Interest Rates Will Not Rise Anytime Soon

And on the same page [speculation of rate rises]

From negative to "two fifths of stuff all" ?

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See: RBA Australian Cash Rate
 
Like much of economics, inflation is a paradox.

But it isn't as though its effects on interest rates can't be managed.
 
Hahaha this is gold.

For the real geeks, take a look at last years PEFO/this years Budget forecasts.

They've now put 'confidence intervals'. Some of the smartest economists in the country are 90% confident that growth will be somewhere between a band of somewhere between -2% to 5%.

Solid.

Why do people take these sorts of articles seriously? Would you take it anymore seriously if it was written by Madame Zola the fortune teller?

Because that is all economists are - glorified fortune tellers. There is no such thing as an economist 'getting it right'. If an economist says 'X' is going to happen and X does indeed happen, it's simply because they guessed right.

No one can tell you what is going to happen in the future, no matter how much you want to hear what they are saying.
 
Further to my original post:

"It's frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what's going on." - Amos Tversky

If you don't know who that is, I highly recommend doing a google. His papers, while pretty dry, make for good reading.
 
"It's frightening to think that you might not know something, but more frightening to think that, by and large, the world is run by people who have faith that they know exactly what's going on." - Amos Tversky

I think most economists would concede the limitations of their forecasting.

Certainly the ones I have known would.


One of my main criticisms of mathematical economics has always been that its true-believers proponents blindly believe what their models tell them.

"The r-squared is .90, so it must be right!"

Heaven forbid that they have actually created / are using a model that is completely useless at predicting reality.


Not even the most sophisticated economic models available can predict, with 100% accuracy, whether or not the symbol at the front of the change in the exchange rate will be a "+" or a "-" at the end of each day.

Even if you could forecast just that most basic economic variable, you could make a mint!

Mind you, you wouldn't have to get it right, day in, day out. People like George Soros have made billions, just by being right (much) more often than not.


The AOFM were the joke of the Commonwealth Government a couple of years back and they got squarely roasted by the Senate Economics Committee for unrealised losses which at one stage tipped $5 billion owing to a miscalculation of the AUD/USD exchange rate.

I know people who work in the AOFM, in fact, I know the AOFM's ex CEO and would cringe when I saw him in front of Senator Conroy getting grilled (the ex CEO is a really nice guy, but then so is Conroy - he was just doing his job)

Trust me, the people who work in the AOFM are professionals and are very experienced.

this morning I saw an old mate from uni on the train (we live in the same suburb) - he's ex. RBA.

We were talking economics and I bought up the subject of the BIS Shrapnel forecasts.

He went onto tell me that a few weeks back he attended some breakfast function where the guest speaker was Dr. Chris Caton. Anyway, apparently someone asked Caton what his thoughts on the reliability of forecasts was.

His reply was to the effect: "I'm pretty comfortable with my 6 month forecasts".

He then said that a few months earlier he had been awarded some prize for the best forecasting of the $AUD over a particular period. He apparently also said that he was the only one in the group being considered for this prize who actually got the direction right of the exchange rate change right, so when it came to longer term forecasts you should "take them with a grain of salt".

(I could relate similiar stories about Professor Bob Gregory and Alan Oster).
 
They definitely would. I've worked on multiple budgets with many of the people who have influenced the assumptions and parameters used to get to the final figures. They don't have a crystal ball and the data can only be predictive to a point. The noise and other unquantifiable variables at play make it impossible to do medium term forecasting with any real certainty. None of them will be there if they could, they'd be earning 10x the coin betting on markets.

On another note; this is a great article that talks about the potential financial stability risks associated with long term low interest rates.

http://www.afr.com/p/business/finan...larm_over_low_interest_yw76ChM1CRyCmMLtoc7OnI
 
It seems to be a holistic analysis taking into account slower income growth over the period ahead.

I'll put a different spin on things (as much for the sake of discussion as anything else)...

Extremely low interest rates (such as those we have now)
plus
Rising property prices (refer to multiple threads)
equals
Conditions for an equity fueled spending splurge (in the form of debt)

In response to which I am sure the RBA would pull out its big blunt stick.
 
Haha yep, that's probably a likely outcome. If they bat a slow economy down too hard with that stick though, I rekon we're in for trouble.
 
Conditions for an equity fueled spending splurge (in the form of debt)

In response to which I am sure the RBA would pull out its big blunt stick.
The Banks won't be releasing too much equity for spending on doodads anytime soon - even with decent serviceability, I'd suspect.

The GFC was not that long ago, and their lending criteria hasn't relaxed all that much...yet.

Maybe the resident MB's can shed some light on the current Bank mood.
 
I'll put a different spin on things (as much for the sake of discussion as anything else)...

Extremely low interest rates (such as those we have now)
plus
Rising property prices (refer to multiple threads)
equals
Conditions for an equity fueled spending splurge (in the form of debt)

In response to which I am sure the RBA would pull out its big blunt stick.

So start getting the debt down well ahead of the next crash , so you can buy bargains off those who didn't .

Cliff
 
I'll put a different spin on things (as much for the sake of discussion as anything else)...

Extremely low interest rates (such as those we have now)
plus
Rising property prices (refer to multiple threads)
equals
Conditions for an equity fueled spending splurge (in the form of debt)

In response to which I am sure the RBA would pull out its big blunt stick.

Hmmmm, interesting point. I thinking along the same line as Redom - not sure the RBA has that as a real option until the the rest of the economy gains some strength back. Given the RBA's rhetoric it seems clear that they are concerned, but I'm not sure they'll risk taking down a weak economy to deal with an issue in 1 market.
 
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