Nov 2010 is the last time RBA increased the interest rates and never reacted to US Fed rates, this lead to huge property prices. Are they going to react now as US is planning to increase the interest rates in March 2022.
They said they won't increase until wage growth reaches to 3%, and if it doesn't reach until 2025 or 2026 or never. Does it mean there won't be any hikes. Isn't the real inflation increase too with the fall in AUD vs USD with no increase in rate raises.
they cannot raise the interest rate to a level required to control the economy without significant pain for mums and dads.
considering six year olds are now buying houses in Australia (https://www.realestate.com.au/news/sixyearold-ruby-mclellan-…) I think the debt problem extends beyond just mums and dads
The article is pure clickbait.
Children are not allowed to get credit (debt).
Real-estate spruiking the real BS right there…
How does a 6 year old have $2000
Their parents bought the house.
Basically it's their parents investment property and they used their kid's pocket money as down payment.
And so perpetuates the problem.
@Drakesy: An absurd article to drive up FOMO in real estate from a real estate website?! James MacSmith needs a slap upside the head.
That is an exceedingly dishonest headline and article.
And as I posted here recently the government are manipulating the inflation (CPI) rate to justify these artificially low rates.
In my poll most OBs by far thought that inflation was actually running between 10% and 20%
See here:
https://www.ozbargain.com.au/node/676192
Now that inflation going higher and higher and wage growth is out of control (they are afraid to admit it) the economy is going to overheat and we will either end up with
a) raging out of control inflation OR
b) the biggest debt crisis we have ever seen
However, my conclusion of that post was that it was agreed that you are full of crap.
Why don't you do are poll asking who's wages are growing out of control?
Wage growth has not grown at all, the majority of workers have been in minimal wage growth in the last 10 years or so, barely in line with inflation and that's the reason RBA keep rate on hold.
The RBA publishes their reasoning after each meeting. They are available online to view.
What is this reading you insinuating? I'm here to lead, not to read.
Reasoning is based on FAKE FIGURES for both unemployment and inflation
Its been happening for years (political reasons)
It may be.
But OP asked why and the RBA published information is the basis for why it made the decisions it did.
The RBA's job is to make sure that they don't lose their job at the next appointment. Anything else is secondary.
BTW Their job doesn't include looking after real estate prices. That is set by the market.
You may be correct. Phil's due in Sep 2023. when they know very well that Australian companies doesn't increase wages like in US, it's almost hard to achieve the 3% wage growth target. And they can use that excuse to not increase interest rates. The other thing is they are indirectly telling the companies to not increase the wage growth, if you increase we will punish you with higher rates.
Even if they achieve the 3% wage growth target that's an additional $52 per week based on Avg income. That's not enough to buy the expensive homes to justify holding on the rates forever.
Let's put it this way.
What would people do to protect their job if it paid $100,000, $250,000 or $500,000 per year?
May 6, 2021 – 12.08pm
A $1 million man
In its 2019-20 annual report, the bank for the first time published the salaries for each of its top seven executives, non-executive members of the RBA board, and non-executive members of the payments systems board.The latest release shows the governor pocketed total remuneration of just over $1 million last financial year, off a base salary of $911,728; the deputy took home just over $787,000, off a base salary of $668,595.
https://www.afr.com/politics/federal/champagne-and-the-qanta…
Compare that to someone that have real power and can more markets.
What Is Jerome Powell’s Net Worth?
BY KATHRYN UNDERWOOD MAR. 17 2021, PUBLISHED 2:37 P.M. ETSalary for the top position in the Federal Reserve was $203,500 in 2019 and is generally around $200,000.
https://marketrealist.com/p/jerome-powell-net-worth/
Yeah… Jerome Powell doesn't make bank working for the fed… he makes his money front running the market under ambiguous "ethics" laws
@mitchalbrown: Powell made most of his wealth as an investment banker. He was a multimillionaire and could've retired to a rich lifestyle long before being appointed as the chairman.
@rektrading: True… I guess he just stuck around to make his mates rich… or he's just a swell guy who altruistically wants to serve his country. IDK…
When you have an economy so addicted to debt, interest rate hikes, if any, will be transitory.
You must be on the board of the US Federal Reserve
Its because LNP are in government. They're waiting for Labor to be in before raising rates so that everyone can blame them instead.
They knew that keeping it steady or lowered will cause problems. See: Massive government/personal debt levels.
Agreed….
Welcome to the cycle….. LNP runs up debt, screws things over so much that people vote in labour.
Labour fixes it, which means raised taxes/rates etc, so LNP screams how 'bad' labour is, so people vote LNP back in, only to screw it up again, by cutting taxes and rates, to levels are don't work. So the cycle repeats.
Here is how gov debt was reported in the media
Now topping $1T manageable debt…. Give me 'unbearable' debt levels any day!
I don’t know where you live because no Labor government in Australian history has ever reduced debt.
Blatant lie. We have had numerous reductions of debt under both parties in various decades.
Its because LNP are in government.
Except it was ALP in power from the last rate hike to 2013. And in those 3 years there were 8 drops. The following 8 years with LNP there were 10 drops (one of which was in the middle of the covid slump, and it's also the smallest decrease since the oldest record I found via the RBA).
https://www.rba.gov.au/statistics/cash-rate/
Funny that LOW interest rates mean the economy is stuffed and running on life support
Yet the Libs take credit for good economic management and low interest rates
Seriously? Are you that naive to think that a different political party would have resulted in a different outcome? Do you really think we could have raised interest rates while the US is dropping their rates? What would that do to exchange rate and our exports? As long as the US keeps printing more money, there is nothing we can do but follow. We are a small fish after all.
Asset prices haven't gone up enough yet.
/sarcasm?
Aren't houses assets?
Liabilities
Rich Dad Poor Dad
Depends what you call "assets"
Your household goods and your car certainly haven't
I'd imagine there'd be something there to do with the coalition making a debt friendly environment to fuel infinite growth to get out of the gfc.
Only thing is growth isn't infinite… (The endless recovery that Frydenburg spruiks.)
And cheap debt is like crack, people get addicted to it until they get weened off it and that's when things get ugly.
People use collateralized debt to create wealth.
Irresponsible personal debt like credit card debt is how people become poor.
My understanding is that the RBA use interest rates to "tackle inflation" when it goes outside their comfort zone.
So all this chat about house prices, liberal/labour governments etc is erroneous.
What we do need to worry about, according to a recent forum post is are we being told the truth about inflation figures?
The rba are scared of seeing house prices go down and they’ll be blamed…
Unless they wait for Labor to get into government later this year.
It needs to happen though, and hopefully when Labor take government and interest rates start moving in the other direction, they can get the messaging right so they aren’t blamed for peoples house prices decreasing, because they shouldn’t be
hopefully when Labor take government and interest rates start moving in the other direction, they can get the messaging right so they aren’t blamed for peoples house prices decreasing, because they shouldn’t be
Oh my sweet summer child.
The cash rate won't go up to make any meaningful impact on either inflation or real estate prices.
<conspiracy theory>
The reason that interest rates haven't gone up is because "CPI" (as measured by ABS, etc.. for some reason doesn't include accommodation..) has remained within or below the RBA's target band.
The reason that "CPI" has remained within or below the RBA's target band is because Large Retailers Like Amazon are keeping prices from increasing.
The reason that Large Retailers Like Amazon are keeping prices from increasing is because their stock prices increase when consumers and investors have access to easy credit - due to low interest rates.
</conspiracy theory>
Please prove me wrong :(
CPI includes accommodation in the form of rent, not house ownership, because the “cost” of a roof over your head is the rent, not the interest plus capital repayment of a house. They view that as an investment.
It is sensible and defensible, but it does make it seem weird for the 2/3rds of people who own a home who have seen massive value increases. Rents, of course, have risen much less.
As for competition keeping prices low, well, that is the free market model that has been afoot since Adam Smith.
A correction. CPI also includes building costs for new build owner occupiers (but not land values) along with rent.
More here:
https://www.rba.gov.au/publications/smp/2019/may/box-c-housi…
CPI is made to remain within the range, they have the motive to keep it artificially down.
Part of the reason the RBA has continually lowered rates over the past decade is because it's the easiest way to try to boost a failing economy (well, apart from importing bodies to do work which, unsurprisingly enough, we have also relied on to grow our economy because knocking off at 3pm on a Friday to get shit-faced is Australian culture hehehehe). Low rates = cheap debt = more spending, or so goes the theory.
What they didn't seem to realise is that years of downward-trending interest rates coupled with the Howard government's introduction of policies that make housing an attractive option due to negative gearing (because stuff paying taxes right? Roads, schools, public hospitals etc. should all be constructed for free and no one should have to pay to use them!), further coupled with thousands of copies of "Rich Dad Poor Dad" and Monopoly circulating in the country, people didn't go out and consume more, they just took out huge debts on housing and investment properties. Now we have silly amounts of money locked up in bricks and grass that could be spent at your local bakery (because hooray for supporting small business) but no, that $3 is going towards 1/116th of your toilet. Just another 333,333 coffees and pies to sacrifice until you can truly call your house your own!
But I digress.
The RBA will need to follow the Fed's lead and raise rates. If they don't inflation will take hold further, we can already see prices for everyday items like groceries and petrol going up which affect everyone (but just wait till climate change erodes food security further, I look forward to seeing videos on Youtube of people fist fighting over the last bag of potatoes at the supermarket, hey it could even be me :O ). If they don't raise rates the AUD will fall also meaning imports will become more expensive and this is tied back to petrol prices.
Don't worry though banks seem to lend on the assumption that borrowers will still be able to pay their mortgage even if interest rates go up by a few percent or something, so I'm sure home owners will be fine. I mean, they are home owners so they are all good right? Compared to those suckers who rent anyway hehe. There was absolutely nothing wrong with paying $1 million for a 3 bedroom house 30 minutes from the Melbourne or Sydney CBD at 2% interest p.a, not at all. There's also nothing absurd about people earning $1100 a day by doing essentially nothing more on top of their day job but just sitting and breathing in their house.
The RBA are damned if they do, damned if they don't. We can't keep relying on low rates for economic growth, if people have leveraged themselves too far on housing then they're going to have to get out of that hole themselves (easy IMO as the past two years have provided ample opportunity to fatten up that offset account).
INTEREST RATES what about us older australians o.18% worked hard all of our lives didn't waste money or eat out every day party night after night no thought about us all the young generation is want,want .
Time changes, technology changes.
The 21st century way to earn yield is by converting fiat money to stablecoins to get a high yield.
Because they do what is called a Financial Repression - it is a political choice not an economic-based decision.
They need you to lose your real purchasing power through currency debasement resulting constantly high inflation and negative real yields. All that is done to feed the frenzy in the asset markets that have lost steam (again) and to support asset prices.
But the high asset prices also did not come from the outer space. Politicians and Fed in all developed countries have locked themselves into a corner through a series of ill-thought-through but very popular decision - flooding markets with cheap money, dropping the interest rates, heavy fiscal subsidies and free money for all. Basically socialism on steroids in the capital-based markets.
The outcome so far - they will let young and asset-poor suffer through the highest (in the last 40 years) inflation and drop their purchasing power even lower than it is now. They will widen the wealth gap between generations even more. They will drive economy into a recession (study history to learn that EVERY inflationary cycle ends in a recession) but they will keep they asset bubble inflated (for now).
Question is - Will YOU allow them to do that? In Australia?
In the US the ship has started to turn with all level politicians realizing that inflation will truly cost them a career. US Fed will raise rates - that's a definite.
AU politicians will keep pushing their knee against your throat unless you boot them out - good luck surviving through the next phase of stagflation.
Bitcoin 🔧 this.
Nah, it won't.
50% downside volatility is not the best investment vehicle - cannot allocate much.
The price action is the price of admission.
I'm not interested in +7% 1Y when I can hodl and get an average of 200% 1Y.
The Reserve has lost monetary policy as an economic management strategy.
With many home owners being at such high levels of debt, they cannot raise the interest rate to a level required to control the economy without significant pain for mums and dads.