Inflation exploding...house prices sinking...What will the RBA do?

[Belbo]

Okay, OA, I've just read the entire Reserve Bank Act 1959, and it's pretty clear to me that we are not dealing with a private enterprise.

The RBA is owned by the Commonwealth, it's a corporation under Australian law, final say in a dispute between the Government of the day and the Reserve Bank Board is to be adjudicated by the Governor General, and any profits from its operations are to be paid to the Commonwealth.

Now, if your gripe is that Australia is part of the British Commonwealth of Nations and that we are funding this body with RBA profits, then fine. We need to become a Republic, I agree.

But the responsibility of it's Board are clearly laid out that they serve the interest of the Australian people as they best understand them on the day, that in so doing they are regularly answerable to Parliament, and that they are bound to follow imperitaves legislated from time to time by that Parliament.

So, where are you coming from with all this innuendo - because that's all I'm hearing from you - that it's a private consortium run for the benefit of anything other that the Australian national interest?

I honestly confess that I'm at a total loss to find any sound reason not to conclude that what you're insinuating is conspiratorialist bonkers!

 

[BayView]

Okay, OA, I've just read the entire Reserve Bank Act 1959, and it's pretty clear to me that we are not dealing with a private enterprise.

The RBA is owned by the Commonwealth, it's a corporation under Australian law, final say in a dispute between the Government of the day and the Reserve Bank Board is to be adjudicated by the Governor General, and any profits from its operations are to be paid to the Commonwealth.

Now, if your gripe is that Australia is part of the British Commonwealth of Nations and that we are funding this body with RBA profits, then fine. We need to become a Republic, I agree.

But the responsibility of it's Board are clearly laid out that they serve the interest of the Australian people as they best understand them on the day, that in so doing they are regularly answerable to Parliament, and that they are bound to follow imperitaves legislated from time to time by that Parliament.

So, where are you coming from with all this innuendo - because that's all I'm hearing from you - that it's a private consortium run for the benefit of anything other that the Australian national interest?

I honestly confess that I'm at a total loss to find any sound reason not to conclude that what you're insinuating is conspiratorialist bonkers!

I can't believe you two have wasted so much time and space arguing that one.

It almost ranks up there with the Moonlanding filmed in a studio Conspiracy.

 

[mrsdawnrazor]

This is frustrating me

Commonwealth of nations- organisation of countries that previously belonged to the British Empire

Commonwealth of Australia - official and legal name of the country in which we live -

2 COMPLETELY DIFFERENT THINGS

When the RBA information is referring to the commonwealth - it is the commonwealth of Australia not the Commonwealth of nations (ex empire).
So profits are paid to the commonwealth of Australia and in no way is it funding the ex empire commonwealth.

 

[Belbo]

Yes, I get your point, MDR, but then one has to be reminded that our Constitution came into force only as an Act of the British Parliament, and theoretically therefore remains in force ultimately only at the pleasure of Her Majesty.

(Hence, I would suggest, this explains the presence of the Governor General as a permanent member of the RBA Board and as the final arbiter in any dispute it may have with the Australian Parliament.)

That is, the Australian Commonwealth is not succinct from but ultimately subordinate to the British Commonwealth.

NB: This is only my understanding of the situation, so I'd be more than happy to be corrected by anybody better versed in constitutional law.

But you are right MDR, I think, having just reviewed the 1959 Act on this. Profits are payable to the Commonwealth construed as the Commonwealth of Australia. Sorry for causing any frustration to you on this point!

 

[mrsdawnrazor]

That is, the Australian Commonwealth is not succinct from but ultimately subordinate to the British Commonwealth.

Not claiming to be an expert on constitutional law but I would suggest that if you are correct Australia would be subordinate to the British Parliament/Queen (in her constitutional role) not the commonwealth as it is has not legislative or legal powers over the individual operation of any member country. All they can do is expel/suspend countries from membership, a la Zimbabwe. It is a voluntary organisation that countries can join or not and they do not have to have been part of the British empire to be members - Mozambique & Rwanda as examples

I am assuming that by your use of the term British Commonwealth you were referring to the group of nations rather than the United Kingdom of Great Britain and Northern Ireland

Also done a little more research and the final constitutional ties between the UK and Australia were severed in 1986 with the passing of the Australia act which ended any formal role of the UK in the government of the Australian states.

So - nope not subordinate to the UK or Commonwealth in any way shape or form

 

[Belbo]

Fair enough, MDR, just read upon on it and I'll wear that happily. Thanks for your help.

So, OA and others, I think we can irrefutably conclude that the RBA is owned and operated solely by and for the benefit of the completely independent and sovereign Commonwealth of Australia.

No?

 

[Ocean Architect]

I have a rather large hangover because of a very small stupid glass of red wine that obviously had some sort of satanic curse on it (OA = softy drinker) but I must say, Belbo, that I cracked a smile when you said that you read the Act

Ah this sucks. C'mon neurofen, do your thing baby so that I can reply to the belbs

 

[Ocean Architect]

Hangover is yesterdays news, hello thread

This is a very good watch btw

http://www.youtube.com/watch?v=go2bVGi0ReE&feature=player_embedded

 

[Aaron Sice]

quarterly inflation is standing at 0.85% which is 3.4% annually adjusted taking out flood affected food and petrol.

signals a rate rise, but may not due to high AUD.

 

[craigb]

stagflation is here as predicted.

time to buy.

thats one of the resons i have let our million $$$ mortage go , nice little cottage we are in now ( owned ) and taxes this month and buy for the next two years , so i agree ...

 

[greedy2000]

Are you guys serious? a period of stagflation would be the time to sell or at least not invest.

Buying and holding property only works in your favour in a rising market. in a flat to falling market your holding costs will out weigh any gains.

stagflation; "Persistent high inflation combined with high unemployment and stagnant demand in a country's economy" this isn't good for house prices...

 

[Ocean Architect]

Are you guys serious? a period of stagflation would be the time to sell or at least not invest.

Buying and holding property only works in your favour in a rising market. in a flat to falling market your holding costs will out weigh any gains.

stagflation; "Persistent high inflation combined with high unemployment and stagnant demand in a country's economy" this isn't good for house prices...

Depends. If you have money, or the ability to obtain finance, there are some excellent deals to be had from distressed buyers, deceased estates, bunkruptsy, or auctions/sales where you have virtually no competition, particularly for development suitable land where other developers are already holding shovel ready property and don't want to obtain more.

In the last cycle (mid eighties) some of my relatives/friends picked up property in ultra premium suburbs for very low prices - then when things picked up again a couple of years later found themselves in an enviable position.

Just depends on your circumstances/what you're trying to do imo, but picking up a cashflow neutral property in an ultra blue chip or ultra premium residential suburb with the intent of holding it for a few years or swapping it over for your PPOR so as to enjoy it in the meantime and rent out the old property isn't a terrible strategy in the overall scheme of things

 

[Aaron Sice]

Are you guys serious? a period of stagflation would be the time to sell or at least not invest.

Buying and holding property only works in your favour in a rising market. in a flat to falling market your holding costs will out weigh any gains.

stagflation; "Persistent high inflation combined with high unemployment and stagnant demand in a country's economy" this isn't good for house prices...

are YOU serious?

buying during stagflation for long term rides means by the time growth comes around you'll already be cashflow neutral in general, but if you bought well you should be CF+ by a long shot.

then it's a double whammy for you because your serviceability has increased dramatically at a time when your equity is starting grow - being that generally growth comes out of stagflation because of the inflationary pressures not being able to be contained - therefore you can borrow more or sit pretty with lower LVRs.

 

[lizzie]

Yup - just waiting for reality to bite the vendors.

Already had two low offers rejected on properties over the last 6 weeks - but notice they are still on the market. Might wander back in with my low offer in the next week or so.

 

[greedy2000]

are YOU serious?

buying during stagflation for long term rides means by the time growth comes around you'll already be cashflow neutral in general, but if you bought well you should be CF+ by a long shot.

then it's a double whammy for you because your serviceability has increased dramatically at a time when your equity is starting grow - being that generally growth comes out of stagflation because of the inflationary pressures not being able to be contained - therefore you can borrow more or sit pretty with lower LVRs.

Yes very serious

You'd be catching falling knives if you rush in.

the opportunity cost of holding an asset that is in a flat and or falling in value would out weigh any of the percieved benefits that you mentioned.

it would be much better to wait and get back in, at or near the bottom. even if you get the timing wrong by 12 months you'd be better off than holding a crap asset for 5+ years.

in a period of stagflation, you will struggle to rasie your rents as higher unemployment would put downwards pressure on rents. and the higher interest rates used to combat the high inflation will only cause you pain.

add falling property prices into the mix and banks will not look favourable at you. imagine if you have a current LVR of 80% and property prices fall 20%. I'm not sure banks will let you have a LVR of 100%+ for too long.

Stagflation is bad mmm kay.

people will say "I don't care if the value of my property drops its a long term investment and in 10 years it'll be worth twice as much as I paid for it blah blah blah". but when the property you've borrowed $500K to buy is now worth $350K you are going to care!

 

[lizzie]

but when the property you've borrowed $500K to buy is now worth $350K you are going to care!

troll alert?

 

[keneth]

i think it comes down to deographics on where you are buying.

I am invested in the inner south east in melbourne in a 2 bedroom apartment.

Rental demand is strong and supply is meeting demand.

Im not sure prices have come off either.

Saw a 2 bedroom ground floor apartment go for 520k in caulfield nort.

And a run down 1 bedroom apartment go for 485k in armadale.

Still demand in the inner ring of melbourne, and i dont beleive clearance rates are 50 percent in these areas as good properties are still achieving top dollar.

Just what i have noticed in the market im watching.

 

[devo76]

Are you guys serious? a period of stagflation would be the time to sell or at least not invest.

Buying and holding property only works in your favour in a rising market. in a flat to falling market your holding costs will out weigh any gains.

stagflation; "Persistent high inflation combined with high unemployment and stagnant demand in a country's economy" this isn't good for house prices...

This would be true if you had the ability to predict the day property growth starts again and you then had the ability to buy your maximum amount of properties 1,5,10 whatever on that day.
Do you have this ability ?

Positioning yourself on the starting line before the race is not a bad thing.

 

[greedy2000]

troll alert?

I'm sorry that I even suggested that property could fall in value, how silly of me. please accept my apologies....

but in the context of a hypothetical period of "stagflation" it could be a possibility...

 

[bene313]

in a period of stagflation, you will struggle to rasie your rents as higher unemployment would put downwards pressure on rents. and the higher interest rates used to combat the high inflation will only cause you pain.

If a period of stagflation is one with persistent high inflation, why would rents not rise while other goods and services do? I understand the unemployment factor, but if unemployment were to place downwards pressure on rents, why would it not have a similar effect on other goods and services as well? In other words, how is rent distinguished from other goods and services, or immune from the persistent high inflation?