
It's not working that well.
There is rising evidence that super-low rates terrify large groups of the population so much (older people in particular) that they cut rather than raise their spending. And if you look at my last post you will see that for large parts of the investing population the lower rates go the more government bonds they buy (this helps out with the UK's public debt problem but it isn't much good for anything else).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, this Sunday's Observer produced a perfect example of a member of the innocent public doing exactly what she is supposed to do: taking her cash out of the bank and rebalancing it into a more risky "investment" in this case a VW van.
One-time saver Amy Jackson tells the newspaper that with casa Isa rates at 0.25% she has come up with an inventive way of using her money. Instead of putting the £13,200 she had for her ISA into a wrapper this year she has used it to buy a ten-year old converted van (£11,500 cost plus £1,700 in expenses and new upholstery). The plan is to keep it for three years and then to sell it at an expected price of £11,000.
To the uninformed eye that might look like a loss. But look at is as Jackson does, and it isn't. She and her partner are going to take all of their holidays in the van over the next three years, something she reckons will "save" them £6,000 on the cost of their usual holidays abroad. Add annual costs (servicing, tax and insurance) and she is, she says, not losing but making money a total return of £1,700, or 12.9% over the three years.
This is nonsense, of course. Add petrol, food and the odd flat tyre and the £1,700 will soon vanish; if she is lucky (and I would assume she would need to be lucky to sell a high mileage 13-year old van for £11,000)she will come out roughly the same as if she had used the Isa and gone to Tenerife for a week every year.
But still, the point is that in this rare case, monetary policy is working it is providing the justification for someone to spend instead of save. It's just a shame it doesn't work more often.
-
Water companies blocked from using customer money to pay “undeserved” bonusesThe regulator has blocked three water companies from using billpayer money to pay £1.5 million in exec bonuses
-
Will the Bitcoin price hit $100,000?With Bitcoin prices trading just below $100,000, we explore whether the cryptocurrency can hit the milestone.
-
Beating inflation takes more luck than skill – but are we about to get lucky?Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
-
Rishi Sunak can’t fix all our problems – so why try?Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
-
Young people are becoming a scarce resource – we should value them more highlyOpinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
-
Ask for a pay rise – everyone else isOpinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
-
Why central banks should stick to controlling inflationOpinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
-
How St Ives became St Tropez as the recovery drives prices sky highOpinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
-
The real problem of Universal Basic Income (UBI)Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
-
Why an ageing population is not necessarily the disaster many people think it isOpinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
