interest rates!!

[tamtam]

after todays interest rate rise, do u think there will be another one in the next coming months????i remeber when i bought my first house back in 97 and rates were around 4%, but then again i am glad we are still not up to the 18% mark like they were in the late 80s and early 90s!!!



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[alexlee]

There's talk of another rate rise NEXT month. Don't get too worked up about it. Rates rise, rates fall. You should have built that into your plan anyway.
Alex

 

[marg4000]

Almost definitely, especially if our Treasurer keeps running around like a chook with its head cut of screaming "the inflation genie is out of the bottle" as he has been doing recently - seems to be doing his best to create financial chaos.

My tip? Probably March, almost definitely by April.
Marg

 

[Bazza]

Just look at the fixed term interest rates that the banks are currently offering. The 5 year term is less that the 3 year. So, I guess they think in the long term that interest rates will reduce.

Cheers,

Bazza

 

[Bill.L]

Hi all,

Tamtam, where did you get 4% interest rates in '97???

According to my information sources (RBA) rates started '97 at 8.25% and fell during the year to 6.7%.

Love to know where you could get 2.7-4.25% below market rates today, or is it just your memory??

bye

 

[oasis1frog]

with U.S. in recession, will the rate in oz go up or down ?

 

[alexlee]

with U.S. in recession, will the rate in oz go up or down ?

Ah, that depends on whether you believe in the 'decoupling' theory.
Alex

 

[Bargain Hunter]

with U.S. in recession, will the rate in oz go up or down ?

Regardless of how much talk there is about a global economy every country is in there fighting for themselves and making fiscal and monetary policy based on their own little backyard.

In essence I do not see an issue with an increase in inflation if it is a global trend.

There appears to be two major drivers behind the current inflation. Australia is experience strong demand for resources from emerging world powers, and the price of oil is striking everyone's back pocket.

We are talking about spending which is primarily unaffected by rate rises.

This means that people who have more skin in their mortgage are affected, because they are paying interest on large sums of money, while at the same time someone who spends money on doodads (cars, boats, tv's) is relatively unaffected because their overall borrowings are low.

In this way interest rates primarily target responsible people who plan for their future, homeowners. The pain is felt because these responsible people have already spent the money buying a house.

Interest rate rises are meant to curb discretionary spending, but who in their right mind can argue that paying off a mortgage is a discretionary expense. It is a roof over your head, and a plan for the future.

If the government is serious about curbing spending they need to use the weapons in their own arsenal and stop using the RBA as a scape goat. Targeted taxation on doodads.

Regards

Andrew

 

[Andrew_A]

Can someone explain to me why money creation is never ever mentioned in the mainstream financial media? If the RBA is growing the money supply by 10+% a year what happens to that paper/credit? Isn't that inflation generation in a nutshell or do I need to watch other you tube videos not including Milton Friedman?

Japan printed forests of money in an attempt to reinflate themselves, seems like they were just exporting their potential inflation however due to lack of trust in local assets and investment, same might happen with the US potentially. There's an ABUSE (anything but US equities) idea floating around, so all the cheap US money could pump up commodities and emerging markets/Asia which includes Oz I think. Also China have plenty of inflation ammuniton to spread around as we have seen recently with their bids for Aus resource plays.

Seems at the moment that the most likely scenario we are playing out is a 1970's one which makes me fairly nervous as I'm on variable rates. I think I will wait a bit longer just to see if we don't start to feel some more pain which I really can't understand why this hasn't happened yet, and then if I think I'm wrong I will have to fix whatever I can myself as who knows how high IR's will need to be pushed in a fiat world with print happy central banks?

Short summary: No idea, waiting to see what happens, more pain for me and I will have to fix some rates.

 

[alexlee]

The idea that money can be created is very hard to understand for most people. You're basically saying what they think has value can be created on a whim. I think most of the media doesn't understand it either, or think it's some academic concept that has no place in reality.

I think, though, that we're not going to have a repeat of the high inflation 70s for two main reasons. One, inflation no longer feeds into wages the way it did when unions were more powerful. And two, the central banks are much more aware of inflation then they were a generation ago. i.e. the RBA and ECB, at least, are viewing inflation as a bigger issue than recession. Which means they will hike rates earlier, which means lower rates in the long run. It may well mean we go into recession, but if it'll save us from systemic high inflation, that's the price we have to pay. Only an independent central bank would be willing to risk short term recession to prevent long term inflation.
Alex

 

[coolie21]

I see the UK have just followed the US and dropped their interest rates...

http://news.bbc.co.uk/2/hi/business/7232304.stm

 

[Nathan]

australia is in totally different kettle of fish....

we have immigration (pushing demand up) as well as a strong economy so i dont see ours dropping happening until theres blood on our streets. also dont see the sky falling through in property market.

 

[alexlee]

australia is in totally different kettle of fish....

we have immigration (pushing demand up) as well as a strong economy so i dont see ours dropping happening until theres blood on our streets. also dont see the sky falling through in property market.

So, we're not going to have issues because we have a strong economy. Do you see an issue with the US (and Britain and Europe, it seems) slowing, demanding less exports from China?

The US economy was / looked strong..... until it wasn't.
Alex

 

[Bill.L]

Hi all,

Alex, this is what I think could be happening here.

The US economy was / looked strong..... until it wasn't.

Quite suddenly our economy could tank because of some unforseen reason. A change in consumer demand, because of high IR could be it. The bursting of the chinese stockmarket could be it.

There are many things that are currently set up to go wrong.

The complacency that we are immune to the troubles of the world, is one of the biggest dangers.

bye

 

[Bargain Hunter]

Only an independent central bank would be willing to risk short term recession to prevent long term inflation.
Alex

Who are these people "willing" to risk a short term recesssion. These people who make decisions that effect the common man.

A recession is not just a word for the people who experience it, high interest rates combined with job losses = loss of homes, family breakdowns & suicides.

But hey, if it only effects a few and the rest of us are OK then bring it on.

One day someone might prove to me that the results of a recession far outweigh that of a rising inflation rate.

To give an analogy for interest rates; a group of villagers are found to have a STD which if untreated will spread throughout the village..... so the chief sacrifices a virgin.

A good chief would concentrate their efforts on the people who are carriers of the disease and ensure they take their medicine, while at the same time they would run programmes to educate others about what they should do to ensure they don't fall pray to the same disease.

Regards

Andrew

 

[alexlee]

Who are these people "willing" to risk a short term recesssion. These people who make decisions that effect the common man.

A recession is not just a word for the people who experience it, high interest rates combined with job losses = loss of homes, family breakdowns & suicides.

But hey, if it only effects a few and the rest of us are OK then bring it on.

One day someone might prove to me that the results of a recession far outweigh that of a rising inflation rate.

I don't make the rules. I just live with them. If we let inflation go crazy, in my opinion, that will hurt more people in the long run. This is just something I believe. If you don't believe it, you're entitled to your opinions too. More importantly, the RBA HAS indicated that its main target is inflation, and they have their hands on the interest rate levers.

A good chief would concentrate their efforts on the people who are carriers of the disease and ensure they take their medicine, while at the same time they would run programmes to educate others about what they should do to ensure they don't fall pray to the same disease.

Then APRA and the government isn't doing their jobs. The RBA has no mandate to regulate banks (unlike the Fed, say). The RBA only has interest rates.
Alex

 

[MPmelb]

So, we're not going to have issues because we have a strong economy. Do you see an issue with the US (and Britain and Europe, it seems) slowing, demanding less exports from China?

The US economy was / looked strong..... until it wasn't.
Alex

totally agree with this statement.

there's going to come a point, sometime this year, where our economy stalls.

 

[Bargain Hunter]

Then APRA and the government isn't doing their jobs. The RBA has no mandate to regulate banks (unlike the Fed, say). The RBA only has interest rates.
Alex

That is my point. The banks are not chiefs the government is... and regardless of who is in power utilising the RBA as their hitmen doesn't change the fact that the blood is on their hands.

What I am proposing is instead of using a club to whack the people who have made responsible decisions, they should stop sacrificing virgins and start treating the symptoms, over indulgence by others who are barely affected by interest rate rises and therefore continue to spend regardless.

Regards

Andrew

 

[alexlee]

That is my point. The banks are not chiefs the government is... and regardless of who is in power utilising the RBA as their hitmen doesn't change the fact that the blood is on their hands.

I think of the RBA more as the independent body that steps in and does what the government will not. The government doesn't want higher interest rates to preempt high inflation in the medium and long terms: they don't look at things past the next election. Interest rates were one factor in Howard's defeat, and it sure isn't looking pretty for Rudd.

What I am proposing is instead of using a club to whack the people who have made responsible decisions, they should stop sacrificing virgins and start treating the symptoms, over indulgence by others who are barely affected by interest rate rises and therefore continue to spend regardless.

What, have the government stop banks from lending excess amounts of money? At what point does that government intervention become too much? Are you saying that people should not have the freedom to make mistakes? Personally, I prefer freeom over the government telling me what I can and cannot do. In any case, *I* (and most of us on the forum) DO know how to control our finances effectively. That means if other people over-indulge and make mistakes, we profit. I have no issue with that.

I personally think the biggest spenders are those who go out to bars and restaurants and buy TVs, cars, etc on credit. Now, the issue is that most consumers have it upside down: they make payments on their consumer loans and mortgages FIRST, because they have to, then spend what's left. Increasing interest rates affects credit cards, mortgages, corporate loans, everything. So the result of higher interest rates isn't just to hurt people who already have high consumer loans (they should go down, in my opinion), but to prevent others from getting their loan levels up in the first place.

The key is people's expectations of interest rates. If the idea develops that 'hey, this isn't stopping. the RBA will keep raising rates' then people are going to think twice before buying that new doo-dad or maxing out to buy their home.
Alex

 

[MadMax2]

Please explain me, why they are selling us the pertrol based on US prices, and milking us the interest rates based on mining boom (China price) ?