LITTLE INTEREST IN LITTLE INTEREST CUT
Four-time Walkley Award winning political commentator and Churchill Fellow, has returned to the fray over concern that the integrity of news dissemination is continually being threatened by a partisan media.
Has anyone noticed that banks have lately been ignoring whatever the RBA sets as an interest rate? The cash rate makes no difference when it’s this low anyway. And whatever Morrison suggests is the reason, it can be safely ignored.
Debt and deficit across the world’s nations has been allowed to drift without reparation simply because they are paying close to no interest on loans. And that’s a very dangerous scenario.
Turnbull and Shorten have been photocopying each other’s so-called path to solvency with a 10 year plan. The problem is that their 10 year plans are predicated on the same nonsense ... an annual GDP growth rate of five per cent.The fact is if they or anyone else achieves better than three per cent in any one of the next ten years, they should be doing cartwheels.
No actual 10 year plan exists, it’s simply a phrase that keeps the horses quiet.
For the RBA to lower the rate by 0.25 per cent of one point to less than two per cent is an exercise in fiscal futility.
Historically there has always been a link between the interest rate and the inflation rate.
Quite simple really, a low inflation rate represents a lack of growth in the economy which is then stimulated by a lowering of the interest rate, which among other indices encourages investors back to the Stock Exchange and investment in growth.
Glenn Stevens, RBA Governor
When economic activity gets up a head of steam, resulting in a higher inflation rate, then the interest rate is increased to take the heat out of the economy and stem rising inflation (or a higher cost of living).
The trouble is when the interest rate is at or near zero there is insufficient room to move to make a difference. Thus the banks have been ignoring the RBA rate settings and finding other solutions to the problem of a lack of growth without the benefit of at least seven or eight percentage points of meaningful interest rates to play with.
Of course the greatest danger is that when interest rates do eventually return to a workable level the housing market will cool off leaving the banks with insufficient equity in the family home because all these new homeowners have taken advantage of the previously low interest rates... and now monthly payments are far in excess of what the poor homeowner originally bargained for.
The banks are at liberty to then send the homeowner a bill for $100,000 or whatever they say they need to make up the equity difference or they will sell the home from under your feet.
If you try to sell your home yourself you will likely find there are no buyers because not only has the cost of borrowing money risen but the price you will need to cover the loan and the Bank’s demand for a greater equity in your devalued home will be well above what purchasers are prepared to pay.
You think the banks won’t do that to a long term customer? Think again. They have done that before, and they will do it again. Banks gladly foreclosed and sold family homes at ridiculous giveaway prices during the latest GFC.
Don’t expect to remain friends with anyone if ever there is a sum greater than ten grand involved.
Then when the housing market is in decline (the banks couldn’t give a stuff about that either) it affects the economy across the board because the housing approval figure is always a sign of a sick or healthy economy.
From white goods to lawnmowers, rotary clotheslines and furnishings, it all stops dead without housing approvals.
It was housing loans (sub prime) that started the latest world-wide recession but Kevin Rudd had Costello’s surplus to chuck around, mostly unnecessarily.
But if a recession looms, due to dumb politicians, there may not be an effective level of interest rate to combat it.
And even if there was, this time around, again due to dumb politicians like Rudd and the current mob, there is no surplus with which to stimulate anything!
The cupboard is bare, as is Obama’s, and he can’t be expected to assist in case of a new GFC. He is far too busy increasing the US debt above $20 trillion by financially supporting known Islamic terrorist groups around the world.
So don’t rejoice too loudly at Glenn Stevens’ miniscule rate cut,
... you know, the one that is being ignored.