Watch for dropping interest rates

This reminds me of when i was paying 17.5% int rate and it dropped to 13%, some were saying that rates will go back up so don't borrow too much.

Back then int rate rises and falls were at least 1% , now their .25% and have the same impact.

So what if int rates come down to 3% and we get .1% int rate changes.

There doesn't appear to be much difference between.....
100k at 17.5%=17k
300k at 6% =18k
500k at 3% =15k
Maybe this is where we are heading?

Cheers

Generally it is great example. I am bending backwads trying to send a message for people that "double digit" interest rates well and truly thing of the past. The more debt level is, the more each percentage point of interest rate rise takes money from the economy.

Finally, even Glen Stevens said that 2% of interest rate rises "in a good time" is a max that RBA is able to afford without destroying the economy.

Simple as a whistle - back in 1990s we had 45c of debt per every dollar earned. Now we have about $1.70 of debt for every dollar earned. 17.5% rates destroyed economy back then, therefore you need 3-4 times lower interest rate to destroy it now - hence we arrive of max figure of 4-5%.

7.25% that destroyed economy the last year was only achievable with the help of a resource bubble, which luxury RBA no longer has.

In brief - interest rates is no longer thing to worry about.
 
The developers idea will not work because:

a) who will sell cheap the city fringe family farm to the GOv after holding something for 30 years?
b) gov are political and self interest groups will stuff the deal
c) gov agenda can influence outcome

I speak as someone who sold GOv property for three years. Every site had a local community/charity group and/or Council wanting it for free for whatever cause interested them, save the trees, children playground, local museum, sporting fields.

Peter
 
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oh yeah - of course the idea wouldnt really work.

Like i said, it's a good idea IN THEORY - but in theory, communism works.
 
FYI today’s (Sunday 20th Sept) Sun-Hearld Investor Insert had a detailed consideration of the economy by David Potts. now, I am not and economist so I am taking figures, etc. on face value against my view of things so….. FYI he says italics and my short summary is:

THE WORST IS YET TO COME. The massive Gov response has “anesthetized” the response and when the wears off in 2010 expect pain.

Great analogy! and I agree.

INTEREST RATES. Whilst RBA is softing us up for rise the other official rate, the yield of gov bonds is falling….. hence the market does not believe the recovery is imminent and if so, will be weak.

Makes sense. If money is cheap the banks can only over charge so much over the mark until competition forces then to lower. High fixed rates are based on unrealistic expectation and preying on people fear from the experiences of 2008.

INFLATION the problems is not inflation but deflation world wide except for two factors for AUS, petrol prices and wage rises.

Higher petrol rises everything. Wages can go crazy with end of Work Choices and Union going amok.

PROPERTY amazed it is not going higher.
all good.

SHARES even money.

Says a correction of 10% is possible but values are all other the place

AUS $

Will go higher.

If you get a chane read the whole article. Interesting..

FYI Peter
 
Wages can go crazy with end of Work Choices and Union going amok.

No they won't.

At work we'll be lucky to get 2% payrises and this on the back of record profits.

Currently employers have the upper hand because of the fear of being retrenched and the high unemployment which everyone knows about (except the gov and the RBA)

The 5% unemployment figure is bulls..t, the previous government did a good job at hiding the true unemployment figure by not allowing people who had a part time or casual job to register.

There is no reason to register anyway.
Centrelink won't pay if we've got money in the bank and won't help us find a job either.
 
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Can't help to point out that in some areas (like Sydney's North Shore) there is some kind of absurd is happening. Some crazy people sell land in a region of $300 - $400K, other smart people spend about $150K building 4 bed house on it, and sell it in excess of $700K (well, this bit is not so smart at the start of the property boom).

Am I reading this right? $300k land on the North Shore? That seems to not even be the price of a new 1 bedroom unit rather than anything else in this area. Maybe in Hornsby (dont even think that is considered the North Shore?) but decent land I have looked at costs around $700k. I am happy to be pointed in the direction of a bargain though... ;)
 
Currently employers have the upper hand because of the fear of being retrenched and the high unemployment which everyone knows about (except the gov and the RBA)
.

Do they?

http://www.theaustralian.news.com.au/story/0,25197,26080066-643,00.html

IS an article where the Unions are striking to remove Fair Work Act tersm because whilst the Labour Gov says they remain , they simple dont want them.


The Australian Chamber of Commerce and Industry said the union claim that the flexibility clause gave scope to reduce pay and conditions overlooked the safeguards for workers in the Fair Work Act.

Under the Act, a flexibility clause must be included in all new enterprise agreements. Julia Gillard committed to them last year after business concerns that the abolition of Australian Workplace Agreements would result in a loss of workplace flexibility.


Workers have since gone back but the Company has lost $$$$ in a marketplace where they are competing heavily against OS imports. I suspect workers didnt care but the Unions want to claw back anything that allows individuals to perform ahead of the slow pack.

Peter
 
Generally it is great example. I am bending backwads trying to send a message for people that "double digit" interest rates well and truly thing of the past. The more debt level is, the more each percentage point of interest rate rise takes money from the economy.

Finally, even Glen Stevens said that 2% of interest rate rises "in a good time" is a max that RBA is able to afford without destroying the economy.

Simple as a whistle - back in 1990s we had 45c of debt per every dollar earned. Now we have about $1.70 of debt for every dollar earned. 17.5% rates destroyed economy back then, therefore you need 3-4 times lower interest rate to destroy it now - hence we arrive of max figure of 4-5%.

7.25% that destroyed economy the last year was only achievable with the help of a resource bubble, which luxury RBA no longer has.

In brief - interest rates is no longer thing to worry about.

Good point. Kudos to you.
 
i also think the interest rates will stay low, with small hesitation, but if your correct i will give you lot a big kiss , when i see ya's :D
 
Seriously, as an observer of economic comment in the media, I have seen a marked switch from articles crying "rates to rise" a month or so ago to "slow recovery" and "more pain to come". As economists follow data it would seem they are reading a trend many here felt?

Peter
 
RBA head of economic analysis department Tony Richards said that Australia was at risk of moving towards "undesirably strong growth'' in housing prices that is not being matched by housing supply.

Strong demand for new housing in recent years, coming from strong income and population growth, is not being matched by the number of houses being built, Mr Richards said.

"There have been a number of factors on the supply side that have combined to keep the supply of new housing below where it would have been in a more responsive environment,'' he said.

"As a result, we have had the combination of higher prices and lower supply than might otherwise have occurred.
 
Very similar to the situation faced in the USA just prior to their recent construction-led property boom. As I've said before, the forthcoming Australian property boom is simply an unavoidable side-effect of the RBA and government desire to avoid a severe slowdown in the wider economy. They need to maintain low interest rates, and stimulus, in order to avoid recession. Strong residential construction activity is a very desirable outcome, boosting GDP.

House prices will boom (are already booming) as a result.

I agree with this mostly.

But, I think the boom will not be as big as some predict.

Why?

Simple; eventhough rates may be low, the Banks are still in the mindset of caution due to the still recent GFC. They also don't physically have as much money to lend from what I am hearing.

Their hoops to jump through have increased across the board, so getting access to all those lovely cheap loans is still quite difficult for the majority, and they have basically closed the book when it comes to small business lending.

Add to this that spending habits for the average punter are still much the same, and you have bugger-all folk around who are saving (or able to save) for a deposit.

The ones who are saving will need to show a good record of them first.
 
I'm still expecting at least 1 x 25 rise this yr myself but as usual there's contradicting reports left and right .
It is surprising though that in most of the numbers I've heard do show that even with all the money thrown at things they have actually still struggled in many areas like new building starts.Things could have definitely gotten ugly if left alone.
But confidence seems higher lately and they do say thats everything and it seems just for now anyway that may carry us from here for a yr or two
I still couldn't see a boom any time soon though myself but the NAB chief can , even though every stat he stated matches the FHBG first build up and then Oct wind back to a T.
So his numbers seemed a bit ridiculous to me but, he's also saying that with our shortages and expected population explosion , no matter what we have to have one.

Cheers
 
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