$10.4b stimulus plan -- will it raise interest rates?

[moyjos]

Wayne Swan is on Sunrise just now saying that this $10.4b stimulus plan will not push interest rates up ("I don't believe so Kochy")

If the RBA has been banging on about Aussies to not spend ...isn't $10.4 being pumped into the economy (and people being encouraged to spend it) going against this?

I don't quite understand why interest rates will not rise in Feb/March??

Sue

 

[buzzlightyear]

Dare I say, the increased IR's worked that well, that we are now heading towards recession or at least a marked slowdown.

The speed of the change of direction is probably an implied admission that the RBA went too far IMHO.

Oh and the 'inflation genie' comments are still ringing in my ears from earlier this year. Is the genie dead?

I guess if they were wrong earlier this year, what's to say they (being the RBA, Treasury & the Government) aren't wrong again.

 

[stumunro]

the money injected is an economy SAVING plan. I don't think they believe it will cause economic growth, rather stop us from falling to a deep dark pit of recession.

Hope fully this is what he means

I'm glad he is saying it anyway, politicians understand it's a mental game and what they say can cause heavy impact to what people think.

 

[Aimjoy]

Oh and the 'inflation genie' comments are still ringing in my ears from earlier this year. Is the genie dead?

Well Buzz,

Everyone knows that genies can only grant 3 wishes (and the govt. blew all 3 on IR rises) - then its back in the bottle for someone else to find later

 

[GIDDO]

Dare I say, the increased IR's worked that well, that we are now heading towards recession or at least a marked slowdown.

The speed of the change of direction is probably an implied admission that the RBA went too far IMHO.
QUOTE Buzz Lightyear


Buzz, I fear that world events are moving so very fast and downwards that we can all forget about what was happening with our settings even last week.
I would love to know what treasury told KRudd. He certainly moved fast, with no equivocation.

I fear what he knows that we don't know.

Moyjos NO i think intrest rates will continue to drop, and our economy will struggle.

(Only reading the chooks gizzards I have no idea)

 

[Nathan]

Inflation is irrelevant now...

Ddeflation of our economy is a bigger problem to worry about...

 

[grossreal]

hi all
interest rate no
inflation yes
the banks have the money they have been scared to lend it out
know if someone said to me take ina s much money as you like for three years lend it to anyone and at any rate and if it goes bad I will bail you out.guess what they lend.
now were will they lend
to you and to me
no
why becaus ethey have all these bad debts on there books.
so like a magician those bad debt will become good debts
because they will lend into areas that the price will rise and then flog off the nasty bad debt.
I think you will see bank becoming sudo developers and finishing of the raptis type of deal of this world and trying to get there money back
and they have a security blanket from mr rudd
the ones with the money will and the ones that don't well its come in spinner.
so what will this do
it will put cash into the economy.
you wil see the cranes on a few sites I think
but I also think that the banks are walking a very funny line.
at one end of the risk line they say development funding is very high risk and on the other they are going into the development field.
yes they have to.
but sometimes you also have walk thru a mine field and you don't just run and hope.
well from my watching banks they will run

this cash will drive up what resi is on the market asyou will see more 6.99% lending and also money to start but there is nothing saying drive up margins(which are going down) or push up lvr for construction.
you are throwing more money at a dewindling commodity and that pushs up prices.
so no to rate rises but yes to inflation
and thats the problem not just for here but for around the world.
and now what do you do when inflation starts
yep
put on the brakes
and how do you do that
yep
up go the rates again.
so for me this cash will get alot of sites off banks books but thats about all for me

 

[tubs]

There will be a lot of short term spending when everyone gets their handout.

And then the money's gone.

So everything looked good for a couple of months before heading back the way it came, except now the surplus is gone.

Still, that Future Fund looks kinda nice though...

 

[josko]

The economy was coming to a big full stop. I think the plan is to inflate consumer confidence from the thought of recession to might we say hope..more confidence. More confidence means more spending. I don't think it will give cause to massive spending and parties in the streets, but enough to for the economy to keep flowing and eventually for inflation to rise. We all know there is a massive shortage of housing and the increase for first home buyers may give builders more of an incentive build. With IR's down AND housing prices down, it is a great time to buy for FHB's and investors to buy. The FHB"S will be happy enough to buy a new couch or TV with their new home.

I am still hopeful there will be more incentives in NSW to increase building activity.

I still think the Pensioner handout was a voting ploy though. Pensioners with grandkids might blow it but I think alot of them will stash it. I know my Mum will!

Dare I say, the increased IR's worked that well, that we are now heading towards recession or at least a marked slowdown.

The speed of the change of direction is probably an implied admission that the RBA went too far IMHO.
QUOTE Buzz Lightyear

Buzz said it,

We have to correct and correct quickly.

Regards JO

 

[Sunfish]

Inflation is irrelevant now...

Ddeflation of our economy is a bigger problem to worry about...

You have said this a number of times now without explaining why. I have stated (at some length) that I believe inflation will be used to swamp deflation so I think it's time you returned the favour and told us why you believe what you do.

Who knows, you may change my mind. The bland statement above does nothing.

 

[MarkandTina]

I fully expect this inexperienced government to overcorrect now and for inflation to be an issue in 12 months time.

Interestingly this inflation will probably make houses more affordable as:
*wages increase
*house prices remain steady and
*interest rates drop.

I guess it will all be about picking the right time to lock in fixed rates.

I'm hoping for a 4.5% cash rate, I know some have spoken about 2% but who knows.

I also read here that 80% of people get it wrong when fixing.
I don't understand why, it seems pretty simple, fix when they bottom out.

I dont think the 10.4 billion will raise interest rates, but I think overly low interest rates left there for too long eventually will (via inflation).

 

[Nathan]

You have said this a number of times now without explaining why. I have stated (at some length) that I believe inflation will be used to swamp deflation so I think it's time you returned the favour and told us why you believe what you do.

Who knows, you may change my mind. The bland statement above does nothing.

Sorry Sunfish,

If you do research (youtube is pretty good to find some old articles and do some research oin aswell btw) You will see that our economies are very flawed, and fake. What we have is an unsustainable fiat currency which is getting watered down by inflating the money supply.

Where are we placed? we are sittting well compared to the likes of US and Europe... However we will be sucked along with the vortex.

Where did the money come from to have the US property boom? Wehere did the money come for the cash bailouts? where is the cash coming from? the press....

Inflation is bad, as savers, and hard working people who do the right thing, loose their purchasing power, however the obverse (deflation) is a lot worse as it wipes out jobs, businesses, and leaves a much larger trail of destruction...

Other economies around the world have showed their cards... last year the euopean central banks showed their hand and injected close to $1tillion into their economy in 1 day which is about 4% inflation just in 1 day....

Japan has official cash rate of 0%, with US not far behind it.

We are in good position and have not needed to go this path yet, but we are folding... we did go too far with interest rate hikes, now we have to change market sentiment across retail, jobs, property, entertainment etc...

We are seeing the tip of the iceberg here, i expect we will see another 2% min wiped off interest rates, kevin rudd has said he will do more special gifts like he did yesterday if this doesnt work (will put country in debt and not have surplus tho). The government is basically printing money and selling bonds to get the market pumping again, and this is a greater concern then inflation at this point.

Also we have not passed the first qtr, of subprime mess, with the bulk of the sub prime loans expected to defult next year, in 2009 from what i have researched will be the biggest year of mortgages coming off their honey moon rates.

Its not all bad, if you know how to capitalise this market.

(i know from my in depth post i will have some smart **** with negative approach, but this is just a reasoning on my beliefs. The writing is on the wall, and i encourage everyone to do their research on where the global markets are going)

I was bagged out the other day by speculators on here saying the ASX and DOW have hit a bottom and on their way back up, as stated its a false bottom and was a suckers rally as it went back up, there is lots of money to be made on the market, and many opportunities... however we are still very very venurable and approaching the eye of the storm.

Inflation is inevitable, and will be the most likely solution to our dire circumstances we are faced with, unfortunately their aint no magic pill to take and make it go away.

The us have inflated away their economy 4 times since 2000 already to prevent recession, (y2k, teck wreck, enron, 9/11, now housing bubble). do research back to germany in 1920's with hitler and the jews inflating their economy... interesting history lesson in that 1 alone.

Just a reminder to those who are thinking of selling up and sitting on cash, in times of inflation, cash is the worst investment as it looses purchasing value.

 

[ILoveProperty]

You have said this a number of times now without explaining why. I have stated (at some length) that I believe inflation will be used to swamp deflation so I think it's time you returned the favour and told us why you believe what you do.

Who knows, you may change my mind. The bland statement above does nothing.

I think you're both saying the same thing. Just Nathan is struggling to find the words?

I think you're both saying that solid inflation is coming (if it's not here already)

 

[Bill.L]

Hi Nathan,

You have just argued FOR inflation, when previously you stated we were heading for deflation.

Inflation is irrelevant now...

Ddeflation of our economy is a bigger problem to worry about..

Deflation is not really a problem, just print money. Politicians have worked that one out long ago. They don't call him 'Helicopter Ben' for nothing.

bye

 

[willair]

Also we have not passed the first qtr, of subprime mess, with the bulk of the sub prime loans expected to defult next year, in 2009 from what i have researched will be the biggest year of mortgages coming off their honey moon rates.

Its not all bad, if you know how to capitalise this market.

(i know from my in depth post i will have some smart **** with negative approach, but this is just a reasoning on my beliefs. The writing is on the wall, and i encourage everyone to do their research on where the global markets are going)

Nathan,just have to ask how do you intend to make money short-term in this market with all the overvaluation of factual information and uncertainty ,what you know can not hurt you the problem is what you don't know can cause you the real problems with recognizing opportunities when they present themselves..willair..

 

[GreatPig]

Deflation is not really a problem, just print money.

I think there's a limit to how far that will work. In an economic bubble, asset prices are too high (based on fundamentals like yield) and businesses are over-invested, so as the economy starts to slow, the demand for credit drops. Printing more money then will have little effect, since no one will want to borrow it for anything and it will mostly just sit in banks unlent. There was a comment on the 4-Corners program the other night (about the subprime mess) to the effect that that's what's happening in the US now.

A quote from Richard Duncan's book "The Dollar Crisis" published in 2005. The start of it relates to the change from bear to bull market in early 2003.

As the US current account deficit expanded by 66% between 2001 and 2004, the global money supply also exploded by more than two-thirds over the same period due to money creation by the central banks in the surplus countries. That explosion of the global money supply has created a short-term boom effect that reflated the global economy. That boom will prove to be transitory, much like the transitory increase in commodity prices that accompanied it. While this liquidity-induced boom is transitory, the liquidity itself is not. The equivalent of well over US$1 trillion of paper money has been created by the world's central banks over the last three years. That money has entered the global economy and is seeking to earn a return on investment. Unfortunately, the more money there is that is looking for a return, the more difficult it is to achieve that return. Too much money creation leads to too much capital chasing a limited number of investment opportunities. After the initial transitory boom wears off, the newly created money that caused it remains behind and continues to look for opportunities to earn a return that no longer exist. If no money-making opportunities can be found, the money will go into government bonds and drive their yields lower. If this process carries on long enough, interest rates on government bonds will eventually fall to zero. That is what has occurred in Japan; and based on the current trajectory in global money supply growth (as reflected in the increase in total international reserves), the same thing will soon take place everywhere else in the world as well. When central banks create too much money relative to opportunities to invest that money profitably, the cost of renting (borrowing) that money falls to zero. It is as basic as the law of supply and demand. The only twist is that large-scale money creation first produces an unsustainable economic boom that lingers for a while before giving way to a deflationary bust.

GP

 

[Bill.L]

Hi GP,

Printing more money then will have little effect, since no one will want to borrow it for anything and it will mostly just sit in banks unlent.

Who said anything about letting the banks have it??

The politicians can give away as much as they like, $10billion today, if it doesn't work, how about $20 billion next week etc etc.

They don't seem to be having a problem creating inflation in Zimbabwe.

bye

 

[Aaron Sice]

they're not prining 10mil notes here either, where last weeks wage paid for the rent and food, and this week's don't cover bus fare....

 

[Kennethkohsg]

Just a reminder to those who are thinking of selling up and sitting on cash, in times of inflation, cash is the worst investment as it looses purchasing value.

&&&&&&&&&&&&&
Dear Nathan,

1. So what is the best way for Australians to consider doing, both now and in the near future, as far as you are personally concerned , in this context, please.

2. Looking forward to learn from you further, please.

3. Thank you.

regards,
Kenneth KOH

 

[Kennethkohsg]

I fully expect this inexperienced government to overcorrect now and for inflation to be an issue in 12 months time.

Interestingly this inflation will probably make houses more affordable as:
*wages increase
*house prices remain steady and
*interest rates drop.

I guess it will all be about picking the right time to lock in fixed rates.

I'm hoping for a 4.5% cash rate, I know some have spoken about 2% but who knows.

I also read here that 80% of people get it wrong when fixing.
I don't understand why, it seems pretty simple, fix when they bottom out.

I dont think the 10.4 billion will raise interest rates, but I think overly low interest rates left there for too long eventually will (via inflation).

**********
Dear MarkandTina,

1. Very well said indeed.

2. I agree with you that this is likely to be the outcome for Australia in the near future.

3. Interesting times ahead of us, after this bumpy ride with the Australian Economy

Cheers,
Kenneth KOH